MEMORANDUM SUBMITTED BY THE ROYAL ACADEMY
OF ENGINEERING (19 MAY 2000)
DERA PUBLIC-PRIVATE
PARTNERSHIP
In response to your letter of 8 May 2000 I am
pleased to enclose The Academy's submission to the Defence Committee's
brief inquiry into the MoD's latest proposals for a public-private
partnership to DERA. Incidentally, you may like to note that I
have recently taken over from John Appleton as Executive Secretary
of the Academy.
This submission is a collation of personal views
expressed by Fellows of The Royal Academy of Engineering who have
relevant specialist knowledge. In consequence, whilst the evidence
may be regarded as representative of the views of the respondees
it cannot reflect all the views of the contributing Fellows or
The Academy as a whole.
I am sure you will recognise the Committee's
very short deadline for comments has made it necessary for us
to sharply abbreviate our normal full process of consultation
and review. If this leads to further questions please do not hesitate
to get in touch and I will arrange for clarification. It is possible,
for example, that our respondents were not in possession of all
the latest information available on the proposed PPP. Nevertheless,
I believe that the committee will find the evidence of assistance.
John Burch
Executive Secretary
The Royal Academy of Engineering comprises
the United Kingdom's most eminent engineers of all disciplines.
The Academy's objectives may be summarised as the pursuit, encouragement
and maintenance of excellence in the whole field of engineering
to promote the advancement of the science, art and practice of
engineering for the benefit of the public. The Academy aims to
take advantage of the wealth of engineering knowledge and experience
that its Fellows possess. The interdisciplinary character of The
Academy's membership provides a unique breadth of expertise with
which to further all forms of engineering.
The evidence which follows represents a collation
of personal views from Fellows of The Royal Academy of Engineering.
It cannot reflect the views of all contributing Fellows nor those
of The Academy as a whole.
DERA PUBLIC-PRIVATE PARTNERSHIP
1. INTRODUCTION
The evidence presented to the Defence Committee
by Baroness Symons on 5 May 2000[7]
indicates a welcome recognition that MoD needs to retain a strong
team of scientists in order to provide knowledge integration,
high level systems research and impartial scientific and technical
advice. However, although the implications of the proposed Core
Competence model may have been thoroughly debated and understood
by MoD and DERA, there is insufficient information in a number
of areas to instil confidence that this is so, particularly in
view of the very significant change from the previous proposal.
The discussion on 5 May did not add to the confidence of the expert
Fellows of this Academy whose opinions form the basis of this
submission. There is still considerable concern that the Core
Competence model is an easy but costly, divisive and ultimately
ineffective option.
2. ISSUES RAISED
BY THE
DERA PPP—CORE COMPETENCE
MODEL
2.1 General
To exploit the protected USA relationship and
provide expert customer advice it would be necessary to keep the
best scientists in the MoD. However, these scientists would be
a diminishing asset. Deprived of direct involvement in dynamic
research programmes they would become increasingly out of touch,
out of date and overwhelmed by their bureaucratic environment.
This phenomenon was clearly apparent when the authority of the
single service chief scientists declined, and their headquarters
technical teams were disbanded, in the 1970's. Moreover, the MoD
would lose the depth and continuity of experience (often existing
at low seniority level), which currently facilitates "quick
reaction" support to armed forces in the field. Further,
without the key experts, the privatised part would be almost bound
to fail. If, on the other hand, they key scientists were left
with the privatised part the MoD would lose its key competencies.
2.2 Scale and Choice of Staff to Remain in
MoD
It is not clear how the number of staff required
by MoD was determined. Presumably, a list of the specific tasks
to be carried out was drawn up, with viable numbers shown against
each of them.The area of greatest uncertainty concerns the number
of staff needed to provide impartial advice, knowledge-integration,
systems research, sensitive collaboration, management and administration.
If work to define the separation will not be complete until the
Autumn, how can a number of around 3,000 in MoD be properly justified
at this time?
