Q&A Session, Australian Strategic Policy Institute Conference

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The Hon Pat Conroy MP

Minister for Defence Industry

Minister for International Development and the Pacific

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14 September 2023

SUBJECTS: Guided Weapons and Explosives Ordnance (GWEO) Enterprise, Defence culture, Advanced Strategic Capabilities Accelerator (ASCA), Defence Industry Development Strategy, Space sector, AUKUS, minimum viable capability.

STEVE BAXTER: G'day, Minister, Steve Baxter from Beaten Zone Venture Partners, a Defence investor. On the GWEO program, the GWEO Enterprise, given that we're merely manufacturing a US missile, should we rename it the GWEO Franchise, and is this a missed opportunity to actually build some Australian capability?

MINISTER FOR DEFENCE INDUSTRY PAT CONROY: Thank you for that question. The answer is that we are building this industrial capacity almost from the ground up. We have some experience, obviously we've got some experience in explosive ordnance, and we've got limited experience in guided weapons. For example, BAE, and before them, Thales, provide really important parts of the Evolved SeaSparrow Missile, that go not just to Australia, but a number of consortium countries. So we do have some capacity here, but let's be frank about it, we have to crawl before we walk, before we run. And the logical way of doing that is developing an Australian supply chain to manufacture missiles that are entering our service rather than inventing a missile from scratch. That's a logical way of dealing with this massive enterprise. But what I do envisage happening, as we build up this capacity, we'll then be in a position, for example, where we're co‑developing the Precision Strike Missile, I would envisage that that will lead to opportunities for Australian suppliers, and we're doing some world‑leading research on the hypersonics. So that will flow hopefully into missile production of hypersonics in this country. But we need the industrial capacity first, and that's why we're taking a very pragmatic point of view rather than letting the perfect be the enemy of the good.

JENNIFER JACKETT: Minister, thank you so much for your remarks, I'm Jennifer Jackett from the National Security College. I was really pleased to hear you talk about the disruption of risk when it comes to decision making in Defence, and also streamlining processes, like procurement, which will be so essential to getting capability faster.

I'm wondering if you can talk a little bit more about other aspects of cultural change that are also needed beyond things like procurement rules that could actually help with the embedding and absorption of innovation faster within the Department. Thanks.

MINISTER CONROY: Thank you. I think, it sounds a bit of a motherhood statement, but I think unity of purpose is a cultural change, and I'll give you an example and a practical manifestation which is around ASCA. For too long through things like the Defence Innovation Hub Program we've had support for innovative ideas. It's been a torturous process, and a lot of companies have spoken pretty negatively about that process, but even if they've gone through it, they've received funding to prove up an idea, then they look around and there's no project for that innovation to flow into service. So it either dies in the valley of death or gets sold overseas. So by cultural change around unity of purpose, I'm talking about having the war fighters, the capability managers involved at the start of the process, partnering with DSTG and CASG to identify what are the innovations we need that they can hand on and say this will give us an asymmetric advantage if it's embedded in a platform in six or seven years' time, then once the technology's been proved up, their obligation is then on that capability manager to find a project to fund it into service.

So that's the cultural change I'm trying to engender with the support of the DPM, is having a very large Defence organisation, much more aligned in one direction, much more thinking about end to end solutions rather than just silos. And for me, that's probably the most critical challenge we have at the moment, is breaking out of that silo mentality.

DAVID WATERHOUSE: Good afternoon, Minister. David Waterhouse from Hypersonix. I was just wondering structurally, one of the issues we've had historically is, from the corporate side is getting to Defence as a customer without having to work through a prime or through DSTG. Can you see that model evolving where, as we're starting to see in the US, small business can work directly with Defence?

MINISTER CONROY: I think there are opportunities. I think a couple of barriers that we've identified, one is ‑ well, a massive one - is risk aversion around contracts and contract templates. Like, the first port of call for CASG in Naval shipbuilding should not be the strategic ASDAF template. That should be the last resort, not the first resort.

So the Defence Industry Development Strategy will outline additional contracting templates that emphasise working with small business, embracing more risk, getting acquisition, capability into service faster. So I think contracting is a critical of doing that. A second one is working more clearly around sole source.

Now, when the DSR was announced, some people very cynically thought sole source, more sole source was code for more FMS.  Now, FMS has a role, and we're getting new C‑130Js through FMS much faster and a much better capability than other options. But sole source means not running competitions for competition's sake, where everyone knows who the winner is going to be, because that wastes everyone's time. Having a smarter Defence Department that's more industrially realistic, identifying the capabilities they want to work with, and embedding that, so either doing more sole source direct contracting, or in certain cases identifying a capability that they want to embed in a larger platform.

So, for example, there's been a number of procurements recently where Defence has specified, "We're agnostic about the solution, we'll compete it, but all of you have to use a CEA phased array radar, as part of that." So I know CEA is not a small business, but I envisage more of that happening where we identify capabilities of SMEs to embed in it. So I think that's another way we're going to be working on it.

SPEAKER: There's, one at the back.  

TIM WILFORD: Tim Wilford from the ANU National Security College. Thank you very much for your time today, Minister. I have a sort of big‑picture question I wanted to ask you around sort of the social licence around increased Defence spending and increased risk appetite for the base Defence industry. Do you have any thoughts, or would you like to share any remarks on the conversation that may or may not need to be had around the national interest argument, especially at a time where, you know, cost of living is impacting the general population a lot more? Obviously increased Defence spending is an extremely important part of, I guess, you know, achieving the national interest, but I guess, how do you square those two, I guess, competing ideas?

