Innovate. Collaborate. Generate
LAND 400 Phase 2 | Deloitte review
of approach to Australian Industry
Participation
PUBLIC RELEASE VERSION
30 June 2016
This is a draft document. As it is a work in progress it may be incomplete, contain preliminary conclusions and may change. You must not rely on, disclose
or refer to it in any document. We accept no duty of care or liability to you or any third party for any loss suffered in connection with the use of this document.
“When it comes to Defence contracts,
Australian suppliers want a piece of the pie.”
The Hon Ian McFarlane MP
Minister for Industry and Science
19 February 2015
Contents
1
Executive Summary
5
1.1 Background
5
1.2 Method
6
1.3 DIPS implications on Phase 2
6
1.4 Analysis of the Planning and Documentation for the Conduct of the
Phase 2 RMA
8
1.5 Recommendations to maximise Australian industry opportunities
9
1.6 General considerations
10
Review background and objectives
12
2.1 Background for this review
12
2.2 Terms of Reference and Objectives of the Review
13
2.3 Purpose and Timeline
13
Approach and methodology
14
3.1 Desktop analysis
14
3.2 Workshops
14
LAND 400 Background
19
4.1 Context of LAND 400 Phase 2
19
Implications of DIPS for Phase 2
21
5.1 The 2016 Defence Industry Policy Statement
21
5.2 Implications for LAND 400 Phase 2 RMA
22
Analysis of the Planning for the Phase 2 RMA
25
6.1 LAND 400 Phase 2 RFT and RMA
25
6.2 Observations on the RMA Approach
25
Recommendations to maximise Australian industry opportunities
28
7.1 Overall assessment
28
7.2 Recommended amendments to the RMA contract
28
7.3 Recommended refinements to RMA planning
30
7.4 Recommendations for the conduct of the RMA
31
Broader issues for consideration to improve Defence industry involvement
32
8.1 Considerations for Defence
32
8.2 Considerations for Industry and State/Territory Organisations
35
9
Glossary
38
10
Appendix 1 – Workshop feedback
39
10.1 Purpose
39
10.2 Opportunities
40
2
3
4
5
6
7
8
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12
10.3 Key takeaways
42
Appendix 2 – RFT/RMA key points
45
11.1 Key points from LAND 400 Phase 2 RFT and RMA
45
Appendix 3 – Workshop summary
47
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
1 Executive Summary
1.1 Background
LAND 400 is a significant Defence program that will acquire and support the next
generation of Armoured Fighting Vehicles for the Australian Army. These vehicles will
have the firepower, protection and mobility to defeat increasingly and adaptive
adversaries well into the future. LAND 400 has four phases: Phase 1, a scoping and
project definition study, which established the program; Phase 2 – the Mounted Combat
Reconnaissance Capability; Phase 3 – the Mounted Close Combat Capability; and
Phase 4 – the Integrated Training System. Phase 1 is complete, Phase 2 is currently in
source selection, Phase 3 is preparing for First Pass Approval by Government and
Phase 4 is not due to deliver any capability until the mid-2020s.
LAND 400 Phase 2 – the Mounted Combat Reconnaissance Capability – will acquire a
contemporary Combat Reconnaissance Vehicle that will replace the Australian Light
Armoured Vehicle (ASLAV). The ASLAV entered service in 1994 but no longer provides
the required levels of capability for the current and anticipated operational environment.
Originally designed in 1968, the ASLAV does not have the protection levels required to
survive on the current battlefield and therefore presents an unacceptable level of risk to
the forces it is meant to protect. Furthermore, the emerging threats render the vehicle
unsuitable for future operations. The M113 Armoured Personnel Carrier (APC), which is
being replaced under LAND 400 Phase 3, was also designed in the 1960s and has a
similar issue with protection levels afforded to Army staff.
This results in a reduced set of options for decision makers in using the operational
capability provided by these fleets due to the much increased risks.
LAND 400 Phase 2 has completed the first stage of its industry solicitation, including the
conduct of an open Request for Tender (RFT) and the selection of an initial source
evaluation to select two or three tenderers which will be invited to participate in the next
stage– the Risk Mitigation Activity (RMA).
The RMA is designed to reduce the risk to the Commonwealth through a series of
activities to test the veracity of the short-listed Tenderers’ claims made during the tender
process, to develop capability – cost options for Defence to consider, to improve the
quality of the tendered schedules and to maximise opportunities for Australian industry
involvement in Phase 2.
The 2016 Defence Industry Policy Statement (DIPS) was launched on 25 February
2016, some two years after planning for the LAND 400 Phase 2 RMA commenced.
While the RMA planning and documentation have continued to be developed over the
past two years, Defence considered it would be prudent, before commencing the RMA,
to review the planning and documentation, to ensure that there is strong alignment with
the DIPS policy and approach to industry engagement 1 .
Led by Deloitte, this three month review provided the opportunity to modify the activities
that will be undertaken during the RMA, to ensure that the opportunities for Australian
1
Media release, Review of Australian industry involvement for LAND 400 Phase 2, dated 1 April 2016
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
industry participation are maximised and given practical effect. These activities were
forecast in the RFT and a copy of the draft RMA contracts, under which the RMA will be
conducted, were provided to industry as part of the Conditions of Tender.
Phase 2 will deliver a capability that has at least a 30 year life, involving ongoing
support and a carefully planned vehicle update and growth path. Given the significant
opportunities over more than 30 years for Australian industry to participate in the initial
acquisition, sustainment and further development of the capability, this three month
delay to review the industry participation aspects of the RMA is considered to represent
a small but critical investment of time.
The key elements of the Terms of Reference (TOR) for the review, directed by Deputy
Secretary Capability Acquisition and Sustainment Group (DEPSEC CASG), are to:
1. Examine the implications of the DIPS 2016 for LAND 400 Phase 2 RMA
Australian industry improvement tasks;
2. In the context of the Phase 2 RFT and advice provided to industry, analyse the
Australian industry participation aspects of the current proposed plans and
documentation for the conduct of the Phase 2 RMA; and
3. In the context of the Phase 2 RFT, make recommendations for revisions to the
planning and conduct of the RMA in order to maximise the Australian industry
participation opportunities and benefits in Phase 2.
This report presents the findings from the review conducted in accordance with the TOR,
and provides recommendations for refinement of the LAND 400 Phase 2 RMA approach.
Further observations made by the review team have been provided in section 8 for
Defence and industry consideration.
1.2 Method
Over the course of six weeks, a team led by Deloitte and including representatives from
the LAND 400 Program Office and Defence Industry Branch conducted:
1. A desktop review to examine the implications of the DIPS 2016 for LAND 400
Phase 2 RMA Australian improvement tasks;
2. An analysis of the Australian industry participation aspects of the current
proposed plans and documentation for the conduct of the Phase 2 RMA, in the
context of the Phase 2 RFT and advice provided to industry;
3. Industry engagement activities comprising workshops and consultations, to seek
feedback on the Australian industry participation aspects of the current proposed
plans for the Phase 2 RMA;
4. Development of recommendations for revisions to the planning and conduct of
the RMA, presented in this report to DEPSEC CASG.
1.3 DIPS implications on Phase 2
The DIPS 2016 did not change radically Defence’s approach to procurement and
Australian industry participation. While its implications for the Phase 2 RMA approach
are limited, there are some areas in which require examination by the LAND 400 Project
Office:
1. The DIPS states that “a more focused coordinated and transparent relationship
between Defence and industry is required to maximise delivery of Defence
capability”. The RMA approach can build on the current requirement to maximise
opportunities for Australian industry participation by planning specific
engagement activities involving the Commonwealth, tenderers and Australian
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
industry, and by requiring through the RMA contracts that tenderers participate in
specified engagement activities.
2. The DIPS identifies Defence’s new approach to innovation. Innovation
implications relevant to LAND 400 Phase 2 include:
a. Working with Defence industry division to identify projects in DSTG
applicable to LAND 400 Phase 2 that could benefit from collaboration with
industry/academia to enhance LAND 400 Program outcomes and
maximise Australian industry participation.
b. Leverage new innovation initiatives during RMA to facilitate and support
industry participation.
3. Recognising industry as a Fundamental Input to Capability (FIC) is a key initiative
in the DIPS. Further planning for and conduct of the RMA should incorporate the
implications of industry as a FIC as they are further defined and elaborated by
Industry Division.
4. The five Industry Requirements contained in the LAND 400 Phase 2 RFT are
based on supporting Priority Industry Capabilities (PICs). The PIC policy is being
replaced by a Sovereign Industrial Capability Assessment Framework. Transition
to the new framework will occur in the second quarter of 2017, during the
conduct of Phase 2 RMA. Noting the constraints that arise from the RMA being
conducted in accordance with the RFT, the implications of the new framework
should be reviewed as it is developed and as the transition occurs. Hence,
advice should be sought as to establishing the initial baseline requirement and
the impact of implementing FIC and sovereign industrial capabilities.
