Minister for Defence Linda Reynolds and Minister for Defence Industry Melissa Price announced Friday (18 September) that the government will implement improvements to the Australian Industry Capability (AIC) program so that opportunities for Australian industry are front and centre of Defence decision-making. The Australian Standard for Defence Contracting (ASDEFCON) will also undergo a major revamp to cut process times and costs for Australian businesses.
Reynolds said a genuine partnership with Defence and industry was critical to ensuring Australia’s industrial base effectively supports Australia’s national security, as reinforced in the 2020 Defence Strategic Update. “Defence will strengthen the requirements for AIC in Defence contracts through additional contractual and non-contractual measures and will consult with industry on these changes over the coming months,” Reynolds said.
The delivery of new AIC provisions in future contracts, creation of an Independent AIC Plan Audit Program, recent changes to Commonwealth Procurement Rules guidelines and an overhaul of the CDIC will significantly improve opportunities, protections and support for Australian businesses seeking to enter the Defence sector or looking to expand their footprint with Defence.
The 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,” 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. 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.”
Defence will consult with industry over several months on the changes to AIC contractual requirements before the new contractual provisions begin to be implemented from 1 January 2021.
Price said the latest changes represented 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. 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. 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.”
The review of ASDEFCON, to be overseen by Price, will aim to simplify and streamline contracting and subcontracting templates and remove unnecessary complexities that create additional burden on Australian businesses. Price said the Terms of Reference to remove the barriers in ASDEFCON and the consultation process will 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,” Price said.
The announcement of the change in programs was welcomed by Australian industry. BAE Systems Australia said the government’s moves will build upon existing plans to create more opportunities for local industry across the full spectrum of Defence programs and, in doing so, deliver a much stronger, capable and effective defence industry in Australia.
BAE Systems is a long-time defence supplier and spends some A$300 million annually with more than 1,500 local suppliers across 200 defence programs in Australia including the Hunter Class Frigate Program, the Jindalee Operational Radar Network and critical air and maritime sustainment programs including Hawk Lead-In Fighter and F35.
BAE Systems Chief Executive Gabby Costigan said “major Defence programs are a catalyst for significant, long-term economic growth, providing opportunities for industry, highly skilled jobs and potential exports. 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…is a significant step forward to ensuring that happens.”
Thales Australia too welcomed the strengthening of Defence’s Australian Industry Capability Program and the Australian Standard for Defence Contracting review announced by the government. For more than 30 years Thales Australia has built a national industrial ecosystem to support the delivery of capability to Australian Defence Force. In 2019 alone Thales Australia spent A$522 million with 1,362 Australian firms, 70 percent of which were SMEs. Thales Australia’s recent supply chain analysis with AlphaBeta Advisors demonstrated that there is a substantial economic benefit from domestic defence spending, delivering thousands of jobs through hundreds of business across the nation.
Thales Australia CEO Chris Jenkins welcomed the announcement and said there is strong evidence in support of the Government’s policy of requiring high levels of AIC in acquisition and sustainment programs. “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 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.”
Further information on the Independent AIC Plan Audit Program and additional AIC contractual provisions to be added to future Defence contracts can be found here.
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