Defence managers have been ordered to cut five per cent from the cost of operating all defence equipment, potentially generating millions of dollars in savings.
The order applies to all defence fleets and includes ships, vehicles, aircraft and weapons systems.
Dr Stephen Gumley, chief executive of the defence procurement arm, the Defence Materiel Organisation (DMO), said the organisation had undergone a protracted period of reform with efforts in 2008 to be directed at reducing the costs of defence equipment.
"Every project manager and director is going to be asked to find a way to knock five per cent in real terms off the cost of every fleet," he told the annual Australian Defence Magazine conference.
"There are over 100 major fleets in the ADF and every one is expected this year to find a way to knock five per cent off their costs."
The new Rudd Labor government imposed a two per cent savings dividend across government departments but exempted defence activities, with the exception of its administration.
However, defence will continue to receive regular annual three per cent budget increases started under the former coalition government.
Dr Gumley said there were many areas where efficiencies could be achieved.
He said part of that involved becoming more businesslike.
"That is our problem - we have got to become more businesslike. We have got to become better at contracting and so on.
"There is a lot of work that can be done in improving business practices and productivity."
Dr Gumley also echoed new parliamentary secretary Greg Combet in warning companies not to award excessive wage increases and then pass on the increased contract costs to the government.
"I have asked my people to examine in great detail any company that awards wages rises greater than average weekly earnings," he said.
"There has to be a damned good reason to do that. I am expecting that to be a cap."
Dr Gumley acknowledged DMO had been criticised over high-profile problem projects such as the Seasprite helicopters - running six years late - but others caused no problems and some came in early and below budget.
He said the army's new Abrams tanks arrived six months early with a $14 million saving.
The navy's new oil tanker HMAS Sirius arrived three years early and at half the original cost estimate because DMO opted to buy a new commercial vessel rather than have a vessel specially constructed.