5. A key feature of the DIPS is that Government will maximise opportunities for
competitive Australian industries. While that principle is already explicit in the
planning for the RMA, the LAND 400 Program should identify more specific ways
in which to give it practical effect including:
a. A more concerted effort to identify those parts of Australian industry which
are potentially internationally competitive in terms of supplying
components of the Phase 2 capability or of supporting its sustainment and
growth path.
b. Investigation of means, through the DIPS initiatives, by which specific
elements of Australian industry might improve their competitiveness and
ability to contribute to the Phase 2 vehicle capability.
c. Specific requirements within the RMA contract for tenderers to engage
with Australian industry and develop costed options for enhanced levels of
Australian industry participation in the acquisition, support and upgrade
path for the vehicles and including potential access to their global supply
chains.
6. Cutting of red tape is a key element of the DIPS and a key recommendation of
the First Principles Review. The LAND 400 Program should consider specific
means, such as the use of automation and data-mining technology and
techniques, to reduce the cost of industry participation in Phase 2 – including, for
example, in relation to the qualifying of potential suppliers identified by the
Tenderers during the RMA 2 .
2
Defence Procurement Policy Manual, March 2016
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
1.4 Analysis of the Planning and Documentation for the Conduct of the Phase 2 RMA
The review team found that the draft RMA documentation is consistent both with the
RFT and advice provided to industry thus far, and with the broad principles and intent of
the DIPS. However, its approach would be strengthened by more explicit presentation
of the means by which opportunities for Australian industry participation will be
progressed. Noting the TOR requirement that the way forward for the RMA must be in
accordance with the RFT and advice provided to industry, the following observations
are made:
1. Although MOTS and MOTS Plus have been defined in the RFT and draft RMA
documentation 3 , these are terms which have been misinterpreted. During the
industry workshops conducted as part of this review, LAND 400 Project staff
provided clearer guidance on the interpretation of MOTS and MOTS Plus (see
Section 9).
2. However, there would be merit in providing additional formal advice on this to
both the shortlisted tenderers and Australian industry, and to including a more
detailed interpretation in the RMA documentation.
3. Importantly, advice to industry should include the point that the definition of
MOTS does not preclude the substitution of Australian-supplied componentry in
the vehicle if it meets the same performance standards. The LAND 400 Program,
and Defence more broadly, should include this advice in its engagement
activities with the Tenderers and broader industry, in order to improve
understanding of this opportunity.
4. The RFT and draft RMA contract both state that the Commonwealth will work
with the Tenderer to maximise the level of Australian industry participation during
RMA, noting that the documentation specifies that the capability must be
supported in Australia. This is consistent with advice provided to industry but
would be strengthened by inclusion of the specific means by which this may be
achieved. This should include the requirement for Tenderers to engage in
specific engagement activities with Australian industry, such as a roadshow in
which the tenderers showcase the potential opportunities available to Australian
industry to become involved with the Program and which provides the opportunity
for SMEs to pitch their offering to the Tenderers. This should include
engagement not only on the acquisition phase of the project but also its throughlife support and the tenderers’ intended approach to the upgrade and growth path
of the capability.
5. During the industry workshops, LAND 400 Project staff advised industry of the
intent to provide costed options to Government, at its Second Pass
consideration, of different levels of Australian industry participation in the Phase
2 capability delivery and sustainment This will give effect to the DIPS principles
and allow Government to make a considered, well-informed decision on the
preferred combination of overseas and local contribution to the Phase 2
capability. Each option will include the requirement for a sovereign support
capability. Indicatively, the options might include:
a. A best price option for acquisition, regardless of the location of
manufacture and assembly, with the capability supported and sustained in
Australia;
3
RFT and current draft RMA
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
b. An option, similar to the best acquisition price option, but which includes
the use of Australian components, in place of overseas sourced parts,
which meet the required performance standards, or other Australian
industry contributions to the fielding of the integrated vehicle system;
c. An option that is an assembled in Australia option with Australian
components, with the capability supported and sustained in Australia; and
d. An option for a higher level of Australian industry engagement in the
manufacture and through-life growth path of the vehicle, if the extensive
industry engagement during RMA demonstrates that this is feasible with a
low or minimal cost premium.
6. The Deloitte review of the existing IP needs analysis indicates that Defence will
have sufficient IP rights to be able to maximise Australian industry participation in
the through life support of the capability.
1.5 Recommendations to maximise Australian industry opportunities
The review team assesses the current proposed plans and documentation for the
conduct of the Phase 2 RMA to be comprehensive and robust. Recommended
amendments to RMA planning are focused on assisting the LAND 400 Program to give
practical effect to the maximisation of opportunities for Australian industry participation
and benefits.
Firstly, the following requirements should be included in the RMA Contract for each of
the shortlisted Tenderers:
1. To be transparent in relation to its currently proposed supply chain and intended
contracting arrangements with its suppliers:
a. To declare any offset arrangements or other pre-conditions of tender in
force with other countries, or any non-disclosure agreements.
b. To identify specific opportunities for Australian industry to be part of the
proposed acquisition and through-life support supply chain.
2. To participate actively in engagement with Australian industry and to work with
the LAND 400 Program to realise specific opportunities for Australian industry
a. To showcase potential opportunities for Australian industry to become
involved in the Program
b. To allow Australian industry to pitch their offerings for value-for-money
participation in the Tenderer’s acquisition and support supply chain
c. To support the development of costed acquisition options for different
levels of Australian industry participation in the Phase 2 capability delivery
and sustainment.
3. To incorporate development placements and opportunities within its team for
Defence and Australian industry personnel, to enhance mutual understanding
and build organisational capability. These might include:
a. Secondment of LAND 400 Program or other Defence staff to the Tenderer
or its Australian supplier network during acquisition and sustainment;
b. Assigning selected technical staff from the Tenderer or its Australian
supplier network for secondment to the LAND 400 Program; and
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
c. Providing undergraduates, cadets or apprentices with the opportunity to
be seconded to the Tenderer and its Australian supplier network during
acquisition and sustainment.
Secondly, planning for RMA might be refined to include:
1. Formal more detailed advice to industry of the LAND 400 Program intent in
relation to the maximisation of Australian industry opportunities and the means
by which it might be achieved – in line with advice provided at the industry
workshops by LAND 400 Project staff;
2. Working with the shortlisted tenderers to develop a more detailed picture of the
capability and technology components of the Phase 2 vehicle, in order to identify
the potential work packages for Australian industry;
3. Working with the shortlisted tenderers and Australian industry to identify those
parts of Australian industry that are actually or potentially internationally
competitive, or might improve their competitiveness through DIPS initiatives;
4. Development and promulgation of a detailed, public version of a Statement of
Operating Intent (SOI) to assist identification of maintenance requirements and
development of training and simulation requirements;
5. Exchange of personnel between the Commonwealth and industry, to facilitate the
transfer of knowledge and expertise and to develop a better mutual
understanding;
6. Completion as soon as possible of an overall, fully resourced LAND 400 Program
master schedule, to ensure that activities are adequately resourced and
concurrency pressures anticipated and managed, and to facilitate stakeholder
engagement, including with Australian industry; and
7. Consideration of specific means by which the cost of industry participation in the
Phase 2 Program might be reduced.
Thirdly, the conduct of the RMA over the next 12-15 months should be informed by:
1. Leveraging innovation and other DIPS initiatives to improve the competitiveness
and ability of Australian industry to contribute to Phase 2; and
2. Adapting as necessary as the Industry as a FIC initiative and the Sovereign
Industrial Capability Assessment Framework are developed and implemented.
1.6 General considerations
Several considerations identified during the review pertain to Defence and industry
more broadly than just the LAND 400 Program.
1. The industry engagement tools and methods used by the LAND 400 Program –
such as the LAND 400 group email box, the LAND 400 web portal, and the
industry engagement workshops - have been very effective in engaging with
industry. Similar tools and methods should be considered for implementation in
other Defence programs and Industry Policy Division and the CDIC should
investigate other mechanisms/initiatives to assist in the area.
2. Greater coordination and collaboration is required between the stakeholders
outside Defence (such as the various state/territory government industry and
development departments, industry support bodies and industry associations) – both
to facilitate Defence’s engagement with these stakeholders and to enable a more
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
cohesive approach by all partners to Australian defence industry and its contribution
to Defence capability.
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
2 Review background and objectives
Section summary
The 2016 Defence Industry Policy Statement (DIPS) was launched on 25 February
2016 two years after planning for the LAND 400 Phase 2 RMA commenced.
Defence considered that it would be prudent to review the RMA planning and
documentation to ensure alignment with the new policy and the delivery of the
maximum benefits to both Defence and Australian industry.
Deloitte were engaged to conduct this review in accordance with Terms of
Reference set by the Deputy Secretary Capability Acquisition and Sustainment
Group (DEPSEC CASG). Over the course of six weeks, a review team led by
Deloitte completed a desktop review of the implications of the DIPS for the Phase
2 RMA Australian industry improvement tasks, undertook an analysis of the
Australian industry participation aspects of the current RMA planning and
documentation, and engaged with Defence industry to elicit their feedback on the
opportunities for industry.
