Sydney, Australia – [04 Nov 2025] – The critical structural weakness in Australia’s defence industrial base known as the ‘missing middle’ could be addressed by an innovative solution using collaborative and alliance contracting mechanisms to create tier-two equivalent industrial capabilities to address areas of strategic capability shortfall.

Australia’s defence industry exhibits a problematic hourglass structure: numerous small enterprises at the base, large prime contractors at the top, but a critical absence of robust domestic mid-tier companies capable of systems integration and complex sustainment activities. This structural imbalance limits Australia’s capacity to independently develop, integrate and sustain complex Defence capabilities – a vulnerability that has become increasingly urgent given Australia’s complex geostrategic environment.

A Strategic Opportunity

The white paper identifies a significant opportunity for the Australian Department of Defence to work with domestic defence industry to address this missing middle problem by leveraging collaborative and alliance contracting as a mechanism for achieving structural change.

“We are proposing active exploration of collaborative and alliance contracting to bring together small Australian defence sector companies to form mid-tier enterprises in prioritised capability and sustainment areas aligned with Defence needs on a long-term basis,” says Peter La Franchi, National Defence Director at TBH and white paper co-author.

Proven Mechanisms, New Application

The paper examines Defence’s existing use of collaborative and alliance contracting through three case studies, identifying the Strategic Shipbuilding Agreement with Austal as representing the first direct application of this methodology to enable an industrial capability ecosystem outcome.

Drawing on the experience of the C4-Edge initiative from 2020-2021, the white paper demonstrates that Australia’s small defence companies are already experienced in working together in collaborative arrangements, providing a foundation upon which more formal structures could be built.

Key Recommendations

The white paper presents four core recommendations:

• Develop a coordinated framework for applying collaborative and alliance contracting to address missing middle challenges, beginning with pilot projects in selected Strategic Defence Industry Priorities areas
• Prioritise collaborative contracting mechanisms to support Defence’s National Support Division in establishing resilient forward support arrangements for Australian Defence Force units in Northern Australia
• Invest systematically in developing project controls capabilities across the defence industry ecosystem as an essential foundation for success
• Establish formal mechanisms for systematic lessons-learned collection and continuous improvement across the defence enterprise

Strategic Imperative

“The challenge ahead lies not in choosing between traditional and collaborative approaches, but in developing the capability, frameworks and institutional commitment to deploy each appropriately in service of building a more balanced, capable and sovereign defence industrial ecosystem,” La Franchi said.

“With Australia’s strategic environment continuing to rapidly evolve, addressing the missing middle has become not just an industrial policy objective, but a matter of national strategic autonomy and resilience.”

The white paper emphasises that robust project controls capabilities are essential for the success of collaborative contracting approaches and the development of Australia’s mid-tier defence companies.

“Project controls capabilities across the full defence industry ecosystem must be recognised as an essential foundation for collaborative contracting success and middle-tier company development,” says Travis Harvey, a Director of TBH and paper co-author. “Systematic investment in these capabilities is not optional – it is fundamental to transforming Australia’s defence industrial structure.”

The authors argue that without strong project controls, collaborative arrangements risk becoming ungovernable and failing to deliver the strategic outcomes Australia requires.

“Building project controls capability represents an investment in the fundamental infrastructure needed to support more sophisticated contracting mechanisms and enable Australian companies to compete at higher tiers of complexity,” the white paper notes.