1.72 The Defence Industry Policy Statement 2010: A Policy for a Smarter and More Agile Defence Industry Base outlines the need for Australian industry to be ready to compete for defence work, and that they must be competitive to be successful in supplying and supporting the ADF.
1.73 The ADF's current and future operational capability depends to a large extent on supply and sustainment support from Australian companies. The Defence Industry Policy Statement provides a number of programs to improve productivity, innovation and competitiveness in Australian industry, and hence industry's ability to support the ADF. The Government is investing $445.7m in these programs over the period 2009-10 to 2018-19. The current status of the major industry initiatives is as follows:
• Australian Industry Capability (AIC) Program
The Australian Industry Capability (AIC) Program aims to maximise opportunities for Australian industry to participate in domestic and international supply chains under Defence capital equipment acquisition and sustainment program contracts.
The Program ensures all eligible projects listed in the Public Defence Capability Plan (DCP) consider Australian industry engagement in their acquisition strategies, and require the development of AIC plans through their tender and contract documentation.
Initiatives being progressively implemented to strengthen the AIC Program include: lowering the threshold at which companies are required to submit AIC plans from $50m to $20m; inclusion of performance reporting against AIC plans in DMO Company Scorecards; updating DMO tender and contract templates to allow exclusion of tenderers that have performed poorly against previous AIC plan obligations; and inclusion of AIC plan objectives in DMO Project Manager Charters.
• Priority Industry Capabilities (PICs)
The policy establishing Priority Industry Capabilities (PICs) was included in the 2009 White Paper, and was covered in more detail in the 2010 Defence Industry Policy Statement. Consistent with the 2009 White Paper, the PICs are reviewed as part of the Defence Planning Guidance process. They are also subject to ongoing reassessment and analysis to determine those elements of industry capability critically important to the ADF.
In 2011, Defence commenced a PIC review process to determine the health of the PICs in prime contractors, small to medium enterprises (SMEs) and inside Defence. The PIC review process will seek to:
- improve the definition of the PICs;
- assess their health;
- establish the implications for Government; and
- determine appropriate intervention strategies where necessary.
A healthy PIC is one that will deliver now and for the foreseeable future, a defined capability on time and to an acceptable technical standard at a reasonable price. A healthy PIC should ideally function without any special forms of Government support.
PIC health checks have been completed and the results released for the following PICs, with each being found to be reasonably healthy and requiring no new or special government intervention or support at this time:
- Ship Dry Docking and Common User Facilities: focussing on docking requirements for front-line naval combatants - of frigates, destroyers and submarines - together with larger ships of the supply and amphibious fleets; and
- Infantry Weapons: focussing on through-life support for the Australianised Steyr family of rifles including factory rebuilds.
The review of the Remote Weapons Stations element of this PIC is being conducted separately.
Health checks are underway for other PICs and results will be progressively released as they are finalised.
• Communication with Industry
Communication with industry is vital from both a broad strategic perspective and at a project level. It is essential that industry is aware of Defence's longer term needs so that it can undertake necessary planning to acquire the level of resources needed to meet future requirements. A layered approach to communicating with defence industry exists, including:
- Defence Industry Innovation Board (DIIB): Chaired by Mr David Mortimer, the Board met twice during the first half of 2011. The Board is the senior advisory body to the Government and the Department on defence industry assistance programs and initiatives, their coordination and resource allocation. The DIIB has commenced an analysis of the existing suite of defence industry programs to form a basis for its advice to Government.
- Public Defence Capability Plan (DCP): The DCP listing Defence's proposed (but not yet approved) major equipment acquisitions over the next 10 years and beyond, is developed every two years for Government consideration and is shaped by strategic guidance provided through the White Paper process. The DCP typically contains 140 to 160 projects or phases of projects, including a number of classified or strategically sensitive projects. The Public DCP is drawn from the full, classified version and is updated electronically at regular intervals. The 2011 update to the Public DCP incorporates key changes including first and second pass approvals and cancellations, amendments to title or scope, changes to indicative Year of Decision or Initial Operating Capability bands, and changes across cost bands. The Public DCP provides information that assists companies to make future investment decisions, including new technologies and skills development in their workforces.
- Defence and Industry (D+I) ePortal: There are currently 1,680 registered companies, including 94 companies from other countries (of the 94, 28 are New Zealand companies) on the DMO ePortal - a publicly searchable Industry Capability Information System representing around 55,000 capabilities upon which Defence and prime contractors can draw. Ninety four of these companies have completed registration for the Global Supply Chain program with another 62 companies in the registration process. This greatly extends the number of small to medium enterprises which can receive original equipment manufacturer requests for information and quotes.
- Business Access Offices (BAO): The DMO has BAOs located in each mainland capital city. They provide a local interface between Defence and industry. The BAOs help build and maintain defence industry relationships by providing companies with advice, information and guidance on doing business with Defence and the assistance programs that are available to help companies become more competitive. They present a series of Defence Awareness Briefings and Defence Updates around Australia in cooperation with other Defence Groups, relevant Commonwealth and state agencies and industry associations. The BAOs also provide Defence with local knowledge, information and data on defence industry and regional matters, including information on current and emerging company capabilities.
• Providing Skilling and Opportunities for Industry
Various programs aim to industry skills and provide opportunities for industry to diversify and expand their market reach.
- Skilling Australiaʹs Defence Industry (SADI) Program: This program operates as a grants program with Round One opening o applications in March each year. The opening of a second round is dependent on available funding. Grant funding under the SADI program for 2010-11 of approximately $12.5m was awarded to 68 companies across Australia supporting approximately 5,000 training opportunities.
A review of the SADI program is being conducted to ensure that SADI continues to meet its objectives of enhancing the skills base of defence industry effectively and efficiently.
- Defence Export Unit (DEU): Since 2007, the DEU has assisted Australian defence companies to win export contracts totaling over $750m. In 2010-11, over 100 companies participated in eight international trade events with more participating in DEU-facilitated visits by foreign delegations and in the US Foreign Comparative Technology Program.
- Global Supply Chain (GSC) program: Under this program, overarching GSC Deeds have now been signed with seven multinational prime companies. Specific annexes are then negotiated under the Deeds to cover how each of the prime contractors will establish funded offices within their organisations to proactively seek opportunities to involve competitive Australian companies in their defence and commercial supply chains and those of their major suppliers. So far, the program has provided Australian companies with export orders worth over $372 million. Over 90 contracts have been won through the program by 29 Australian companies exporting into the global supply chains.
- Defence Industry Innovation Centre (DIIC): The DIIC, funded by the DMO, operates as part of the Department of Innovation, Industry, Science and Research's Enterprise Connect scheme. The DIIC has engaged with some 650 companies over the past two years to increase their productivity, ability to innovate, and competitiveness. A key activity over this period has been the Supplier Continuous Improvement Program (SCIP). SCIP consists of a three-year engagement at no financial cost to the participants, in which a number of diagnostic tools identify areas for improvement within the firm (targeting key customer relationships, overall business performance, and operational performance). The program commenced in May 2010 and 38 defence suppliers are signed up to SCIP, with 11 having completed the first cycle of the three year initiative. This initiative is particularly useful in upskilling Australian industry for participation in the GSC and DEU Programs.
- Letter of Recognised Supply Scheme: This scheme is administered by the BAOs. It is a targeted scheme to support industry bids for new work both domestically and internationally. Companies can apply for a letter to support bids for new work that details the product or service they supply to Defence, the dates of supply and their use within Defence.