This report presents the findings from the review and makes recommendations
for refinement and strengthening of the LAND 400 Phase 2 RMA approach.
Observations relevant more broadly to Defence and industry are presented in
section 8.
2.1 Background for this review
The 2016 Defence Industry Policy Statement (DIPS) released on 25 February 2016
states that “Close collaboration between Defence and industry is critical to meet the
challenges of the future and deliver the Government’s ambitious program of works” 4 .
LAND 400 is a significant Defence project that will acquire and support the next
generation of Armoured Fighting Vehicles for the Australian Army, and Australian
industry will be a vital contributor to the delivery of this capability.
LAND 400 is about to undertake the RMA of Phase 2 – the Mounted Combat
Reconnaissance Capability. To ensure that Australian industry opportunities are
maximised and that the RMA is conducted in alignment with the DIPS, Defence
considered that it would be prudent to conduct a review of the planning and
documentation for the RMA.
Phase 2 will deliver a capability that has at least a 30 year life, which will involve
ongoing support and a carefully planned vehicle update and growth path. Given the
significant opportunities over more than 30 years for Australian industry to participate in
the initial acquisition, sustainment and further development of the capability, this three
month delay to review the industry participation aspects of the RMA is considered to
represent a small but critical investment of time.
4
DIPS, p.6
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
It should be noted that the TOR for this review require it to be conducted within the
context of the Phase 2 RFT and advice to industry. The review will not re-visit the initial
solicitation, the evaluation of the tender responses or the strategy to down-select to two
or three preferred Tenderers to be invited to participate in the RMA Stage. A key
consideration in the planning and conduct of this review was, therefore, to maintain the
probity and integrity of the Phase 2 process to date.
2.2 Terms of Reference and Objectives of the Review
The key elements of the Terms of Reference, directed by DEPSEC CASG, are to 5 :
1. Examine the implications of the DIPS 2016 for LAND 400 Phase 2 RMA
Australian industry improvement tasks;
2. In the context of the Phase 2 RFT and advice provided to
industry, analyse the Australian industry participation
aspects of the current proposed plans and documentation
for the conduct of the Phase 2 RMA;
3. In the context of the Phase 2 RFT, make recommendations
for revisions to the planning and conduct of the RMA in
order to maximise the Australian industry participation
opportunities and benefits in Phase 2.
Acknowledging the work already completed to date on the RMA,
recommendations in this report have been made to strengthen
and augment the existing approach to Australian industry
participation. These are cognisant of the key direction from Government that Defence
seek to maximise Australian industry opportunities without adverse impact to quality,
interoperability, or schedule to the delivery of LAND 400 Phase 2.
2.3 Purpose and Timeline
Over the course of six weeks as shown in Figure 1, the review team led by Deloitte and
including representatives from the LAND 400 Program Office and Defence Industry
Branch conducted:
1. A desktop review to examine the implications of the DIPS 2016 for LAND 400
Phase 2 RMA Australian improvement tasks;
2. An analysis of the Australian industry participation aspects of the current
proposed plans and documentation for the conduct of the Phase 2 RMA, in the
context of the Phase 2 RFT and advice provided to industry.
3. Industry engagement activities comprising workshops and consultations, to seek
feedback on the Australian industry participation aspects of the current proposed
plans for the Phase 2 RMA; and
4. Development of recommendations for revisions to the planning and conduct of
the RMA and the development of this report to DEPSEC CASG.
Figure 1: Timeline for review
5
DEPSEC CASG/OUT/2016/042, dated 18 April 2016
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
3 Approach and methodology
Section summary
Key elements of the DIPS and its specific initiatives were analysed in terms of
their implications for the Australian industry participation aspects of the draft
plans and documentation for the Phase 2 RMA.
Within the context of the direction and approach set out in the LAND 400 Phase 2
RFT and previous advice to industry, a desktop analysis was conducted of the
draft plans and documentation for the conduct of the RMA.
Industry engagement activities comprised primarily of workshops conducted in
each major Australian centre to allow Australian industry and relevant state and
territory bodies to be informed about planning for the RMA and to provide
feedback on the opportunities for Australian industry to participate in LAND 400
Phase 2. Numerous email submissions were later received from workshop
participants. This activity not only helped to inform the recommendations in this
report but also represented a valuable means of enhancing contact and mutual
understanding between the LAND 400 Program and industry.
3.1 Desktop analysis
Key elements of the DIPS and its specific initiatives were analysed in terms of their
implications for the Australian industry participation aspects of the draft plans and
documentation for the Phase 2 RMA. This was the primary activity used to address task
1 of the TOR.
The analysis of the current RMA plans and documentation was undertaken within the
context of the Phase 2 RFT and previous advice to industry.
Analysis of the Australian industry involvement aspects of the RMA planning, in
accordance with task 2 of the TOR, included the following documents:
1. The LAND 400 CRV RFT – Conditions of Tender version 6
DMOLSD/RFT0016/2014;
2. The draft LAND 400 CRV RMA Contract and attachments – Conditions of
Contract v0.1 Contract No. TBA;
3. The draft LAND 400 CRV RMA Instruction and covering documentation.
It was also informed by the additional elaboration provided by BRIG McGlone in his
presentations to and participation in the industry workshops (see below).
3.2 Workshops
Accompanied by representatives from the Defence LAND 400 Program Office and
Defence Industry Branch, Deloitte led a series of workshops across Australia. Workshop
locations are shown in Figure 2 and Table 1.
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
Location
Date
Lead Coordinator
No. of Attendees
Adelaide
20 April 2016
Defence SA
9
Burnie
21 April 2016
Tasmanian Department of State Growth
7
Launceston
21 April 2016
Tasmanian Department of State Growth
8
Hobart
22 April 2016
Tasmanian Department of State Growth
5
Brisbane
27 April 2016
Defence Industry Queensland
3
Australian Industry & Defence Network – Queensland
21
Newcastle
28 April 2016
HunterNet
35
Melbourne
2 May 2016
Australian Industry & Defence Network – Victoria
83
Victorian State Government
2
Geelong
3 May 2016
Geelong Chamber of Commerce
32
Darwin
5 May 2016
Australian Industry & Defence Network – NT
8
Sydney
6 May 2016
Department of Industry – New South Wales
83
Canberra
13 May 2016
Australian Industry & Defence Network – ACT
26
Perth
18 May 2016
Department of Commerce – Western Australia
23
Table 1: LAND 400 Phase 2 workshop locations
Figure 2: Locations of industry engagement activities
The workshops commenced with an outline of the purpose and objectives of the review,
the background and context to the LAND 400 Phase 2 project, and the timing of the
review leading into RMA. The opportunity was provided for participants to raise any
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
2. The assessed level of cost premium associated with Australian industry conduct
of the activities;
3. The assessed level of value for money for Defence, Government and the
Australian economy; and
4. What Defence could do to encourage Australian industry participation.
The participants formed small groups, to allow greater participation, and then gathered
in plenary session for an inclusive discussion of their assessments and suggestions.
Figure 3 shows the template used to facilitate industry discussion during workshops.
More detailed workshop feedback has been summarised at appendix 1.
Figure 3: Industry participation template for acquisition and sustainment
Participants were also invited to email further submissions to the Deloitte team after the
workshop consultation. Deloitte received a further 12 submissions; their input has been
summarised in the findings in this report and are included in Appendix 3.
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
4 LAND 400 Background
Section summary
LAND 400 is a significant Defence program that will acquire and support the next
generation of Armoured Fighting Vehicles, delivering to the Australian Army
elements of its contemporary Mounted Close Combat Capability. LAND 400 Phase
2 is tasked with acquiring and establishing support arrangements for the
Mounted Combat Reconnaissance Capability (MCRC).
Stage 1 of the Combat Reconnaissance Vehicle (CRV) solicitation activity
culminated in February 2016 with the selection of two or three tenderers to be
invited to participate in the next stage, the RMA. The RFT released in Stage 1 only
sought assurances about Tenderer compliance with broad Australian industry
capability requirements and an indication of the value of work proposed to be
performed in Australia; it did not require more specific detail to be provided about
the Australian industry participation.
The LAND 400 Phase 2 RMA is designed to reduce the risk to the Commonwealth
through a series of activities to test the veracity of the claims made by the
shortlisted Tenderers during the tender process, develop capability-cost options,
improve the quality of the tendered schedules and maximise opportunities for
Australia industry involvement in delivery and sustainment of the Phase 2
capability.
