ANNEX
1. This memorandum is the Government response
to the report of the House of Commons Defence Committee on the
OCCAR Convention. The Government welcomes the interest shown by
the Committee in the development of OCCAR and notes, in particular,
the Committee's recommendation that "the OCCAR Convention
should be ratified, and that the House should give its approval
to the Order in Council to give effect to that ratification".
2. The Committee, in its report, has drawn particular
attention to a number of key issues. These are highlighted below.
The Government's views and objectives as regards these issues
follow.
3. We cannot condone any restriction on the
UK's ability to select the best and least expensive sources for
the equipment needed for our forces. We are convinced that full
and open competition would not only serve the interests of the
MOD but would also allow UK industry to satisfy the equipment
requirements of many other countries. To secure an agreed Convention
with other OCCAR members, some degree of workshare was necessary,
though on a looser basis than before. Nevertheless the move away
from juste retour in the OCCAR Convention is a very positive
step. It sets OCCAR apart from previous collaborative arrangements
in putting the emphasis on competition. If OCCAR is to prove itself
a worthwhile addition to the list of international organisations,
it is essential that its activities are firmly based on this new
approach from the outset and that renunciation of juste retour
remains OCCAR's underlying principle. The placing of OCCAR on
a treaty basis should help to ensure this. Nonetheless, as the
UK becomes involved in more OCCAR projects, the MOD must be able
to demonstrate convincingly that contracts are being allocated
on the basis of real commercial competition. Accordingly, we expect
the MOD to report to Parliament any case where OCCAR-managed contracts,
in order to secure a balanced workshare, are not placed according
to value for money criteria or are awarded without competition.[13]
We recommend that, when the balanced workshare
provisions of the of the Convention are reconsidered, the UK will
press for the remnants of juste retour to be
permanently abandoned.[14]
The Government supports entirely the Committee's
assertion that the needs of our armed forces can best be met through
full and open competition in defence procurement. The move away
from juste retour in OCCAR represents a step in the right
direction. As noted by the committee, mechanisms exist in OCCAR,
to provide a degree of balance in workshare but will not be allowed
to compromise the UK's ability of achieve value for money. The
mechanisms are intended for a transitional period only and it
is the Government's intention to urge for the eventual removal
of all artificial worksharing arrangements. That said, the Committee
should note that other nations may not share these aspirations.
Furthermore, a number of programmes currently being taken forward
by OCCAR, or already earmarked for integration, will carry the
legacy of pre-OCCAR worksharing arrangements. Only for programmes
that are placed in OCCAR from the earliest stage will truly open
competition be possible. Nevertheless, the UK intends to press
for the earliest possible introduction of open competition. OCCAR
has been asked to provide information, in its Annual Report, on
contracts placed without full and open competition.
4. We welcome CDP's confidence that participation
in OCCAR will bring efficiency savings and increased value for
money to MOD procurement projects. His optimism can only be tested
once more projects are in progress. We intent to focus particular
attention on this aspect of OCCAR's performance in our monitoring
of its activities.[15]
The Government firmly believes OCCAR offers the most
effective and efficient vehicle for future collaborative defence
equipment ventures. OCCAR was not created as political gesture
and the organisation will only succeed if it provides the efficiencies
we seek. Inevitably, some initial investment will be necessary
while OCCAR builds its skills base and its modus operandi is established.
However, the Government expects to see immediate improvements
in the way in which collaborative programmes are managed and,
as OCCAR gains in experience over time, and more programmes come
under its management, we expect to see real benefits including
financial gains.
5. OCCAR needs to be well-funded to undertake
its work effectively, but it is also important to keep OCCAR staffing
levels and running costs within reasonable bounds. We expect the
Department to notify the Committee if OCCAR's central office staffing
levels exceed its target complement of 46.[16]
There are no plans to increase the Central Office's
ceiling complement of 46 staff. That said, the establishment of
temporary 'project teams' within the Central Office structure
to conduct studies on the feasibility of taking forward new programmes
under OCCAR management is foreseen under certain conditions. However,
these emergent project teams would be funded by the relevant prospective
programme participants and would move out of the Central Office
structure should it be decided to take the project forward under
OCCAR management. Any increase to the commonly funded element
of the Central Office would need to be endorsed by the OCCAR Board
of Supervisors and the Ministry of Defence will notify the Committee
in such cases.
