The Air and Space Domain - Collaboration with partners and faster acquisition

Key recommendations and themes (Air and Space)

In the Air Domain, the DSR recommends that:

• Long-Range Anti-Ship Missiles are integrated onto the F-35A and F/A-18F platforms, as well as equipping the F-35A with Joint Strike Missiles.
• Australia collaborates and shares technology with the United States relating to the MQ-28A Ghost Bat.

In the Space Domain, the DSR recommends that:

• Space Command is integrated into Joint Capabilities Group.
• A centralised function is established for the development and management of Space Domain capabilities.
• A system is developed to maintain a skilled workforce.
• The Australian Defence Force (ADF) stays on the cutting edge by adopting approaches which emphasise the speed of capability acquisition.

What does this mean for Defence procurement?

• The Commonwealth may consider engaging with the US Government through Foreign Military Sales (FMS) arrangements to upgrade the long-range strike missile capability of its fourth and fifth generation jets, which would require additional layers of compliance with US export controls.  When proposing to collaborate with US Government on uncrewed aircraft and space capabilities, Defence could consider the impacts of incorporating US export-controlled technology into these platforms, within the context of their intended future use of the capabilities.
• In our analysis further below, we have described a number of options which could be utilised to facilitate expedited capability acquisition, particularly in the Government approval, requirement setting, procurement process, and contracting stages.
• Defence will need to ensure compliance with all applicable legislative and procurement policies and processes, including preparing robust and bespoke documentation and seeking specialist advice, to address the commercial, legal and probity risks in implementing an expedited procurement process.

The Air domain (in detail)

Compared to other domains, the DSR takes a light touch approach to the reprioritisation of capability acquisitions within the Air Domain. This could reflect the fact that the Royal Australian Air Force (RAAF) is already well positioned to deliver on the DSR’s strategy of military denial, for example through the acquisition of long-range strike missiles and air and missile defence capabilities.

The DSR highlights the following key priorities for the Air Domain:

Shoring up northern approaches

The DSR states that operations from Australia’s northern base network is a high priority for force structure design. In particular, it is recommended that the RAAF maintains northern air bases with appropriate hardening and dispersal. The Government has shown its commitment to this recommendation with the recent announcement of a $3.8 billion investment in bases across QLD, NT, the Cocos Islands and WA, with more than half being spent on RAAF bases alone (approximately $2 billion).

Emphasis on maritime and land strike capabilities

The DSR recommends that the long-range strike capabilities of the RAAF’s forth and fifth generation jets are improved, specifically:

• The F/A-18F Super Hornet is equipped with the Long-Range Anti-Ship Missile (LRASM).
• The F-35A Joint Strike Fighter is equipped with the LRASM and the Joint Strike Missile (JSM).

In order to operate the JSM, the F-35A will need to be upgraded to Block 4 configuration. This upgrade is already being rolled out across the US Joint Strike Fighter fleet and includes enhanced sensors and electronic warfare systems.

Intelligence, Surveillance and Reconnaissance (ISR) and autonomous systems

The DSR recommends that Australia collaborates with the United States on the development of the MQ-28A Ghost Bat, an unmanned aircraft designed to be a cost-effective and easily replaceable alternative to crewed aircraft, and which can be integrated with other military systems and enhance Australia’s situational awareness and intelligence-gathering capabilities.

The MQ-28A Ghost Bat (a ‘Loyal Wingman’ capability) is a truly sovereign platform. It is the first military combat aircraft in more than 50 years to be designed, engineered and manufactured in Australia, and it is named after a species of bat native to Northern Australia.

In 2022, it was reported that the US Government was considering purchasing MQ-28A Ghost Bat aircraft for its own air fleet. In this context, the DSR moves Australia toward this opportunity to partner with the US, and encourages Australia to go even further by exploring follow-on co-development of the MQ-28A Ghost Bat capability.

The Space domain (in detail)

Similar to the Air Domain, the DSR does not recommend significant capability reprioritisation for the Space Domain. Instead, the DSR provides guiding principles in improving the ADF's space capabilities, namely:

• optimising capability assurance and communication provision. A recent announcement in this area is the selection of a preferred tender for JP9102 to deliver a sovereign military satellite communications system;
• balancing the cost of developing sovereign capabilities against the opportunities to collaborate with the US and other international partners; and
• adopting approaches which emphasise the speed of capability acquisition in order to match the speed of technology developments in the space domain. This includes procuring Commercial-Off-The-Shelf (COTS) and Military-Off-The-Shelf (MOTS) capabilities and investing in smaller, rapid acquisition projects.

Another key focus is on the organisational structure of the Space Command, including:

• adopting a whole-of-government and whole-of-nation approach to guide the development of the Space Domain;
• moving Space Command into the Joint Capabilities Group, instead of establishing a separate Space Force. This is consistent with the DSR's strategic recommendation for a focused integrated force;
• more appropriately phasing the funding for large projects allocated in the Integrated Investment Program;
• creating a centralised space domain capability development and management function; and
• establishing a program for building and sustaining a trained Defence space workforce.