4.1 Context of LAND 400 Phase 2
4.1.1 LAND 400 Program
LAND 400 is the program for the acquisition and support of the next generation of
Armoured Fighting Vehicles (AFV) with the firepower, protection and mobility to defeat
increasingly lethal and adaptive adversaries well into the future. The program will deliver
to Army elements of its contemporary Mounted Close Combat capability. LAND 400 is
being conducted in four phases:
1. Phase 1 – Project Definition Study – Completed
2. Phase 2 – Mounted Combat Reconnaissance Vehicle (ASLAV replacement) –
source selection stage
3. Phase 3 – Mounted Close Combat Capability (M113 APC replacement) –
Preparing for First Pass Approval
4. Phase 4 – Integrated Training System – Currently planned to deliver capability
mid 2020s
4.1.2 Project LAND 400 Phase 2
LAND 400 Phase 2 is the project tasked with acquiring and establishing support
arrangements for the Mounted Combat Reconnaissance capability (MCRC), comprising
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
the Combat Reconnaissance Vehicle (CRV) mission system and associated support
elements. This vehicle will replace the Australian Light Armoured Vehicle (ASLAV) that
entered service in 1994, which no longer provides the required levels of capability for
the Australian Army. LAND 400 Phase 2 plans to acquire 225 vehicles. The acquisition
strategy being used by the project is based on a Military off the Shelf (MOTS) vehicle or
close variant (MOTS Plus), with Australian industry providing in-service support 6 .
Stage 1 of the CRV solicitation activity concluded with the completion of a down select
in February 2016. Stage 1 tender submissions were made in light of the generic
requirement for compliance with Australian industry capability requirements and initial
proposals for the value of work to be performed in Australia. The AIC information in the
tender submissions does not represent a sufficient basis for determining Australian
industry participation in Phase 2. Consequently, the RMA plans to understand and
improve the Australian industry participation aspects of the shortlisted Tenderers’ offers,
through seeking to maximise the opportunities for that participation.
6
See glossary for definitions
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
5 Implications of DIPS for Phase 2
Section summary
The 2016 DIPS did not radically change Defence’s broad
existing approach to procurement and Australian industry
participation preference for local suppliers. But DIPS
initiatives such as the Centre for Defence Industry Capability,
the Defence Innovation Hub and the Next Generation
Technology Fund will change the way Defence works with
industry, particularly in areas of innovation. Australian
Industry has been recognised as a Fundamental Input to
Capability and a new Sovereign Industrial Capability
Assessment Framework will be implemented to improve the
management of sovereign industrial capabilities.
While the implications of the DIPS for the Phase 2 RMA
approach to Australian industry participation are limited, there are some areas in
which they can be significant.
Possible changes to the RMA which include: i) requiring specific Tenderer
engagement activities with Australian industry and Defence; ii) identifying how
innovation initiatives can be used both to enhance outcomes for LAND 400 and to
improve Australian industry participation; iii) adapting as necessary as the
Australian industry as a FIC initiative and the new Sovereign Industrial Capability
Assessment framework are progressively developed and implemented; iv)
identifying and implementing practical means by which the aim of maximising
opportunities for competitive Australian companies can be given effect; and v)
considering specific means to reduce red tape and the cost of doing business
with Defence.
5.1 The 2016 Defence Industry Policy Statement
The 2016 DIPS outlines a number of new initiatives 7 :
1. The Priority and Strategic Industry Capability Framework will be replaced by a
Sovereign Industrial Capability Assessment Framework “to improve the
identification and management of the sovereign industrial capabilities that
develop and support our ADF capabilities”;
2. Australian Industry is recognised as a Fundamental Input to Capability with the
goal of driving “more formal consideration of industry impacts through the early
stages of the capability development lifecycle”;
3. A Defence Innovation Hub will be established “to undertake collaborative
innovation activities from initial concept, through prototyping and testing to
introduction into service”;
7
DIPS
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
4. A Centre for Defence Industry Capability (CDIC) will be established “to drive the
strategic partnership with Defence, involve industry in governance of the industry
programs and provide a range of business and skilling services”; and
5. A Next Generation Technologies Fund will be developed “to invest in strategic
technologies that have the potential to deliver game changing technologies”.
5.2 Implications for LAND 400 Phase 2 RMA
The Australian industry participation aspects of the existing RMA planning and
documentation are in broad alignment with the approach to Defence procurement
outlined in the DIPS. Phase 2 will investigate opportunities “to maximise competitive
Australian Industry Participation”, while seeking “to achieve the best value for money”
for Defence. Thus the broad impact of the DIPS document, in informing changes to the
planning and preparation of the RMA, may appear limited, but there are specific areas
in which it may be significant.
The following implications of the DIPS for the LAND 400 Phase 2 RMA have been
identified as a result of the desktop review:
1. The DIPS states that “a more focused coordinated and transparent relationship
between Defence and industry is required to maximise delivery of Defence
capability” 8 . The RMA approach can build on the current requirement to
maximise opportunities for Australian industry participation by planning specific
engagement opportunities involving the Commonwealth, Tenderers and
Australian industry, and by requiring through the RMA contracts that Tenderers
participate in specified engagement activities.
2. The DIPS identifies Defence’s new approach to innovation, involving closer
collaboration between Defence, industry and research organisations, and
achieved through key initiatives such as the CDIC, Innovation Hub and Next
Generation Technologies Fund. The LAND 400 Program should leverage this
approach to seek innovative solutions to its capability requirements by:
a. Identifying any projects in DSTG applicable to Phase 2 that could benefit
from collaboration with industry/academia to enhance outcomes and
increase Australian industry participation, and
b. engaging the Innovation Hub to conduct a Quicklook to identify best
practice examples or models of incentivising Primes to employ Australian
industry subcontractors.
3. Recognising industry as a Fundamental Input to Capability (FIC) is a key initiative
in the DIPS. The LAND 400 RMA instruction states LAND 400 will “work with the
Tenderers to identify and define Fundamental Inputs to Capability Requirements
and capture Risks, Opportunities, Issues and Assumptions” 9 . LAND 400 is
already taking steps to implement the addition of Australian industry as a FIC, as
evidenced by the engagement with Australian industry throughout the conduct of
this review. Further planning for and the conduct of the RMA should incorporate
the implications of Australian industry as a FIC as they are further defined and
elaborated.
4. The five Industry Requirements contained in the LAND 400 Phase 2 RFT are
based on supporting Priority Industry Capabilities (PICs). The PIC policy is being
8
9
DIPS, p.10
LAND 400 Phase 2 RMA instruction
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
replaced by a Sovereign Industrial Capability Assessment Framework 10 .
Transition to the new framework will occur in the second quarter of 2017, during
the conduct of Phase 2 RMA. The LAND 400 Program is well-placed to provide
input to the development of the new framework, due to the high level of industry
engagement that has been undertaken thus far. Any considerations that surface
during RMA that are directly attributable and may influence the development of
the new framework should be shared with the CDIC to ensure the framework is
built upon real world examples that will maximise opportunities for Australian
industry participation. On the other hand, the implications for the RMA of the
new framework should be reviewed as it is developed and as the transition
occurs. Further, the AIC Plans and Local Industry Activities (LIAs) that
Tenderers are required to develop during RMA will need to reflect the transition
to the new framework.
5. A key feature of the DIPS is that Government will maximise opportunities for
internationally competitive Australian industries. It states that major Defence
projects could consider providing funding where a Global Supply Chain (GSC)
arrangement with the winning tenderer has potential to provide capable
Australian companies with significant export opportunities 11 . The LAND 400
preferred tenderer will be a candidate to enter a GSC Deed. The LAND 400
project should remain engaged with the CDIC and IPD throughout the final
selection process to exploit this as soon as the preferred tenderer is known.
6. Planning for the RMA already contains explicit reference to maximising
opportunities for Australian industry participation; further attention should be
given to specific and practical means by which this principle might be given effect.
The LAND 400 Program should consider:
a. A more concerted effort to identify those parts of Australian industry which
are potentially internationally competitive in terms of supplying
components of the Phase 2 capability or of supporting its sustainment and
growth path;
b. Investigation of means, through the DIPS initiatives, by which specific
elements of Australian industry might improve their competitiveness and
ability to contribute to the Phase 2 vehicle capability;
c. Specific requirements within the RMA contract for tenderers to engage
with Australian industry and develop costed options for enhanced levels of
Australian industry participation in the acquisition, support and upgrade
path for the vehicles and including potential access to their global supply
chains.
7. Cutting of red tape is a key element of the DIPS and a key recommendation of
the First Principles Review. Defence can streamline tendering and contracting
procedures by investigating ways to streamline processes used to qualify
potential Defence suppliers. For example, automation of the Supplier Quality
Assurance (SQA) and risk assessment activities 12 by use of data-mining
technology and techniques provides an opportunity to pre-qualify potential
suppliers and provide that information to Prime Tenderers. Use of this technology
and technique can reduce the volume of information required from a potential
supplier to conduct an SQA audit. The LAND 400 Program should consider such
10
DIPS, p.23
DIPS, p.50
12
Defence Procurement Policy Manual, March 2016
11
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
specific means by which the cost of industry participation in the RMA and Phase
2 more broadly can be reduced.
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
6 Analysis of the Planning for the
Phase 2 RMA
Section Summary
The draft RMA plans and documentation are consistent both with the Phase 2
RFT and advice provided to industry and with the broad principles and intent of
the DIPS. However, the RMA approach would be strengthened by more explicit
presentation of the means by which the opportunities for Australian industry
participation will be progressed.
