The IP Paradox
By Brent Clark
There has been much recent comment in the press regarding the underwhelming levels of local work resulting from the Government’s generational increase in investment in Defence capability. Discussion has arisen over the merits or otherwise of the AIC programme, and on Defence’s statements to the effect that they have little control over the primes’ subcontracting.
This stands in stark contrast to the experience many Australian companies have had in contracting with Defence.
To-date, CASG’s views on how formal interaction with industry should occur are enshrined in the suite of ASDEFCON contracting templates. In a recent joint Ministerial statement, it appears that the “best endeavours” approach of the existing AIC policy may be replaced by harder contractual commitments to expenditure levels on local Australian industry (ideally Australian-owned). Whether these changes can achieve this outcome, or there remains the ‘but not at additional cost nor impact to schedule’ for the ‘acquisition phase’ escape clause remains to be seen.
It is fair to say that these templates reflect a view that Defence must treat industry with a great degree of caution. Under these templates, Defence retains controls over many steps of the process of the supply (by industry) of defence equipment. Additionally, in the event that Defence wishes to exert authority over its supplier, Defence retains a range of powerful contractual remedies able to be drawn upon at different acquisition or sustainment stages. Defence even retains the power to simply walk away from a contract for no better reason than it be ‘convenient’ to do so.
So local industry is understandably perplexed when Defence representatives claim that they are powerless to enforce prime contractors to abide by the local AIC levels that the Prime’s themselves tendered – and contracted for.
There has to be a Sovereign commitment to AIC. Defence needs to use its wide-ranging powers to support Australian owned SMEs. This includes external auditing to ensure compliance. No longer can Defence allow enforcement of AIC to be put in the ‘too hard basket’. Stove-piped project-by-project acquisition methodologies has allowed this to happen. Consider the paradox of intellectual property (IP).
Among the many measures enshrined within Defence’s ASDEFCON suite is its position on IP.
Defence demands licenses to the IP underlying a supplier’s products. Such licenses are nuanced by the supposed constraint that the supplied products/technologies be used only for “defence purposes” – as compared to “commercial purposes”; but for much of military technology, defence purposes are the only purposes for the goods, so this constraint is immaterial if, for example, Defence subsequently gives away or exchanges this technology with our allies – which often are the only commercial export market for those goods.
For suppliers of high technology items, such licenses demand further access to the technology’s source code and other technical data. Now while this same approach ostensibly also applies to goods that are imported; in practice, Defence contracting personnel appear to implicitly accept that this level of control of IP of systems developed overseas, and often supplied by the local branch of the foreign primes, are beyond their reach.
After all, who would realistically expect to be supplied, for example, the full source code of the US-developed Aegis combat system and the SPY radars that equip the RAN’s Hobart Class DDGs?
But Australian developed technology gets harsher treatment. Local SMEs report cases where they are told by Defence’s contracting personnel that: “you are an Australian company, so we must have paid for the IP on previous contracts, so we should own it”.
Such statements may simply reflect a low-level of-understanding by public servants that have not benefited from Defence private sector experience, of the level of commercial risk borne by SMEs in their continuing investment in the development of Australian technology between often intermittent Defence contracts.
But the consequences are well understood - the ability to supplant the SME from the longer-term support of its own product by handing the SME’s IP necessary to support the product to a larger aggregated services supplier.
If Defence is genuinely concerned about long term access to IP, as distinct from just the perpetual licence that it secures through the contractual Defence Licence, then there are already provisions for placing IP and source code in escrow. Being an Australian SME should not be used as an excuse by Defence procurement to take ‘the easy path’.
It is unfortunate that, faced with the prospect of having the local supplier of technology engaged over the longer term to support its product, Defence’s instinctive response is one of innate discomfort, rather than enthusiasm at an opportunity to partner with its local industry.
AIDN appreciates that Defence has reached these positions following unfortunate prior experience on some large programmes where foreign owned primes have utilised their control over IP to block Defence’s access to sufficient technical information to enable other parties (including SMEs) to interface equipment to the prime’s equipment and /or address obsolescence issues.
Pragmatically there may be some cases where for strategic reasons, a procurement may be undertaken through an FMS procurement – however there is a whole section on AIC for Foreign Military Sales acquisitions that rarely has had more than lip service ever paid to it.
What irony that IP positions developed to protect Defence against the occasional proprietary practices of foreign owned primes are used to stymie the health and growth of local defence industry.
More to the point, is the inconsistency of this contracting approach with the oft-stated desire to develop sovereign industrial capabilities.
How can local industry be expected to develop defence systems if, whenever it makes a sale, it is required to include rights to higher -Tier contractors, that enable them, as potential competitors, to use that technology.
