Private financing in Defence part 3: Turning capital into capability

Private capital does not deliver capability. Well-designed programmes do.

Australia’s Defence sector is entering a new phase where alternative financing has moved from a theoretical discussion to government policy. Private capital is now expected to play a role in supporting parts of Australia’s growing Defence infrastructure pipeline.

Much of the discussion to date has focused on funding: how to attract private capital, how to structure investment vehicles and how to encourage investor participation. These are important questions, but they risk overlooking a more fundamental challenge.

Capital alone does not deliver capability

Australia has already learnt this lesson through the recent infrastructure finance boom, which did not automatically lead to faster delivery, greater productivity or better outcomes. In fact, the 2021 Infrastructure Market Capacity Report found that the surge in infrastructure investment created significant and ongoing pressure on labour, materials and supply chains, increasing the risk of cost escalation and project delivery delays.

Defence now faces a similar challenge. The infrastructure pipeline is growing rapidly, projects are becoming more complex and interconnected, and capability requirements are accelerating. Alternative financing may help bring forward delivery of infrastructure and supporting assets, but it does not remove the delivery challenges that come with them. That is why Defence should treat private financing as a delivery and governance challenge, not just a funding challenge.

Delivery capability: the missing ingredient

When discussing alternative financing for Defence, it’s easy to focus on what investors provide. But often the most significant benefit comes from something else entirely – experience.

Many private-sector organisations have spent decades delivering complex infrastructure programmes in highly regulated environments. They bring lessons from transport, energy, water, aviation, healthcare and international defence programmes. They understand how to manage risk, coordinate stakeholders, integrate supply chains and deliver outcomes at scale. This expertise can be just as valuable as the funding itself.

For this reason, Defence must consider private sector expertise alongside financial advice when selecting projects that are suitable, deliverable and able to create the sovereign capability outcomes it seeks.

Alternative financing introduces new participants into the delivery ecosystem, each with different focus areas. Investors focus on certainty and returns. Government focuses on accountability, public value and stewardship of taxpayer funds. Defence focuses on capability, operational readiness and mission outcomes. Contractors focus on delivery risk, constructability, profit and execution.

Defence needs a translation layer between these competing priorities. They need advisers and delivery partners who understand how financing decisions affect delivery outcomes, how operational requirements affect commercial structures and how procurement choices influence long-term performance. Trust is the critical enabler that sits between strategic intent and successful delivery.

Delivery integrators help government, investors, contractors and operators work towards the same outcome. They understand what public financing means for delivery, for working with primes and financiers, and for helping government get the outcomes it wants. They can also help shape options, develop business cases and establish practical delivery schedules and funding pathways. This is particularly valuable when navigating regulatory requirements, procurement processes, export controls and investor expectations.

Delivery discipline ultimately decides whether private financing works or doesn’t. The challenge is linking private investment and industry expertise with Defence capability programmes.

Design for capability, not assets

One of the most important lessons from major international infrastructure and Defence projects is that many delivery problems originate long before construction begins. Poorly defined requirements, misaligned stakeholders, incomplete understanding of operational needs and insufficient consideration of whole-of-life performance often emerge later as redesign, rework, delays and cost escalation.

Defence programmes are no different. The most successful projects start with a clear capability outcome and put end-user needs ahead of the asset itself.

This changes the conversation. Rather than asking: What infrastructure do we need to build? The question becomes: What capability are we trying to enable?

That capability focus encourages sharper decision-making across planning, design, procurement and delivery. It also supports a whole-of-life perspective, considering not only construction but also operations, maintenance, upgrades, adaptability and future requirements.

Private sector organisations with global expertise and presence can mobilise their most suitably qualified people to specific project challenges, as we did when we deployed UK- and US-based submarine dockyard expertise on the Osborne Nuclear-Powered Submarine Construction Yard programme in Australia. Bringing global nuclear and defence expertise to the programme from the outset provided direct access to lessons learned, proven approaches and specialist knowledge from comparable programmes. Beyond immediate access to specialist skills, this approach also accelerates local capacity development.

Procurement as a capability enabler

Current design approval processes are slow and unsuited to today’s Defence landscape, while traditional procurement approaches can unintentionally separate planning, design and delivery into a sequence of disconnected stages. This slows decision-making, limits innovation and reduces opportunities to address risk early.

Rapid and effective procurement will be essential to delivering projects on time and within budget. That means measuring procurement in months, not years. Achieving this will be challenging because current Defence procurement methods include complex regulations, extensive documentation requirements and multiple approval stages that prioritise compliance and risk reduction over innovation.

These barriers impact small and medium-sized enterprises most, making it difficult for them to compete and limiting diversity and innovation across the supply chain. Rather than repeating the procurement approaches used on previous programmes, Defence should assess each project’s specific needs and select a strategy that reflects its delivery requirements, risk profile and current market conditions. This would open opportunities to a broader supplier base, giving Defence better access to specialist capability and new ideas.

Procurement should therefore become a capability enabler with the objective being to procure assets faster and create the market conditions, delivery relationships and supply-chain capacity needed to achieve the intended capability.

Viewing Defence projects through a five-dimensional lens

Increased funding must be accompanied by a radical change in ways of working, shifting away from transactional approaches to a more collaborative model underpinned by systems thinking and adaptability to change.

This requires a five-dimensional mindset. It means considering not only the cost of delivery, but also the asset’s lifecycle costs across maintenance and upgrades to decommissioning. It also requires enough flexibility to respond to future technologies, changing standards and emerging threats.

The five-dimensional approach considers not only what can be built but also when it should be built, in what sequence, under which approvals, with which workforce and supply chain, and with what impact on wider programme objectives. This helps to balance constructability, cost, schedule, governance and capability outcomes when making strategic decisions.

More time is needed upfront to fully understand the whole-life requirements of an asset. Early and continuous engagement between government, industry, contractors and stakeholders enables shared understanding of outcomes, risks and constraints. Collaborative principles such as co-located delivery clusters comprising representatives from key stakeholders can help deliver infrastructure at the pace and scale Defence demands.

With a five-dimensional view, potential impacts of changes to requirements at any stage of the asset’s life can be tested and risks understood and managed. Teams can bring all the data together to identify gaps, risks, deficiencies, interdependencies and opportunities for optimisation.

These approaches support what we call “right-first-time" design. Rather than discovering issues during construction, project teams shape solutions collaboratively during planning and design. Teams better understand market capability, delivery constraints and supply chain capacity and diversity before key decisions are locked in, improving certainty, enhancing risk management and creating stronger outcomes for all parties.

Bringing capital and capability together

The strongest outcomes will come when the public and private sectors combine their strengths.

Defence provides strategic direction, accountability and an understanding of capability needs. Private capital brings investment and commercial discipline, while industry contributes programme delivery experience, systems thinking, technical expertise and lessons learned from major infrastructure and Defence programmes around the world.

Experienced delivery partners can help connect strategy, funding, procurement and delivery into a coherent programme. Their role is not simply to manage projects, but to align stakeholders around shared outcomes, priorities, risks and delivery pathways.

Ultimately, the success of private financing in Defence will depend less on attracting capital and more on converting investment into capability.