The tender process awarded the contract to Australian Defence Apparel, which has long designed and supplied clothing to the Australian military.
ADA's limited local manufacturing capability means that much of the work will now be done abroad.
"The bulk of manufacturing will take place at ADA's facilities in Australia, however the company has said it intends to continue using local manufacturers where possible and potentially offer opportunities for local manufacturers to win work in its broader international business," the Defence Force spokesman said.
ADA has also outlined plans to establish a Palmerston North distribution centre, scheduled to open by the end of November next year.
In the meantime, the company has said it would set up a temporary centre in Palmerston North that would create 16 jobs.
An ADA spokesperson is yet to confirm how many people the company employs in New Zealand.
The Herald understands that Workwear Group, which is also Australian-owned, has about 80 local staff who have been working on the contract in various capacities in recent years.
It is one of the biggest employers in the local textile manufacturing sector.
Much of this is made up of factory staff, many older women, some of whom have been on the job for more than 20 years.
Workwear Group general manager Doug Swan told the Herald that two-thirds of his team in the local market have been working on the contract.
"It is too early to speculate on what this might mean in terms of the future of these roles, particularly while we explore opportunities for redirecting their skills and capabilities and the importance of continuity of supply for NZDF," Swan said.
"We understand this will be a time of uncertainty for many team members and we will keep them fully informed and provide support as we undertake this transition."
Swan said that Workwear Group would continue working with the Defence Force during a transition period that extends into 2022.
"Separately we will also explore new business opportunities and potential redirection of resources," he said.
Workwear Group's loss of the contract will also have implications for local suppliers, who have worked with the company on the Defence contract over the years.
"We have informed our suppliers we have not been successful in retaining the contract, and undertaken to keep them updated as we work through the transitions," Swan said.
"We have also assured them we are here to stay and will continuing to pursue growth opportunities for us and them."
Asked to comment on the potential of local job losses, the Defence spokesman said that in addition to establishing the new facilities, ADA had also committed to continue employing workers at nine clothing stores in NZDF camps and bases around New Zealand.
This still leaves dozens of local Workwear Group staff facing uncertainty in the coming year as the contract moves on to the new provider.
Asked whether the number of local jobs was a consideration during the procurement process, the Defence spokesman said: "The tender process requires the NZDF to consider a wide range of factors so that all parties are treated equally and the best public value is achieved that supports the operational requirements of the NZDF."
Under government procurement rules, agencies must consider how they can create opportunities for New Zealand businesses, including Māori, Pasifika and regional businesses, as well as social enterprises.
The procurement guidelines provide that in instances of large procurements, agencies need to consider if procurement can be structured into smaller parts to make it more accessible to New Zealand businesses that may not be able to compete for one large contract. Where a contract cannot be structured into smaller parts, the agency must consider engaging with suppliers on how smaller businesses can be included in the supply chain.
First Union organiser Jared Abbott said the procurement practices have been damaging to the local textile manufacturing industry.
"In industries like textile and clothing, where you are often competing with low wages from developing countries, government procurement is vital to create the economy of scale needed so that private enterprises can also procure local goods," Abbott said.
"[If] these factories shut down, it makes local procurement an impossibility for everyone."
