Tag Archive for: acquisition

The battle for Pentagon acquisition policy: tradition versus new-and-cheaper

An upcoming battle over defence acquisition will have repercussions for US military posture, particularly in the Pacific.

The weapons that get bought in larger or smaller quantities, or are launched or cancelled, will indicate whether US President Donald Trump’s administration will strengthen long-range deterrent forces, order a retreat under his Golden Dome missile-defence system, or spend four years trying to blend incompatible visions of industrial and technological strategy.

It’s a battle between, on one hand, tech-industry advocates of radical, cheaper approaches to defence acquisition and, on the other, traditional political and industry forces that want more of the same—but with an important new emphasis on long range for facing China.

Executive orders (EOs) have become so frequent that they barely register in the news cycle before the next wave hits. An April 9 order on ‘modernizing defense acquisition’ deserves more attention than it has got.

It was warmly welcomed by Palantir chief technology officer Shyam Sankar, leading prophet of the tech sector push. ‘This is a Defense Reformation two-fer, right off the bat,’ Sankar wrote in an email. The order directs the Pentagon to buy commercial solutions, if available, and defines them as products developed with private investment.

It also orders a review of all major programs, and states that programs that are 15 percent behind schedule, 15 percent over budget or merely unaligned with the secretary of defense’s priorities—that is to say, any of them—will be considered for cancellation.

The order might have been written by the tech bros pushing for reform, and given how many senior Pentagon leaders had not been confirmed by April 9, it most likely was.

But a couple of weeks later, Republicans on the House and Senate armed services committees unveiled a $150 billion boost to the defence budget, most going to existing and near-future programs: $3.15 billion for more Boeing F-15EX fighters, $4.5 billion to accelerate the Northrop Grumman B-21 bomber, and even $1.5 billion for the ailing ICBM replacement, Sentinel. There was also money to slow retirements of F-15s and F-22s. The new Boeing F-47 and the Navy’s F/A-XX got $400m and $500m respectively. The Lockheed Martin F-35 was not mentioned at all, nor were aircraft carriers.

The navy gets an extra Virginia-class submarine and money for shipbuilding infrastructure—everything from wire and steel to drydocks and workforce development. The consistent ‘more ships’ message has been heard, after a decade of repetition. But there was no cash for the messed-up Constellation-class frigate, which could yet be thrown to the DOGEs.

Congress’s budget boost was a reminder that while politicians don’t object to Pentagon efficiency as such, the religious zeal for reformation resonates weakly on Capitol Hill.

Like industry, Congress strongly favors protecting established programs. In its plus-up proposal, among new and radical things, the Collaborative Combat Aircraft program (for fighter-like drones) and missile defense did best.

In air and sea power, Congress seems to be sending a message to support deterrence, power projection and industry. Hill Republicans are in an expansive mood with a shift towards longer-range systems—the B-21 and the new fighters.

Not mentioning the carriers is not significant. The idea of not having carriers is off the table; the last major design change in the carrier program was traumatic; and its unique facilities and skills make it almost impossible to adjust its building rate.

The omission of the F-35 may mean rather more. The new fighter designs and the F-15EX have greater range; even the F-47 will arrive before the USAF’s planned production of the F-35 will be completed, not before 2051.

The F-35’s supporters seem anxious, and Lockheed Martin wasted no time in promoting a Super F-35 after the F-47 announcement.

The navy converted most of its future F-35Bs, capable of short take-off and vertical landing, into F-35Cs early this year, under a new Marine aviation plan. Navy Secretary John Phelan was asked in his confirmation process whether the service planned to upgrade the B models to the new Block 4 standard; he answered noncommittally. That’s significant because it has long been held that US forces would keep all their F-35s in a common configuration.

Missile defence is a big enough field to accommodate many perspectives and players. More money can be used either to accelerate the established primes’ current programs or to open doors for newcomers. And technology that defends the US homeland can equally be used to protect forward bases. Choices between new and established players don’t have to be taken yet, which is probably a good thing given the ferment of policy ideas.

New cruise missiles and anti-ship missiles present an opening for new ideas and new competitors. There is little daylight between the views of the people running Anduril’s Barracuda cruise-missile project and those who did Lockheed Martin’s Common Multi-Mission Truck (CMMT, or Comet). Both teams believe new technology—one-shot injected structures, additive manufacturing in engines, and cheap and powerful data processing—can drop the cost of a cruise missile by an order of magnitude.

They also think new electronic payloads can allow the same vehicle to perform multiple kinetic and non-kinetic missions. The difference is that Anduril is pushing the idea hard but Lockheed Martin—maker of the million-dollar AGM-158 cruise missile—is not.

Overall, a battle may be brewing between the rebels and the establishment for control of the acquisition machine, a situation that will demand cool heads and competence in the Pentagon.

Good luck with that. Defense secretary and former TV host Pete Hegseth has so far escaped consequences for security lapses that would have terminated the career of anyone else, in government or industry. Navy Secretary Phelan had a John Belushi moment when he said the anniversary of Pearl Harbor was June 7.

As the closing roll of the movie told us, Belushi’s Bluto Blutarsky ended up in the Senate—and on the armed services committee for all we know. But that was fiction, and comedy.

US tariffs complicate Indonesian defence acquisition

Indonesia is weighing a purchase of more US weapons—such as the new F-15EX—as a bargaining chip against US President Donald Trump’s 32 percent tariffs on Indonesian exports to the United States. But that approach carries real dangers: relying too heavily on US hardware risks chipping away at Indonesia’s strategic independence.

That’s especially worrying right now, since Indonesia has been tightening its belt across all government sectors. While the defence ministry hasn’t been cut as deeply as other institutions, the future of its military modernisation efforts is looking uncertain.

A smarter approach would be to balance limited US purchases with diversified suppliers and stronger local industries, coupled with economic diplomacy to safeguard Indonesia’s security and sovereignty.

Trump’s tariffs are expected to hit Indonesia hard, targeting its US$20 billion export market to the US, potentially triggering economic fallout. Although the implementation of the tariffs was paused following a negotiation period, Indonesia’s economy has already felt the impact, with the rupiah sliding to its weakest level since 1998.

