Sovereign defence industry – a deterrent effect. Part 3: The hidden cost of capability acquisition

In Part 3 of our series, we explore the result of focusing on the capability outcome rather than the acquisition process, leading Defence to cost blowouts, schedule overruns and strategic capability gaps.

Defence has over the years attempted to address its sovereign manufacturing shortfalls and the entrenched inefficiencies caused by Australia’s start-stop capability development approach. Yet, despite the detailed studies, implementation of organised teams, the introduction of the Integrated Investment Program (IIP) as part of Defence’s Force Structure Review, and the 2016 Defence White Paper, the progressive improvements to sovereign defence capability development have not kept pace with the changing dynamics of Australia’s national security requirements.

The IIP’s introduction and the alignment of approvals across projects has reinforced Defence’s primary focus on the process of governance of contract acquisition, rather than underpinning process outcomes. In doing so, Defence consistently fails at a key tenet of project management; a fixation on adhering to a predetermined process, even if it comes at the expense of meeting schedule, cost or even capability outcomes. 

Defence’s single-eyed focus on governing the capability acquisition without integration of the challenging specifications of an environment of rapid technology advancement and fast-deteriorating strategic circumstances comes at the cost of the acquisition process. As noted by ANAO’s audit of the Hunter Class Frigates, the cost can blow out from $30 billion to an estimated $45 billion dollars, as well as delays and capability problems emerging before construction has even begun. 

The Defence Strategic Review has a blunt appraisal of the acquisition process, pointing out that “Defence’s current approach to capability acquisition is not fit for purpose”. Defence is out of time to continue using the same methods and expecting better outcomes. In the current environment, technology is evolving faster than we are undertaking procurement processes, never mind the capacity to actually build capability.

We are on a trajectory that will result in the expenditure of billions of dollars for capability that will be delivered too late, and ultimately unsuitable. Re-adjusting our efforts from over governance that attempts focused on capability outcomes, to refining the acquisition process according to modern, established rapid prototype to production management principles can help us to avoid the currently predictable result. Achieve this, and there is an opportunity to build an industrial base that will be integral to Australia’s inherent deterrence posture.