And if due to this risk, there is only a poor business case to develop the desired types of technology locally, how can a sovereign industry capability ever emerge, let alone flourish?
Yet Government has made it crystal clear that it not only wants, but demands, that Defence act in a manner that allows such a sovereign industrial capability to develop.
It is AIDN’s view that, in implementing its announced ‘enhanced AIC’ initiative, the time has come for Defence to reconsider the approach it takes to IP in tendering and contracting local industry.
Instead of continuing with an approach that tilts the field against local industry, it must take a stand that aids local industry. Existing requirements for local industry to provide licenses to its underlying source code and technical data should be revisited to ensure local developers that signal non-compliance with such requirements are not disadvantaged.
Defence’s masters have declared that Defence must act to develop sovereign industry capability and remove the obstacles to the progress of local defence industry.
Whether Defence recalibrates its approach to local industry IP will be a sure indicator of whether its response to the challenge laid down by its masters is substantive - or merely rhetoric.
Published in Defence Connect 8 October 2020
The AIDN National 3rd Quarter Newsletter 2020 is available below.
AIDN National 3rd Quarter Newsletter 2020.pdf
Its one thing to build war fighting capability it’s another to build industrial capability.pdf
AIDN Newsletter National 2nd Quarter Newsletter 2020.pdf
The Australian Industry & Defence Network (AIDN), Australia’s largest national defence advocacy group representing small business, has appointed Brent Clark as their new CEO.
Brent joins the organisation after a multi-decade career in defence and defence industry. He is a former submariner and has held a number of senior roles within Defence Industry.
“AIDN is thrilled to have Brent on board to help us develop as Australia’s voice for defence industry,” AIDN National chair, Lester Sutton said.
“Defence policy is an Australia wide concern and that obviously requires a strong voice in Canberra, which Brent will provide,” Mr Sutton said.
“The COVID-19 crisis has shown defence industry’s importance to the Australian economy, and that importance will only grow as the future submarine, future frigate and other significant defence programs ramp up,” Mr Sutton said.
“Our job at AIDN is to advocate as strongly as we can for our members to make sure they benefit as much as possible from the Federal Government’s defence spend to maximise sovereign capability.
“Beyond the benefits for AIDN members, ensuring a maximum level of sovereign capability is the right thing to do for our national security and the economy,” Mr Sutton said.
Brent Clark will continue in his role as CEO of Industry Voice, a complementary defence industry body that has taken a lead role in the debate around Australian Industry Capability (AIC) - particularly sovereign capability.
Industry Voice has joined AIDN as an Associate Member and signed onto the MOU to form a single national organisation representing small business in the sector.
“I congratulate Brent Clark on his appointment, and I look forward to working in collaboration with AIDN to jointly further the cause for Australian small businesses,” Industry Voice Chairman, William Hutchinson said.
Download the AIDN Newsletter for the 1st Quarter 2020 now!
Released on the 18th of March 2020. Click on the link below to open.
The Australian Industry & Defence Network (AIDN), Australia’s peak national industry body representing primarily Australian small and medium businesses operating in Australia’s defence and national security industry, has called for an urgent review of the Australian Industry Capability (AIC) Program to ensure it meets its objectives of:
“The current AIC policy framework, established by the Government through the Department of Defence, is well intentioned and has been warmly received by Australian industry. However, the AIC Program as implemented is not facilitating development of sovereign industry capability or business opportunities for the local Australian defence supply chain to the extent envisioned.” said Lester Sutton, National Board Chair of AIDN.
“Australian industry, particularly small and medium business, is now at risk of losing out on sovereign industry capability, billions of dollars of work, and thousands of local jobs,” he added.
AIDN members across Australia are reporting significant frustration in getting Australian industry involved to the extent envisioned across major new defence programs including the Future Submarine, Future Frigate, Offshore Patrol Vessel, Combat Reconnaissance Vehicle and Joint Strike Fighter programs – Australia’s largest ever defence acquisitions. If AIC implementation continues ‘as is’, the outcome will be to lock-in more overseas suppliers and exclude Australian industry from participating in these acquisitions, including through-life-support.
AIDN is recommending a number of changes to improve the AIC Program’s effectiveness and to ensure Australian industry, particularly small and medium businesses, are not further excluded from such opportunities:
“These are relatively straightforward changes, which we believe can and need to be implemented without delay.” Chairman Lester Sutton went on to add.
“AIDN members are grateful for the significant reform achieved in defence industry policy by the government over the last five years and fully support the drive to generate more local capability and corresponding jobs through the transfer of overseas technology. But we need to ensure the intent and extent of these good policy settings, particularly around AIC, are actually achieved.”
