Lucrative construction work on new high-tech army infantry fighting vehicles (IFVs) could be sent overseas under an option being considered by the Albanese government to acquire the lethal land capability more urgently.
When releasing its Defence Strategic Review last month, Labor confirmed it would slash the massive LAND 400 Phase 3 project from 450 IFVs to just 129, as part of a sweeping overhaul of the Australian Army.
The ABC can reveal the German and Korean companies bidding for the rescoped program have been asked to provide options for an Australian build, or complete overseas production of the IFVs with local support.
Australian defence industry sources are increasingly frustrated at the slow progress on the crucial project, after the Morrison government failed to announce a winning bid before the election.
Labor is now seeking fresh pricing and plans from both tenderers.
Last year the ABC revealed the Albanese government had also delayed making a decision on what was then considered the army's largest-ever project, worth $18-$27 billion.
Defence Industry Minister Pat Conroy defended Labor's commitment to the Australian defence industry, despite the government's growing focus on quickly acquiring military equipment "off the shelf" from overseas suppliers.
"The Albanese Labor Government is proud that it will spend record amounts on the Australian defence industry," Mr Conroy said in a statement.
"In all tender evaluations, Australian industry content is a positive factor in Government considerations," he added.
Under Project LAND 400 Phase 3, the army is looking to replace its M113 Armoured Personnel Carriers that have been in service since the mid-1960s.
Defence warns the carriers "are no longer able to counter the current and emerging threats presented in our operating environment".
Korean defence manufacturer Hanwha is proposing to build its "Redback" IFV at a facility outside Geelong, the electorate of Defence Minister Richard Marles.
Meanwhile, German rival Rheinmetall wants to build its "Lynx" model at a factory outside Brisbane.
Both companies have unveiled plans to begin local production of army vehicles for export as part of their bids.
But the defence minister has recused himself from the decision-making process given one of the tenderers is based in his Victorian seat of Corio.
Opposition Leader Peter Dutton accused the government of creating a morale problem in the Army by stripping back land warfare capabilities.
Mr Dutton, who previously served as defence minister, said the Albanese government's decisions were hurting the Australian Defence Force and industry.
"It's why you're seeing people leave the Australian Defence Force, because they thought the prime minister promised at the last election that there were going to be local jobs created and now we found out the prime minister is exporting those Australian jobs, and we're going to be importing the vehicles that should be made here in Australia," he said.
