House of Commons - Defence - Written Evidence

Select Committee on Defence Written Evidence

Annex

IN SERVICE DATES

ISD Definition: ISD is defined as acceptance of the certificat of design and the performance statement, with the subsequent delivery of 60 missiles that are fit for purpose.

Original ISD: ***

Current ISD: ***

Variation: +75 months

EXPLANATION OF ISD


Factor	Increase (months)	Decrease (months)	Explanation

Need for project re-definition	12		Two redefinition phases were required as a result of problems encountered during the collaborative stage of the project.
Procurement delays	24		Delays caused by difficulties in agreeing the specification with partner nations.
Budgetary contraints	12		The need to match expenditure to available resources.
Realignment of Programme	6		Improve alignment of missile production deliveries with candidate aircraft.
Technical Problems	21		Missile hardware and software difficulties to be resolved before specification compliance can be achieved.
Total	75

COST OF ISD SLIPPAGE

There are no additional costs as a result of the ISD slippage.

APPROVALS


Approval	Date	Explanation

First approval	1981	Pre-feasibility
Latest approval	1994	Second tranche production

PROJECT COST SUMMARY

£M


Breakdown	Development	D&P package	Total

Current estimate	106	823	929
Estimate of MOD approval	113	821	934
Difference	-7	+2	-5

REASONS FOR COST VARIATION


Factor	Increase £M	Decrease £M	Explanation

Inflation	11		Difference in price uplift between specific indices and the GDP deflator.
Changed requirement	38		The requirement to carry out Service Evaluation Trials, +£32M. The purchase of buffer connectors providing an interface between the missile and aircraft electronics, +£1M. An Environmental Round to measure the on-board environment of ASRAAM on various aircraft, +£2M. The requirement to carry out various studies required to redefine the project requirement, +£1M. The decision to convert operational missiles to telemetered missiles during production, +£2M.
Changed costing	8	60	Reduction in prices achieved as a result of contractual negotiations for the development/production package, -£37M. Reduction in cost following a decision to purchase a cheaper rocket motor, -£9M. Curtailment of the collaborative development programme following withdrawal of our partner nations, -£14M. Additional DERA support for the development/production package, +£8M.
Slippage		2	Delay to milestone payments due to problems with missile seeker, -£2M.
Total	57	62
Total balance	-5

Expenditure to 31 March 1999: £561M

PROJECT CONTRACT SUMMARY


Current cost of Main Contract	£768M, for development and production
Cost change since main contract award	+£70M
Years of peak expenditure: 1999-00 and 2000-01	Unit Production Cost: £0.2M

Further expenditure in clear prospect: Nil.

Quantities required: ***

REASONS FOR COST VARIATION SINCE AWARD OF MAIN CONTRACT


Factor	Increase £M	Decrease £M	Explanation

Inflation	2		Difference in annual uplift between specific indices and the GDP deflator
Changed costing		9	A reduction in cost following a decision to purchase a cheaper rocket motor.
Changed requirement	79		Procurement of a second tranche of missiles, +£77M. Decision to produce telemetered missiles during the production phase, +£2M.
Slippage		2	Delay to milestone payments due to problems with the missile seeker, -£2M.
Total	81	11
Total balance	+70

BEYOND VISUAL RANGE AIR TO AIR MISSILE-BVRAAM

A competition is currently under way for a Beyond Visual Range Air-to-Air Missile BVRAAM, with which to equip Eurofighter. The invitation to tender requested bids for the full capability missile, as well as proposals for a staged capability, ie an interim capability missile with the potential for upgrade. Two companies, Raytheon Systems Ltd and Matra BAe, submitted bids, which are currently being assessed. Raytheon submitted proposals for a Future Medium Range Air-to-Air Missile, FMRAAM, a full capability missile, and, under the umbrella of a joint UK/US collaboration, the Extended Range Air-to-Air Missile, ERAAM+, with a defined growth path to full capability. Matra BAe proposed a full capability missile known as Meteor. The potential for collaboration is being actively pursued: Germany, Italy, Spain, Sweden, France and the US have expressed interest. We expect to announce a decision soon.