MINISTER CONROY: Thanks for that question. First, on increased Defence spending, I think there is a social licence already. Australians have been shocked by what they've seen in Ukraine, the breakdown of the rules based order, and they've responded. We've also seen consistent ‑ well, they're seeing potential breaches of international law in places like ‑ closer to home, that have driven home to Australians the need for a greater security.

We've been very frank with the Australian people that we face the greatest strategic uncertainty since World War II, and I think people instinctively understand that. And that has given us a social licence. So, for example, the budget in May increased our medium‑term budget for Defence by 0.2 per cent of GDP. So instead of hitting 2.1 per cent of GDP at the end of the decade, we'll hit 2.3 per cent. That's a very significant increase in Defence spending that's already baked into the budget projections, and we'll continue to push for the social licence.

On the second issue about embracing more risk, I think, what I say, and I have to be careful about this, because I don't want to run down organisations that do their best and work in the national interest, but it's not as if we've got a perfect system now. We've inherited 27 major Defence projects running cumulatively 97 years late. So I would submit that a risk aversion is not delivering capability on time at the moment. So it's about investing in Defence to be a better customer; it's about investing in Defence to have the project management, commercial nous, engineering nous to partner with industry effectively and to know more about risk.

A Deputy Secretary who has recently retired said to me, when he started on projects 10 years ago, on certain decisions he needed two signatures. Last year he needed 77 signatures for the same decision. That's what happens when you don't have enough people with the confidence and the skills to make decisions. So I think increasing a risk appetite, as long as we put in place systems to manage and mitigate the risk is justified, and I'm very happy fronting up to Question Time and saying, "We took more risks because the strategic circumstances dictated it. Not all of them worked, but we learnt from the failures, and we'll do better next time." 

SPEAKER: A couple more.

MALCOLM DAVIS: Dr Malcolm Davis, ASPI. Space as a domain is really critical for Defence, I think you understand, obviously your JP 9102 has gone to Lockheed Martin, but there's a lot of other opportunities out there for Australian small to medium enterprises to be involved in space and Defence. Do you see the potential opportunity for Defence industry policy to start engaging directly with the commercial space sector to start opening up opportunities for commercial Australian space companies to bid for Defence projects and to actually take on a separate path for space in Defence rather than having to go through industry innovation and science?

MINISTER CONROY: Thank you for that question, Malcolm. I think there are huge opportunities. One thing we're trying to do about streamlining Defence is to make it more attractive to commercial organisations that haven't done a lot of work in Defence.

I was at last year's G'Day USA industry event in Washington, and I had a very significant Australian commercial entity saying it's easier to do business with the Pentagon than with the Australian DoD. That was pretty ‑ it was pretty eye‑opening. So if we are trying to get ‑ we could see it as a compliment to the Pentagon rather than an attack on the Australian Department of Defence, but I don't think it was intended that way, or at best 50/50.

So I think by streamlining Defence, making it more agile, more able to embrace risk, will give more confidence to the commercial sector to come in and play more, 'cause you're absolutely right, there are some great capabilities in the space sector that we're not utilising right now, and there's massive opportunities, and not just for Australia. Like AUKUS is about growing the industrial base of all three countries. If we get it right, it's not about us just taking technologies, it's about us providing technologies. And that's a challenge for myself and the DPM.

LIBBY DAY: Afternoon, Minister, Libby Day from the Defence Teaming Centre. Thank you very much for your address. We also look forward to, I'm sure everyone here in this room looks forward to the Defence Industry Development Strategy coming out shortly.

My question is asking you to comment on the required uplift in Australia's industrial base, so that companies can be competitive in the global arena.

MINISTER CONROY: Yeah. I think, first off, there's a very significant number of companies that are already competing globally, either off their own bat, or in part of global supply chains. But we need to do more. One way of doing that is the uplift we'll see for the nuclear powered submarines, investing in capability of Australian companies to supply not just us, but the United States and United Kingdom is one pathway. But it's really about, for me, two processes; one, revamping the global supply chain process, and the Industry Development Strategy will articulate what we're doing there, because I think it hasn't lived up to its potential. But the GC process is a great way in theory of getting Australia some SMEs into export work, exporting to primes around the world and exporting that way.

The second one is using path‑finder projects. I look at companies that have benefitted most from working on the Joint Strike Fighter. Well, then go a step further. Like, you think about there's a generation of manufacturers that modernised building the Collins‑class submarines, so using path‑finder projects to do that again. On JSF, you think about someone like Marand or Ferra, that has spun off huge amounts of work by getting into the supply chain of that project, lifting their standards, demonstrating that they could compete and out‑compete the best in the world.

So I'm looking forward to more co‑development projects where we get significant industrial share for our companies as a way of uplifting Australian SMEs. It's not the only way. Another way, to be quite frank, is one part of the DSR that was under‑reported, but I'm most excited about is the shift to minimum viable capability. That is about saying we will do more developmental projects where they're justified, and we'll work with industry to deliver capability and do iterative upgrades rather than standing on sidelines and demanding 100 per cent of what's been promised. That gives a leg up to Australian industry.

We won't do that for FMS cases. When we do an FMS case, the Apache coming off the Boeing production line better be bloody perfect, it's the thousandth that they've made. But for developmental projects, minimum viable capability means that we embrace risk, we embrace an upgrade cycle to get mean capability into the war fighters' hands as early as possible, and we partner with industry to do that and uplift their capability.

SPEAKER: Minister, thank you. I think to enable you to get back to Question Time, we'd better let you go, but I think your focus on embracing risk and also in the Defence industry context, what will really be taken here into the rest of the conference is to look at ourselves not only in terms of what we can take, but also what we can provide. So I'm sure everybody will give you a warm welcome, a warm applause. Once again, thank you very much for being here.


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