PODCAST: CDIC commits to building sovereign defence capability

Announcer:

Welcome to the Defence Connect Podcast, with your host, Phil Tarrant.

Phil Tarrant:

Good day everyone, it's Phil Tarrant here. I'm the host of the Defence Connect Podcast. Thanks for tuning in. My privilege today to welcome back onto our show Kate Louis. Kate, you may remember if you haven't tuned in yet, about three or four weeks ago, I can't remember exactly the podcast number, she joined us to have a chat about greater connectivity between Defence in the industry and how they can work better together. Contextually it was a conversation we had during the week when the CDIC opened up, and a lot of the work that's happening there. If you haven't listened to it, make sure you do tune in. For those who aren't aware, Kate Louis is the First Assistant Secretary of the Defence Industry Policy Division with the Department of Defence. Kate has quite a large remit in terms of her role. We've just had a pretty good conversation off air about all the different moving parts of her job. Kate, welcome back on the show, it's good to have you here.

Kate Louis:

Thanks very much, Phil, really great to be back.

Phil Tarrant:

How did you enjoy our chat the other week?

Kate Louis:

Oh fantastic. I love this, I'm very passionate about building Australian industry and the Defence connection, so great to be back. Thank you for having me.

Phil Tarrant:

It's good. Well, great feedback. A couple of things that were coming through and what our audience would like us to discuss is ... And I hope to cover these off in today's podcast. A little bit about sovereign capability and what that means for enhancing our capabilities for our armed forces. Also I'd like to have a bit of a chat around contracts and the way within Defence right now, and the way in which they're working to use Australian content for delivering our major projects which are now underway, and that sort of Australian supply chain as well. Then I'd also like a bit of a chat about export controls, and I know that falls under your remit as well.

Kate Louis:

It does.

Phil Tarrant:

We've got about half an hour or so, so we'll try and tick off all those things. This whole concept of sovereign industrial capability, this was part of the White Paper and part of the other relevant foundation documents, and from my understanding of sovereign capability, it's very much about having self-reliance in our industrial capabilities in terms of delivering for defence. In your role, day in, day out, something that probably comes up all the time and I know including Australian business into delivering these capabilities is fundamental, so what does sovereign capabilities mean for you guys?

Kate Louis:

Look it's a really good question and it's a really important part of the work that we're embarking on right now. If you're not familiar with it, at the moment we have a concept called priority industry capabilities. These cover a number of things including things like electronic warfare and parts of that, and so forth. These are the things that we really must invest in in Australia and keep here in terms of an industrial capability. As you suggest these are the things that we have to have here rather than import, and we will invest in those capabilities to make sure that we have them here.

We got a lot of feedback about the priority industry capabilities when we were doing the policy, about how it was a good concept, but we really needed to evolve and move on, and make sure that the policy was contemporary. We're embarking on a really important piece of work to identify, but most importantly work out a management strategy for when we do identify those sovereign capabilities, what that's going to look like. That's going to be embedded and we talked in the last podcast about the defence industry capability plan. The idea is to really identify the sovereign capabilities that we must have in the country in order to support our ADF and that we can't import from overseas, and we can't stockpile, and we can't have other strategies. It's a really complex piece of work.

We're going through building an assessment framework so that we make sure that we identify those appropriately, and as you can imagine it's around things like assurance of supply, and insuring that there are no other ways of having those capabilities here than to build them and sustain them here. I mean the government has made decision around ship building and the importance of that, but the sovereign industrial capabilities is really those industrial kernels that we must have here and manage here. The management strategy's going to be really important and we're building that framework in terms of once we have identified those capabilities, what do we do, and how do we invest, and how do we work in partnership with industry to keep them going? It really fits within the broader government strategy around maximising Australian industry involvement right across the programmes, and I think we're going to have a good conversation about the contracts as well.

Phil Tarrant:

Absolutely. Building our own industrial capacity, so Australia, right across the nation, is talent wherever you look. When you look at us as a nation we've sort of shifting quite rapidly away from being a very resources orientated economy into a knowledge base economy. Our resources sector, it's sort of gone through its big bill phase and now they're just extracting stuff out of the ground. That investment will continue but the opportunity for Australia, and something that obviously came out through the election and the Turnbull's government in terms of the Turnbull government's focus on investing in innovation. We should be able to build most of these capabilities at home. This is what we're hearing from industry, and industry's passionate about making sure that these contracts, these big programmes that are taking place, lean on our local capabilities in order to deliver them. LAND 400 is something which, at a incubation level, most people thought it's all going to be international, but a lot of that has become Australian orientated content really, isn't it?