The key observations are that the LAND 400 Program: i) provide additional formal
advice to industry about the Program’s intent in relation to industry participation
and about specific aspects such as the interpretation of MOTS and MOTS Plus, ii)
identify the specific means by which maximising opportunities for Australian
industry participation will be achieved, iii) work with Army to develop a clear
concept of how the capability is intended to be used, in order to inform industry
about support and sustainment requirements, and iv) develop costed options for
different levels of Australian industry participation to be provided to Government
for consideration during Second Pass.
6.1 LAND 400 Phase 2 RFT and RMA
The review team received a copy of the LAND 400 CRV RFT and LAND 400 Phase 2
RMA documentation on 19 April 2016. These versions were used for the analysis of
Australian industry participation aspects of the current proposed plans and
documentation for the conduct of the Phase 2 RMA.
Key points from the LAND 400 Phase 2 Request for Tender (RFT) and draft RMA
Contract and Instruction have been included at appendix 2.
As outlined in Section 3, the industry engagement workshops conducted during this
review provided a very useful opportunity for the LAND 400 Program team to elaborate
on the approach to industry participation outlined in the formal documentation and to
engage with industry directly. This was a key benefit of the pause in proceeding to the
RMA and the time committed to this industry engagement.
6.2 Observations on the RMA Approach
The draft RMA documentation in its current form is robust in addressing Australian
industry participation aspects. Considerations such as AIC management, monitoring
and reporting, maximising opportunities for Australian industry participation, derivation
of Industry Requirements into Local Industry Activities (LIAs) development and
publishing of the Public AIC plan have been addressed in the draft RMA documentation.
The draft RMA documentation is consistent with the RFT and advice provided to
industry thus far. The approach is also consistent with the broad principles and intent of
the DIPS.
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
However the RMA approach would be strengthened by more explicit presentation of the
means by which Australian industry participation will be progressed. Noting the TOR
requirement that the way forward for the RMA must be in accordance with the RFT and
advice provided to industry, the following observations are made:
1. Although MOTS and MOTS Plus have been defined in the RFT and RMA
documentation 13 , these are terms that have been misinterpreted. During the
industry workshops conducted as part of this review, LAND 400 Project staff
provided clearer guidance on the interpretation of MOTS and MOTS Plus. There
would be merit in providing additional formal advice on this to both the shortlisted
tenderers and Australian industry, and to including a more detailed interpretation
in the RMA documentation. Such advice to industry should include that MOTS
does not preclude the substitution of Australian-supplied components for foreign
made componentry in the vehicle if it meets the same performance standards.
The capability provided by a MOTS solution is not defined by its individual
components; rather it is defined by the performance of those components in
unison, which is not changed by the substitution of suitable componentry. This is
indicative of the opportunity that Australian industry can provide for a systems
solution which is off the shelf. The current draft RMA does not articulate this
advice explicitly; the LAND 400 Program should include this advice in its
engagement activities with the Tenderers and broader industry, in order to
improve understanding of this opportunity.
2. The RFT and draft RMA contract state that the Commonwealth will work with the
Tenderer to maximise the level of Australian industry participation during RMA,
noting that the documentation specifies that the capability must be supported in
Australia. This is consistent with advice provided to industry but would be
strengthened by inclusion of the specific means by which this may be achieved.
This should include the requirement for Tenderers to engage in specific
engagement activities with Australian industry, such as a roadshows in which the
Tenderers showcase the potential opportunities available to Australian industry to
become involved with the Program and which provides the opportunity for SMEs
to pitch their offerings to the Tenderers. This should include engagement not only
on the acquisition phase of the project but also on its through-life support and the
Tenderers’ intended approach to the upgrade and growth path of the capability.
3. The ability to identify specific opportunities for Australian industry engagement is
dependent on a clear understanding of how the capability is to be used by Army.
But that is not yet possible because Army has not yet determined its doctrine,
concept of operations, disposition of Land Force elements, planned Rate of
Effort, Basis of Provisioning to units and support concept. It is currently
conducting cost of ownership studies to inform these aspects. The absence of
this information complicates significantly discussions with Australian industry
about opportunities for participation in support and sustainment activities. For
example, maintenance requirements for the capability are yet to be defined.
Development of a public version of a Statement of Operating Intent (SOI),
highlighting the anticipated Rate of Effort, Basis of Provisioning, support concept,
mission mix, mission profile and basing arrangements would assist identification
of the support and sustainment requirements.
4. The LAND 400 Program should, as an outcome of the RMA, be in a position to
provide options to Government for consideration during Second Pass, including
costed options for different levels of Australian industry participation in the Phase
13
RFT and current draft RMA
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
7 Recommendations to maximise
Australian industry opportunities
Section summary
In the context of the Phase 2 RFT, the review team assesses the current draft
RMA proposed plans and documentation to be comprehensive and robust.
Recommended amendments to RMA planning and activities are focused on
assisting the LAND 400 Program to give practical effect to the maximisation of
opportunities for Australian industry participation and benefits.
Recommendations include: i) specific requirements for inclusion in the RMA
contract for each of the shortlisted Tenderers; ii) specific measures for inclusion
in the RMA planning relating to additional advice to industry and engagement
between the LAND 400 Program, Tenderers and Australian industry; and iii)
ensuring that the conduct of the RMA is informed by the developing elaboration
and implementation of key DIPS initiatives.
7.1 Overall assessment
In the context of the Phase 2 RFT, the review team assesses the current proposed
plans and documentation for the conduct of the Phase 2 RMA to be comprehensive and
robust. Recommended amendments to RMA planning and activities are focused on
assisting the LAND 400 Program to give practical effect to the maximisation of
opportunities for Australian industry participation and benefits.
Advice from industry indicated that the decision to conduct LAND 400 in three discrete
Phases after Phase 1 had caused uncertainty within industry and complicated its
planning in terms of the potential return on investment in establishing capability or
capacity and the level of business and contracting risk. While the LAND 400 Program
will investigate the potential for commonalities between the vehicles to be acquitted in
Phases 2 and 3 and is bringing forward work on Phase 4 training and simulation, there
is not yet any firm basis for advising industry of follow-on opportunities in Phases 3 and
4.
7.2 Recommended amendments to the RMA contract
The following recommendations are made in relation to the requirements in the
proposed LAND 400 Phase 2 RMA contract for each of the shortlisted Tenderers:
1. To be transparent in relation to its currently proposed supply chain and intended
contracting arrangements with its suppliers:
a. To declare any offset arrangements and other pre-conditions of tender in
force with other countries, companies or governments, or any nondisclosure agreements 14 . Tenderers should list the components or
14
Declaration of offsets will assist the Commonwealth to understand constraints on the Tenderer’s offer
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
acquisition elements impacted by those offset arrangements and preconditions and offsets should be declared to the LAND 400 Program
Office by Effective Date (ED) + 1 week;
b. To work with Defence to identify opportunities for Australian industry to be
part of the proposed acquisition and through-life support supply chain. The
review team’s recommendation is this should include the development of
an opportunity roadmap, highlighting those systems or sub-systems of the
capability where opportunities may exist for Australian industry. Although
there is a requirement in the RMA baseline to declare why an Industry
Requirement may not be met, transparency of the opportunities available
would assist Australian industry to focus their offering. The opportunity
roadmap should be developed by ED + 2 weeks.
2. To participate actively in engagement with Australian industry and to work with
the LAND 400 Program to realise specific opportunities for Australian industry:
a. To showcase the potential opportunities for Australian industry (1.c above)
to become involved in the project, communicating via the LAND 400
Program Office. Advice of these opportunities should be provided to
Australian industry by ED + 3 weeks;
b. This would be followed by face-to-face engagement, through an SME
roadshow across Australia, between the Tenderer/s and relevant elements
of Australian industry, to allow them to pitch their offerings or value-formoney participation in the Tenderer’s acquisition and support supply
chain. The indicative timeframe is ED + 12 weeks. This task will impact
the Tenderer’s ability to submit deliverable data items, and, accordingly,
serial 8 of the draft RMA schedule should be amended to an indicative
timeframe of ED + 16 weeks. Figure 4 is a pictorial representation of the
intent of this requirement; and
Figure 4: Identification of the maximum level of opportunities for Australian industry
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
c. To value specific options for different levels of Australian industry
involvement in the Phase 2 capability delivery and sustainment, to be
developed in conjunction with the LAND 400 Program, capturing both
content and capability. The indicative timeframe for completion is ED + 50
weeks. The Tenderer should also state the assumptions used to quantify
claimed levels of Australian industry content.
3. To incorporate development placements and opportunities within its team for
Defence and Australian industry personnel and for its personnel within Defence.
These might include:
a. Secondment of LAND 400 Program or other Defence staff to the Tenderer
or its Australian supplier network during acquisition and sustainment, in
order to build Defence capability and industry understanding;
b. The LAND 400 Program hosting technical staff from the Australian
supplier network of the preferred Tenderer for a period of secondment, to
build Australian industry capability in understanding Defence
requirements; and
c. Providing undergraduates, cadets or apprentices with the opportunity to
be seconded to the Tenderer and its Australian supplier network during
acquisition and sustainment, to build Australian industry knowledge and
provide valuable youth opportunities.
