Defence Department to lean more on contractors as military spend grows: Australian Strategic Policy Institute report

Government contracting to private companies will likely become even bigger business, as the department tries to avoid failure in delivering the nation's growing defence program, according to the Australian Strategic Policy Institute.

The think tank has said the Defence Department is likely to lean more on the private sector for services needed to maintain and run the nation's growing military arsenal and deliver an annual defence program expected to reach $58 billion in 2025-26.

Senior analyst Marcus Hellyer said in a report released on Thursday the Defence Department entered more than $2.1 billion worth of contracts for professional services last year.

The nation's Defence Strategic Update, released in July, outlined large-scale growth in Australia's military spending but flagged an initial increase of only 250 staff to its ranks of civilian public servants.

"With only moderate growth in public servant numbers forecast as the acquisition budget grows dramatically, it appears inevitable that Defence's reliance on its external workforce will continue to grow," Dr Hellyer said.

He said it was clear Defence outsourcing was "big business" and would only get larger if the department was to have any hope of delivering massive increases to its capital budget and an ambitious program acquiring and maintaining new military equipment.

Disruptions to supply chains would also complicate Defence's task achieving surges in capital spending.

"As the defence budget grows well beyond 2 per cent of GDP, Defence will need to demonstrate to the government that it can spend it, both to deliver necessary military capability and to give local industry a stimulus," Dr Hellyer said.

"If Defence can't spend it, it risks losing it in an age of surging deficits and government debt."

The department's workforce of external contractors, numbering about 28,600 last year, was second only to the army (30,000) in size when comparing headcounts of military services.

It also dwarfed the headcount of 16,000 civilian public servants directly employed in the Defence Department.

Governments have downsized the department's internal workforce since 2010 but the nation's new defence strategy has forecast growth in Commonwealth spending on personnel, including civilian bureaucrats.

The Defence Strategic Update said the government would consider increases to its defence workforce's numbers next year.

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Dr Hellyer said years of downsizing combined with the growing workload to purchase and maintain the military's equipment had brought increases to Defence's external workforce of contractors.

The group within Defence tasked with delivering and sustaining the nation's military equipment, the Capability Acquisition and Sustainment Group, had been hardest hit with staff reductions, he said.

It had increasingly turned to the private sector for project management and professional services traditionally delivered by staff within the Defence Department.

Dr Hellyer said the department had contracted four major service providers - Jacobs Beca Team, Team Nova, KEY Team and Team Downer - for workforce planning, management and development, and industry and supply chain management.

In July, Prime Minister Scott Morrison announced the government would spend $270 billion over the next decade on defence as it looked to shore up Australia's position in a more volatile post-pandemic world.

Australia's defence spending is set to grow more than $3 billion this year, rising to more than $42 billion, or 2.19 per cent of GDP.

Defence's program to acquire military equipment will cost $70.5 billion in the four years to 2023-2024, while maintenance will cost $56.3 billion.