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The landscape of defence procurement has undergone significant transformations in recent years, with the 2023 Defence Strategic Review (DSR) marking a shift towards faster, more domestically focused processes. As the Australian Defence Force (ADF) gears up to invest nearly $200 billion in capabilities by 2030, the stakes for project management in defence procurement have never been higher.
Australia’s defence strategy is evolving to meet the demands of modern warfare, with investments pouring into quantum cyber, artificial intelligence, undersea and space technologies, hypersonic and electronic warfare, and next-generation aircraft and armoured vehicles. This surge in investment is not just about enhancing military capabilities; it is about ensuring that project managers are equipped to handle the unique complexities that defence procurement presents.
TBH Defence expert Drew Nugent talks about the changing Defence procurement landscape and his upcoming keynote in Adelaide.
How does Defence procurement differ from other types of procurement?
Let me start by saying that defence procurement is uniquely complicated due to a range of factors. For example, defence equipment is typically highly specialised and requires broad system and platform integration, which is not replicated in many other industries.
There are also the geopolitical nuances that add to the complexity. Depending on where a country sits in the geopolitical sphere, it may limit which other countries and companies we are able to engage with for procurement.
Governments do get involved in agreements. This can complicate matters further because you have companies trying to make deals, while governments are managing politics. I have seen this happen in major projects where senior government representatives get involved in decisions, that may have seemed like a straightforward or logical way to overcome a challenge – but end up getting overruled due to political conditions, allegiances or promises happening behind the scenes.
Finally, the fact that the Australian defence acquisition landscape is principally managed by the Capability Acquisition and Sustainment Group (CASG) and Defence Digital Group (DDG), both of which have very rigorous contract requirements, adds another layer of complexity to the procurement landscape.
What are the common risks and challenges associated with Defence procurement?
The issues that immediately spring to mind, when we think of defence procurement, are scale of investment, the speed of the process, complex and onerous contract models, and risk management. There is a lot there, let me expand a little.
Right now, we are seeing a lot of countries simultaneously investing heavily in defence hardware, increasing demand on the major global suppliers of equipment. Australia’s defence spending is significant, but smaller than some of the other middle powers, and far smaller than major powers.
To put it in perspective, China announced a defence budget of $227.79 billion for 2023, Japan, another major military spender in the region, approved a budget of $55.9 billion, and South Korea plans to spend $262.8 billion over the next five years. That means Australia’s estimated military expenditure purchasing power parity by 2030 will be $3.9Bn (compared to $54.4Bn for China, $6.4Bn for Japan, and $8.4Bn for South Korea).
When I say the speed of the process, what I mean by that is there is a focus on speed to capability in defence procurement, which needs to be balanced with product safety. If not carefully managed, speed can be the enemy of reliability. The Commonwealth has made it very clear they won’t accept a reduction in product safety, even though they want things to move faster. As a result, much of the risk focus at present needs to be focused on that space and how industry and the Commonwealth collaborate to mitigate the potentially significant risks involved.
There is an increasing volume of fixed-price contracts too, while historically, most major procurement has taken place under other contracting models, where contractors and their suppliers were not typically exposed to the same level of risk as they are on a fixed price contract.
As a result, today many suppliers face potentially significant risk, and liquidated damages can be quite high in some cases. Some contracts have penalties that come with not achieving milestones and in some cases can reach the point where contractors cannot recover their costs, never mind margin or profit. That has businesses increasingly questioning how to best manage the risks associated with their specific contracting models.
Regarding risk, the Commonwealth acquisition arms, notably CASG and DDG, are sharpening their focus on both program and portfolio-level risks, particularly in managing resourcing, cash flow and addressing the repercussions of project delays. This focus is important given the structured nature of their financial year planning, which necessitates a clear understanding of expenditure timelines and milestone achievements.
Failure to effectively manage risk, particularly schedule risk, has an inherent opportunity cost. That is because if a planned milestone for a financial year is not met, the funds allocated for that milestone could be redirected to another priority. This presents a challenge as funds cannot be rapidly shifted between projects or spending streams.
What are the best practices for developing realistic cost, schedule, and performance baselines in Defence procurement?
Reality is that cost and schedule baselines are often heavily shaped by promises made during tendering. As it stands now, most major acquisition project tenders take place in a highly competitive environment. Required delivery dates for major equipment are typically developed very early on, prior to robust schedules and risk models being generated. Often those timelines are very tight, with highly optimistic delivery dates, that may not appropriately consider the level of risk.
