SPECIAL REPORT
The Defence Committee has agreed to the following
Special Report:—
GOVERNMENT OBSERVATIONS ON THE EIGHTH
REPORT
FROM THE COMMITTEE, SESSION 1998-99
The Committee published its Eighth Report of Session
1998-99, on Major Procurement Projects Survey: The Common New
Generation Frigate Programme (HC 544), on 10 November 1999. The
government's response to this report was received on 21 December
1999 and is published as an Annex to this Special Report.
ANNEX
1. This memorandum gives the Government's response
to the Defence Committee's Eighth Report Session 1998-99 - the
"Major Procurement Projects Survey: The Common New Generation
Frigate".
ANNUAL
SURVEY
2. The Government welcomes the Committee's report
and the interest being taken by the Committee in a representative
selection of major procurement programmes, with a particular focus
on the success of Smart Procurement. The Government has noted
the Committee's intention of carrying out an annual review of
the programmes to be monitored, with the aim of producing a report
in time for the annual debate on defence equipment.
COMMON
NEW
GENERATION
FRIGATE
(CNGF)
3. The Government accepts the bulk of the Committee's
recommendations, in particular its view on the need for an effective
trans-national industrial base underlying collaborative projects
in future. The Government has a number of comments on the Committee's
report, intended to provide further illumination on this very
important programme endorsed in the Strategic Defence Review.
4. The Committee suggested (paragraph 9) that "difficulties
with the required performance of the weapon system and with the
contractual approach being followed" was the reason MOD had
not proceeded further with collaboration on the warship element
of the CNGF programme. In fact, as the MOD's Chief of Defence
Procurement (CDP) made clear in his evidence to the Committee
(Q3, 16 June) the fundamental reason this element did not proceed
was that "Horizon [the warship element] was taking too long
and we did not have an acceptable offer from a credible prime
contractor".
5. The Committee recognised (paragraph 14) the difficulties
caused by the "hodge-podge of interlocking companies"
with which the project team had to deal. A key lesson learned
from the Horizon programme is the importance of having industrial
structures in place capable of meeting the requirements placed
on them. This almost invariably means the appointment of a prime
contractor. For PAAMS, the Committee acknowledged the stronger
leadership provided by UKAMS as a wholly owned subsidy of Matra
BAe Dynamics.
6. The Committee's analysis (paragraph 15) of the
decision not to proceed with Horizon is noted. It should also
be noted that it was the unanimous agreement of the three Defence
Ministers when they met on 25 April 1999 to discuss the continuing
industrial difficulties in the Horizon Programme, that "it
would not be cost-effective to pursue a single prime contractor
for the warship".
7. Since the written evidence was submitted in July,
the Defence Procurement Agency (DPA) project team has compiled
a UK "lessons learned" paper. This DPA paper largely
reflects the initial lessons to be drawn described in the Supplementary
Memorandum submitted by the MOD (Q10). Details of the conclusions
reached in the paper will be incorporated in the progress report
requested by the Committee before Easter 2000. In addition, steps
are already being taken to communicate the lessons learned (a
number of which were anticipated by the Smart Procurement Initiative)
to other collaborative or potentially collaborative projects,
and indeed across the Department as a whole.
THE
NATIONAL
TYPE
45 WARSHIP
8. There have been significant developments with
the Type 45 programme since the Committee took evidence on the
programme. Following the decision taken in April not to continue
with the tri-national Horizon Programme, two contracts in the
national T45 Programme were placed with Marconi Electronic Systems
(MES), the first of which confirmed that an affordable warship
can be acquired in the timescale required to meet an in-service
date of the first-of-class ship of 2007. The second contract covered
initial Preparation for Demonstration (PFD) studies.
9. On 23 November 1999, MES was appointed as the
Prime Contractor for the Type 45 Programme. This responsibility
has passed to BAE Systems now that the merger of MES and British
Aerospace has taken place. Also on 23 November, MES was contracted
to complete the PFD phase of the programme.
10. The Committee noted (paragraph 26) MOD's intention
to make as much use as possible of the work done on the Horizon
programme. As part of GEC, MES was part of the Horizon International
Joint Venture Company (IJVC) and was thus heavily involved with
the work that was undertaken by the IJVC during the Horizon Project
Definition and Initial Design Stage which completed at the end
of October. Appointment of MES as the Prime Contractor for the
national Type 45 Programme will ensure: the minimum of delay to
the overall programme; that maximum benefit is carried forward
into the UK national programme from the work already done under
the tri-national programme; and that the Prime Contractor will
own much of the risk associated with that earlier work.
