Building workforce capability in a changing defence industry landscape
Recruiting and retaining skilled workers in the Australian defence industry remains a complex challenge. Demand for cleared defence engineering, ICT, project management and cyber talent continues to grow, while workforce supply remains constrained. Salaries, that had risen steadily in recent years, have plateaued, signalling that employers regard this approach alone is no longer sustainable.
At the same time, Commonwealth workforce strategy is shifting. The balance between the Australian Public Service (APS) and subcontracted workforces is being recalibrated. These changes require defence industry organisations to take a more strategic approach to workforce planning, capability development and contractor engagement.
Rebalancing APS and contractor capability
Over the past two years, Defence has moved to reduce dependency on contractors above the line and rebuild permanent APS capability. DDG (formerly CIOG) has confirmed that their rebalancing targets have now been met, bringing key planning, governance and decision-making roles back into the APS.
As a result:
Contractor usage has reduced across several major Defence programs.
Quality, value and efficiency are under closer scrutiny when contractors are engaged.
Milestones are expected to be delivered without increased investment, placing pressure on PSPs and SMEs.
This shift has prompted Professional Service Providers (PSPs) and SMEs to reassess their market focus. Many are now:
Pursuing below-the-line opportunities.
Diversifying into adjacent national security, space, cyber and infrastructure sectors.
Exploring international programs, where demand for Defence capability is increasing.
New approaches to workforce sourcing and development
Despite these shifts, workforce shortages remain, particularly for Baseline, NV1, NV2 and TSPV-cleared talent. To build capability sustainably, leading defence industry employers are:
Re-evaluating role suitability criteria, incorporating transferable skills from adjacent industries
Partnering with training organisations to develop structured upskilling pathways
Supporting neurodiverse professionals and return-to-work candidates into Defence STEM roles
Shifting work to talent, rather than requiring relocation to major Defence precincts
Investing in retention through clear Employee Value Proposition (EVP) strategies
These approaches reduce reliance on salary escalation and contribute to long-term workforce resilience.
Why contractors remain strategically important
While APS capability is expanding, contractors continue to play a vital role in Defence workforce models, particularly on the delivery side of programs.
Key advantages include:
Benefit | Strategic Value |
Access to specialist expertise | Enables rapid uplift where internal capability is not yet matured |
Knowledge transfer | Supports upskilling of permanent staff |
Workforce elasticity | Allows organisations to scale during surge periods and capability peaks |
Innovation and fresh perspective | Contractors bring insights gained across multiple Defence programs |
Kinexus industry research shows that over half of the defence industry workforce would consider contracting in the next 12 months, reflecting strong workforce confidence and interest in project-based work.
How to optimise contractor capability
Building an effective contractor workforce is more than simply filling roles. The following strategies create efficiency and value:
Action | Why It Matters |
Be deliberate about what capability is built (permanent) vs sourced (contract) | Reduces long term cost and prevents skill gaps |
Partner strategically with contractor suppliers | Improves speed, trust and delivery consistency |
Establish standing panels or pre-qualified supplier lists | Enables rapid response to surge activity |
Create a unified culture across permanent staff and contractors | Keeps focus aligned on delivery to Delivery outcomes |
Moving forward
As workforce structures shift across defence and national security sectors, organisations that plan ahead and invest in capability development will be better positioned to meet delivery demands.
Whether you are adapting to APS rebalancing, planning surge capability or reshaping your workforce model, Kinexus can help.
Our teams are embedded across every major Defence program and can provide tailored guidance on workforce strategy, contractor capability, and defence industry talent supply.
Get in touch with one of our team or via email today.
Photo by Elena Mozhvilo on Unsplash