Nonetheless, Jakarta appears determined to secure a multibillion-dollar F-15EX deal as a bargaining chip to soften US trade policies, as reported. While it remains unclear whether the F-15EX is its top priority, Boeing representatives in Indonesia have been very active lately in promoting the aircraft. They even ran a one-page ad in Kompas, Indonesia’s leading newspaper, and held a sharing session for media and military enthusiasts.

One major highlight of Boeing’s plan to sell F-15EX to Indonesia is the company’s commitment to 85 percent local content. This makes it one of the most ambitious commitments on domestic components to date, given that Indonesian law requires at least 40 percent local content for major foreign arms acquisitions.

Nevertheless, Indonesia’s economy is under pressure, and doubling down on expensive US weaponry could further undermine its fiscal stability and self-reliance.

Over-reliance on US systems—such as the F-15EX—locks Indonesia into US supply chains, where delays in spare parts or shifts in Washington’s priorities could hamper its military readiness. Other countries, such as Turkey with its grounded F-35s, have already felt the sting of US export restrictions.

Similarly, European nations have taken steps to rejuvenate their local defence-manufacturing capabilities and gradually reduce their over-dependence on US systems. Moreover, Indonesia is no stranger to US arms embargoes.

Spending billions on US arms to appease trade demands could open a Pandora’s box, leaving Indonesia vulnerable to Washington’s whims and potentially undermining its ‘free and active’ foreign-policy doctrine.

It should be noted that Indonesia isn’t without options. Diversifying suppliers could relieve some pressure: France offers Rafale jets, Turkey provides drones and Italy supplies advanced frigates; all are viable alternatives to US hardware. Historically, Indonesia has maintained flexibility by procuring arms from multiple countries, and that remains a sound strategy.

Additionally, ongoing modernisation efforts within the armed forces—particularly the Indonesian air force—have reached their peak following the Rafale deal. The Rafale is a multirole jet offering capabilities comparable to those of the F-15.

Therefore, it would be unwise to duplicate this effort by procuring another aircraft with the same capabilities. Instead, Indonesia could focus on acquiring Sikorsky’s Black Hawk helicopters or even Boeing’s E-7 AEW&C and P-8 Poseidon aircrafts, allowing it to continue modernising while addressing strategically important but underserved capabilities.

Closer to home, Indonesia could reduce costs and build self-reliance by strengthening local defence industries—including PT PAL and Pindad, among others—which have successfully co-produced naval vessels and tanks. Their manufacturing capacity could be further enhanced through joint-development initiatives, including technology transfers and supply chains.

Recent research and development partnerships between Indonesia’s defence industries and Turkey underscore that Jakarta is on the right track. These moves would also decrease Jakarta’s exposure to US pressure while fostering economic growth and creating domestic jobs.

Yet diversification alone isn’t enough. Indonesia must balance its economic diplomacy, negotiating trade relief without overspending on arms it can ill afford. Indonesian President Prabowo Subianto and his cabinet, particularly the foreign affairs and defence ministers, should maximise Indonesia’s diplomatic leverage by striking win-win deals. One such element could be strategic US arms purchases—including advanced missiles and smart munitions—to maintain goodwill, provided these procurements do not dominate the budget or overall acquisition plan.

Indonesia’s security hinges on a delicate balance. Pairing skilful diplomacy with investments in diverse suppliers and local production offers a more secure path. History shows that nations thrive when they control their own destiny, not when they lean too heavily on a single ally. For Jakarta, that means a defence plan as pragmatic as it is ambitious—one that safeguards both its borders and its sovereignty.

Editors’ picks for 2024: ‘The beauty of an 80 percent solution: lessons from the RQ-7B program’

Originally published on 26 July 2024.

As so often, the Australian Defence Force wanted the exquisite solution. It wanted uncrewed battlefield reconnaissance aircraft of a design that wasn’t operational anywhere and would achieve performance that other countries didn’t have.

And the acquisition led nowhere—except to prompt a successful replacement effort that gave the ADF a powerful lesson in the merits of toning down requirements to get something that is good enough and can go into service fast enough.

The lesson has been formalised. Defence now defines the two key concepts in its Capability Lifecycle Manual. They boil down to this: identify a ‘minimum viable capability’ (MVC), which is a lowest acceptable military effect that meets the requirement, then get a ‘minimum viable product’ (MVP), something that will deliver that capability on time.

The 2023 Defence Strategic Review told the ADF to go for MVC and MVP.

MVP is widely known in business, but not in Defence. At a 2023 ASPI conference, several senior speakers couldn’t clearly describe it or give an example when asked.

Well, that uncrewed aircraft project offers a fine example.

It was Joint Project 129 Phase 2 (JP129-2), a long and unnecessarily complex process of providing aircraft for intelligence-gathering, reconnaissance and target identification for the Australian Army.

The story of acquiring an uncrewed aerial reconnaissance capability for the army ultimately involved three aircraft types and their associated ground systems: first the overly ambitious original design that Defence had to abandon; then the Boeing Institu MQ-27A ScanEagle that was leased as a gap-filler; and finally RQ-7B Shadow 200 from AAI Corporation of the United States.

The original design was still at the prototype stage in 2005 when Defence chose it and was authorised to proceed to acquisition. So that design had not in fact been finalised and could still have had plenty of problems.

And the ADF wanted the design certified to an airworthiness standard that no uncrewed aircraft anywhere had achieved. Furthermore, the aircraft were to operate at such long ranges that their radio communications would work at the extremes of physics. The communications would also have encryption cyber security not yet in use in any other Australian tactical systems. And all this was to be fully integrated into Australian Army vehicles supplying power, the other end of the radio link and command and control.

Over three years of contract negotiation the aircraft grew 50 percent in weight, the project needed release of contingency funds as costs rose, and there were signs of insurmountable technical difficulties.

Meanwhile, the ADF could not wait. It was on operations in Afghanistan and Iraq and in 2006 leased ScanEagles as an interim solution; they remained in use until 2013.

In 2008 the capability management team for JP129-2 recommended a reset to the Chief of the Army. It proposed:

—Terminating the contract for the original design;

—Defining an MVC as an approximately 80 percent solution to the specification;

—Choosing a US design that the US Army was already using and was available through the US Foreign Military Sales process—specifically, the Shadow 200; and

—Doing it all fast.

