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Analyst View - Contractors have never been more critical to Defence

by Jon Cottam •
Free resource

A cursory look at Defence’s capability goals under the 2020 Defence Strategic Update (DSU) and 2020 Force Structure Plan (FSP) raises important questions with significant implications for suppliers. How will Defence reconcile delivering these goals against the reality of what its workforce can provide?

The answer is provided by the Australian Strategic Policy Institute’s recently published The cost of Defence ASPI defence budget brief 2021–2022 prepared by Dr Marcus Hellyer. Put simply; Defence cannot operate on a day to day basis without calling on what Hellyer calls its “external workforce” that is composed of contractors, “consultants”, and “outsourced service providers”.

At nearly 32,500 personnel as of March 2021, this workforce’s size surpasses all other Defence workforces (Air Force, Army, Navy, Reserves and APS). These numbers are up from 28,600 in March 2020, of which 13% were in the IT space. 

Defence is delving into capability areas that have historically been a lower priority. In doing so, it will inevitably require supplier expertise; for example, to build up the RAAF’s new Space Division that is to open next year or to ensure Australia’s ongoing access in the space domain through upgrades to our satellites.

More broadly, Defence’s plans to boost sovereign capability across all of its domains demands that it taps into local expertise to operate and sustain the equipment that it buys. Meanwhile, the Capability and Sustainment Group, responsible for supplying the Australian Defence Force, has been calling on contractors to address gaps in “project management and professional services”.

SMEs have seen their efforts rewarded with lucrative contracts in labour-hire during 2020-21, and the next few years point to good times ahead. For example, some 450 current Defence ICT labour-hire contracts with a total contract value of some $394 million will end by 30 June 2023, according to Intermedium’s data. This is on top of the contracts generated from Defence’s new acquisitions over the next decade. 

Even if the Government were to ease off on its cap and hire some more public servants, it wouldn’t make much of a dent. Defence’s external workforce is already around double the size of the Defence civilian workforce at 32,500 staff.

The Defence Force already has its budget and attention tied up elsewhere. Additionally, any cuts to contractor use mean Defence takes on the recruitment, training, ongoing costs and delays associated with getting public servants up to speed. This assumes that the external workforces knowledge and expertise can be successfully transferred to public servants.

Chewing up Defence time and resources in this way is inconsistent with the DSU’s emphasis on the need to build up Australia’s defences sooner rather than later. The Defence Force already has enough on its plate between now and 2030.   

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