Conclusions
60. In retaining a greater part of DERA within the
MoD, including additional sensitive areas such as the Radiological
Protection Board, the new proposals for the DERA's future ownership
and structure are generally an improvement over the MoD's earlier
plans which we dismissed as ill-conceived and unworkable. Compared
to the earlier Reliance model, the MoD will have a stronger capability
as an 'intelligent customer' of New-DERA's work with impartial
advice supplied by Retained-DERA, where before it would have had
none. It is also evident that to some extent the concerns of the
UK defence industry[169]
and the US Department of Defense have been addressed by the MoD's
new proposals. The Core Competence approach nevertheless raises
new concerns about the interface now necessary between the two
new organisations that would be formed from DERA, which will themselves
need to be resolved if we and other stakeholders are to be reassured
that the interests of the taxpayers, the MoD, our international
defence partners and the UK defence industry will be protected.
In our earlier inquiry we concluded that the public-private partnership
then proposed for DERA was fatally flawed and should not proceed.
Retaining more of DERA within the Department may smooth over some
of those flaws, but the potential benefits of a partial privatisation
remain to be convincingly demonstrated by the MoD. In our judgement
the current risks of proceeding with the public-private partnershipeven
in its new and improved formatcontinue to outweigh the
still hypothetical benefits. The MoD needs to do more to
persuade their Treasury colleagues that the likely receipts from
DERA's flotation will be only a negligible fraction of the MoD's
equipment procurement budget over the lifecycle of major programmes,
and that such a receipt does not compare well against the risks
inherent in the public-private partnership for the UK's continued
ability to acquire militarily effective equipment for our armed
forces.
61. If, despite the dangers of proceeding with the
public-private partnership, the MoD do decide to push on with
the privatisation of three-quarters of DERA, we have concluded
that the size and capability of Retained-DERA must be further
strengthened to meet the proper concerns, which we share, of DERA's
key stakeholders. We recognise that this may weaken the prospects
for the successful and higher-value flotation sought by the Treasury.
So be it. If the MoD genuinely seeks a partnership it must be
prepared to bolster the capabilities it retains, to more than
offset the consequences of the privatisation of New-DERA. The
balance struck between these two new organisations will tell us
ultimately whether the current initiative is a public-private
partnership, or simply a privatisation misleadingly
labelled.
62. In the meantime, damage has been done to the
Department's relations with industry, DERA's personnel and the
US Department of Defense. The DoD, in particular, appears
to be some way from finishing its assessment of the implications
of the latest proposals, and already it appears that the flow
of collaborative research work may have been impeded because of
US misgivings about the status of its chief collaborative partner.
We expect the MoD to reveal to the maximum extent possible
the inputs into its latest consultation process on the future
of DERA, especially those from the USA.
63. Closer to home, while the MoD has acknowledged
that 'DERA is critically dependent on the skills, innovation and
expertise of its staff, and the success of both New-DERA and Retained-DERA
will depend heavily on generating commitment to the venture at
all levels,'[170]
the way that the MoD has handled its public-private partnership
initiative suggests that the Department have forgotten this. By
the time the division and partial privatisation of DERA are effectedif
the plans proceedthe MoD must not be surprised if critical
relationships of trust have not been irreparably damaged.
64. Our purpose in undertaking this brief inquiry
was to add our comment to the latest consultation exercise. The
latest consultation document, however, like its predecessor, gives
insufficient details of the MoD's intentions, and our oral and
written evidence from the Department indicates that there are
still many issues and details to be resolved how competition
for the MoD's research will be managed equitably for all concerned,
for example; how Retained-DERA's scientific foundation will be
maintained in the long term; how the interface between New- and
Retained-DERA will be managed; how genuinely open collaboration
with US laboratories will be maintained; how particular parts
of DERA (such as Boscombe Down) will be organised within a private
sector environment; and how some of the features of the compliance
framework will operate, such as controls over the ownership of
New-DERA and 'strategic assets.' In the absence of more definitive
plans from the MoD at this stage, this report can only serve as
an interim response to the consultation exercise. Although the
Minister told us that primary legislation would not be needed
to proceed with the public-private partnership[171]
(though there may be a need for secondary legislation in
order to revoke or vary the scope of the Order which established
DERA as a trading fund), we will return to this matter. If and
when any prospective legislation is presented we will certainly
examine it critically. More immediately, we will take evidence
to test the credibility of the MoD's final blueprint of any public-private
partnership from Ministers and the new chief executives of any
successor organisations to DERA. There is too much staked on the
future success of DERA in sustaining capabilities critical to
our defence for us to accept without further examination proposals
that currently rely far too much on a wing and a prayer.
139 Ev
p 25, para 5 Back
140 MoD
Consultation Document, op cit, para 22 Back
141 MoD
Consultation Document, op cit, para 23 Back
142 Q
97 Back
143 QQ
50-52 Back
144 See
eg Ev p 37, para 2.2; Ev p 45, para 2.4; Ev p 34, para 5 Back
145 Ev
p 27, para 20 Back
146 Ev
p 31, para 26 Back
147 Ev
p 27, para 17 Back
148 MoD
Consultation Document, op cit, para 23 Back
149 QQ
137-140 Back
150 See
eg Ev p 38, para 2.10 Back
151 MoD
Consultation Document, op cit, para 13 Back
152 Ev
p 33, para 37 Back
153 Ev
p 31, para 18 Back
154 Q
72 Back
155 Q
64 Back
156 Ev
p 39, para 4.1 Back
157 Q
143 Back
158 See
eg Ev p 34, para 5; Ev p 45, para 2.4 Back
159 Ev
p 37, para 2.4 Back
160 MoD
Consultation Document, op cit, para 25 Back
161 Ev
p 28, paras 26, 27 Back
162 Q
1 Back
163 MoD
Consultation Document, op cit, para 26 Back
164 Q
68 Back
165 ibid Back
166 ibid Back
167 Q
58 Back
168 QQ
74, 116-118 Back
169 The
Defence Industries Council, for example, has told the MoD that
dialogue with the Department has given it confidence that the
parts of DERA to be retained will be able to perform the tasks
the DIC sees as crucial to be kept within the MoD (Ev p 35) Back
170 MoD
Consultation Document, op cit, para 29 Back
171 Q
66 Back