Toning down the requirement meant dropping nice-to-haves, as distinct from must-haves: the aircraft wouldn’t have to operate from amphibious ships, and the army would do without the unique airworthiness requirements. Ironically, the RQ-7B was an updated version of a design that had been rejected in 2005 for the project because of supposed capability shortfalls.

Over the next two years the equipment was acquired, the US Army trained Australian soldiers to use it at Fort Huachuca, Arizona, it was rapidly proven in tests at Woomera, and the first of the two systems was sent straight from Woomera to Afghanistan. Each system comprised the ground station and five aircraft; eight more aircraft were bought as spares.

Shadow 200s sent to Afghanistan were in a bare-MVP configuration and adapted to operate from shelters instead of US Army HMMWV trucks. What the Australian Army got at first was in fact only a 70 percent solution. But it worked, and it worked well.

Over the next few years it was progressively improved. It was adapted for mounting on the army’s own battlefield trucks, Unimogs, given ADF combat-net radios, tested and certified to Australian weapons targeting and engagement requirements, and made compliant with Australian work-safety standards.

It was also given systems as bolt-ons, meaning they weren’t tightly (and expensively) integrated into it. One was for interpreting and sharing pictures from the aircraft; the others were a flight data recorder and a cockpit voice recorder on the ground operating station, both needed to meet aviation safety requirements.

All this was done in Australia by local businesses. By 2016, when the system was declared to have reached final operating capability, the Shadow 200s had achieved the intended 80 percent MVC configuration—and had been acquired for only half of the budget that Defence had expected to spend before changing horses in 2008.

The lesson is that Defence can greatly improve acquisition efficiency if a capability manager first agrees with operators what the 100 percent solution looks like, then approves going ahead with an MVC of 70 to 90 percent.

As with the Shadow 200s, a program can first deliver an initial operational capability at the 70 percent level then progressively advance to 90 percent. Declaring a final operational capability isn’t necessary, because it’s recognised that 100 percent will never be achieved. This model is particularly suitable for areas in which technology is advancing faster than the pace of Defence acquisition.

It involves a preference for mature, off-the-shelf, in-production equipment and teaming with a supplier that has an industry presence in Australia.

The need for speed must loom over the whole process, and it’s essential to try to come in under budget. With current constraints in the capability acquisition program, every dollar saved on one project is needed for another.

The beauty of an 80 percent solution: lessons from the RQ-7B program

As so often, the Australian Defence Force wanted the exquisite solution. It wanted uncrewed battlefield reconnaissance aircraft of a design that wasn’t operational anywhere and would achieve performance that other countries didn’t have.

And the acquisition led nowhere—except to prompt a successful replacement effort that gave the ADF a powerful lesson in the merits of toning down requirements to get something that is good enough and can go into service fast enough.

The lesson has been formalised. Defence now defines the two key concepts in its Capability Lifecycle Manual. They boil down to this: identify a ‘minimum viable capability’ (MVC), which is a lowest acceptable military effect that meets the requirement, then get a ‘minimum viable product’ (MVP), something that will deliver that capability on time.

The 2023 Defence Strategic Review told the ADF to go for MVC and MVP.

MVP is widely known in business, but not in Defence. At a 2023 ASPI conference, several senior speakers couldn’t clearly describe it or give an example when asked.

Well, that uncrewed aircraft project offers a fine example.

It was Joint Project 129 Phase 2 (JP129-2), a long and unnecessarily complex process of providing aircraft for intelligence-gathering, reconnaissance and target identification for the Australian Army.

The story of acquiring an uncrewed aerial reconnaissance capability for the army ultimately involved three aircraft types and their associated ground systems: first the overly ambitious original design that Defence had to abandon; then the Boeing Institu MQ-27A ScanEagle that was leased as a gap-filler; and finally RQ-7B Shadow 200 from AAI Corporation of the United States.

The original design was still at the prototype stage in 2005 when Defence chose it and was authorised to proceed to acquisition. So that design had not in fact been finalised and could still have had plenty of problems.

And the ADF wanted the design certified to an airworthiness standard that no uncrewed aircraft anywhere had achieved. Furthermore, the aircraft were to operate at such long ranges that their radio communications would work at the extremes of physics. The communications would also have encryption cyber security not yet in use in any other Australian tactical systems. And all this was to be fully integrated into Australian Army vehicles supplying power, the other end of the radio link and command and control.

Over three years of contract negotiation the aircraft grew 50 percent in weight, the project needed release of contingency funds as costs rose, and there were signs of insurmountable technical difficulties.

Meanwhile, the ADF could not wait. It was on operations in Afghanistan and Iraq and in 2006 leased ScanEagles as an interim solution; they remained in use until 2013.

In 2008 the capability management team for JP129-2 recommended a reset to the Chief of the Army. It proposed:

—Terminating the contract for the original design;

—Defining an MVC as an approximately 80 percent solution to the specification;

—Choosing a US design that the US Army was already using and was available through the US Foreign Military Sales process—specifically, the Shadow 200; and

—Doing it all fast.

Toning down the requirement meant dropping nice-to-haves, as distinct from must-haves: the aircraft wouldn’t have to operate from amphibious ships, and the army would do without the unique airworthiness requirements. Ironically, the RQ-7B was an updated version of a design that had been rejected in 2005 for the project because of supposed capability shortfalls.

Over the next two years the equipment was acquired, the US Army trained Australian soldiers to use it at Fort Huachuca, Arizona, it was rapidly proven in tests at Woomera, and the first of the two systems was sent straight from Woomera to Afghanistan. Each system comprised the ground station and five aircraft; eight more aircraft were bought as spares.

Shadow 200s sent to Afghanistan were in a bare-MVP configuration and adapted to operate from shelters instead of US Army HMMWV trucks. What the Australian Army got at first was in fact only a 70 percent solution. But it worked, and it worked well.

Over the next few years it was progressively improved. It was adapted for mounting on the army’s own battlefield trucks, Unimogs, given ADF combat-net radios, tested and certified to Australian weapons targeting and engagement requirements, and made compliant with Australian work-safety standards.