Legal and contractual implications for Defence

The DSR’s recommendations across the Air and Space Domains raise key legal and commercial considerations in relation to capability acquisition:

Collaboration with the US and FMS

As the JSF and Super Hornet programs are delivered through FMS arrangements with the US Government, the Commonwealth may consider obtaining the recommended platform upgrades by expanding the scope of existing FMS cases.

This could mitigate funding and schedule risks. However, it will require the Commonwealth to ensure compliance with additional US export controls requirements and regulations, including bespoke requirements set out under the terms and conditions of Letters of Offer and Acceptance (LOAs), as well as the International Traffic in Arms Regulations (ITARs).

Further, the Commonwealth may need to increase the scope of its existing support contracts with Australian subsidiaries of relevant prime contractors to include services related to the upgrades. This will require negotiating contract variations to the extent that the upgrades are not already contemplated in extant support contracts.

Collaboration with the US on the development of the MQ-28A Ghost Bat and capabilities in the Space Domain may also give rise to export control considerations.  Where US export-controlled technology (eg, hardware, software, source code or technical data) is incorporated into an Australian platform, the platform itself becomes subject to US export control restrictions (commonly referred to 'ITAR-tainting' or the 'see-through-rule'). The effect is that Australia may need to obtain US Government approval in order to sell, transfer or export the MQ-28A Ghost Bat and relevant space capabilities if any US export-controlled technology is incorporated into the platform. This is in addition to the usual legal risks arising from collaborative development of advanced technology, including intellectual property ownership and licensing, and commercialisation rights.

For further information on the requirements and considerations relating to ITAR and US export controls in Defence procurement, please see our recent article on this topic.

Staying on the cutting edge through timely delivery

There are a number of ways that Defence projects could be designed to facilitate more efficient capability acquisition. Some of those options include:

• Government approvals: as recommended in the DSR, the capability acquisition system (such as the capability life-cycle) could be reformed, which could include streamlining the approval gates through which certain projects must pass before delivery commences. This will require amendments to Defence’s procurement policies and procedures.
• Requirements setting: projects currently balance scope, quality, cost, and time when determining their requirements and deciding on an acquisition strategy. Setting requirements at the operational- or concept-level, with appropriately informed market testing and scoping studies, may allow Defence to engage with its suppliers within a shorter timeframe, although this would need to be balanced against longer-term quality and cost risks through contract delivery.  The success of this approach would rely on developing a truly collaborative and outcomes-focused relationship between Defence and its relevant prime contractors.

Focusing on the operational requirements of a capability or platform (and not on detailed specifications and lengthy requirements setting) is consistent with the DSR’s recommendation to deliver affordable minimum viable capability in the shortest timeframe. Where this approach is adopted as part of the acquisition strategy for a capability, it would need to be implemented up-front through the project’s procurement planning (and contractual) documentation.

• Procurement process: the procurement process could assist projects to identify a successful tenderer and commence delivery sooner by:
• approach to market considerations.  Where a particular capability has a limited number of suppliers or realistic competition (determined through scoping studies or other market-testing activities), projects could conduct limited or sole source procurements to streamline an otherwise open-market approach.  This would need to be considered against the requirements of the Commonwealth Procurement Rules, Defence’s Accountable Authority Instructions (AAIs), and other procurement policies.  This should also be weighed against the overarching requirement to achieve (and verify) value for money in any procurement activity.
• favouring mature solutions.  The procurement requirements (eg, essential requirements and evaluation criteria) may be drafted to favour mature systems (including COTS and MOTS) which will deliver minimum viable capability with minimal design changes or modifications.
• Projects should be aware that the procurement of mature systems may also lead to trading off commercial and legal protections, not just scope and quality.
• Suppliers of off-the-shelf solutions often take a ‘one size fits all’ approach to contracting (given the nature of the services) and may be unwilling to accept Defence’s standard terms without significant negotiation, or with increased risk margins reflected in pricing. This may counteract the intended benefit of procuring a mature system.
• conducting early risk mitigation and engagement.  Projects may engage with industry early in the procurement process to ensure that the Commonwealth’s requirements appropriately align with industry’s capacity, approach, and expectations of risk before entering into a contract. Projects may even bring-forward preliminary services such that they are delivered by the preferred tenderer during the market stage rather than after contract execution – often called ‘advanced work’ or ‘pre-contract work’.
• The ultimate goal is to de-risk capability delivery by undertaking activities which typically occur during early stages of a contract. However, this creates commercial, legal and probity risks which will need to planned for and managed closely. Please see our recent article on collaborative contracting for further information on this topic.
• Contract structure and delivery: the contracting vehicle could require, and incentivise, the contractor to deliver meaningful capability early. This can be achieved by adopting pricing models and incentive frameworks which reward the contractor for early delivery and disincentivise delay (eg, liquidated damages). Further, the contract could adopt delivery methodologies such as ‘Agile’ approaches where supplies are delivered incrementally and more often (eg in ‘sprints’), instead of all at once years later.

These options will need to implemented in the contract drafting (for example, the ASDEFCON suite of templates adopts a traditional waterfall approach, rather than agile, for contract delivery) and carefully managed through contract administration.

Further information

If you have any questions or would like further information on the commercial and legal impacts of DSR in the Air and Space Domains, please feel free to contact us.

Authors:

Rory Alexander, Principal

Derek Smith, Senior Associate

Annie Banerjee, Associate

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