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Opening address to the 2003 Defence & Industry Study Course, Puckapunyal Army Base.



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Opening address by the

Hon Fran Bailey MP

Parliamentary Secretary to the Minister for Defence

to the

2003 Defence & Industry Study Course

Puckapunyal Army Base

31 March 2003

E&OE

Thank you [Air Commodore Kentish].

Commanding Officer, Distinguished Guests, Ladies and Gentlemen,

Welcome to the Opening Week of the 2003 Defence and Industry Study Course.

I am pleased to see so many eager faces here tonight as you embark on a unique learning program over the next seven or eight months. And it is unique.

The Defence and Industry Study Course is the only one that brings together you, the future leaders,

- from around Australia, - from a wide variety of backgrounds and experiences, - from private enterprises and public service, educational institutions and cultural and voluntary organisations,

- from large multi-nationals and one-man bands.

This course is the only one that exposes you comprehensively to Defence and the Services, and to the Australian interests that they defend.

There will always be debate about how much should be spent on Defence. There will always be competing demands for Government expenditure, and there will always be differing interpretations of our strategic environment.

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The Defence and Industry Study Course, to use the jargon, will ensure that you can argue these matters from a more informed position.

Today and over the next week, you will be told about and see some of our defence capabilities and capacities, and over the Course you will see much more of our defence capabilities and the wide range of industries that supply and support them, from the high tech to the commonplace.

You will also be introduced to the three levels of Government, to Australia’s primary, secondary and tertiary industries, to differing management styles and to the diverse cultures that contribute to Australia’s dynamic economy and way of life.

And in visits later this year, you will get a first-hand appreciation of the environment and geography of northern Australia and some of the problems faced in outback Australia and its defence.

On a more personal level, I hope you will make friendships amongst your fellow course members, and develop personal networks across companies and across government around Australia. I urge you to make the most of the opportunities presented to you.

I think that everyone here would agree that one of the most basic functions of government is the protection of our nation and our national interests. Where we might disagree is on the practical interpretation of that.

I alluded earlier to the debate about Defence capabilities, defence expenditure and the interpretation of our strategic circumstances - what I would call our Defence posture.

The Government’s basic posture was framed in the 2000 Defence White Paper, but it is evident from the range of current operations, that our strategic circumstances have changed. The types of conflict in which we are involved and the types of operations that the Australian Defence Force conducts, and the capabilities the Government now calls for, are changing.

We have increased the size of our Special Forces and established a Special Operations Command. We have enhanced our Counter Terrorist capabilities by raising a new Tactical Assault Group, and brought forward some intelligence projects and advanced the timing for additional troop lift helicopters.

In response to the threat of weapons of mass destruction, we have expanded our Chemical, Biological, Nuclear, Radiological and Explosive defence capabilities by establishing an Incident Response Regiment.

Currently, we face the reality of ongoing high operational tempo of Australian forces operating beyond our region, in very high threat environments, and therefore we are reviewing our capability requirements in areas such as strategic lift and battlefield mobility. The trend towards coalition operations has also reinforced the need for interoperability and improved force protection.

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These and other issues are the subject of ongoing examination by Government. Indeed, the Minister recently released the latest review of our strategic environment called Australia’s National Security - A Defence Update 2003. It will adjust the fine tuning of our capability planning where appropriate.

The changing environment has implications for industry and procurement policy. Our Defence capability is underpinned by infrastructure and industry, so the relationship between Defence and industry needs careful management.

The Defence and industry relationship has changed over the years. Fifty years ago, most of our defence goods came from government-owned factories. The Commonwealth ran shipyards, aircraft factories and munitions plants, as well as clothing and footwear manufacturing facilities. In a similar vein, the three Services supported and maintained their own equipment from within.

Today, the Government does not own or operate any factories, except for the Australian Submarine Corporation, which will be divested soon. And the Services outsource most of their support and maintenance requirements. You will see that operating here in Puckapunyal tomorrow.

What has driven this wholesale change?

The Government is, of course, acutely aware of the importance of marshalling its resources to meet Australia’s defence requirements in a manner that maximises both effectiveness and efficiency. Value for money is a primary concern.

A close partnership between Defence and industry is essential in delivering Defence capability. That relationship is still evolving. The problems will be how to ensure industry will have the sorts of capabilities that Defence will require in the future, and how to sustain them. For industry to sustain key capabilities, especially those that are less relevant to the civil market, it needs an environment conducive to securing positive returns on its long-term investment.

The Government has therefore implemented a more strategic approach to defence industry policy. This approach aims to foster long-term partnerships with industry as opposed to the project-by-project approach that has given rise to the development of excess capacity in some industry sectors, or to the need to re-establish capabilities in industry because demand has fluctuated.

By bundling projects into significant packages and giving companies a more stable workload over an extended period, we hope to maintain industry’s viability and the capability to support the ADF.

This is particularly important for those capabilities that are unique to the defence sector. It also has implications for how business will be done in the future. Defence has already moved to develop long term alliances. The nature of the relationship between Defence and industry will therefore have to change. Traditional approaches cannot continue, if we are to share the risks and benefits. We need a partnership between Defence and industry, built on trust and mutual understanding and respect for each others professional expertise.