It was also given systems as bolt-ons, meaning they weren’t tightly (and expensively) integrated into it. One was for interpreting and sharing pictures from the aircraft; the others were a flight data recorder and a cockpit voice recorder on the ground operating station, both needed to meet aviation safety requirements.

All this was done in Australia by local businesses. By 2016, when the system was declared to have reached final operating capability, the Shadow 200s had achieved the intended 80 percent MVC configuration—and had been acquired for only half of the budget that Defence had expected to spend before changing horses in 2008.

The lesson is that Defence can greatly improve acquisition efficiency if a capability manager first agrees with operators what the 100 percent solution looks like, then approves going ahead with an MVC of 70 to 90 percent.

As with the Shadow 200s, a program can first deliver an initial operational capability at the 70 percent level then progressively advance to 90 percent. Declaring a final operational capability isn’t necessary, because it’s recognised that 100 percent will never be achieved. This model is particularly suitable for areas in which technology is advancing faster than the pace of Defence acquisition.

It involves a preference for mature, off-the-shelf, in-production equipment and teaming with a supplier that has an industry presence in Australia.

The need for speed must loom over the whole process, and it’s essential to try to come in under budget. With current constraints in the capability acquisition program, every dollar saved on one project is needed for another.

No one knows how to make a guided missile

The Department of Defence isn’t at a loss for advice in the run-up to its release of the defence industry development strategy, expected early this year. Following on the heels of a NIOA Group (et al.) contribution to the debate comes a treatment from the Australian Industry Group and the Australian National University.

Defence industry in national defence: rethinking Australia’s defence industry policy serves to frame the debate rather than provide a roadmap to any particular ends. The framework is a useful one. But it leaves open a path to pitfalls that have waylaid past Australian efforts to build sovereign defence industrial capacity.

Avoiding those pitfalls requires a different way of thinking about the problem. A useful perspective comes from the 1958 insight of Leonard E. Read: no one knows how to make a pencil.

Even something as simple as a pencil involves aggregated raw material and knowledge of such enormous complexity that no single person or organisation is capable of bringing it all together into a final product. In making a pencil, we have no choice but to rely on market mechanisms.

How much more is required for an armoured fighting vehicle, nuclear-powered submarine or guided missile?

The Ai Group–ANU report recommends that the government ‘utilise the full range of policy levers at its disposal to shape defence industry outcomes’. It proposes establishing a defence industry capability manager ‘responsible for defining the capability and capacity that government needs’. And so on.

These are good recommendations. The problem is that they feed into the false historical narrative that industrial capability requirements can be planned and organised down to the finest detail. They can’t, and imagining we can do so results in application of policy levers that are all but guaranteed to fail.

How can we turn the report’s recommendations into actionable policy? What tools should be applied by that defence industry capability manager (please, let’s not get off on the wrong foot by calling this person a ‘tsar’)? The most essential element of any such policy must be a focus on Defence’s demand signal. That signal tells industry where to invest far more effectively than any detailed set of prescriptions. Provide a clear enough signal and market mechanisms will do the rest.

This is more difficult than it sounds. The demand signal can’t just be about end users’ technical requirements. Defence markets are not defined by free and open competition, and Defence must play a wide-ranging and intrusive role. But ultimately it must approach any problem from the perspective of ends, not means. In the words of George Patton, ‘Never tell people how to do things. Tell them what to do and they will surprise you with their ingenuity.’

There are many tools available to shape the demand signal in ways that will encourage the growth of Australia’s defence industry. One such tool is contract structure. Fixed-price contracts are useful for procurement of clearly defined products for which the key challenge is fostering competition and keeping prices low.

But competition and low prices are not always the most important objectives. Sometimes we don’t know how to solve a problem or even what the key technical requirements might be—certainly not when the capability we’re trying to build is an entire industry. This situation requires innovation and long-term partnerships between government, industry and academia. Those objectives are better served by cost-plus contracting.

Cost-plus development contracts often lead to sole-source awards and the close government–industry relationships that are anathema to those who place a strong emphasis on probity. But they are a necessary tool if Australia wants to build its defence industrial capacity. They can have an outsized impact on industrial structure, signalling not just what product Defence wants to buy, but what capability it wants to foster in its supply base.

There are many tools for setting up an acquisition enterprise that builds industrial capacity. For years, Australia has been wringing its hands over its inability to translate early-stage research into products for its military. The basic reason for the disjunction has been a demand signal that focuses on a set of technical requirements without regard to the knowledge base and organisational capacity required to translate them into operational reality.

The Defence Science and Technology Group is good at research and development. But there’s little point in spending years developing sophisticated defence capabilities if they are simply tossed over the wall for someone else to execute. Defence industrial capacity is about more than a set of technical specifications. It includes product strategy, marketing, business development, regulatory positioning, supply-chain management, manufacturing and a thousand other things that require a long process of learning by doing.

Creating a useful demand signal for industry is a protracted process in which the public and private sectors learn together. The cozy relationships aren’t always comfortable, and they aren’t always fair, but they’re the only way to establish the knowledge base necessary for a self-sustaining defence industry to take root. The US network of federally funded research and development centres is another example of a policy tool that helps define objectives in terms of capability rather than technical specifications, creating an ecosystem instead of just a widget.

A final point to address is human capital. Just as it isn’t possible to identify long in advance every asset required to successfully bring a defence product to market, it’s not possible to identify every skill set necessary to build it. Labour markets rely on specialisation far beyond the planning abilities of bureaucrats in Canberra, let alone politicians with their regional biases.

Rather, Defence must create a demand pull and accept that the final result might look different from what was imagined at the outset. There is no pushing the string. Whatever the rhetoric about new jobs, we can’t create something from nothing. Labour force reallocation operates through the medium of relative wage adjustments. Training pipelines are long. Pull too hard—without acknowledging the trade-offs—and you just get inefficiency and inflation.

The guiding principle must be humility. Defence must build its strategy around tools to shape the demand signal rather than attempting to dictate every requirement throughout a vast supply chain. It must avoid trying to do everything and focus on doing the right things well, such as contracting, program management and public–private partnerships. The first step in building a sovereign defence industry is admitting that we don’t even know how to make a pencil.