While that’s not an unusual request in other industries, it becomes interesting in the Defence space, because the tender environment is usually quite tightly controlled, owing to the often-classified nature of the procurement, capability requirements, and other details that defence doesn’t necessarily want to be available to the public.
So, this is when contractors, prime contractors, or suppliers need to have the necessary expertise to respond to a tender, based on past experience and understanding of realistic timelines. For example, if they do not believe the proposed delivery dates are feasible, when they respond to the tender, what should they do? Should they state that they would like to supply the item, but be honest and communicate that the required delivery date is not practically achievable and provide an indicative date that is likely more realistic?
Or should they do the opposite and say, “Yes, we’ve got the equipment and can meet your timeline, here’s our compliant proposal.”
In doing that, expectations are set within the program and broader industry that may not be credibly achievable.
In other industries, it’s not uncommon for some contractors or suppliers to knowingly submit a compliant bid that is not achievable, to then try and negotiate later, with variations. In my experience that approach doesn’t work in defence. The contracts just aren’t set up for it and variations can become very problematic to implement.
With consideration to the challenges I just mentioned, I think the best practice would be for contractors to have upfront discussions with procurement agencies, to realistically assess risks and schedules during the tender process. This allows technical challenges or integration complexities to be properly scoped before unachievable expectations are set. Defence could also potentially benefit from independent advice on the achievability of stated timelines (and budgets) to inform their decision-making and contractor selection. A greater use of multi-point estimates that incorporate potential risk impacts, would also help to set more realistic timelines.
Another issue often encountered is due to the fact most defence acquisition projects for complex equipment, have a complex system engineering lifecycle. This can lead to the need to develop a conceptually off-the-shelf component, system or capability and integrate it with Australian systems.
To meet Australian operating requirements, as well as to integrate with other systems currently in use, the system may require specialisation. Incorporating allowance for inevitable design iterations into the baseline can help manage risks during the design phase.
We find this is where the major delays occur, in the front-end design space, for many of the projects TBH works on. Where things get problematic is when our clients are unable to achieve the mandated System Review milestones, that are punctuated throughout the system engineering lifecycle, to progressively assure maturity and capability.
Then these key milestones start pushing out, and suddenly the project becomes red-flagged, and in my view, this is usually traceable back to the original plan having never allowed for necessary rework, definition and other risk areas.
How can Defence project teams effectively manage stakeholder interests and agendas to ensure project success?
Where I think project management teams and managers often struggle is not necessarily due to their own shortcomings, but because of the broader system they operate within.
I have seen businesses find success here by having separate teams to manage broader stakeholder interests, which gives the project managers breathing space to focus on delivery and can be focused on what is happening in front of them, rather than outside influences.
So, ideally, I think for defence project teams it could be beneficial to have some sort of support implemented to help proactively manage the stakeholder interests and dare I say agendas.
Identifying the stakeholders, understanding their interests and influences, and managing the issues proactively before they need escalating, can prevent problems from mushrooming down the line. Treating these issues like risks, quantifying, understanding, and then acting upon them, possibly escalating them to senior levels, is vital for managing potential problems.
Why are contingency buffers important for managing unknowns in defence procurement projects?
Contingency buffers are important because they provide the capacity within the schedule to cope with unforeseen issues without blowing out milestones and help maintain the momentum of the project.
The process of creating a statement of work, creating a work breakdown structure, planning the work over time, and establishing a baseline sounds simple – but a lot of this procurement involves advanced technology solutions that may be still under development, and this involves a complex system integration, commissioning, and testing processes.
In my experience, most contractors are unable to fully identify and allocate the project scope upfront. So, we encourage our clients to identify the areas of scope that can be fully fleshed out, and then identify the areas that are open to iteration, can potentially change, or may be re-informed via the design, system integration, or testing lifecycle and to allow for that in the baseline.
It’s important to manage this carefully so that we don’t end up with an overly pessimistic schedule that doesn’t provide any kind of drive though. In other words, there needs to be balance.
How can changing requirements and misaligned interests be managed in Defence projects?
Firstly, acknowledge the challenges being faced. Assuming there is a simple solution to changing requirements and misaligned interests only sets a project up for failure.