Both MoD and DERA will be seeking to retain
high calibre staff and it is not clear who will be responsible
for the selection, how the division will be effected and whether
the individual scientists, on whose energy and morale the success
of the venture depends, will have any say in the matter. Secondment
of military staff to a privatised DERA is also an issue still
to be resolved.
It would have been reassuring to have had some
visibility of the pilot studies that examined the composition
of the teams needed and that concluded confidently that an equitable
split could be achieved.
2.3 Competition and IPR
Currently the major part of MoD research is
carried out by DERA or channelled to industry via the DERA teams.
The detailed terms and conditions under which DERA PPP would compete
with the defence industry have not been clearly promulgated so
it is difficult to see how the transition from the current situation
will be managed or what the end point will be. "Retention
of a special share" by MoD would seem to be in danger of
distorting competitive activities.
If DERA loses work to industry in open competition
how can it assure MoD that the needed capabilities and facilities
will continue to be available?
It is by no means clear what freedom DERA will
have to use IPR generated and partially funded by industry on
the Pathfinder programmes of recent years.
2.4 The Challenges of Dual-working on Common
Sites
After a decade which has seen the integration
and rationalisation of the organisation and structure of DERA
and its establishments, it is surprising that it is now proposed
to dismantle the whole edifice. Both sets of players will presumably
remain on existing sites, at least in the short term, as they
will have to share laboratories and facilities. Commercial and
military confidentiality must be preserved and must be seen to
be preserved and, under these conditions, it may be difficult
to persuade outsiders such as the defence industry and the American
government that the Chinese walls are made of impervious bricks.
2.5 Maintaining the Balance of Defence Research
Under the proposed new arrangements no single
person appears to have responsibility, let alone authority, for
maintaining the overall balance of defence research.
Will Retained DERA have its own research budget
or will all extramural research be placed by New DERA? What about
the Procurement Executive's research budget and its interest in
extramural research contracts? Will Retained DERA be part of MoD(PE)
or part of the Central Science Staff where it can be seen to be
completely independent, or will it be a separate body? Even if
Retained DERA is large enough to have its own career path, will
it have the ability to perform and commission enough research
to main and grow its competence. Will Retained DERA expect to
have free right of access to a Public Company's research, even
if Government has a golden share?
Whilst MoD and DERA may have developed detailed
answers to such questions there are many in the defence community
who have no idea of the answers.
3. UNDERLYING
ISSUES
It is appropriate and timely to reflect on some
underlying considerations which should influence any choice of
new arrangements for DERA:
3.1 DERA is, or has been, a vitally important
national resource for research, but that primary purpose is hardly
discussed.
3.2 Better defence systems depend on scientific
advance and the MoD has a good past record of investing enough,
for long enough, to produce results. UK industry has been a beneficiary
of that investment and the country has been rewarded through the
success of its industry.
3.3 The national need for good research
establishment is as important as the national need for good commerce.
3.4 Know-how and the knowledge within defence
science can easily be sold off but without a good supply of new
knowledge this is a very dangerous thing to do.
3.5 There is an inherent contradiction in
DERA providing independent advice to the MoD whilst at the same
time competing with and monitoring MoD work in industry. Neither
the academic community nor the industrial researcher will know
whether DERA is a collaborating friend or a competitor protected
by privilege.
3.6 The true cost of necessary Defence R&D
is said to need to rise rapidly. If the MoD is not to foot an
ever-increasing bill, non-MoD sales by New DERA will have to rise
to cover the cost. No mention has been made of a business plan
which makes this credible.
3.7 Major Test facilities have in the past
been a major bargaining chip on the table of research collaboration
with the US and Europe (which is partly why there has been duplication
of such facilities between European nations). The existence of
major UK Government owned facilities has enabled the UK to more
that punch its weight in US research collaborative agreements
in the past, enormously to our advantage relative to other nations.
If most major facilities will be part of New DERA it is not clear
what has changed and why it is now safe to put them into the private
sector.
3.8 Although collaborative sensitivities
are avoided by the proposed new arrangements it is suggested that
the depth of collaboration will reduce in proportion to the loss
of Government owned major facilities. The argument about a higher
proportion of US research and facilities being in their private
sector carries little significance when the sheer scale of their
activity is so large.