Integration with US joint all-domain security system a strategic imperative for Australia

Geopolitics and technological innovation are transforming the economic base on which nations build national security. They are also transforming how Australia relates to its closest allies, particularly the United States.

National security no longer rests on fielding operational weaponry alone; it requires the ability to link warfighters in all domains of conflict—sea, air, land, space and cyber—with actionable information from global arrays of sensors, through fast, resilient and secure networks.

Geostrategic competition has also changed. In contrast to the Cold War with the Soviet Union, today Australia, the US and their allies face a Chinese competitor that is their peer not only militarily, but also technologically and economically.

Policymakers in the US and Australia must recognise that circumstances are changing the ways in which governments and militaries relate to their economies—and the ways allies relate to each other. This new environment presents Australia with both a strategic imperative and an enormous commercial opportunity.

The unprecedented scale of the Chinese challenge is transforming a US national security system that was built to counter the Soviet threat. During the Cold War, the US system grew to reflect its Soviet rival in its bureaucratic weight and wastefulness. China’s rise has forced US policymakers to recognise that this system is no longer fit for purpose. Transformation in the US will affect Australia directly.

The most striking feature of the plodding US defence system is its disconnection from the underlying US economy that generates consistent waves of disruptive technological innovation. Responding to China, US policymakers seek to reconnect national security to the dynamic commercial sector.

This means adapting technologies of the hyperconnected commercial world for military use. US defence planners are harnessing the latest commercial technologies to magnify the speed, agility and lethality of forces. They are drawing forces together in a ‘joint all-domain warfighting concept’.

The backbone of this posture is a decentralised, artificial-intelligence-driven joint all-domain command and control system that uses a resilient, space-based network to link ‘every sensor to every shooter’ with actionable information. Building this military internet of things requires that the Pentagon access Silicon Valley’s latest gadgets and motivate companies to solve the most pressing defence problems—without stifling innovation.

To attract innovators and private investors, each of the US armed services has constructed an alternative acquisition agency equipped with unconventional contracting authorities: the air force created AFWERX, the special forces have SOFWERX, the navy has NavalX and the army has the Army Futures Command. There’s also the Defense Innovation Unit, which covers the defence and intelligence communities.

Pentagon leaders have special plans for the new US Space Force, which stands at the centre of the emerging joint all-domain force. Rather than giving it an adjunct Silicon Valley agency, they are waging a battle against defenders of the status quo to build an entirely new acquisition system. The aim is to bypass the dysfunctions of the Cold War–spawned Pentagon–Congress nexus and construct channels directly between the space force and the innovative, ‘new space’ commercial sector.

A joint all-domain strategy, of course, does not sit easily within the geographical boundaries of national borders. At the same time, a decade of state-sponsored attacks and disinformation operations demonstrates that geostrategic competition has become transnational.

The joint all-domain concept is also transforming alliances. US policymakers no longer believe they can win alone in a competition with China. The logic of a joint all-domain security system—and its underlying technologies—is expansive; it draws allies and the data they generate into a network. Recognising the new network logic of alliances, Congress redefined the US national technology and industrial base in 2016 to include Australia and the UK. In doing so, it sought to expand the material, technological and innovation base on which security is built.

Recent events indicate that Australia cannot sit on the geostrategic sidelines, and no palatable or practicable alternative exists to integration into the joint all-domain system. A free and open Australian society and an international system organised to support the Chinese Communist Party elite are incompatible. Only a US-led coalition can marshal the material, ideal and leadership resources to sustain a liberal, rules-based alternative.

Embracing these developments as a ‘fast follower’ promises significant commercial rewards. The ‘iron triangles’ of Pentagon program offices, congressional committees and defence prime integrators that have a lock on conventional defence procurement in the US—and Australia—do not dominate emerging acquisition channels. This creates openings for innovative Australian businesses to offer solutions into the emerging joint all-domain security structure, a market with truly global reach. Recent Australian company successes demonstrate that US policymakers’ overtures ensuring these channels are open to allies are genuine.

To embrace the opportunities of the emerging system, Australia must engage US counterparts at three levels. First, at a strategic level, senior politicians and defence planners will need to discuss with the US and its allies how to integrate operational capabilities into a joint all-domain structure.

Engagement must also take place at the level of acquisition processes. US policymakers have discovered that a joint all-domain structure requires not only different capabilities, but also a completely different system for acquiring capabilities. Over the past five years, they have experimented with processes to accelerate the pace of innovation and procurement. Australian defence acquisition professionals can learn from, and import, this experience, but they can also link directly to it, by running joint procurement programs, where possible. It’s noteworthy that the venture capital organisation serving the US intelligence community, In-Q-Tel, was established in Sydney (and London) in 2019.

Finally, Australian government agencies can work with US counterparts to reduce barriers that inhibit the movement of capabilities between allies. This is a task where Austrade offers a powerful complement to the Defence Department’s Capability Acquisition and Sustainment Group and Defence Export Controls, the Department of the Treasury and the Department of Home Affairs. Charged under the defence export strategy with building Australia’s sovereign defence capabilities and defence exports, Austrade confronts daily the trade and investment barriers that inhibit the flow of companies, capital, labour and technology between Australia, the US and other allies.

Indeed, while the logic of joint all-domain operation points towards closer allied integration, Austrade’s work with tech companies shows geostrategic competition raising new barriers that are fast becoming the biggest challenge to this approach. To prevent adversary ownership, influence or control over sensitive technologies, critical infrastructure and personal data, the US, Australia, Canada, the UK and the EU have significantly increased their scrutiny of the national security implications of foreign investment. Similar measures in the US and elsewhere seek to mitigate the risks of adversarial influence in supply chains. While the motivations for such measures are laudable, their indiscriminate application captures desirable transactions (those between allies) as well as undesirable ones. In doing so, they threaten the rapid innovation and procurement on which a joint all-domain security system rests.

As a fast follower and one of the US’s most trusted allies, Australia can identify and raise these barriers with US counterparts and propose solutions that could be extended to other partners. That would not only serve Australia’s security interests, but also provide innovative Australian companies with commercial first-mover advantages in the emerging acquisition channels that will supply the US and its allies.