7.3 Recommended refinements to RMA planning
Planning for the RMA might be refined to include:
1. Formal, more detailed advice to industry of the LAND 400 Program intent in
relation to the maximisation of Australian industry opportunities and the means
by which it might be achieved – in line with LAND 400 Project staff’s advice to the
industry workshops;
2. Working with the shortlisted tenderers to develop a more detailed picture of the
capability and technology components of the Phase 2 vehicle, in order to identify
the potential work packages – and promulgation of this to Australian industry to
assist industry in the identification of specific opportunities and to allow
companies to make better targeted pitches to the tenderers. This might include
what information is able to be provided on anticipated or likely costs;
3. Working then with the shortlisted tenderers and Australian industry to identify
those parts of Australian industry that are actually or potentially competitive, or
which could improve their competitiveness through DIPS initiatives;
4. Development and promulgation of a detailed, public version of a Statement of
Operating Intent (SOI) to assist identification of support and sustainment
requirements and development of training and simulation requirements;
5. Identification of immediate opportunities to leverage the DIPS innovation initiative
by, for example, by working with Industry Division to identify any projects in
DSTG applicable to Phase 2 that could benefit from collaboration with industry
and/or academia to enhance outcomes and increase Australian industry
participation; and engaging the Innovation Hub to conduct a Quicklook to identify
best practice examples or models of incentivising Primes to employ Australian
industry subcontractors;
6. Completion of an overall Program master schedule as soon as possible. While
there is a detailed LAND 400 Phase 2 project work breakdown structure and
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
8 Broader issues for consideration to
improve Defence industry
involvement
Section summary
Several considerations identified during the review pertain to Defence and
industry more broadly than just the LAND 400 Program. A number of these arose
as a result of engagement with industry. These considerations are implementable
suggestions to address key barriers to working within the Defence environment
and will benefit future Defence projects through enhanced collaboration between
Defence and industry. They should be given further support and focus by
Defence in future work.
Key observations for Defence consideration include: i) Defence implement in
other programs the industry engagement portal and group email approach used
in LAND 400; ii) Defence seek to simplify language and consider alternative
channels when communicating with industry; and iii) implementation of an
industry secondment program.
Key observations for Industry and state/territory organisations consideration
include: i) exhibiting greater self-help and initiative with respect to keeping
abreast of contemporary Defence opportunities, policy, initiatives, and programs;
and ii) strengthening coordination between the various state/territory government
development departments, industry groups and associations, and chambers of
commerce.
This section outlines the observations made by the review team during the conduct of
the review that involve matters that are beyond the strict scope of the Terms of
Reference, but which have significant implications for the relationship between industry,
state and territory jurisdictions and Defence.
8.1 Considerations for Defence
The following observations are presented for Defence consideration:
1. To increase Defence innovation opportunities for industry, projects currently
underway within Defence Science & Technology Group (DSTG) should be
reviewed to determine if elements of those projects could be allocated to industry
for collaborative development. This action would assist to give substance to the
recognition of Australian industry as a FIC.
2. Defence can assist Australian industry by continuing to work closely with the
Department of Industry, Innovation and Science and Department of Foreign
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
build and retain the capability and knowledge of Australian Defence and industry.
These placements could leverage existing Government employment programs
e.g. the Indigenous Cadetship Support program, to increase the benefit of these
existing programs whilst also achieving a Defence and industry capability
outcome.
8. Probity considerations were observed by some to be used as a tool to avoid
engagement with Defence industry, notably SMEs. Although Defence must
always meet its probity and independence obligations, building and maintaining a
collaborative relationship with Defence industry early in the capability lifecycle is
key to more effective delivery of Defence capability as outlined in the DIPS.
Defence staff must be clear on their probity responsibilities and the boundaries of
probity obligations; improved education of probity requirements across the
Defence community would help to resolve any perceived probity issues.
9. The workshops invoked extensive discussion about whether mandating specific
levels of Australian industry participation was an effective mechanism, with most
industry participants supporting this approach. Industry also perceived that
Defence lacks credibility in ensuring claimed AIC levels are achieved. As an
alternative or addition to mandating AIC levels, Defence should consider
implementation of an incentive scheme to encourage Primes and OEMs to
maximise the level of Australian industry content and capability. Further analysis
is required to determine the potential benefit to the Australian economy with
varying levels of Australian industry content and capability. The analysis should
identify acceptable options to incentivise Primes and OEMs. One option may be
implementation of a shared value arrangement whereby the value to the
Australian economy for achieving a certain level of AIC is shared with the
Prime/OEM. Whilst the method for measuring AIC claims exists, auditing AIC
claims and delivery of benefits requires further consideration and the use of an
independent body e.g. Australian Made Campaign Limited, may assist.
10. Several industry participants suggested that Defence/Government should ensure
that its analysis of costs is based on the life of a capability – and specifically that
any cost premium associated with conducting acquisition activities in Australia
(e.g. design, manufacture) be assessed in the context of the cost of supporting
the capability through its life. The rationale for considering acquisition activities
as the investment in sustainment capability is that through the conduct of
acquisition activities, knowledge and IP can be created which directly impacts
sustainment capability effectiveness and efficiency as industry would be able to
progress along the learning curve. However, further analysis including
quantitative modelling is required, to investigate the impact investment in
acquisition capability (e.g. manufacture) has on through life support costs
including capital expenditure, costs associated with progress along the learning
curve, and productivity.
11. Many workshop participants argued that it is incorrect to apply the 30 – 40 % cost
premium for manufacture in Australia identified in the RAND report into
shipbuilding in Australia when examining the Australian vehicle industry 17 . Some
claimed that, in their experience, the cost premium is closer to 5 – 10%, based
on contemporary exchange rates. A follow-up independent study into the cost of
manufacture in Australia in the land domain should be undertaken to determine
what, if any, cost premiums exist. This study should include exploration of the
impact that Defence-specific and Australia-specific overheads have on the cost
17
RAND Corporation, 2015, Australia’s Naval Shipbuilding Enterprise: Preparing for the 21st Century
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
of manufacture and explore the use of Australian made components replacing
overseas manufactured pieces in off-the-shelf solutions.
12. Industry participants highlighted issues associated with the way in which Defence
categorises costs, which may lead to Defence paying a greater total cost for
contract. For example, while a sustainment manager may award a contract for
maintenance to the lowest bidder, freight charges for transporting assets or
equipment to the maintenance site are categorised differently and belong to a
different cost centre. The addition of these charges might result in the total cost
to the Commonwealth exceeding the total cost for conducting the maintenance
activity at a different, closer site. Similar discrepancies can exist with categorising
the purchase of repairable items as capital costs or consumable costs.
Consideration of total cost to the Commonwealth (that is, cost of ownership),
regardless of cost centre owner, should be the driving principle when assessing
value for money considerations.
13. Several enterprises consider Defence to be too prescriptive in its needs and
technical requirement statements, resulting in alternative solutions not being
considered. Defence policy is for the use of a functional performance
specification (FPS) 18 , which assesses capability options on a functional and
performance basis, with no bias towards any specific solution. There are
occasions on which the specifications are too detailed and unnecessarily
prescriptive. To allow for more innovative solutions to be proposed, Defence
should consider developing and releasing broad problem statements, for industry
to identify a possible broader range of solutions.
8.2 Considerations for Industry and State/Territory Organisations
The review team observed that there were numerous factors impacting industry’s ability
to engage effectively with Defence and Primes and thus impacting on Australian
industry participation in Defence programs. The following observations are made for
industry consideration:
1. Some enterprises and industry groups highlighted the desire for Defence to task
and fund the development of products by Australian industry and the
development of Australian industry capacity, rather than industry undertaking
such development activity at risk – captured in the phrase “you fund it and we will
build it”. Such a wholesale transfer of investment and acquisition risk to the
Commonwealth is not appropriate, and does not reflect either commercial reality
or the Government’s policy for targeted investment in the development and
sustainment of sovereign capability. The review team’s observation is that
despite contemporary Australian Defence industry comprising private and public
enterprise, this expectation of Defence appears to stem from a cultural legacy
from when Australian Defence industry was the responsibility of the Australian
Government.
2. In several instances it was observed that Australian industry did not exhibit
sufficient initiative and self-help in identifying opportunities within Defence, and
identifying those channels available to assist them to approach Defence. This is
evidenced by the low level of awareness of the DIPS in some locations, the low
number of people (particularly industry bodies) who had read the DIPS, and the
lack of awareness of some well-publicised Defence industry initiatives and
programs. There is a particular role here for both industry groups/associations
and relevant State/Territory departments to ensure that they are familiar and up18
Defence Capability Development Handbook 2012
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
to-date with key Defence policies and programs and to provide informed advice
to their members and stakeholders regarding opportunities in Defence.