Kate Louis:

Look, you make some fantastic points. Obviously as part of my job I've travelled around the country, and as you say, seen some fantastic capabilities, some fantastic industrial capabilities and capacity. Really what we're trying to do is drive ... Make sure that the connections are made, make sure through the Centre for Defence Industry Capability and our innovation programmes, we build on those, and really drive and maximise Australian industry into the big programmes where we can, where it makes sense to do so. The big programmes are really important and as part of that a really important stream of work that we've been working on is the Australian Industry Capability Plans. That's a fundamental part of the contract, that's really where the rubber hits the road with all of this work that we're doing. Because that's where an Australian industry capability plan is part of the big project and programme that's part of an acquisition plan.

That's where it's contracted, and we've really been building and working on the template with the Capability Acquisition Sustainment Group (CASG) to make sure that those plans develop Australian industry capability in a really enduring sense, Phil, not just project by project, but really looking at what Australian industry capabilities will be here for the long term. Not just set up a project here and then pack it up and go home, but really have those capabilities enduring for us. There's also a focus in those plans now on innovation, and what that can be. Also global supply chain export opportunities. We really think it's a strengthened programmed in terms of not only the templates and what we're asking tenderers to bring, but also the whole - and we talked last time about culture, and there's an important cultural element here in terms of the behaviour and the partnership between Defence and industry about how these plans are treated, how important they are, and really the deep significance of being able to map those capabilities, contract for them, and enforce that contract.

Phil Tarrant:

In terms of achieving, it might not be absolute sovereign capabilities, but sort of go down the path, or embark on that path to try and get as much industrial self reliance as possible. What do you think really needs to happen in order to achieve that? What are those road blocks or those hurdles that we need to get over short term and then long term?

Kate Louis:

I think there's a recognition of Australian industry as a strategic asset, I think we talked about it last time, about being a very important pillar of our resilience and part of our ADF posture. I think once that understanding and that cultural is important, how it's treated in terms of the advice to give government as we develop our capability plans, and then how it's actually enforced in the contract. The Australian Industry Capability Plan is part of that, it's an important part of that. I know there are a lot of conversations that go on about how you define Australian content. We had some very interesting conversations about that as you can imagine, about how to define that. It is not a simple thing to do, but what is really important for us in terms of defining Australian content, is about enduring capability. May not just involve paying tax here, for example, or just the local overheads. It's really about skill building, innovation, technology transfer. Giving Australian industry a real value added work programme as part of a contract.

Phil Tarrant:

When you look at some of the big programmes coming up, frigates, submarines, most of it coming out of South Australia, there is a lot of experience within those sectors over the years. The AWD programme, the Collins, there are a lot of people there who know a lot about building ships and building marine vessels. Now do you think in terms of building sovereign capability that we can actually get those people to work on these programmes and actually making it different and keeping this stuff in Australia?

Kate Louis:

Look, a really critical part of the continuous ship build is building that workforce, growing on what we have been able to achieve in those big programmes. You may have heard the Collins, particularly sustainment has had an absolutely huge transformation lately. Their rates of ability are fantastic, and that's something that we should really be proud of. That's the kind of culture and industry partnership we want to continue to build on and flow into the continuous ship build for both submarines and the ships. You mention, it's a very good point, the transformation of the economy. We see ourselves an important part of that of course. We want to really drive Defence and defence industry, that really high tech manufacturing technologies and capabilities that drive not only defence capability, but of course that whole skill base as well.

Phil Tarrant:

In terms of the contracts for these big programmes, do you feel as though at any point there's conflict with our prime contractors and their willingness, I guess, to keep stuff local rather than taking it off shore? What's the dynamics of that? It's a big question, can you sort of explain a little bit for our readers how that might work?

Kate Louis:

Yeah look, it's a complex base of course, and I mean acquiring and sustaining defence capability is one of the most complex challenges that we'll have, obviously. Our market is structured with a number of large primes and they drive into their subcontractors. I guess what our job is really to make sure that we have a very strong Australian industry capability plan supporting that, that we give Australian industry as much opportunity as we can through the initiatives that my area is driving through, the Centre for Defence Industry Capability through the Innovation Hub and so forth, to really give Australian industry the absolute best opportunity. There are always going to be some things that we must import from overseas, that's the nature of the ADF, interoperability and our international alliances, but certainly over time we think we can really build Australian industry and drive a lot of work into those supply chains. We think it's a fantastic opportunity to do so. As I said last time, I think the stars are really aligning in terms of leadership that we have around that and a great set of initiatives and the policy statement to support that programme.

