'We need to grow': Department of Defence, ADF sends dire outlook to Defence Minister Richard Marles

The defence force has warned it's struggling to recruit people amid a nationwide skills shortage while also dealing with a higher rate of staff quitting in the last year.

It comes as Defence's total permanent workforce is planned to grow by approximately 18,500 to around 100,000 by 2040.

But major projects, including the highly-publicised AUKUS partnership, are at-risk of being understaffed or outsourced to labour hire contractors unless salaries and employment benefits are made more attractive, top officials advised.

The extent of the situation is detailed in a brief given to Defence Minister Richard Marles following the May election, and released to The Canberra Times under a freedom of information request.

Better pay, an increase in staffing caps and more senior level public servants are all key to solving the unfolding situation, the department brief outlined.

"The successful delivery of the AUKUS partnership cannot come at the expense of other critical capability investments that are equally vital to responding to our rapidly changing strategic environment," the document said.

"Defence requires expert personnel and some of the most talented leaders Australia has to offer to manage these programs.

"Paradoxically, Defence is not a competitive employer. When competing for a limited pool of experienced staff, we often lose out."

The ADF and Department of Defence had increased their reliance on outsourcing work to contractors in order to manage workloads and meet deadlines for a number of its complex projects.

The number of outsourced workers had increased 7 per cent in the last 12 months alone, the briefing said.

While major project cost blow-outs were still placing pressure on the plans outlined in the defence force's 2020 structure plan, capability demands were outpacing it as the main issue.

"Coupled with a tightening labour market driving workforce shortfalls, including in relation to key specialist skills, Defence needs to grow," the document said.

The shortages were being felt most strongly, it warned, in key areas, such as engineering, intelligence, cyber and communications.

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Defence officials said the situation could be resolved by lifting the staff and personnel ceiling and offering salary packages more in line with other agencies and departments.

Raising the senior executive level cap, which has been "insufficient" since 2019, would keep up with the growing scale and complexity of what the ADF is required to deliver.

But remuneration was also a significant factor contributing to retention woes.

The briefing said nearly half of APS employees who had left Defence moved to other public service agencies that paid better.

Defence Department wages had dropped from the top quartile to the second bottom, or bottom, quartile when compared to other departments and agencies.

Other areas to attract staff, such as highlighting career paths and opportunities, mobility, and education and training, were failing to hit the mark.

"These efforts are not overcoming the accelerated labour market trends for the APS where strong remuneration outcomes are required," the briefing said.

"Further reform to ensure an inclusive culture in Defence is critical to capability, including strengthening programs to prevent sexual misconduct."

For ADF recruits, the employment offer was comprehensive but is being modernised and made more flexible in response to the "severity of the labour market and internal workforce trends".

A progress report into how the situation is unfolding across Defence will be provided to the government between October and December this year.

The ADF and Defence Department are the latest in a string of agencies to warn of serious workforce challenges ahead following skills shortages brought on by the pandemic.

The Home Affairs department said last month it faced "significant challenges" in attracting and retaining its staff amid growing cost-of-living pressures and skills shortages.

Public servants were leaving the department for other agencies offering more attractive wages, the department outlined in a May brief for Home Affairs Minister Clare O'Neil.

The Attorney-General's Department also revealed a number of its portfolio agencies were operating within "constrained resources" and "significant financial pressures".

The Attorney-General's department briefing said it was undertaking a review into the portfolio agencies' financial sustainability.