Government to scrap multiple Defence agencies to fight massive blowouts

A historic overhaul of the defence bureaucracy has set the stage for a vigorous debate on defence funding among the Albanese government’s most powerful players, as Defence Minister Richard Marles and Defence Industry Minister Pat Conroy push their cabinet colleagues for a substantial rise in military spending.

Responsibility for delivering major military projects within budget will be stripped from the Department of Defence, under changes announced on Monday, and handed to a new independent agency in one of the nation’s most significant bureaucratic shake-ups in decades.

In reforms aimed at reducing the military’s many multibillion-dollar blowouts and lengthy delays, three existing agencies within the Defence Department will be merged into a new super-agency reporting directly to Marles and Conroy.

Defence experts largely welcomed the overhaul, but said it needed to be paired with more money to achieve real reform within the defence establishment.

Marles also announced that the government was monitoring the movements of a Chinese naval flotilla in the Philippine Sea to determine whether it is en route to the waters surrounding Australia in a repeat of a Chinese task group’s circumnavigation of the continent in February.

The Department of Defence has a current budget of $56 billion a year, a figure that is set to rise to approximately $100 billion by 2034 amid growing regional tensions and pressure from the Trump administration for nations to spend more on their own defence capabilities.

The changes will see the Capability Acquisition and Sustainment Group, the Guided Weapons and Explosive Ordnance Enterprise and the Naval Shipbuilding and Sustainment Group scrapped and rolled into the new Defence Delivery Agency.

The autonomous agency, which will be established in July 2027, will be headed by the national armaments director, a new position, and will control the budget for all major Defence acquisitions.

“This is one of the biggest changes to Defence that we have seen,” Marles told reporters.

“It will greatly change how Defence operates. It will greatly improve the quality of the Defence spend, and it will make sure that as we spend more money in the defence budget, we are doing so in a way which sees programs delivered on time and on budget.”

There will not be job cuts as a result of the overhaul, Marles said.

Marles said Labor had significantly increased defence spending since coming to office in 2022, and that this boost carried an obligation to ensure the money was well-spent.

“The establishment of the Defence Delivery Agency will see a much bigger bang for buck,” he said.

Defence Industry Minister Pat Conroy said the overhaul was the biggest reform to the nation’s defence organisation in 50 years.

The reforms, he said, are “all about getting the equipment the brave men and women of the Australian Defence Force need into their hands sooner”.

Marles and Conroy are expected to use the overhaul to lobby for more defence funding ahead of next year’s national defence strategy and the May budget as they argue the defence force will spend the extra money more efficiently than it would have under the current structure.

There is widespread consensus among defence experts that defence spending needs to rise to around 3 per cent of gross domestic product - up from just over 2 per cent currently - but any dramatic increase will be closely scrutinised by Treasurer Jim Chalmers and Finance Minister Kay Gallagher.

The Department of Defence has undergone several major restructures, including the creation of the Defence Materiel Organisation in 2000 and its abolition 15 years later, when it was replaced by the Capability Acquisition and Sustainment Group. There have been longstanding concerns within defence industry that the department is bloated, top-heavy, risk-averse and overly bureaucratic.

A new AUKUS Group overseeing the security pact has also been created within the Department of Prime Minister and Cabinet, to be led by deputy secretary Kendra Morony.

The overhaul comes as the government searches for a new head of the Australian Submarine Agency, which sits outside of Defence and is responsible for delivering the AUKUS pact’s nuclear-powered submarine program. The first boss of the agency, Vice Admiral Jonathan Mead, announced in November that he would step down from the pivotal role in the middle of next year.

Sources familiar with the overhaul said it was designed to give the government more control over major acquisitions and avoid a repeat of the much-maligned Hunter-class project, which has been beset by design changes, delays and costs that ballooned past $50 billion.

A scathing 2023 audit found the Defence Department “did not conduct an effective limited tender process for the ship design” and value for money from the three competing designs was not assessed by officials as it should have been.

The government last year decided to cut the number of Hunter-class frigates from nine to six because of concerns they lacked sufficient firepower.

There is a strong view within the government that the department has lacked accountability and needs to be transformed to ensure the defence force can respond to growing geostrategic competition in the Indo-Pacific, including China’s rapid military build up.

Peter Dean, a professor of strategic studies at the Australian National University, said: “This is a bold, brave decision; the government is attempting to do something big. The key is that they change defence’s operating system, not just the business cards.”

Jennifer Parker, an adjunct fellow in naval studies at UNSW, welcomed the creation of the new delivery agency but said it needed to be matched with a substantial increase in defence spending to ensure the nation has the military capabilities it needs.

“Structural change alone cannot solve the problems,” she said.

Opposition defence spokesperson Angus Taylor said it was unclear how the decision would deliver a better outcome for the defence forces, telling Sky News that “the risk here is this is just shuffling the deck chairs”.

The government is also preparing to announce a dramatic overhaul of the sprawling defence estate portfolio, including selling historic sites in several capital cities.

Cut through the noise of federal politics with news, views and expert analysis. Subscribers can sign up to our weekly Inside Politics newsletter.