OPERATIONAL REQUIREMENT

1. The requirement is for a medium range air-to-air missile for the Eurofighter. The current missile, Sky Flash, is unsuitable both for integration on to, and operation from Eurofighter. Changes in the operational environment led to the issue of a revised Staff Requirement in June 1995. It underlined the need for the fighter to achieve a large "no escape zone" against manoeuvring targets during beyond visual range air-to-air combat, and to maximise the number of firing opportunities. The Staff Requirement also employed the principle of "performance objectives" as opposed to "essential criteria". This was designed to prompt bidders to propose innovative solutions and as wide a range of options as possible.

TRADE-OFFS

2. The missile should possess the capability subsequently to upgrade major missile sub-systems as a result of more cost-effective technology and evolution of the threat. The Staff Requirement seeks to encourage the designers to share the risk by matching and trading the performance requirements to a realisable and affordable design solution.

NUMBERS

3. Absolute missile numbers have not yet been defined. Working assumptions and the tender assessments now in progress, which has included an analysis of likely numbers of missiles required under each bid, have identified a requirement for between ***. None of the European potential partner nations apart from the Italians has yet indicated either a firm requirement or commitment to procurement.

STRATEGIC DEFENCE REVIEW

4. The BVRAAM programme was considered during the Strategic Defence Review, when the difficulties of achieving the in-service date were assessed. It was concluded that BVRAAM remained a key capability.

MILITARY CAPABILITY

5. The solution to the BVRAAM requirement is intended to provide the primary air-to-air weapon for Eurofighter. We envisage that it will provide a key capability in achieving and maintaining air superiority wherever Eurofighter is deployed.

EQUIPMENT TO BE REPLACED AND IN -SERVICE DATE

6. BVRAAM will not specifically replace any other programme. Rather, it represents a new generation of weapon designed to equip a new generation of fighter. Its forerunner is Sky Flash, fitted on the Tornado F3, which is now approaching the end of its operational life.

7. Tornado F3 and Sky Flash are planned to go out of service in 2010. The original ISD for BVRAAM was 2005, but this was subsequently slipped, partly because the technology was insufficiently mature, to around 2007. During the SDR, the ISD was slipped a further year, to 2008, again in recognition of technical risk. The ISD for BVRAAM is defined as the first unit equipped with 72 missiles and associated support equipment.

PROCUREMENT APPROACH

8. Competition has been maintained throughout the project, both at prime and sub contractor levels, to ensure best value for money. Bidders were required to submit firm prices for an initial five-year period from award of contract and fixed prices thereafter.

9. Four potential partner nations, Germany, Italy, Spain and Sweden, agreed in principle in 1995 that the UK BVRAAM specification broadly met their baseline missile requirements for Eurofighter and, in the case of Sweden, JAS 39 Gripen. These nations were invited to assess the bids jointly with the UK, with a view to agreeing on a common solution. Discussions with these nations have been conducted on the basis that BVRAAM is a UK-led programme, with industry responsible for defining work-share based on technical excellence, manageable risk and best value for money, rather than any predetermined formula. A European solution is the favoured option of all the potential partner nations, with varying degrees of acceptance over an alternative. A Statement of Intent signed by the UK and potential partner nations outlines these principles and the intention to explore a co-operative development and production programme for BVRAAM. In June 1999 France made a request to join the programme, having identified that the BVRAAM specification broadly met their missile need for Rafale. Following other partner nation agreement, France formally joined the programme in July 1999.

ALTERNATIVE PROCUREMENT OPTIONS

10. No suitable "off-the-shelf" missile is available to meet the BVRAAM requirement, although the Advanced Medium Range Air-to-Air Missile, AMRAAM, remains a possible baseline option. Other options earlier considered, but deemed not to have the required performance, were the Matra MICA, the Alenia Aspide and the British Aerospace Dynamics Active Skyflash.