“Australian industry is not after a hand out, but it wants the opportunity to compete on a level playing field, for the first-of-class of Australian military platforms, otherwise there is a high likelihood Australian industry will be excluded for the life of the platforms – and sovereign industry capability will not be achieved.”
“With these major programs across all of defence, including SEA1000 Future Submarine, SEA5000 Future Frigate, SEA1180 Offshore Patrol Vessels, LAND400 Phase 2 Combat Reconnaissance Vehicle, LAND400 Phase 3 Mounted Close Combat Vehicle, LAND4503 Armed Reconnaissance Helicopter and LAND2097 Phase 4 Special Operations Helicopter, now is the time, without detracting from delivering the defence capability our defence forces need, to focus defence acquisition on supporting sovereign industry capability, local jobs and the significant economic benefit this brings to the country.”
What a fantastic Event!!
The Ipswich City Council has gone above and beyond to attract Defence Primes and Industry to a Symposium which was one of a kind
The facts and figures:
The Ipswich City Council event, organised by AIDN-Qld is part of the continued effort by the Ipswich City council to deliver the "City of Ipswich Defence Ipswich Action Plan 2018-2023". This action plan is supported by the City of Ipswich Defence Industry Development and Attraction Committee (CIDIDIAC). Local Government has a direct level opportunity to identify businesses that have the potential to become the next generation Defence Ready suppliers. Industry Associations like AIDN can provide the network for these businesses to find opportunities to collaborate and complement each other.
Judy Denison who spoke at the event on behalf of the CDIC said: "It's really unique for a City Council to be putting on an event like this bringing Industry together to promote, develop, and assist with looking for opportunities in Defence. I commend Ipswich City Council on the format and I believe everyone will have gained something from the event."
With regards to the B2B sessions, one Business Development Manager at the event was overheard saying to Tamanna Monem from the Ipswich City Council, "it would take me 4 months on the road to meet with the number of businesses I've met in this one afternoon". Others were heard to have benefited from the B2B session with Primes as its something that can take months to get access to a Face to Face meeting.
Carl Quarterman AIDN-Queensland President said "The presenters were all great, the passionate speakers could easily spend hours talking about the topics discussed so to have them all on point with the limited time available was excellent. It was also great to get so many of these businesses networking together and looking for collaboration opportunities."
Nick Green from PFI a business which is actively chasing work in the Space Sector and promoting STEM Activities and skilling was quoted as saying "By far the best conferencing event globally that I've been to the B2B sessions were excellent." Others also echoed this sentiment agreeing that it was well run, and the Primes were happy with the way the B2B sessions ran.
AIDN National Invites you to attend a panel discussion “National Suppliers – Are you Defence Ready?” as part of the Pacific 2019 International Maritime Exposition on Tuesday, 8 October 2019 . The panel session will provide SME’s with:
Kerryn Smith – CEO AIDN-NT
Dr. Rodger Manning – Managing Consultant, BidWrite
Joseph Cardillo – BAE Major Contracts Manager SEA 5000
Michelle Richard - Thales Procurement Director
See the AIDN National LinkedIn page for further details.
Ipswich City Council, proudly supported by the City of Ipswich Defence Industry Development & Attraction Committee, will host its second consecutive defence industry event after a highly successful Queensland Defence Summit held within the city last November.
The Defence Ipswich Supply Chain Opportunities Symposium 2019 is scheduled for 8 November 2019 and will continue to position the city as one of the hotspots for defence within not only Queensland, but Australia.
The Symposium will attract 150 to 180 industry participants including defence contractors, policy, academia and SMEs to participate and exchange information on project opportunities and attend formal B2B sessions in the heart of Ipswich.
In 2018, council endorsed the Defence Ipswich Action Plan 2018 to 2023, which was developed in consultation with the City of Ipswich Defence Industry Development and Attraction Committee (CIDIDAC). Ipswich is the only local government in Australia to have a dedicated and adopted the Defence Industry action plan. Link: Defence Ipswich Action Plan.
In November 2018, council delivered the Queensland Defence Summit: Ipswich, which brought together over 300 delegates from defence, all levels of government, defence industry, academia and manufacturers.
As a result of the Defence Ipswich Action Plan, council is planning to deliver the Defence Ipswich Supply Chain Opportunities Symposium 2019 to provide opportunities for SMEs to understand and access defence opportunities.
AIDN QLD is the official event coordinator of the Symposium.
Follow the updates on the Defence Ipswich Supply Chain Opportunities Symposium 2019 on our official LinkedIn page here.
Register for the Symposium here.
We look forward to seeing you at the Defence Ipswich Supply Chain Opportunities Symposium 2019!
Mel Woon, Executive OfficerE email@example.com
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