Over the years, I have observed businesses hiring highly theoretical project leaders who believe every technical problem has an analytical solution. Instead, I believe solutions can be more easily found by implementing systems to track scope changes rigorously, as well as understanding the need for an expedited change control process that can incorporate changes, especially technical ones, as quickly as possible.
Ideally, of course it would be great to pause everything while assessing changes in requirements to consider their impact on procurement, design, engineering, industry involvement, existing suppliers, and the broader build sequencing strategy. However, projects do not generally have the luxury of time and the world keeps moving.
The businesses that I have seen managing changing requirements and interests most effectively, are those that can rapidly model scenarios, understand at least on a macro-level the impact of a change, and implement a change control process through the loop with enough speed that the change is not coming into the cost and schedule baseline after the fact.
What competencies are essential for Defence project managers to span technical, business, and soft skills?
I think project managers in Australia sometimes place a little too much emphasis on soft skills and stakeholder engagement at the expense of the technical aspects of project management.
The Defence industry is very rigorous in Australia, with a lot of contractual and systematic control around it, and that means it also has a lot of visibility. That means project delays have the potential to become big news.
As a result, Defence project delays carry a whole degree of risk, whether via reputational damage or broader ramifications.
So, my wish is to see more focus on developing project management technical components. “The science of project management” if you will, so that the impact of Defence risks and complexity factors and how they emerge together, can be more effectively identified and quantified.
In the UK, where I worked for a few years, there was a rigorous process that project management graduates had to go through, where they would have to complete project controls, change management, and risk management training.
Typically, they would need to cycle through a production or delivery environment, spend some time somewhere in the design lifecycle, and learn about integrated procurement. The project manager typically came out of that graduate program with a well-rounded background as well as being connected to different parts of the organisation.
This is a great way to develop project managers with a broad understanding of how everything ties together, which is particularly important in the Defence industry today.
How does a continuous improvement culture, backed by project management standards and training, benefit Defence procurement projects?
There seems to be less definition in people’s minds about projects these days even though to me, projects are becoming more rigorous and controlled.
Overseas, chartering is an option for demonstrating capabilities, just like accounting. Once you have demonstrated your expertise, you can begin the chartering process. I think it would be great if something like that existed in Australia to establish a pathway of rigour and credibility to assess competence.
Can you tell us about you upcoming keynote in Adelaide?
In mid-March, I will be delivering a keynote in Adelaide on what I’d call an ideological conflict within project management—that is, a clash between those who firmly advocate for Agile as the ultimate approach and those who swear by the effectiveness of critical path or other methodologies.
There is something unfortunate about all this extreme binary, almost warring factional approach to dialogue. I would like to deconstruct this topic because it is not constructive for anyone. Arguing whether Agile or traditional methodologies are superior misses the point that both can be effective when applied systematically.
As project managers, our focus should be on selecting and systematically applying the best-suited methodology for a given project, managing a strong team, and creating innovative products for our customers. This approach, rather than fixating on which methodology is better, will bring us closer to successful project completion and client satisfaction.
The relevance of finding a middle ground and not obsessing over methodologies is set to increase in relevance across different industries that are related to defence, particularly as we see more advanced technology projects come to the forefront.
Defence projects often involve distinct phases, such as software development, hardware development, and integration – and challenges arise when different phases are managed using disparate methods – leading to the integration team, caught in the middle, struggling to reconcile conflicting approaches. The real issue often is not the methodology itself but just a loss of control over the scope.
Therefore, as projects become more complex, the importance of a flexible and method-agnostic approach grows. Here at TBH, we do not fly one particular flag, or advocate for any single method, tool, or system; our goal is clear – to assist our clients in delivering their projects successfully. We focus on what is best for the project and the client in their situation.
In my upcoming talk, I want to emphasise that we are system, tool, and process agnostic. We get hired to offer support, not to advocate for one methodology over another – and we invite conversations with those seeking assistance, reinforcing our commitment to helping our clients navigate unique project landscapes in Defence to achieve the best possible outcomes.
About Drew Nugent
As TBH’s Defence lead, Drew Nugent has significant experience in complex project planning and controls, PMO establishment, schedule risk analysis, and change management. His skills range from devising schedule development strategies through to fully integrated project controls solutions.
If you’d like to learn more about TBH’s Defence capability, please visit this page.