Phil Tarrant:

Within the conversations that you're having with our prime contractors, is there an appetite there for a true sort of transfer of technical capabilities from their global assets or learnings into the Australian context? Is that something that's actively happening?

Kate Louis:

Yeah look, certainly from the conversations that I've had, and we now have our Centre for Defence Industry Capability board, which has prime representatives and so forth. There is support, certainly I've heard a lot of support for building Australian industry capability here. We have our global supply chain contractors as well, a number of primes involved in that, and they do a terrific job really driving some of our smaller players into their actual global supply chain market. It has been a real collaborative partnership approach. There is a long way to go. We are certainly starting from release in February 2016 of the White Paper, the Industry Policy Statement.

I shouldn't underestimate the challenges that we have to build this capability and the challenges that we have - some of the challenges relate to the way that international markets work in defence, offset policies from other areas. There is a huge challenge to setting up a really competitive Australian environment, and that's nothing to do with the capacity or so on of Australian industry, that's just the market and the way that the international market works. What we have to do in my area is really position as best we can the initiatives and the support, and the Australian Industry Capability Plans as best we can to support that.

Phil Tarrant:

What are the real quick wins we can get in this regards? Just the immediate horizon, what are those one or two things you think that we can sit back and say, "You know what? We've done that well as an industry and we're moving forward."

Kate Louis:

Look, I think the big programmes are a fantastic opportunity, the way that ... The fact there's submarines being built here now, we've got DCNS, the contracting work that CASG has done to really bring those programmes along, the way that the LAND 400 has engaged with industry I think in my experience has been terrific. We really haven't had that before in Australia to my knowledge, so there's huge opportunity there. I do think the funded initiatives that we have, the way that the Capability Acquisition Group is driving their programmes, it's a fantastic opportunity. Again, I would highlight the challenges as well.

Phil Tarrant:

Yeah, well there are always going to be the challenges, they're never going to go away. If there's no challenges, does it mean that we're not moving forward, so it's a bit of a catch 22. How do you feel about the accessibility to human resources or talent within both industry, but also the transition of people from uniform into industry, or maybe the over reliance sometimes of leveraging uniformed assets in a way in which it's too industry specific, rather than them getting on with the job of air, navy, sea, et cetera. How do you see all that working together?

Kate Louis:

Well look, I mean the workforce base right across ADF and public servants APS, and industry is a challenge, it's going to be a challenge right from a national point of view, right through the education skilling STEM programmes that's a challenge and it's certainly something that we're taking on. I run a number of skilling and STEM programmes just to focus on that at the moment. We're really looking at trying to maximise the benefits out of those and make sure they're targeted appropriately for supporting not only Defence, but also defence industry. There's a whole kind of education training, skilling piece to your question there. Certainly the First Principles Review also focused on what that shape should be in terms of the military roles, and the White Paper looked at that too.

I know we're really trying to drive through that challenge of making sure that the workforce is balanced appropriately. Working with industry in terms of their skilling, their training requirements as well. I think it's a real national issue, and it's a whole of government issue, and it's a states and territories issue too. We're working very closely with states and territories right across the board in terms of making sure we're coordinated with skilling and STEM, but also in terms of our export markets and Austrade, and so on.

Phil Tarrant:

As an industry, so if we can get the absolute best graduates and bring them in to defence, that's going to go a long way to improving our indigenous or domestic sovereign capability to create a sustainable war fighting force. How is government, how is Defence dealing with this war for talent? As in how do you get the best engineers to come into defence and help us develop the absolute best technologies?

Kate Louis:

Look, it's a great question and it's certainly a challenge. There's a number of different threads to it. I guess there's training the whole ADF side, and we're going to have such high tech platforms in the future, and that's going to be a really important driver for us. The public servants again, having this really strong, skilled, talented, APS is vital, as well as industry. I mean there's a couple of important points about making this a very attractive business to be in, and I think we are doing that. I think we are doing, that real high end manufacturing sector is a very exciting thing to be a part of, and it's a real part of our future. Some of the innovation and the innovation programmes, there's just nothing that could be more exciting in my view than that absolute cutting edge capability that could go onto a battlefield and save someone's life. It'd be hard to imagine being involved in something more exciting than that, but again we have to have the right skilling, and training, and STEM programmes, and that infrastructure to support that right across the board.