Understanding the price of military equipment

Confusion reigns in discussions about the cost of the Department of Defence’s equipment projects. Whether we’re talking about media articles, parliamentary committee hearings, letters to the editor, duelling internet commentators or any other forms of discourse that address Defence acquisitions, the only thing that’s clear is that we’re almost always talking past each other when it comes to the cost of military equipment. Defence doesn’t help when it releases only a bare minimum of information. This sorry state of affairs reached its peak several years ago, when it turned out that when Defence said that the cost of the Attack-class submarine was $50 billion it really meant that the cost was somewhere around $90 billion.

The situation gets even murkier when commentators compare the cost of military acquisition projects here in Australia with ones overseas. It’s very rare that we can make a direct, apples-to-apples comparison between local and overseas projects, and very often it’s more like apples-to-orangutans. Being completely unaware of the basis of the costs they’re comparing doesn’t stop some commentators from making strong claims about the rapacity of foreign arms companies or the competence of the Australian Defence Department.

My new ASPI report, released today, is intended as a guide for the perplexed. It’s not a technical manual, but a plain-English discussion that unpacks the cost of Australian defence equipment projects. While it would be useful for those working in the field of defence and strategic studies to read the whole report, it can also be used a reference tool explaining key terms such as ‘constant’ and ‘out-turned’ dollars or different cost-estimation methodologies.

It’s important up front to acknowledge that the cost of modern military equipment can be eye-wateringly high, and there’s always a ‘sticker shock’ when we compare the costs of military systems with the costs of their civilian counterparts. Those costs are driven by the constant quest for better capability that provides an advantage in a life-and-death business. That striving in turn drives rates of cost escalation that greatly outstrip inflation in the broader economy. No Western country has yet found a way out of that endless cost spiral, and Australia is certainly not an exception.

Anyone discussing cost has to understand what’s included in the price. It’s here that comparisons of Australian and overseas projects are difficult. Australian defence project costs include all the elements needed to get a capability into service, which are known as the fundamental inputs to capability. They comprise much more than the military equipment itself and can include facilities, training systems, documentation, intellectual property, integration of the new equipment (such as a missile) onto existing systems (such as the aircraft that will launch it), science and technology programs, and so on.

Elements other than the equipment aren’t trivial and can sometimes make up half of the total acquisition cost. Australian projects also include significant risk provisions, known as contingency. In contrast, most overseas programs don’t include all of those elements, so their cost can appear significantly smaller.

In the report, I provide a hypothetical example that illustrates how the cost grows as we include these factors. If we start with available off-the-shelf equipment costing $1 billion and adjust for price escalation (including inflation and capability enhancements) and factor in all fundamental inputs to capability and contingency, we quickly get to a total acquisition cost of $3.5 billion. That’s before we include operating costs.

The report also briefly examines a current, real-world example by comparing the cost of Australia’s Hunter-class frigate project with analogous international projects. While I attempt to make some assessments, the exercise confirms that comparisons are difficult when we don’t have visibility of what’s included in the price tag.

I also attempt to debunk the popular and deeply held view that Defence projects frequently go over budget. Based on the public evidence, the opposite is in fact the case. Once the government considers a business case and gives Defence approval to enter into contracts to acquire a particular system with a set budget, the department rarely goes over budget. However, it must be said that, before that point, Defence’s estimates of the funding needed to acquire a capability can grow significantly as its understanding of its requirements and the possible solutions develops. It’s here that the infamous ‘blowouts’ generally occur, not after actual acquisition commences.

Some commentators have suggested that focusing on the cost ignores the value those systems provide—why quibble over a few billion here or there when the security of the country is at stake? I’d argue that it’s difficult to assess value for money if you don’t understand how much money you’re paying. This study aims to help Australians understand how much they’re paying. It’s only then that we can make informed decisions about military spending.

What follows the Aussie Tiger? (Part 2)

In my previous article on the future of the Aussie Tiger helicopter, I suggested two possible paths for the Australian Army’s future armed reconnaissance helicopter (ARH) capability. The first is to extend the Aussie Tiger’s service and participate in the US Future Vertical Lift (FVL) project.

The second option would see the ADF replace the Tiger with a more effective new capability by 2025 (or maybe sooner). That would then allow a transition to a mature FVL capability at a later date. This  option would boost the Army’s ARH capability much more rapidly by acquiring an operationally mature platform that could operate well into the future.

In considering the new capability option, two obvious candidates are available now: the Boeing AH-64E Apache and the Bell AH-1Z Viper. Both would offer a high degree of networking compatibility with other ADF platforms and benefit from a sustained global support chain.

If the Apache were to be acquired and be fully supported by its well-established international maintenance and supply network, the acquisition would substantially boost the Army’s ‘attack reconnaissance capability’ over the Tiger. But it would be the more expensive option, and the more complex to operate and support.

The main advantage of a new capability option is that it reduces future risks and would avoid Australia continuing to be exposed to the effects of a lightly funded development path for the Tiger. Any new capability could serve until a FVL-type platform emerged that was sufficiently mature to be acquired by the Army, perhaps by the late 2030s.

A key question to consider is whether the Army really needs an ARH capability like the Aussie Tiger, or any replacement platform like the Apache or Viper? The $5–7 billion budgeted for the Aussie Tiger replacement could easily be spent on other platforms and capabilities that meet operational and tactical needs without exposing aircrew to proliferating missile and air defence systems.

As my colleague Andrew Davies noted recently, the Army is unlikely to be deployed against a major power as part of an independent operation in Australia’s surrounding region. Instead, it would most likely be part of a joint task force operating as part of a coalition.

Under those circumstances it could always do what it did in Afghanistan and rely on other states to provide the ARH support. The disadvantage of doing so is that our dependency on others adds to their operational burden. It also increases the risks that friction and the fog of war, or the inability of other states to sustain air operations, could leave Australian troops much more exposed. The danger of casualties would be higher as a result.

So simply going without may not be the best solution.

But that doesn’t imply that a ‘like-for-like’ replacement is the way forward. Future technologies offer the potential to take humans out of harm’s way by removing aircrew from the cockpit of armed reconnaissance. The manned element might be well to the rear, perhaps aboard platforms like E-7 Wedgetails.