6. In ratifying the Convention, Parliament
should be aware of this potentially open-ended commitment to expanding
OCCAR's membership. It should not be allowed to imply that the
founding principles of OCCAR's operation should be diluted for
purposes of political expediency. We recommend that admission
of any further new members to OCCAR should not be contemplated
until its effective operation has been established over a number
of years.[17]
The Committee is aware that the OCCAR Board of Supervisors
has agreed, in principle, requests for membership from both the
Netherlands and Belgium and that, subject to their commitment
to projects under OCCAR management, these nations are expected
to accede to the OCCAR Convention in due course. No other formal
requests for membership have been received, although a number
of nations have expressed an interest in possible future participation.
The Government agrees that OCCAR's founding principles should
not be diluted for political expediency and it is for this reason
that one of the conditions for new membership is the formal acceptance
of all OCCAR's existing principles, rules and procedures. There
are currently no plans for wholesale expansion of OCCAR; however,
the Government would not wish to exclude the possibility that,
in order for the organisation to take on valuable new business,
additional membership, related to involvement in specific prospective
OCCAR programmes, may need to be considered within the next few
years. This should not incur any erosion of OCCAR principles but
care will be required to ensure OCCAR is able to cope with the
pace of its own development.
7. We remain to be convinced that accountability
within OCCAR, and between OCCAR and the governments of its member
states, is sufficiently well defined. We recommend that the MOD
reports annually as part of the Major Projects Report, to the
same level of detail as in that document, on the budget and establishment
of OCCAR, the progress of OCCAR projects in which the UK is involved
and, in particular, on whether projects are proceeding on time
and within budget.[18]
The Major Projects Report will contain details of
the performance of t he highest value equipment projects, including,
as appropriate, those managed through OCCAR. The Department accepts
the need to ensure that OCCAR's performance is effectively monitored
and reported, and will consider further the most appropriate way
of reporting on OCCAR's business more generally, including projects
that may be below the threshold for the Major Projects Report.
Options include the Departmental Report and OCCAR's own Annual
Report.
8. At this early stage in OCCAR's operation
it is impossible to predict what impact, if any, it will have
on defence procurement co-operation in the long term. OCCAR's
creation is nevertheless a laudable pragmatic step by the countries
concerned to improve European defence procurement co-operation.
If a European Armaments Agency is to become a reality, we believe
it more likely to succeed if it adheres to the same principles
that guide OCCAR's operation - in particular the commitment to
competition - and that this represents the only way forward for
Europe to get more bang for its bucks in defence procurement.[19]
The Government has been involved in various discussions
on the possible creation of a European Armaments Agency. As the
Committee has recognised, it is too early to say whether, or how,
OCCAR might play a role in the development of this concept. However,
we are fully committed to the concept of competition both in OCCAR
and in the wider European defence equipment market and will continue
to strive for its maximum use in any future cooperative defence
equipment structures.
9. The first priority is for OCCAR to prove
that it can operate effectively. Once that has been demonstrated,
attention can focus on its wider implications for defence co-operation.
There remains, however, a disappointing lack of agreement amongst
the governments of its member states about OCCAR's place in European
defence in the longer term, and about OCCAR's relationship with
the North Atlantic Alliance. Unless that vision begins to emerge
soon, there is a risk that OCCAR, like so many of its predecessors
have done, will begin to lose its way.[20]
A successful OCCAR can only help facilitate progress
in developments in European defence and the organisation may well
have an important role to play in the emerging European defence
environment. The Government believes, however, that OCCAR's main
priority at this stage should be to prove that it can operate
effectively and become the natural 'forum of choice' for future
European collaborative defence equipment procurement. This does
not require the organisation to be linked, either institutionally
or politically, to any other international organisation or security
architecture. OCCAR exists to provide a service to its members
and its ability to do this should not be compromised by wider,
longer term, political commitments.
2 February 2000
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