Phil Tarrant:

The big programmes which are underway right now, and the work in which the primes are doing to help deliver those programmes and using Australian content where possible, how do you feel primes and SMEs can work more collaboratively to work better with government or deliver better capabilities to government. Is there any pressure points here you think need resolving?

Kate Louis:

Yeah, I mean one of the things is to actually identify what programmes we’re all running. We might be investing in some training and skilling, so are the prime, so are the states and territories, Austrade might be doing stuff. There is a sense of really trying to determine who is doing what and making sure that the oars are going in the water at the same time and we're rowing a boat. I do think the Centre for Defence Industry Capability Advisory Board is a critical part of that. I mean that's one of the reasons that we set that up to be able to have that very strategic dialogue between our defence industry partners and Defence to say, "Where should we drive skilling in STEM? Where should we drive our export strategy?" They're a very important advisory body for us to make sure that we are not just generating programmes ourselves, but listening to industry in terms of where they need to go.

Clearly with the huge investment in capability and the huge investment programme that we have, we're obviously looking for industry to lean into this and to support us, and be a real partnership.

Phil Tarrant:

We spoke at length last time we got together around how do we connect with CDIC and it being the gateway into government, particularly for SMEs, start-ups, and academics to potentially realise their research potential or apply some technologies from other markets into defence. That's all very exciting. Just so our listeners know, this is a very sort of unscripted podcast, it's myself and Kate just sitting down and having a chat to see where we go. I'm not throwing too many curler questions at you, but I'm really intrigued by, Defence Connect, the premise of what we do is to try and get industry and government working better together to develop a better capability it's very similar, it's in line with what CDIC is trying to achieve. I think that appetite industry wide around a culture of collaboration is gaining a lot of momentum and I'm very excited about it. The challenges I see within that context is SMEs don't know what they don't know, and often my discussions with them that they need more information about how to do it. The catch 22 of that is that CDIC now is available, Defence is open for business.

Kate Louis:

Absolutely.

Phil Tarrant:

What are those couple of little points for your SMEs who might be unsure about how they might be able to get involved in defence? I guess your recommendations around outside of the CDIC channel, how can they best connect with primes to make that connection piece, because often that's the most difficult thing to crack.

Kate Louis:

Yeah look, you're right, that is. I guess building the skills and capabilities of the SMEs is a really important initiative for us and so on. Some of the things that we have been doing, the roadshows, the industry engagement channels, directly working with the primes. I know DCNS have their own portals and gateways, so I mean that's a fantastic opportunity to get registered with DCNS and talking with them about what capabilities you might be able to offer. Similarly with the other primes. From my perspective the best way is through the CDIC and building your own capabilities, and helping getting them to assist in that connection.

Phil Tarrant:

For our listeners that aren't aware of the CDIC website, you can check it out at business.gov.au\cdic. I checked it out when the hub launched, which would have been early December, and I found it pretty easy to navigate, so I highly recommend getting involved. Outside of connecting by the CDIC, that ongoing challenge for SMEs to connect with primes is you've got to do it the old fashioned way, and that's going out and seeing people. It's good old fashioned business in many ways. I've had a lot of conversations with SMEs who have cracked the code in terms of connecting with primes, and I can comment that the primes themselves understand that they can be better at connecting with sub contractors, and I know that's sort of come up to the government level as well, about as the prime contractor for these major programmes, the need for primes to essentially be more open with that whole SME piece. It's a work in a progress as we've discussed. Kate, we're running out of time. I just really wanted to cover off very quickly export potential for Australian defence businesses.

Kate Louis:

Absolutely.

Phil Tarrant:

The whole sort of export strategy falls within your remit, is that correct?

Kate Louis:

Look, we're suddenly an important part of that. I guess part of the government's agenda and part of Defence's agenda is really driving an export potential. You might wonder why, but of course the more export we have, the more competitive business, again it all leads back to defence capability, as well as of course growing wonderful Australian businesses, and skills, and workforce, and all the terrific things that does for the nation. We are really working hard on an export strategy. Because we're a huge net importer there is a lot of policy implications around a huge export strategy. Of course there are intersections with foreign policy, there's a range of things that we are thinking through about how best to support companies in their export strategies. Of course government advocacy's an important part of that, and also Defence advocacy.

There's a range of things that we're doing, working very closely with our Austrade partners, and with the states and territories who have an important role. There's a range of initiatives that we're doing and of course I also importantly, as part of my division, I actually run the export controls area. That's been a fantastic thing to bring together, so I have my industry development side, I have my innovation side, but importantly I have an export controls area too. Bringing those together is fantastic because if you have an idea or a proposal that's even in the very early stages of being developed, if it has national security implications, you already want to be thinking about your export potential, even if it's five or 10 years away. You might already be wanting to think about an export variant or something.

