Maintaining Malaysia’s Armed Forces amid fiscal constraints: Outsourcing of military support functions

The need for modern equipment for Malaysia’s Armed Forces (MAF) and stronger defence capabilities cannot be denied.

With most of its vital assets reaching obsolescence, the MAF’s ability in defending national interests and sovereignty is very much in doubt. Although the government’s decision to increase the 2024 defence budget by RM2 billion is commendable, the increment is nominal and defence spending continues to be lower than what the MAF needs.

Competing priorities for government funding will likely continue to constrain defence spending. In light of the limited budget, the MAF could consider striving for greater efficiency in the utilisation of the defence budget by outsourcing some of the support functions. Outsourcing is not a new phenomenon, as many countries have devolved such functions to the private sector, given the economic benefits. It also allows the armed forces to maintain a leaner and meaner fighting force.

Acquiring state-of-the-art weapons systems and in the numbers needed to effectively deter a potential aggressor requires a huge injection of capital.

Already, the defence budget has to be split almost evenly between capital expenditure (CAPEX) and operational expenditure (OPEX) – money needed for fuel, spares, wages, housing, and all the attendant requirements to maintain and sustain operations.

Thus, exploring the feasibility of outsourcing MAF support functions to the private sector is one way of maximising the limited annual budget, and to produce an operationally ready force. However, this should be examined from both the economic and military perspectives; the former to determine whether outsourcing offers a cost-effective solution, the latter to ensure the practicability of relying on the private sector for combat and non-combat activities.

MAF must look into the challenges it faces with its current outsourcing programmes and identify the changes that can be made, which not only may improve its defence capabilities, but also, spur the nation’s defence industry.

The practice of outsourcing involves employing external services to handle tasks within a business or organisation, aiming to optimise the core business model and utilising the available resources efficiently. It encompasses various terms like competitive tendering, privatisation, and contracting-out. Outsourcing entails transferring expertise, knowledge and business functions while safeguarding confidential information. Quality assurance of core products or services is often the goal of outsourcing, exemplified by companies like Apple, which focuses on its strengths while outsourcing raw material procurement and device assembly.

In the context of the military, outsourcing includes arms procurement, training, asset repair, maintenance, and sometimes hiring private military and security companies (PMCs) for combat missions. Military outsourcing has diversified to include services such as military advising, logistics, and aerial reconnaissance. Reasons for outsourcing include reducing financial strain, transmitting demand ambiguity to external contractors, acquiring valuable skills and experiences, and accessing specialised expertise in the market. Outsourcing aims to reduce financial burden, increase profits, and to direct focus on the core business while relying on external parties for non-core matters.

The economic aspect of outsourcing military functions revolves around the efficiency of utilising public funds, primarily derived from government taxes. It involves technical efficiency, achieving results with minimal cost, and allocative efficiency, balancing interests and investments. Outsourcing is done through competitive tenders, resulting in more affordable and efficient services. However, over-reliance on outsourcing can compromise national security if policies are not attentively implemented.

In the military realm, outsourcing supports the armed forces by complementing their capabilities, particularly in security for official events and operations requiring advanced technology. Strategic cooperation between armed forces and private military companies can aid in conflict mediation, disaster management, and intelligence sharing. However, over-reliance on PMCs poses risks, such as loss of skills, effectiveness, and legitimacy for the regular armed forces if not regulated properly. Disadvantages of military outsourcing include diminishing the state’s ability to project sovereignty internationally, erosion of control over the armed forces, potential disloyalty, and decentralisation of control.

The United Kingdom’s military outsourcing practices, which started in 1983, offer valuable lessons for Malaysia in optimising limited budget allocations and enhancing efficiency in defence spending. By allowing private sector participation, the UK MoD was able to secure the best deals and improve its armed forces’ operational readiness. The UK’s defence industry reform efforts, such as implementing the Planning-Programming-Budgeting System (PPBS), restructuring defence contractorisation programmes, and involving end-users in defence budget formulation, ultimately fostered responsible customer-state relationships and contributed to defence industry growth. Moreover, this allowed the UK armed forces to focus on its core competency and prevented it from deploying essential military personnel to attend to non-core tasks. This approach aligns with Malaysia’s goal of transforming defence in a transparent and accountable manner, as outlined in its Defence White Paper (DWP). Adopting similar principles in Malaysia’s defence reform agenda, can enhance efficiency, reduce costs, and ensure that the armed forces focused on core responsibilities, ultimately strengthening our national defence capabilities.

The Malaysian Armed Forces’ (MAF) history of outsourcing maintenance of its assets, dates back to the 1970s with the goal of achieving self-reliance, and building up its then-nascent defence industry. However, despite outsourcing various support functions such as maintenance of transportation vehicles, aircraft, and ships, as well as the supply of spare parts, there are significant challenges that need to be addressed to ensure the MAF’S readiness.

The main issue faced by the MAF is the lack of budget, which affects the serviceability of its assets. Additionally, problems such as undertraining of staff, underperforming contractors, and lack of enforcement of contract terms have impacted the effectiveness of outsourcing programmes. It is crucial for the staff involved in handling contracts to be well-trained and familiar with contract terms and conditions, as well as the procurement process. Regular meetings between the procurement division, contractors, and users are necessary to ensure that contractual obligations are met.

Furthermore, the process of awarding contracts can be lengthy, which may lead to outdated pricing that do not reflect current market conditions. To address this, contracts may need to be revised annually to accommodate changes in market prices. Introducing incentives for contractors with excellent performance, such as the option to extend contracts, can also motivate them to perform better.

The success of outsourcing support functions for the MAF relies on diligent monitoring and enforcement of contracts by responsible parties. Despite budget constraints, effective implementation of outsourcing programmes can help maintain the readiness of MAF assets and support its operational capabilities.

Given the stagnant trend in yearly budget allocations for the MAF over the past five years, it’s evident that defence may not be a top priority, amidst the government’s focus on stabilising the economy and political climate. However, with growing threats in the South China Sea and increasing natural disasters due to climate change, the MAF must remain resilient.

Outsourcing becomes crucial in this context to enhance core competencies and the readiness levels of the MAF. Reflecting on current outsourcing programmes is imperative. Despite being in practice for decades, poor governance has undermined its effectiveness. Emphasising good governance on all stakeholders is essential for a modern and capable armed forces. Ignoring the implications of poor governance could negatively impact national security and the MAF’s capabilities.

Brigadier General Yazid Yusuf is a senior officer with the Royal Malay Regiment, and a trained helicopter pilot. He is currently attending the National Resilience Course at the National Resilience College, in Putrajaya.