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Australia’s Defence Industrial Base: open for business with SMEs
David Ruff
Chief Executive Officer Australasia

The views reflected in this article are the views of the author and do not necessarily reflect the views of Babcock International Group or those affiliated with it.

Do you remember what you were doing on 3 December 2018?

Whilst many of us were dealing with pre-Christmas break groundrush, looking forward to the festive break, or simply going about our normal daily business, something significant happened in Defence.

The Australian government awarded a very large contract – worth AU$1.5 billion, in fact – to a small, relatively unknown business called NSM (stands for ‘Naval Ship Management’); to sustain and support the Royal Australian Navy’s flagship warships – the Canberra Class landing helicopter docks (LHDs) and the ships’ 12 associated amphibious landing crafts.

These 27,000-ton amphibious assault ships are the largest ships ever built for the Royal Australian Navy and the operational availability and reliability of these capital warships is a key element in the nation’s defence posture.

So, in a marketplace (ie. warship sustainment) where the barriers to entry are high and which hitherto has dominated by two global behemoths, why have such critical assets now been entrusted to a ‘minnow’?

First Principles Review bears fruit

The answer, I think, has its roots way back in Defence’s ‘First Principles Review’.   And fuelled by the Commonwealth’s various Defence policies; not least, the 2016 Defence Industry Policy Statement – which reset the Defence/ Industry relationship and introduced the concept of Industry as a “Fundamental Input to Capability” – and the 2018 Defence Industrial Capability Plan, which emphasised the importance and value of sustainment, as well as re-positioning Industry to meet long-term defence capability needs.

The LHD/ NSM decision shows how serious Defence is about engaging differently with Industry, building partnerships and forging local capabilities so that Australian companies can build, maintain, sustain and, ultimately, export defence products and services.

And, considered in the context of the 2017 Naval Shipbuilding Plan, the NSM award is an important green shoot in the growth of Australia’s nascent sovereign naval shipbuilding and sustainment industry.

In other words, it is the combination of the First Principles Review and the various Defence policies and plans that have enabled NSM to be considered for a contract where it previously might have struggled.

Winning qualities in the new Defence procurement arena

Now, some might dispute characterising NSM as an SME because of its global shareholders – full  disclosure, NSM is a 50/50 joint venture between Babcock and UGL and I am one of its directors – but contracts are not awarded on the basis of ‘who is your parent company’.

No, these contracts are awarded to the organisation that will deliver on Navy’s operational demands and to its exacting standards; that will contribute effectively and efficiently to Defence’s operational objectives and security imperatives; that is innovative, agile and leverages technology, systems and tools to assure performance; and that will align culturally, empathetically and behaviourally across a diverse stakeholder community, for the long-term.

NSM also won the LHD contract on the back of its proven ability – notably in the alliance that sustains the ANZAC Class frigates, the “WAMA” – to provide cost-effective, technically superior customer-focused solutions, based upon:

  • A lean business model that focuses on delivering maximum value to the customer and integrates the customer into its business; supporting a totally transparent, honest and open culture
  • A robust, scalable Australian supply chain underpinned by agile management; enabling the  company to adapt rapidly to changes in work volume, location and scope
  • A digitally-enabled enterprise asset management system; the digital ‘glue’ that integrates the complex jigsaw that is the enterprise – customer, supply chain, stakeholders, financials, KPIs, subcontractors, operations, engineering standards, technical authorities, etc. – into a holistic entity, operating at a drumbeat that keeps complex warships operating and functioning at the required operational levels, as well as at the best possible value to the Australian tax payer

Defence industrialisation is a great opportunity for SMEs

NSM is living proof that Defence is a great opportunity for SMEs.   This home-grown company has established a model and track record that shows Australian businesses of all sizes that they can contribute to the nation’s sovereign industrial capability, and national security.   Not bad for a minnow!

And it doesn’t stop there.  NSM is also committed to supporting the capabilities and growth of Australia’s SME defence industry, with an undertaking to “Australianise” the LHD supply chain; meaning maximising the employment of ‘local’ labour and contracting with Australian companies on Australian terms in every possible case.

The LHD contract award is a significant moment for Defence, and its associated Industry.   The award breaks the glass ceiling that hitherto has made it difficult for SMEs to win Defence mega-contracts.  If you are a SME, you should believe that you can be the next “NSM”, and become part of a sovereign Australian defence industry.

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