You know, we have a fantastic group of people in my export controls area who can provide a range of advise and assistance around the export permit process. I would very much encourage listeners who are in that space to visit, and I'm going to give you a website now, the defence.gov.au\exportcontrols one word. That will lead you through to my very skilled and talented area who are really looking forward to giving you advise about if you needed an export permit. Of course a lot of people don't, but it's worth checking, even if you're in two minds.

Phil Tarrant:

Your recommendation would be, even if they might be years, and years, and years away, think about it early because it might help influence the way you build or structure?

Kate Louis:

Absolutely, yeah. If you've got an innovative technology that you might be thinking and working with Defence on. I mean obviously the trick with defence capability is that it may have national security implications down the track, so you may have to start thinking early about export potential, earlier than you would ever think about.

Phil Tarrant:

I'm really buoyed by this conversation, Kate. I think what I take out of it, the appetite for building our local, or our sovereign capabilities, is fundamental. We're already partway there, there's been a lot of learning effects over the years particularly in our shipbuilding capabilities. People who have been working for many, many years on creating these capabilities for us to deliver these home-grown products, and there is obviously a security or national security rationale for having our sovereign capabilities. What really particularly appeals to me outside of that is, it's just building good Aussie businesses, who are delivering value to the nation's economy. They're employing Aussie workforce, they're keeping people in jobs, and when you look at it these days it's about 25,000 people within defence industry, and I think primes take up about half of those. There's a lot of Australians who are employed by defence contractors or people within Defence, so if we can keep harnessing this local talent and keep it local, obviously the national security implications, but it's also great for the economy as well. Appreciate the work you guys are doing in terms of driving that forward.

A couple of takeaways with this, remember to check out the CDIC website if you want to do business. Business.gov.au\CDIC and for those guys and businesses who are considering application for export with any of the technology, or goods, or services they're creating within defence, defence.gov.au\exportcontrols. That sounds like an advertiser, but what I'm trying to achieve here is to get all of our listeners thinking more proactively about opportunities within Defence. In terms of connecting with government and Kate's division, you can do that all within that CDIC website.

Kate, outside of the ... I'm not going to call it academic conversation we've had right here, but when you sit there at night thinking about work, when you're at home or doing whatever you do, what's the sort of thing that keeps you awake? What do you worry about? What is the niggling thing that you always think, "I've got to be doing that a little bit differently or a little bit better." Because I do it all the time.

Kate Louis:

I understand.

Phil Tarrant:

What are those things?

Kate Louis:

Well look, I guess the fact is we've got a absolutely massive opportunity here. We have fantastic investment, we have the big programmes coming up, particularly the continuous ship builds, submarines, the armoured vehicles programmes. It's just about making sure that we absolutely maximise our ability to take advantage of those opportunities right now. Defence is, and my division, are putting absolutely everything that we can into making sure we capitalise on those opportunities. I really hope that we're going some ways towards that.

Phil Tarrant:

Okay, great. Thanks Kate, really appreciate your time, thanks for coming on the show. We'll get you back again soon.

Kate Louis:

Fantastic, appreciate it.

Phil Tarrant:

I'd like to have a look at just a couple of case studies with the CDIC gateway and the way in which you guys have been able to identify some new raw talent, or some great ideas from start-ups or SMEs and see how it goes.

Kate Louis:

Yeah, we'd love to come back with some case studies and tell you how we're going, and what's worked, and certainly appreciate listener feedback on what we can do better and how we're all growing on this journey together. Any feedback would be most welcome.

Phil Tarrant:

Brilliant, thank you. Remember everyone, check out defenceconnect.com.au, we're on all the different social stuff, you can follow us, Facebook, Twitter, LinkedIn, Instagram. You can follow me if you like on Twitter, @PhillipTarrant, keep you updated on everything that we're doing within defence. Remember to come back next week for another instalment of the podcast. Please keep those reviews coming on iTunes, we do like them, those five star rankings are great, it helps us gain traction and get the podcast out to more people, so I do appreciate them coming through. If you'd like to contact me, if you've got any feedback on the podcast or any questions for Kate or any of our other guests, please email This email address is being protected from spambots. You need JavaScript enabled to view it., that's This email address is being protected from spambots. You need JavaScript enabled to view it. and our guys will get back to you. Thanks for tuning in, we'll see you next week. Bye-bye.