4. THE IMPORTANCE
OF RISK
REDUCTION
4.1 It is important to emphasise the importance
of risk reduction in the DERA mission. DERA exists to reduce the
risk of death and defeat in future conflicts and, in particular,
to reduce the risk of sub-optimal effectiveness in weapons and
other defence equipment.
4.2 All risks are eventually carried by
customers, even though their impact (eg on costs, delivery or
performance) may vary with the procurement practices employed.
In particular, globalised procurement will enable more complex,
sophisticated and potentially more effective systems to be acquired,
because design and risk reduction costs will have been shared.
However, these costs are much higher than for simpler systems
and the net risk of unsuccessful deployment by a particular customer
will not go down unless his "intelligence" is increased
commensurately with the sophistication of the system in question.
4.3 SMART procurement of more sophisticated
systems (which attendant prime contracting) may be expected to
deliver more appropriate weapons with better interoperability
of equipment within systems, but will only reduce overall performance
risk, if more knowledge is applied for that purpose than was applied
before. Altering procurement procedures may improve the application
of existing knowledge to the reduction of risk but will not in
itself generate any new knowledge that may be required.
4.4 Any opportunity to reduce risk which
is foregone, is risk needlessly left in the system. In that defence
equipment procurement risk is patently so high, it is not a question
of whether there are opportunities for risk reduction, but whether
the means of cost effective improvements are demonstrably available.
Without new intelligent pre-programme investments from within
the SMART procurement process, matters will deteriorate further,
so there is an obvious challenging market opportunity for DERA
at the present time.
4.5 Having in mind, comments of the National
Audit Office on cost over runs and delays in the delivery of new
equipment, and the shortfalls experienced in reliability, availability,
serviceability and effectiveness, it is plausible to argue that
procurement expenditure is 50% effective at best. Thus though,
DERA is failing in its technical risk reduction role, an additional
10% of the procurement budget is a reasonable target for increased
DERA turnover.
4.6 A great tragedy of the 1980's was the
fallacious belief that customer risk could be avoided by ensuring
that it was carried by the contractor. Many recent examples from
AEW Nimrod through Bowman to potential issues with new Nimrod
MR could be used to exemplify this point. Examples of the favourable
impact of specific pre-programme risk reduction investments also
abound, and the National Audit Office has gone on record that
20% of procurement budgets should be spent in this way.
5. ALTERNATIVE
APPROACHES
The latest proposal for a DERA PPP (The Core
Competence model) is the least favoured of the alternatives considered
by those Fellows of The Royal Academy of Engineering who contributed
to this submission.
Taking the four future structure proposals for
DERA which have been considered to date, a suggested order of
preference is:
5.1 Independent Publicly Owned Corporation
(IPOC)
A new and therefore high risk way forward, but
offering the prospect of protecting USA links (albeit with some
compromise) and, through private and civil investments, strengthening
present services to the MoD; improving the position of the UK
in burgeoning high tech global civil markets and optimising the
increasing impact of civil technology on defence operations.
5.2 "Status Quo"
Staff reduction would be likely, but such changes
could be used to improve quality and allow management to concentrate
on providing a better service to the MoD. Thus a greater share
of the defence budget might be acquired, notably in risk reduction
within SMART procurement, and the improvement of high tech "quick
reaction" support which will be of growing importance to
the armed services, in an increasingly unstable world.
5.3 Full Privatisation
A very high-risk option which could lead to
growth and an important role in global civil technology without
degradation of the defence role. More likely however, defence
links with the USA would decline from commercial rather than national
security concerns; the MoD would loose its "intelligent customer"
and "quick reaction" strengths, and the difficulties
of conducting "research" as a free market product would
overwhelm staff with a defence orientated public service ethos.
5.4 Part Privatisation ("Core Competencies")
The characteristics of this most recent proposal
have been discussed above.
6. CONCLUSION
The rationale presented for the latest proposal
does not convince the experts who contributed to this submission.
The evidence presented at the 5 May session of the Defence Committee
left many questions outstanding—both unasked and answered.
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