Future Directions In Industry Policy
(Source: Australian Department of Defence; issued Nov. 24, 2006)
Speech to the Australian-British Chamber of Commerce (Excerpt)
by Dr Brendan Nelson, Australian Minister for Defence,
Nov. 24, 2006


(EDITOR’S NOTE: For brevity’s sake, we have chosen to reproduce the most pertinent part of Nelson’s speech. Click here for the full speech, on the Australian DoD website.)


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I decided that it was time that we actually had a very serious go at putting defence industry policy together. It seemed to me that if I were to place myself in the shoes of any of you who work in defence industry in this country, that there are many uncertainties, with which you have to deal in the political and decision-making process, which make it very difficult to encourage medium and certainly long-term investment in defence industry in our country, and that and many other things we've sought to address in the development of policy.

I'm indebted to the Minister assisting, Bruce Billson, whom I asked to conduct public consultations around the country, to Henry Ergas and Kerry Clarke and Mark Thomson, for the work that they put into working with Minister Billson on those consultations and putting together the submissions that we received, in a formal sense and also the informality that was associated with the consultations.

I'm not today releasing the actual defence industry paper, but I am going to tell you some of the things that will be in it. Personally, I think there's a little bit more work I'd like to see done on it and for that reason, I would expect to release it well within the next fortnight.

It will be a draft paper. They are draft proposals, but as I said back in May, it is important that industry, prime and SMEs have an opportunity to consider what I am thinking about proposing to the government before it goes any further. I recognise it will be impossible to achieve consensus on all issues within the paper, but I think it's important that we don't have significant opposition to key elements of it.

It'll basically focus on seven areas.

The first will be Priority Industry Capability for Australia

One of the things we'll be proposing is that a defence self-reliance paper will be formally developed and put to the government every two years for its consideration, review and update. In addition to that, the defence capability plan, when it's released every two years, will include recognition of those industries that we consider to be a priority for capability.

The second area for attention will be - Value for money.

I make no apology for saying competition will continue to be the main driver of decision-making in the marketplace, albeit a limited marketplace, in Australia. But it's also interesting to note that if you go back over the last four years, 37 per cent of the contracts that we've signed off on have been sole-sourced.

When the defence budget papers are published, we actually set out what we believe to be the risks in the project. And the reason for that is Australia cannot afford to be risk averse. If we don't want to have an off-the-shelf defence force and defence capability, we've got to be prepared to take a risk from acquiring equipment in an increasingly technological complex military marketplace, and to set those risks out at the time we make the decision that we're going to acquire a certain capability. So that Australians and the defence companies that might choose to provide that capability, have a very clear understanding of what those risks are.

The third area will be - Improving Participation by Defence Industry.

At the moment, are doing a lot of things with defence industry, but one of the things that we are going to look at is if a project is worth more than $50 million nominally, that the proposal should bring forward a well-developed cost-effective analysis of the potential role of Australian industry in the project and to what extent is there Australian industry capability that could contribute to the proposal that is being put to us by a particular company.

We will also be determined to leverage Australian industry into global supply chains when we make foreign acquisitions. And, as you can see as we go through – for example, the Joint Strike Fighter acquisition that's been one of the key parts – one of the key priorities, before we sign off on the production, sustainment, follow-through and development MOU, which we will do in a couple of weeks in Washington. We want to make sure that defence industry is actively involved and considered in all of the decisions that we make.

The fourth area for attention will be - Cooperation between the Defence Materiel Organisation and Defence Industry.

One of the things that you'll see in the paper, when it's released, is that there will be a round of formal and informal round-tables conducted at my instruction between the DMO and defence industry, prime and SME, over the course of a year. I might also add that we will also look at publishing a defence industry participation manual on an annual basis, beginning in 2007.

The fifth area for attention is - SMEs.

If a project is worth $50 million or more, we will want to see the supply chain that's in that. To what extent is the supply chain going to work and to what extent are SMEs actually involved in it.

The sixth area is – Skills.

We forecast that, over the next decade, we'll need about 12,000 full-time equivalent more employees in defence industry, given the level of investment we forecast in the DCP. And as you know, there's $50 billion at the moment of additional acquisition money in that DCP up to 2016. I hasten to add that's a minimalist position and, as you've seen from the experience of our Government, that when we have political will and we also have the financial resources to do so, we do acquire things above and beyond that.

Skills are going to be a major challenge. One of the priorities I have for defence recruitment and retention is to get back to a situation where parents are saying to their children who are uncertain about their careers, why don't you join the army and get a trade.

The final area which the policy will cover is - Innovation, Research and Development.

One of the things we'd like to look at is clustering research and development and investment in it. I think through the traditional conventional processes of the cooperative research programs that we could be partnering in defence specific CRCs.

I'd also like to see the defence capability development program meet the needs and interests of industry as much as it does the requirements of defence itself.

That's the overall architecture of what you will see in the paper when it's released, but there are some other things that the paper will canvas in some detail as well. They are draft proposals and will be a draft paper, as I say, for your consideration before I then take it to my own colleagues, hopefully for their approval.

So thank you very much for having me here today and listening to what is a very important issue to our country and as far as our allies are concerned, the United Kingdom and also the United States, of course, Australian capability as the close allies that we are, also represents their capability in this part of the world.

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