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Towards a strategic relationship between Defence and Industry

FEATURES: Line of Defence, April 2016

The following is an abridged version of the address given by Bernie Diver, Chair of the New Zealand Defence Industry Association, to the NZ DIA Annual Forum in Wellington on 16 November 2015.

 

T-C6 Texan II over Auckland. Image courtesy of New Zealand Defence Force.T-C6 Texan II over Auckland. Image courtesy of New Zealand Defence Force.

 

Using Statistics NZ national input-output table calculations an estimate of the economic impact of NZ Defence Expenditure is approximately 2,500 full time jobs, generating a conservative $125 million in wages and $60 million in profits. Historically 80 percent of Defence’s $500 million operating expenditure has been transacted with NZ providers with, as expected, major capital expenditure being serviced through international OEMs, who are in-turn supported by NZ Industry to deliver for the Crown.  The future expenditure is forecasted to increase.

As an association the NZDIA’s focus is to assist the Government in ensuring that the Defence Force is able to do its tasks well. This can be done in two main ways:

  • Reducing through life costs, and
  • Providing strategic support capability in New Zealand that ensures the Defence capabilities are able to be maintained effectively and deployed at times of the Government’s choosing.

Over the last five years, significant progress has been made to improve the working relationship between Industry and Defence, in both the acquisition and through life support spectrums.

In the 2010 Defence White Paper, Industry support and integration was hardly mentioned despite a strong emphasis on civilianisation, innovation and reduction in cost. For example, it described the whole of life capability management being solely about the NZDF-MoD responsibility.  Defence Industry participation, advice and assistance was not mentioned at all.

While the 2015 Defence White Paper is yet to be released, I am confident that the voice of Industry will have been heard.  In additional to a formal NZDIA submission for the 2015 Defence White Paper the NZDIA was invited to address the committee overseeing the production of the White Paper.

It is not Industry’s place to comment on issues of the security environment nor the Defence capabilities that New Zealand may need in response. Rather, the NZDIA considers itself a credible voice on the commercial support policy and capability that would be appropriate and useful for New Zealand to possess to support Defence.

In mid-2014 the MoD Evaluation Division conducted a study into Defence Industry engagement and in August 2014 published their report Optimising New Zealand Industry Involvement in the New Zealand Defence Sector.  The NZDIA, as a member of the paper’s Advisory Board, thoroughly supports the report’s three main recommendations:

  • Consistently apply and continuously improve whole-of-life costing in key stages of the Defence Management process.  Communicate expectations clearly with industry.
  • Continuously improve Defence procurement processes and practices to optimise New Zealand industry involvement.
  • Increase Defence engagement and collaboration with the New Zealand defence industry, and increase transparency in key aspects of Defence activity that impact on New Zealand industry.

In 2012, the NZDF Defence Logistics Command and NZDIA signed a Partnering Charter. This charter was a visible sign of the intention of both parties to work towards collaboration and leveraging off the interdependence that exists. Defence is dependent on Industry and our Defence Industry would not exist without the NZDF and MoD. 

All of these efforts are applauded but there is still progress to be made.   What the NZDIA seeks is provision for New Zealand Industry to play to our advantages of proximity, consistency of engagement and responsiveness.

I am thrilled to advise that the NZDIA, NZDF and MoD are working on a new Strategic Relationship Charter.  This signals the increasing strength of relationship that exists.

Examples of the strategic relationship include the NZDIA being invited to participate in the development of the previously mentioned 2014 Optimisation of NZ Industry in Defence Procurement, and as Advisory Board Members in the recent Changes to the MoD Acquisition Division Organisation Structure, and participation in the NZ Defence workshop as an International Exemplar in Military Capability Management Workshops. 

The NZDIA continues to work closely with the office of Chief Joint Defence Services to leverage the interdependence we share for the benefit of the Crown and NZ Industry.

This commitment to partnering and for these practices to be demonstrated at the coal face do not come without their challenges, as historic old world paradigms and attitudes between what some have considered in the past as foes are broken down.

The Government Rules of Sourcing have been in place since 2013 and provide Industry and the Crown with a clear framework to engage efficiency and effectively to deliver Value for Money, whole of life commercial outcomes,joint interpretation of these Rules with Industry, the Crown developing a shared understanding of the play-book has been a slow, and I am sure sometimes a frustrating process for all parties.

Encouragingly an improving ‘strategic partnership’ environment is replacing the historic contractual/transactional relationship. Babcock and the NZ Navy enjoy outcomes and performance based relationship, for example, in the context of the Dockyard Management Contract. The ongoing evolution of the Army and Airforce Logistics and MRO relationships to leverage off the natural interdependence and drive collaboration between parties, are further examples.  The Pilot Training Aircraft and training system acquisition is an example of a MoD major capital acquisition including a whole of life support contract.

In Summary, the NZDIA submission to the 2015 Defence White Paper focused on looking forward and developing ways that Industry can better integrate with government planning and industry support through improved transparency and joint planning with the objective of providing better support to both the NZDF and MoD and better value to New Zealand.

Good progress has been made over the last five years, and the NZDIA encourages further moves to allow true strategic relationships to happen through better and earlier integration of industry into Defence capability decisions and operational planning.  Industry concedes that this frequently may need to occur without expectation of short term commercial advantage.  This can only occur through improved trust and bold organisational decisions by Defence to be open to industry.

A challenge exists for all parties with the frequent turn-over of military project and commercial personnel.  NZDIA continues to encourage the NZDF to address this issue and keep industry facing personnel stable for the duration of those projects.

The NZDIA supports and encourages the continuation of the formal development of a Defence Industry Engagement Strategy which is being led by the Secretary, Vice Chief of Defence and CJDS.   This initiative requires the ongoing participation of the personnel from throughout MoD, NZDF, and MBIE organisations as well as industry.  Within this strategy development process there can be discussion on, amongst other things:

  • Greater integration in procurement and operational planning
  • The capability for New Zealand Industry to be Prime bidders
  • International Prime Contractors investing in developing local capability

 

Bernie Diver is Chair of the NZ Defence Industry Association. As Chair, he leads the association in representing members’ interests through developing positive and sustainable relationships with NZDF and Ministry of Defence leadership. He was also appointed a member of the Government Procurement Reform Strategy Group representing Industry.

Since 2003, Bernie has been Principal Consultant and Director, Strategic Sourcing Consultancy Ltd, a multi-industry specialist consulting firm. 

 

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