A return to force design principles at a more fundamental level suggests that a better investment might be for Australia to spend its money in other ways that contribute support in higher intensity scenarios differently. This would force us to confront the issue of whether the ADF is more useful in a coalition if it primarily contributes air and naval forces, versus trying to maintain a balanced capability.

The question over the Aussie Tiger replacement really gets to the heart of just what it is that the ADF is expected to do. That would be determined by where we are fighting and against whom, and when future conflicts might arise. This is a fundamental challenge for any force planner considering a much more uncertain and dangerous strategic outlook.

Certainly, the future land battlespace will be increasingly complex and contested, with hybrid adversaries equipped with much more capable air defence systems that could make manned helicopters a vulnerable target.

Now might just be the time for the ADF to jump into the unmanned battlespace by investing in networks of tactical UAVs coming out of LAND 129 that provide the sensor end of the ‘sensor-to-shooter link’ where the AIR 7003 armed UAV is the shooter. It might be better simply to cut our losses with manned platforms and do something novel.

It’s clear that Australia has some options—and that’s good. It can do a quick replacement with a US product like the Apache or Viper, buying a platform that is proven but that may be expensive to operate and potentially vulnerable—even for something like the Apache. Or we can rely on others—but that tends to clip the Army’s wings in terms of operational flexibility, which may not be appropriate in a worsening strategic outlook. We could explore networks of UAVs that offer battlespace intelligence, surveillance, reconnaissance and attack, perhaps at reduced cost and risk.

The ADF and Army’s force planners need to get busy doing a hard-nosed analysis of all the options, rather than simply accepting a like-for-like replacement in 2025.

What follows the Aussie Tiger? (Part 1)

In 2011 the ADF took delivery of 22 Eurocopter ‘Aussie Tiger’ armed reconnaissance helicopters (ARH). Since then, the project has had a troubled history: the ANAO released a fairly scathing report in 2016, and more recently the ANAO’s 2017–18 Major Projects Report highlighted some continuing problems.

The Tiger’s future seems sealed. Both the 2016 Defence White Paper and its accompanying Integrated Investment Program declared that the Aussie Tiger will be replaced with a future ‘armed aerial reconnaissance capability from the mid-2020s’. The white paper’s judgement suggests the project has been a failure.

However, it’s important to be balanced in considering the platform, rather than dismissing it as an outright failure. According to the ANAO’s 2017–18 report, of the nine caveats identified in 2016, two have been resolved. The platform’s electronic warfare self-protection system now provides satisfactory performance, and the identification friend or foe system now works effectively. Two out of nine doesn’t sound like a great report card, but that’s not the end of the story.

Progress is being made towards integrating more capable AGM-114R Hellfire anti-tank guided missile systems, and the availability of spare parts and ammunition supplies is improving. Furthermore, ‘fly-away kits’ to support operational deployments are now available. Following a prolonged grounding during investigation into a German Tiger crash in Mali in 2017, the Aussie Tiger resumed flights last November.

New capabilities are being added to the platform as part of joint force modernisation. Those include precision laser-guided rockets,  a ‘manned-unmanned teaming’ capability with the Army’s Shadow UAVs, ‘wet-wing’ combat refuelling with C-130J aircraft and, most significantly, initial flight trials on the RAN’s Canberra-class amphibious assault ships.

Army personnel who fly the aircraft have an overwhelmingly positive view of it. They note that it’s a highly agile and potent platform, with superior manoeuvrability to other, similar types of helicopter, which makes it easier to fly and to focus on mission tasks. They make clear that the platform has matured as a capability, and operators are overcoming earlier challenges. They argue that serious deficiencies such as availability and rate of effort are being addressed, and the absence of a tactical datalink is being rectified, though operating costs are yet to meet desired targets. They also raise the prospect of a capability assurance program that will maintain the Aussie Tiger as a useful capability through to its replacement in 2025, and also potentially provide upgrades to deal with issues that the ANAO currently lists as deficiencies.

This debate over upgrades versus deficiencies goes to the heart of the criticism of the Tiger as a developmental rather than a mature aircraft. Basing procurement decisions on an erroneous assumption of a mature capability, together with putting in place inadequate maintenance and support arrangements, acted to create the impression that the Aussie Tiger was underperforming and over budget. The failure wasn’t the aircraft’s, but that of the procurement process and decisions that were made under AIR 87 Phase 2.

In considering the potential replacement for the Aussie Tiger ARH in the mid-2020s, some hard realities have been recognised. Most importantly, Defence cannot again blithely take a contractor’s word that a platform is mature, as opposed to developmental. Instead, it must make a more hard-nosed assessment as to which platforms best suit Australia’s requirements, and which present the least risk. In that regard, three important lessons stand out rather starkly from the Aussie Tiger experience as we look forward to 2025.

Firstly, it’s more sensible to acquire military off-the-shelf platforms that are operationally mature than to gamble everything on an immature capability still under development. Secondly, it’s wise to pick a capability with a fully established global support and maintenance network that enjoys a wide range of users, as opposed to an ‘orphan capability’ where support and maintenance is limited and depends on distant service providers. Thirdly, any platform must be fully interoperable with existing capabilities. In particular, it must have common datalinks as a standard feature.

The inability of the Aussie Tiger to meet operational readiness remains a major problem. The objective of reaching 6,000 flight hours per year won’t be met anytime soon, and the 2017–18 ANAO report suggests there were only 4,800 hours during FY 2016–17. The Army and Airbus Australia continue efforts to remediate this problem, but it’s clear that choosing a more mature platform with an established supply chain would have meant that the ADF wouldn’t ever have been confronted by poor operational readiness.

But if these problems could be solved, why not hang onto the Tiger for longer? The platform would be only a little over a decade old in 2025, and would have been upgraded to avoid obsolescence at a cost of A$500–750 million. That’s a considerable sum of money to spend on a platform only to then dispose of it.

This suggests that one option would be to extend the Aussie Tiger through to the early 2030s and ‘catch the wave’ generated by the US Future Vertical Lift program (FVL) through direct Australian involvement in that project, in a manner similar to Australian participation in the F-35 Joint Strike Fighter project. Alternatively, government might replace the Tiger in the mid-2020s, or sooner, with an ‘interim capability’ akin to the RAAF’s acquisition of F/A-18F Super Hornets. This could mitigate the potential risk posed by additional problems with the Aussie Tiger, and also act as insurance against the FVL being delayed. It would also enhance capability more rapidly, depending on what platform was acquired.