3. Although Defence is undertaking steps to streamline and simplify the manner in
which industry can engage with Defence, by raising the CDIC and associated
initiatives as a single point of entry, the numerous and fragmented state
government development departments, industry groups, and local area
chambers of commerce poses challenges for others, including Defence, to
engage with them. Figure 5 shows the fragmented nature with which SMEs can
engage with Defence programs - either via structured channels e.g. Defence
Business Access Offices and other state government bodies, or directly to
Project Offices and Systems Program Offices. It was evident across the states
and territories that there are varying degrees of collaboration and coordination
between industry bodies and state/territory government development
departments. The New South Wales government has suggested that better
interstate cooperation between state government agencies and Defence industry
would result in better outcomes at the Federal level. Given the high levels of
competition for Defence investment in regional locations, this may be difficult to
achieve. But it is the review team’s opinion that such a coordinated approach
would assist in fostering closer collaboration throughout Australian industry and
identifying better solutions for Defence.
Figure 5: Current state interactions between Defence industry and the Defence community
4. Figure 6 is an example of which bodies should be responsible, accountable,
consulted or informed (RACI) in relation to Australian industry participation. The
matrix identifies the level of involvement of each of the groups.
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
Figure 6: RACI matrix for Australian industry participation
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
9 Glossary
Note: Definitions are taken from DMOLSD/RFT0016/2014 – LAND 400 CRV RFT
Term
Definition
Military off the Shelf
(MOTS)
Means equipment that:
MOTS Plus
a.
Is already established in-service with the armed forces of another country or
Australia
b.
Is sourced from an established production facility (not just a Military off the Shelf
design); and
c.
Requires at most, minor modifications to deliver interoperability with existing ADF
and/or allied assets.
Means a MOTS baseline vehicle (including MOTS variants) reconfigured with a single
package of upgrades in order to deliver an increased level of compliance with the technical,
functional and performance requirements of this RFT.
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
10 Appendix 1 – Workshop feedback
Section summary
Engagement with industry has provided a perspective on the opportunities that
LAND 400 Phase 2 presents for Australian industry. Generally this perspective is
in alignment with the AIP aspects of the proposed RMA, in the context of the
Phase 2 RFT and advice provided to industry. Specifically, industry agrees that
the Industry Requirements (IRs) included within the LAND 400 Phase 2 RFT are
likely to provide the greatest opportunity for participation in LAND 400 Phase 2.
The consolidated responses identified opportunity for Australian Industry
Participation in the sustainment and through life support of the LAND 400 Phase
2 capability in the areas of maintenance, engineering and logistics. This is in
alignment with the IR that appropriate in service support of the vehicle should be
conducted in Australia. Workshop participants highlighted these opportunity
areas due to the existing Australian capability currently supporting sustainment
activities. It was suggested that Australian industry possesses the required
experience, skills and facilities to continue to support military vehicles in
Australia at no or a low cost premium, and should offer value for money to the
Commonwealth.
Other industry requirements such as high end systems integration were also
identified as high opportunity areas for Australian industry. While there was
particular alignment on Australian industry opportunities across the sustainment
of the vehicle, many participants voiced a desire to maximise involvement across
the acquisition of the vehicle particularly across manufacturing and assembly
due to strong extant capabilities within Australian industry and the future benefits
that investment in acquisition may provide the vehicle across sustainment. For
example skills and facilities used for assembly may be leveraged for maintenance.
In considering the opportunities for Australian industry in LAND 400, the question
was also asked of participants what Defence could do to encourage Australian
Industry Participation across the LAND 400 program and future projects. The
feedback compiled provides a point of view on both the enablers and barriers that
Australian industry face when working with Defence.
Note: The statements provided within this section of the report are representative of the
workshop participants over the course of this review. This feedback does not
characterise the conclusions or points of view of the review team.
10.1 Purpose
The feedback presented below is the compiled and summarised output of extensive
engagement that was achieved throughout the course of this review. This engagement
included 13 workshops held in every state and territory of Australia with various industry
representatives, alliance networks and state government bodies.
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In addition, Deloitte have received numerous email submissions from workshops
participants, which have also been included within the feedback presented below.
As a result of this engagement, a number of companies have put forth expressions of
interest via the LAND 400 portal; this is a testament to the potential value that this
engagement has already provided to both Australian industry and the LAND 400
program.
The complete workshop summary has been included as appendix 3 to this report. The
elements summarised below contain the consolidated feedback from the workshops
that was undertaken as part of this review.
10.2 Opportunities
A key goal of the workshop was to elicit feedback from participants on the broad activity
areas across acquisition and sustainment that offered the most significant opportunities
for Australian industry participation in Land 400. A template was used to prompt
discussion across these activities with a focus on existing Australian capability,
perceived cost and value for money considerations that investment in Australian
industry would create. This template was refined throughout the engagement based on
industry’s feedback. The key insights across these broad areas are presented below.
10.2.1 Design
The vehicle represents a MOTS solution, thus design opportunity for Australian industry
is limited to niche opportunities in the Australian-isation and upgrade/modification path
of the vehicle. Generally industry indicated that a MOTS solution would be limiting to
Australian Industry Participation; however participants were made aware that, assuming
the same functional performance, there is nothing restricting the use of Australian
componentry in the design of the vehicle.
Participants suggested that design changes could offer high value to Australian
industry; however they could be costly to Defence and risk creating an orphan fleet.
Australia has a history of designing smart innovative solutions; however it was
suggested that a lack of investment over the last 20 years has seen the capability
reduce significantly. Industry noted their view that design capability will be critical to
building a sustainable industry to support sustainment of this vehicle and ensure
sovereign capability concerns are minimised.
10.2.2 Manufacture and Assembly
Participants indicated that while demonstrated capability and facilities for heavy
manufacturing exist in Australia, the opportunity for assembly was more realistic. It was
suggested that the downturn of the automotive and mining industry could provide an
opportunity to leverage redundant facilities and a transferable skill base. The high cost
of legislative overheads (e.g. environmental, work health and safety), union presence,
wage costs and higher quality management system (QMS) standards in Australia may
create a premium; however a focus on lean production, automation and low volume,
high quality excellence should improve cost competitiveness.
Industry participants expressed that the benefits of manufacturing in Australia cannot be
understated including export opportunities, reduction of quality risk, high local industry
participation and broader economic benefits. A similar sentiment was expressed for
assembly in country, in particular enablement of through-life support through use of
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facilities and skills, ultimately improving the lifecycle cost of the vehicle, maintaining
capability, and driving innovation and competitiveness.
10.2.3 Installation and fit-out
Industry were attracted to the high value opportunity that installation and fit-out could
provide Australian industry, particularly in the installation of electronic componentry and
Australian mission kits e.g., Bushmaster. Participants indicated that existing capability
could be used to provide high value work to Australian industry that is low risk and cost
competitive. Local on-the-ground iterations are likely to add value and investment will
provide high grade capability across sustainment.
10.2.4 Integration of equipment and systems into the vehicle
Higher value skills present strong future opportunities in Australia; Information and
Communications Technology (ICT) was highlighted as an example. Capability is
currently leveraged in-country for Defence specific projects such as Bushmaster. As
integration is ADF specific, industry considers that Australian industry participation
should be maximised due to local knowledge and importance for through-life support.
The rapid pace of technology change means that replacement of these systems into the
vehicle will be frequent, providing a continuous flow of high value employment.
10.2.5 Integration into operating environment
Australia has a strong tradition of integrating capability into the operating environment
with a number of regional training, testing and support facilities located throughout
Australia. Participants consider this is a critical, sovereign capability that must be
achieved in Australia. It was suggested that by leveraging existing facilities, and an
understanding of the local conditions a cost effective outcome could be achieved that is
sufficiently robust for the Australian operating environment.
10.2.6 Maintenance
Australia has a strong existing industrial base/capability that currently maintains military
vehicles in Australia however concern for future capability was expressed in regards to
a decreasing blue collar workforce with less people taking up trades. Local sustainment
improves maintenance control and fleet availability, while retaining a national capability
of strategic importance. Industry and Defence agree that maintenance in country is
fundamental; however there was some unease expressed regarding intellectual
properties regulations, which must enable, not prohibit required maintenance for
Defence purposes.
10.2.7 Engineering and logistics
Industry expressed a view that Australia has a proud tradition in engineering of
producing cost effective, innovative solutions however the capability is declining in
Australia. Industry considers that engineering capability is critical to Australian
competitiveness on a global scale. Representatives strongly expressed the opinion that
a design authority must exist in country to provide a critical sovereign capability. Thus
LAND 400 provides an opportunity for technology transfer and knowledge sharing with
OEMs to boost Australian industry. Logistics management was seen to provide a high
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opportunity for Australian industry due to a low cost premium and large existing
facilities/capability that can be exploited.
10.2.8 Training and simulation
Participants noted that the opportunity for training and simulation may be constrained by
the platform selected by the OEM; however it is likely to require tailoring for the
Australian environment. Training and simulation is an advanced industry in Australia,
with strong participation from SMEs. Leveraging this capability will provide a cost
effective solution that enables Australian soldiers to be trained locally and according to
unique Australian operating requirements.
10.2.9 Update and growth path
Australia has an innovative culture that achieves the maximum output from a capability
through design modifications and upgrades. This provides an opportunity in the growth
path to adapt to the changing threats and unique requirements the Australian
environment presents. Industry sees this capability as fundamental to AIC; however
access to intellectual property must encourage Australian innovation onto the vehicle.
