Government commits to Australian industry capability program overhaul

Minister Reynolds and Minister Price announced a proposal to implement “significant improvements” to the Australian industry capability (AIC) program and bolster the contribution of local industry in defence decision-making.

Defence has proposed an enhanced AIC contractual framework with “specific and measurable” commitments to “promote greater accountability” for the delivery of AIC’s core objectives.

The changes include replacing the ‘one-size-fits-all’ approach for acquisition and sustainment contracting templates with a “more flexible and scalable approach”, designed to better align the unique aspects of each procurement.

According to Defence, revisions to the contractual framework are directed at:

• better achieving government’s and Defence’s requirements for maximising opportunities for Australian industry to participate in each procurement, while also recognising the core role of industry in delivering ADF capability; and
• strengthening the contractual terms to ensure that these requirements are achieved through introducing revised tendering processes and specific and measurable contractual commitments to enhance accountability.

Under the new framework, prime contractors will be required to comply with new obligations, including a new remediation regime.

However, Defence stressed that the enhanced contracting framework would not be applied retrospectively, with a phased implemented approach to be adopted across the Australian Standard for Defence Contracting (ASDEFCON) template suite from 1 January 2021.

The ASDEFCON is also set to undergo a “major revamp”, in a bid to “cut process times and costs for Australian businesses”.

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Over the coming months, Defence will consult with industry stakeholders on the first package of draft documents, which includes:

• updated conditions of tender, conditions of contract (and glossary), and statement of work;
• new Australian Contract Expenditure Measurement Rules; and
• extracts of relevant artefacts to describe the enhanced framework.

Defence added that a second release of the entire revised documents in the AIC Core Package and other artefacts are expected to be available four weeks after the initial release.

Following the announcement of the new proposals, Minister Reynolds said a “genuine partnership” with Defence and industry was critical to ensuring Australia’s industrial base “effectively supports national security”, as reinforced in the 2020 Defence Strategic Update.

Minister Reynolds added that the delivery of new AIC provisions in future contracts, combined with the creation of an Independent AIC Plan Audit Program, recent changes to Commonwealth Procurement Rules guidelines, and an overhaul of the Centre for Defence Industry Capability (CDIC) would “significantly improve opportunities, protections and support for Australian businesses.

“The Morrison government is committed to maximising opportunities for Australian business to be involved in Defence procurement and to building a competitive Australian industry to equip and sustain the Australian Defence Force,” Minister Reynolds said.

“Large companies will know that the government expects them to honour their AIC commitments, and small businesses know the Government has their backs.

“Additional AIC provisions in future contracts will require companies to make specific and measurable commitments.

The minister continued: “Independent audit firms will then ensure large Defence companies are meeting their contracted Australian industry commitments.

“This will provide an additional level of confidence for Australian businesses.”

According to Minister Price, proposed changes to the contractual framework represent the culmination of a major new ‘five-pillars’ approach to supporting defence industry in Australia.

“The pillars of the AIC contractual framework and ASDEFCON review build on the work of our CDIC reforms, the Independent AIC Plan Audit Program and more support for defence industry in the guidelines to the Commonwealth Procurement Rules,” Minister Price said.

“Small businesses are the backbone of the Australian economy and need to be treated accordingly during Defence’s decision-making process.

“Backing small business has been my number one priority and we have delivered on the promised changes to enhance the AIC Program in Defence.”

Minister Price added: “The delivery of an Independent AIC Plan Audit Program and improving how we contract for AIC in our major programs are the next big steps needed to create more opportunities for Australian businesses in Defence programs.”

Commenting on the review of the ASDEFCON, Minister Price said the revamp would be overseen by her office,  and will be aimed at simplifying and streamlining contracting and subcontracting templates, and removing “unnecessary complexities that create additional burden on Australian businesses”.

The Terms of Reference to remove the barriers in ASDEFCON and the consultation process are expected to be finalised and released in November 2020.

“Ultimately, the renewed ASDEFCON template suite and processes are aimed at reducing avoidable cost, time and process complexity,” Minister Price concluded.

Federal opposition, industry respond to AIC revamp

Shadow minister for defence industry Matt Keogh has claimed that the newly announced changes to the AIC program are an “admission of failure” of the government’s approach to defence industry.

“Labor and industry have been calling for measurable and enforceable contractual requirements for Australian industry capability in defence contracts for years,” the shadow minister said.

“Australian defence industry has been crying out for support to ensure more defence industry work happens in Australia, now the Morrison government has finally acknowledged its model up until now simply doesn’t work.

“The long overdue independent audit plan announced today will only make a difference once these contractual requirements are properly in place for future projects.”

However, BAE Systems Australia has welcomed the government’s proposals to enhance the AIC program and strengthen the ASDEFCON.

The global defence technology company reaffirmed its commitment to building a strong and sustainable local supply chain, pointing to its investment of $300 million annually with more than 1,500 local suppliers, across 200 defence programs in Australia.

“Major Defence programs are a catalyst for significant, long-term economic growth, providing opportunities for industry, highly skilled jobs and potential exports,” BAE Systems chief executive Gabby Costigan said.

“Locally made defence technologies play an important role in supporting Australia’s economic resilience, as well as underpinning our national security.

“Now more than ever, it is important that Australian industry plays a bigger role in our national security, and the announcement by Minister Reynolds and Minister Price today is a significant step forward to ensuring that happens.”

Thales Australia also welcomed the government’s announcement, noting its commitment to building a “national industrial ecosystem” to support the delivery of capability to Australian Defence Force.

In 2019, Thales Australia invested $522 million with 1,362 Australian firms, 70 per cent of which were SMEs.

“Increasing Australia’s industrial capability will build Australia’s self-reliance and the capability of the broader Australian advanced manufacturing sector, which is vital to delivering a capability advantage to the Australian Defence Force,” Thales Australia CEO Chris Jenkins said.

“Thales has demonstrated that maximising technology transfer to Australia on major Defence projects is a significant driver of growth in Australia’s industrial capability, boosting investment in SMEs, R&D and delivering long term jobs.”

[Related: PODCAST: Working with industry to support AIC – Melissa Price MP, Minister for Defence Industry]