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This is a major cultural change and part of the reforms that Defence is instituting. The new strategic alliance approach to industry policy will be developed further in a series of Sector Strategic Plans that the Government will consider over the next few months. The first of these, relating to naval shipbuilding and repair, was released last year.

Developing longer-term relationships with fewer prime contractors, as suggested in the naval shipbuilding and repair sector plan, has implications for competition. But just because Defence may deal with fewer firms at the top tier does not mean that competition will be abandoned.

The level of competition will vary depending on the sector. But importantly for SMEs, competition will continue for sub contracts at the tier 2 and tier 3 levels, and we recognise that there are some unique niche capabilities that reside in a number of SMEs which we will continue to support.

Any move towards strategic partnerships of the sort envisaged in the naval sector plan, would require Defence to apply new approaches to governance and contract management in order to mitigate the risks that attach to long-term contractual relations.

For its part, industry would be expected to invest in the skills, the research and technology, and the global linkages necessary to sustain the capabilities required to support the ADF. Industry would also be held accountable for attaining world’s best practices in its management and growing this through continuous improvement.

In the end, the benefits to Defence through sustainable industry capabilities and increased value for money should outweigh any perceived risk in abandoning the traditional project-by-project open competition approach to procurement.

As I have said, the Government released the Naval Shipbuilding and Repair Sector Strategic Plan for public comment in August last year. The Plans for a number of other sectors - Electronics, Aerospace and Land and Weapons Systems - are due to be delivered to Government about now.

The strategic plans were developed with active participation by industry via sector working groups, and we are grateful for the valuable contribution made by industry.

Other trends will also affect the Defence and industry relationship.

One of the ways in which viability of key capabilities can be sustained is through exports. For a number of years, the Government has fostered the development of unique local capabilities and encouraged SMEs that can exploit niche capabilities in global supply chains.

While our industry is relatively small compared to the great industrial complexes of North America and Europe, it has nevertheless developed depth and flexibility from adapting, supporting and upgrading ADF assets. I firmly believe that this is an area where SMEs can market themselves more aggressively.

For example, the Government decision last June to commit $300 million to join the ten year System Development and Demonstration phase of the Joint Strike Fighter program

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provides a unique and unprecedented opportunity for Australian industry to become integrated into global supply chains.

Australian industry is now bidding for work in the JSF global supply chain of between 3000 and 6000 aircraft and not just those aircraft to be acquired by Australia.

But as a relatively small player by global standards, Australian industry recognised that a team approach was required to enable it to compete against much larger suppliers. Industry organised itself into Industry Capability Teams that aligned broadly with the specialist product sectors that the JSF prime partners had broken the project into. Since June 2002, Australia has already been provided with over twenty requests for proposals or requests for information from the JSF industry partners.

These team arrangements mean that the large and small Australian companies have equal opportunity to promote their capabilities into the JSF partners. And the Government has supported the Industry Capability Teams by jointly promoting and backing them to the overseas primes.

As an example, most of the Defence stand at the recent Avalon Airshow was devoted to promoting the Industry Capability Teams under a Team Australia banner, to impress upon overseas visitors that Defence and industry were acting together to present our aerospace capabilities to the world.

Australia currently has a 1% share of the global aerospace market. Based on that small share, we can expect to capture at least 2 billion US dollars worth of work associated with the JSF project, but of course, we should be aiming for much more than one percent.

The Team Australia approach will serve as a model for future acquisitions where it makes sense to do so. And we will also extend the model to overseas programs even when an Australian acquisition might not be involved, such as the current US Littoral Combat Ship project.

What is important is that the Defence and industry relationship is developing into a partnership.

I have only touched on a few of the changes that are taking place in the Defence and industry relationship. There are many other initiatives such as alliance contracts, the Unsolicited Innovative Proposals Scheme, Private Financing Initiatives, Defence Company ScoreCards and 360ยบ View Scorecards, standardised contract templates, fast track evaluations, whole-of-life contracts to cover acquisition and through life support, evolutionary acquisition for software contracts and impacts of these issues into regional Australia - to name just a few of the changes taking place.

Over the rest of this week, you will hear more about industry policy reforms from other speakers. And over the next few months of the Course you will also get the opportunity to see how the reforms are operating when you visit industry. You should certainly ask company managers for their views on the relationship and the reforms that are taking place. I will certainly be interested to hear of any suggestions that can improve the performance of defence/industry partnerships.

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It is important that both Government and private industry understand how interdependent they are. This course will expand your understanding of the inter-relationship between defence capability and industry, and of the vital role that industry plays in backing our national security.

This year marks the tenth anniversary of the Defence and Industry Study Course, and the fiftieth anniversary of the Industry Mobilisation Course which was the DISC’s predecessor. I urge each of you to help make this year’s course a success and consider what will be your next step in advancing the defence/industry partnership.

I wish you well in your studies.

I am very pleased to welcome you to the 2003 Defence and Industry Study Course.

Thank you.

[ends]