Which option government chooses in coming years will depend on what tasks emerge as the most likely for the ADF in a more contested and uncertain operational environment. Considering army aviation’s likely role and how that will influence prospective capability choices will be explored in the next article.

Defence acquisition—taking on more risk for greater speed

The organisational reforms to defence acquisition that followed the First Principles Review were extensive. Cassandras that we are, at the time we worried about the risk of a ‘perfect storm’ of deteriorating external strategic circumstances, internal organisational disruption, an extensive backlog of unapproved projects and an aggressive forward program of large development projects to be steered through government approval and into the project management phase. We thought that the most likely outcome was a badly lagging investment program, with concomitant delays in the delivery of capability to the ADF.

It’s now getting on for two years since the release of the 2016 defence white paper and its associated integrated investment plan, and patterns are emerging. We don’t have as much data as we’d like because the government has abandoned the long-standing practice of disclosing the projects it has approved. But it looks like things are already behind schedule; there are simply too many projects that were slated for approval about which nothing has been said.

Significant if not substantial delays wouldn’t be surprising. The target of 10 first-pass and 23 second-pass approvals in 2016–17 was well above the annual average of 6.8 first-pass and 11.5 second-pass approvals for the preceding 12 years. And things are only going to get more difficult. In 2017–18, the target is for 20 first-pass and 37 second-pass approvals. Such was the ambition of the 2016 white paper.

Nevertheless, we must concede that approvals are proceeding at a faster than usual pace. And it’s not just smaller projects—progress is being made on some of the largest and most expensive defence projects ever contemplated by Australia.

But we’re mindful of the old catchphrase of dodgy tailors, ‘Never mind the quality, feel the width’, so it’s worth looking at the quality of some of those decisions. And there are good reasons to worry about that; the acquisition reforms of the 2000s were mostly about taking the time to get things right before approval, rather than rushing into poorly conceived projects and wearing the delays and cost overruns that often result.

It has long been a tenet of project management that you may pick only two of the three variables of fast delivery, high performance and low cost. Here’s what one of us said earlier this year about the balance being struck in current defence planning (the benefit of being a professional doomsayer is that you’re bound to be right about something):

While the new arrangements appear to have led to a surge in project approvals … the acceleration has been achieved by adopting a different trade-off between time and risk. Under the old system, we expended time to reduce risks. Now we accept greater risks to save time. While today’s [strategic] challenges justify greater risks in procurement, it would be penny wise and pound foolish now to short change the management of the initial stages of the costly and militarily critical projects now being developed.

A few examples show how the balance between risk and expeditious approval has shifted. And, in some cases, they illustrate how uncertainties that would previously have been sorted out prior to approval are now being left for afterwards. Probably the most visible programs—and therefore closest to the heart of our political masters—are in the naval shipbuilding sector. And, true to its word, the government hasn’t let the grass grow under its feet. It has approved the selection of the combat system (actually systems, plural) for the future frigate and, most recently, the design of the new offshore patrol vessels (OPVs) and the arrangements for building them. For different reasons, both of those decisions reflect immaturity in the program design at the time of approval.

One of the early lessons we learned in this job is that once the government has made a decision, there’s little to be gained from saying ‘This is nuts’. Instead, the constructive thing to do is to explain the context of the decision, identify the benefits the government expects to gain, and point out any challenges for implementing the decision. So, in the spirit of being constructive, we’ll just say that there will be no shortage of interesting implementation challenges in the OPV program. The approved model requires the German ship designer to work with three Australian shipbuilders at two different sites. Given the difficulties (read ‘years of delay and billions of dollars of cost overruns’) the air warfare destroyer project ran into in translating a Spanish frigate design into local production practices at one yard with one local builder, that’s a bold move. We’re not at all sure how it will work, or even who will do what. But one thing is certain: when the government takes it upon itself to dictate industrial partnerships, it substantially shifts the onus of responsibility for success or failure back onto the Commonwealth.  

Turning to the future frigate combat system, the decision to use a hybrid of the US-sourced Aegis system and Saab Australia’s 9LV is a good one. A previous ASPI analysis explained how that approach could lead to a world-class capability outcome. But it also cautioned that ‘[b]efore heading irrevocably down that path, some rigorous systems engineering work that follows on from the existing risk reduction work is required’. Again, there’s been no explanation of how the systems will fit together, and it seems that many of the details are still to be sorted out—even at the level of who will be responsible for what. The approval actually seems to have been for serious work to begin on system design. In other words, risk reduction steps that might’ve occurred prior to approval under the Kinnaird model of acquisition that held sway from 2003 until 2015 will now occur after the fact.

And it’s not just us having trouble understanding what’s going on. We’ve discussed these examples and other recent approvals with a range of industry players—including both successful and unsuccessful bidders—and we often find that they’re also scratching their heads. Because the government is a monopsony buyer, defence contractors are naturally reluctant to be openly critical of a decision, usually having their eye on future competitions. So only rarely will dissent be made public. That makes the negative industry response to the decision on the army’s ground-based air defence system more noteworthy. We won’t delve into the entrails of the decision here, other than to note that it was a sole-source decision when there seemed to be several credible contenders for the contract. The process was expedited under Defence’s ‘smart buyer’ model, whereby low-risk acquisitions can bypass the usual competitive models. Defence (and the minister for defence industry) say that the decision meets the criteria of being straightforward and low risk. But there’s a widespread view that the preferred ‘short cut’ involves substantial developmental work.

Some or all of the decisions we’ve discussed here might turn out to be corkers. We’d dearly like to be proved wrong, but we think the shift in thinking that’s occurred is worth noting. Rapid decisions have sometimes worked well in the past—such as the procurement of F/A-18 Super Hornets and C-17 transport aircraft—but they were off-the-shelf purchases from long-established production lines. We’re in unknown territory when applying the same ‘damn the torpedos’ approach to bespoke acquisitions involving complex systems integration and greenfield industrial start-ups.