11. The Committee noted (paragraph 29) the need for
careful consideration in trade-off work to ensure that the Type
45 provides the required enhancements to the UK's maritime air
defence capability. The Government recognises the importance of
ensuring that the Type 45 meets the requirement for a new anti-air
warfare destroyer and fully understands the need to avoid gold-plating
of this requirement. The Department is now, of course, committed
to PAAMS, but the work now being undertaken on the warship element
of the Type 45 will identify practical and sensible trade-offs
between cost and capability to ensure that the Type 45 is affordable,
and offers value for money, through life. In trading off cost
and capability, the Government will of course ensure that the
Type 45 provides an enhanced maritime air defence capability well
into the next century. In doing this, in accordance with the principles
of Smart Procurement, we are exploring opportunities for designing
the Type 45 to allow flexibility for potential capability enhancements.
We would not expect consideration of equipment or systems for
Type 45 to be limited to the three former CNGF partner countries,
although equipment selection is a matter for the Prime Contractor.
12. The Committee noted (paragraph 33) the need for
competition for follow-on batches of the Type 45. The PFD contract
will also involve Vosper Thornycroft (VT). Following successful
completion of this stage, the next stage will be a contract with
the Prime Contractor for the Demonstration and First-of-Class
Manufacture (DFM) phase (i.e. including the build of the first-of-class
ship) planned for award next year. MOD and the company will then
have higher confidence in a programme that can meet the Royal
Navy's requirement on time and within budget. Subject to satisfactory
progress, the DFM prime contract will also involve VT and Marconi
Marine (YSL) Ltd with a view to allowing the efficient construction
of Type 45 Destroyers at both yards. The detailed contractual
arrangements for the DFM Phase remain under consideration and
it remains MOD's intention to oversee the competition for follow-on
ships. MOD has no plans to extend competition for warship construction
to yards overseas.
13. The Committee welcomed (paragraph 37) the determination
of CDP to keep momentum behind the programme. Collaboration continues
with France and Italy on PAAMS, and, on 11 August 1999, France
placed a contract on behalf of the three nations for Full Scale
Engineering Development and Initial Production with the tri-national
consortium EUROPAAMS. Early deliverables have been accepted from
Industry and the first milestone payment has been made.
14. The Type 45 Programme is being undertaken
within the principles of the Smart Procurement Initiative (SPI).
The Type 45 IPT was formally established in September with the
single Prime Contractor organisation working with the MOD Project
Team at Bristol. The MOD is confident that the SPI approach to
requirements management, through the development of an initial
operating capability with a programme for incremental upgrading,
will enable the first-of-class ship to be delivered on time and
to cost.
15. The Government is confident that the Type 45
can be procured within the target cost set for the collaborative
programme and notes the Committee's intention to monitor developments
over the next few years (paragraph 39).
16. The Strategic Defence Review (SDR) identified
the need for a destroyer/frigate (DD/FF) force of 32 warships
to meet the demands of the new strategic environment, and confirmed
a planning assumption for a future force comprising 12 Type 45s
and 20 Future Surface Combatants. These assumptions will, of course,
be subject to continuing critical operational analysis, taking
into account up-to-date intelligence about the future threat,
to ensure that both the overall numbers and the DD/FF balance
is correct. We saw no grounds, however, to change the SDR decision
to replace HMS BIRMINGHAM with a new Type 23 frigate, HMS KENT,
as part of the adaptation of the DD/FF force. The Type 45 commissioning
/Type 42 decommissioning programmes will be managed to ensure
that the required number of FF/DD are available to Commander in
Chief Fleet for tasking (paragraph 47).
CONCLUSION
17. The Committee suggested that, if greater European
defence capability is to become a reality, it is necessary to
put a number of measures in place, including harmonised procurement
and project management procedures. The Committee will be aware
that the Government is pursuing these, and a number of other objectives,
with our European partners, and that real progress is being made.
In particular, common procedures for the management of collaborative
defence equipment programmes, based on international best practice,
have been developed for use by the Organisation Conjointe de Cooperation
en Matiere D'Armament (OCCAR). Together with the implementation
of the lessons learned from the Horizon programme, this should
put the prospects for future European collaboration on a sound
footing.
Ministry of Defence, 21 December 1999
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