Extensive changes to the vehicle also present the risk of creating an orphan fleet.
10.2.10 Global supply chain
The existing opportunity was considered to be low, perceived to be a result of the
culture of Primes, and difficulty in overcoming existing commercial arrangements that
the OEM has with their suppliers. Industry expressed that overseas countries tend to be
more protectionist than Australia limiting the opportunities for Australian SMEs.
Successful penetration of GSCs means that Australia is competitive on a global scale. It
will provide the best opportunity to increase quantities, lower cost and sustain capability.
Participants thought that successful penetration will take time and will follow the
development of the above areas.
10.3 Key takeaways
Industry voiced that a number of obstacles exist with respect to engaging in activities
with both LAND 400 and other major Defence projects. Workshop participants were
asked to provide feedback on how Defence could encourage Australian industry
participation in an effort to address some of the shortcomings they have experienced.
This feedback included various perspectives regarding the current culture and approach
to Defence procurement, understanding of cost, the competitiveness and export
potential of Defence major projects and other barriers to participation. While the
feedback presented was generated in regards to LAND 400 Phase 2; the comments
have broader ramifications across all major Defence projects. Defence need to be
aware of these considerations; however it is acknowledged that Defence are already
working with industry to improve outcomes.
10.3.1 Defence approach and culture
10.3.1.1 Approach to Australian industry capability
Workshop participants expressed discontent regarding the protectionist nature of
overseas countries, citing that offset programs in these countries are limiting
opportunities for Australian industry. If Defence are to maximise Australian industry
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
participation in LAND 400, representatives suggested that Defence should either
enforce participation via our own offset programs or incentivise involvement. The
definition of Australian industry content is still vague to industry, they would like to see
greater clarity and early engagement on the topic, in particular how Australian content
will be measured.
10.3.1.2 Engagement approach of LAND 400
Industry voiced discontent regarding the lack of detail currently provided to Australia
SMEs concerning the specific LAND 400 vehicle requirements and work packages. As a
result they are not aware of the granular opportunities that LAND 400 offers and are
unable to effectively communicate their capability to the Primes.
The decision to split Phase 2 and 3 has confused Australian industry, participants
expressed that the commonalties that are likely to exist between the Phases should be
exploited. This would provide more significant opportunities for industry and improve
efficiencies provided by greater economies of scale.
10.3.1.3 Risk/Innovation
There is a perception that Defence’s preference to leverage international capabilities is
indicative of Defence’s low appetite for risk. Participants considered a cultural shift, in
the way that Defence conducts procurement is required to maximise Australian industry
participation and enable innovation to occur in LAND 400 and future Defence projects.
Historically Defence have been very prescriptive in their functional performance
specifications to industry. Attitude to this approach varied across Defence. On one hand
industry statements such as “tell us what you want us to build and we will build it”
indicated a desire for Defence to commit, with resources before industry are prepared to
invest and develop a solution. Other industry participants expressed irritation over
functional performance requirements that can limit the outcome to a specific solution,
constricting innovation and limiting the opportunity for Australian industry.
10.3.2 Barriers to Australian industry participation
In the broader context of Defence SMEs articulated a number of barriers they face in
engaging and working with Primes and Defence. The following barriers were cited as
limiting Australian industry participation:
1. A lack of resources, time and opportunity to conduct business development
activities and develop relationships with Defence and the Primes;
2. Convoluted avenues of engagement with Defence exacerbated by shifting points
of contact due to organisational churn and posting cycles;
3. Ineffective distribution of information regarding Defence contacts, networks,
tenders and available assistance;
4. Complex and time consuming tender processes, which SMEs find difficult to
comprehend and complete;
5. A lack of understanding of Australian industry capability; seen to be a result of
the uncoordinated approach between various alliance networks in both mapping
capability and promulgating capability information to Defence and Primes; and
6. A lack of confidence in long term opportunities due to short term contracts being
let are common to Defence projects. This does not encourage SME participation
and investment.
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
10.3.3 Understanding of cost impact from increasing Australian industry participation
The cost premium associated with conducting activities in Australia is clearly dependent
on the activity. Participants acknowledged that that Australian does present a premium
environment for manufacture and assembly. However, the decrease in the Australian
dollar, ability to leverage latent facilities and skill bases, and operational excellence
across low volume, high quality work would reduce this premium.
It was suggested that this premium would be offset by the value for money benefits to
the broader economy, and the through-life support of the vehicle. Participants indicated
that they would like to see Defence undertake detailed modelling to consider both the
lifecycle implications associated with an investment in acquisition (assuming it can be
leveraged for sustainment activities) and the broader economic benefits associated with
Australian industry participation for the Commonwealth.
The premise of cost premium was even challenged by a number of participants implying
that a cost premium cannot exist for Australian industry to win a contract with an OEM.
It was suggested that Australian industry needs to be cost competitive on a global scale
to retain capability and drive innovation.
The cost of doing business with Defence was also voiced as a concern; during one
workshop it was stated that the transactional cost of doing business with Defence was
approximately 10-15% of the total value of the contract. With this in mind industry would
like to see processes streamlined to reduce cost and improve the speed at which
projects progress. It was acknowledged by industry representatives that they had
already seen improvement in this area from Defence. This feedback aligns with the
sentiment of cutting red tape present in key Defence strategic documents such as the
First Principles Review and Defence Industry Policy Statement.
10.3.4 Competitiveness of Australian industry
Australian industry SMEs consider they are not afforded a level playing field when
competing against global industry competitors contributed by:
1. The investment of Australian industry in developing IP for Australian-isation,
customisation and integration of systems is not acknowledged by Defence and
Government;
2. Defence not having sufficient access to Prime or OEM IP such that Defence is
forced to have an exclusive relationship with the Prime/OEM for the life of type of
the capability, to the detriment of Australian industry opportunities and capability;
and
3. A lack of focus on developing export opportunities that increase volumes, reduce
cost and drive Australian competitiveness.
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
11 Appendix 2 – RFT/RMA key points
11.1 Key points from LAND 400 Phase 2 RFT and RMA
1. “In conducting this RFT, the Commonwealth is seeking an outcome that will:
a. Provide the Commonwealth with value for money;
b. Meet the Commonwealth’s current and future Defence capability
requirements;
c. Provide significant and sustainable benefits to the Commonwealth, the
Defence industry and the successful Tenderer; and
d. Achieve Australian Industry Capability (AIC) outcomes.”
2. “The Commonwealth will require shortlisted Tenderers to participate in an RMA,
and will require shortlisted Tenderers to execute an RMA contract…without
material change following notification by the Commonwealth of the Tenderer’s
shortlisting”.
3. “Tenderers must include how they propose to perform Industry Requirements
and provide discrete AIC Plans for the Contract (Acquisition) and Contract
(Support) with costed proposals describing how those Industry Requirements will
be implemented.”
4. Industry Requirements include:
a. “IR1. High end systems of systems integration – undertake design
activities to integrate the CRV into the Australian Defence Force (ADF)
operational environment. This will include interface design and testing.”
b. “IR2. High end systems of systems integration – install and integrate C4I,
GFE, such as Battle Management Systems, Electronic Countermeasures,
Counter-IED systems, GPS, radios, weapons software & sensor data in
accordance with the design, engineering and other technical
requirements.”
c. “IR3. Support of mission and safety critical software – the conduct of
mission and safety critical software updates, maintenance and repair
tasks. This will include software fault detection and correction, software
integration of new capabilities onto the platform and updates of existing
software.”
d. “IR4. Electronic warfare – the ability to support any electronic warfare
systems supplied under the contract. This will include, but not be limited
to, countermeasures development and validation and reprogramming of
overseas developed systems to meet operational needs.”
e. “IR5. Heavy grade maintenance – maintenance and repair tasks that
require extensive engineering facilities, including repair of individual
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LAND 400 Phase 2 – Review of approach to Australian Industry Participation
components, overhaul of assemblies and modules, and overhauls and
rebuilds of complete vehicles.”
5. “For each of the Industry Requirements that Tenderers propose to perform
outside Australia, Tenderers must justify the proposed solution in terms of:
a. Cost effectiveness;
b. Benefits accruing to the Commonwealth;
c. Impact on the project schedule and capability; and
d. Limitations (including regulatory, Intellectual Property (IP), skill,
technology, knowledge etc.)”
6. “The Tenderer will work with and provide all necessary support to assist the
Commonwealth to undertake analyses and assessments that may
include…investigation of opportunities to further maximise the Tenderer’s
proposed level of Australian industry capability.”
7. “There is no requirement for either manufacture or assembly to occur in
Australia, although Tenderers may make such offers.”
8. In the RMA baseline, specified elements of the AIC Plan content include:
a. Executive summary;
b. AIC Management;
c. AIC Monitoring and Reporting;
d. Maximising Opportunities for Australian Industry Participation;
e. Derivation of Industry Requirements into Local Industry Activities (LIAs);
f. The AIC Schedule and LIA Description Sheets; and
g. Public AIC Plan.
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