We should welcome the government’s decision to reform Defence’s approach to capability development and defence delivery. This will give a much-overdue opportunity to increase the focus on the future.
While important lessons can be learned from the past, the country’s strategic circumstances are changing and increasingly stressful. Defence’s new arrangements must be alive to these new challenges, for both priority-setting and defence delivery.
Under the changes, a Defence Delivery Agency will bring together three current organisations—the Capability Acquisition and Sustainment Group, the Guided Weapons and Explosive Ordnance Group, and the Naval Shipbuilding and Sustainment Group.
This is the first major review to embrace such matters since the Peever First Principles Review of 2015. Much has changed since then. This new review will offer the opportunity to bring the arrangements for these critical functions up to date and ensure they are appropriate for Australia’s strategic future.
Let’s look at defence delivery first. A word of caution is appropriate. There have been many attempts in recent decades to improve defence delivery and associated matters, such as the relationship between Defence and industry. Some have been more successful than others.
Among the more successful have been the corporatisation and privatisation of Defence’s dockyards and factories (in the mid-1980s); the outsourcing of many non-core functions as a consequence of the 1990 Wrigley Report The Defence Force and the Community; and further outsourcing flowing from the 1997 McIntosh Defence Efficiency Review. These initiatives resulted in considerable efficiencies and savings, allowed costs to be assessed more accurately, and increased Defence’s use of the national support base.
In contrast, attempts to improve governance arrangements for defence delivery have been more problematic. A consequence of the 1980 Utz Review of the Defence Organisation was that the dockyards, factories and laboratories were moved into a separate Department of Defence Support. This might well have succeeded but in practice it didn’t. In brief, the support tail ended up trying to wag the defence dog. This was never going to work, and in 1984, Defence Support was moved back into Defence, forming the Office of Defence Production.
Other reviews include the 2003 Kinnaird Review of Defence Procurement, which set up the quasi-independent Defence Materiel Organisation (DMO), the 2008 Mortimer Review of Procurement and Sustainment, which took Kinnaird further, and the 2015 Peever First Principles Review, which, among other things, put the DMO back inside Defence proper.
This history leads to several suggestions for the new Defence Delivery Agency, which is to be formed on 1 July 2027.
To the extent that corporate memory allows, it would be useful to see what lessons can be learnt from what worked and what didn’t, and why, from the attempts to implement the recommendations of these previous reviews. Otherwise, the same mistakes will be repeated. To help in this, it would be good to have a clear understanding of the problems that the new arrangements are intended to resolve, especially risk-management.
Australia is not the only country to have had problems in managing defence acquisition and the adoption of new technologies. Other nations have also had to meet these challenges. There would be much to be gained from looking at such overseas experience in handling these problems. This would allow a broader and better-informed perspective than what would be gained from comparing Defence’s procurement arrangements only with those of other large enterprises within Australia, for example our mining industry. The big difference is that, in most defence matters, high levels of complexity are to be found at every turn.
Risk is intrinsic to Defence. The issue is how best to manage it. There are times when it is all too easy to conclude that critics of Defence’s procurement practices believe that it should be possible to reduce procurement risks to negligible levels. This, however, would be misguided. It would require stepping away from anything that looked like the leading edge and acquiring only the tried and true (and, even then, blemish-free acquisition would not be guaranteed). Such an approach would merely transfer risk to the battlefield—the last place where it should be, especially if we were up against an adversary who had managed to field leading edge capabilities in spite of the associated procurement challenges.
In many respects, Australia’s benign strategic circumstances of the past 50 years allowed us to be discriminating in how close to the leading edge our defence capabilities needed to be. Our new circumstances remove much of this discretion. This means that our new procurement processes will have to manage higher levels of technological risk (and therefore cost and delivery risk) than before.
This is the central issue and a major imperative: the new arrangements for capability development and delivery will have to be forward-looking. While there would be benefit from merely making improvements to the practices of the past five decades, this would be to miss the point. Australia’s strategic future will be more demanding than the past.
The implications of that include the following. Australia could well decide to go much further down the path of greater self-reliance, increasing the demands on capability development and delivery. The levels of capability and technology that Australia needs will of necessity be higher than in the past across many areas. Warning time for contingencies will be shorter than in previous decades. The need for higher levels of readiness and sustainability will pose challenges, not just for the armed forces but for all the other areas of national security, including intelligence. The areas that need to plan for a surge capacity include procurement and industry.
The same imperative applies to the reform of Defence’s upstream governance processes of priority setting and capability development, as is set out in the announcement of the reform by Defence Minister Richard Marles. These too have seen little substantive change since the 2015 Peever Review. That they need to be reformed is self-evident, given the criticisms inherent in the 2023 Defence Strategic Review (DSR, or the Houston-Smith report). Two examples illustrate the broader problem. The DSR called for the army to be ‘transformed’ (paragraph 8.28) and recommended an independent analysis of navy’s surface fleet, with the subsequent report proposing major changes to the planned acquisition program (paragraph 8.26). These are not side issues but are at the heart of what ought to be Defence’s core responsibilities. That such radical changes to the capability development program were required underlines the need for significant overhaul of Defence’s governance and decision-making.
Any changes to Defence’s decision-making mechanisms need to recognise that, within the machinery of government, there is an expectation that there will be independent processes to review major policy and expenditure proposals. It would be unusual for major policy and spending proposals to avoid such scrutiny. Rather, the practice is for major decisions to be subject to thorough review by central policy departments including the Department of Finance. However, with respect to spending proposals, Defence has been different. For the two decades or so following the Tange reforms of the 1970s, Defence’s central policy divisions provided much of this review function and to such a degree that these internal review processes gained the respect of other departments. Yet over recent decades, these processes have been watered down. While the Peever Review reestablished an internal review process with the formation of Contestability Division, it is difficult to avoid the sense that, in terms of priority setting and capability development, the ADF has been too often allowed to mark its own homework.
To move beyond the problems of recent years, Defence’s central policy areas need to be strengthened and their authority enhanced. This could lead to more intense debate within Defence on the best way forward, but this should be encouraged, as the issues are complex and the consequences of going down the wrong path potentially severe. Whether the defence minister sees it in this way is not clear. There was a hint of an appetite for major change when he said that everything is on the table, including bureaucratic reform of the Department of Defence (in his address on 16 June 2025). Perhaps the choice of the new defence secretary to replace Greg Moriarty (who is heading to Washington as ambassador) will be an indicator of what he has in mind. But reform is necessary, so that Australia can face the challenges of its new strategic future with better confidence.