COLLABORATION

11. Discussions with the potential partner nations have been conducted on the basis of a BVRAAM collaborative development and production contract being placed by the MoD under UK contracting law. The UK's preferred procurement strategy would be to place a combined full development and production contract with the selected bidder, with production options included to cover potential partner nations who do not wish to commit to production from the outset. A draft MoU is currently being discussed with the European potential partner nations. A formula for cost share is being developed which would be fixed at the start of the development phase.

12. If a collaborative programme offers the best way forward, an international joint project would probably be established within the MoD Defence Procurement Agency under a UK project manager. The cost of partner nations' representatives would be borne by their governments.

13. The UK and the potential partner nations have signed a Statement of Intent, confirming their decision to explore a co-operative development and production programme. Missile requirements and ISDs for the other nations have yet to be advised. Both Germany and Sweden have recently placed contracts to explore technical risks associated with their national objectives. The results of these studies have been made available to the UK and the other potential partner nations.

14. The possibility of an Anglo/US collaborative programme is offered by Raytheon's ERAAM+ "staged approach" to the requirement. There could be cost and performance benefits in sharing the development work. A Statement of Intent was signed by the UK & US in August 1999 and a possible MoU is under discussion.

EXPORT POTENTIAL

15. The export potential of BVRAAM is being assessed.

INDUSTRIAL FACTORS

16. Industrial factors will be taken into account in the assessment of bids.

SMART PROCUREMENT

17. The invitation to tender invited companies to provide alternative proposals for a staged approach to meeting the requirement. Bidders were also advised that the MoD was prepared to consider other innovative proposals, including a PFI arrangement. Their proposals are now being evaluated.

ACQUISITION PHASES

18. A request for Information was issued in February 1994 to a wide range of national and foreign government agencies, potential prime contractors and major equipment suppliers. A Cardinal Points Specification was issued in April 1994. Responses received by the MOD in late 1994 suggested that a project was technically feasible and capable of completion within a suitable timescale.

19. An invitation to tender was issued in December 1995 to BAe Dynamics, GEC Marconi, Matra, Daimler Benz, Hughes, Alenia, Aerospatiale, SAAB and Raytheon. The ITT included a Statement of Technical Requirement. Bids were received from Matra BAe, ie the merged BAe Dynamics and Matra, and from Raytheon as prime contractors. Assessment highlighted areas of major technical risk in each and it was decided not to award an immediate Development and Production contract.

20. Contracts for a Project Definition and Risk Reduction phase were placed with the two bidders in August 1997. Revised bids to meet the requirement were received in May 1998. Best and Final Offers (BAFO's) from both companies were received in September 1999. We are hoping to reach a decision soon and to place a demonstration and manufacture contract around the end of 2000.

MILESTONES AND COSTS

21. Future project milestones will depend on the procurement option selected.

22. Expenditure up to 31 March 2000 was £21M, VAT incl at 99/00 prices. Total acquisition costs could be in the region of *** depending on the solution chosen. The years of peak expenditure are likely to be 2006-07 and 2010-11.

IN -SERVICE SUPPORT

23. The aim of the BVRAAM Integrated Logistic Support strategy is to minimise the support costs whilst ensuring that the required levels of mission reliability and weapons availability are achieved throughout the design life.

24. The successful BVRAAM contractor would be responsible for the first five years of logistics support, covering both spares and Post Design Support work. Contracts after that period would be subject to negotiation. Contractor logistics support is seen as the most cost-effective strategy, ensuring a minimum requirement to hold spares.

25. Provision of initial operator and maintainer training and the associated training package are likely to be the responsibility of the successful prime contractor, with future continuation training being undertaken with RAF resources. A number of training missiles would be procured.

26. Discussions between the UK and potential partner nations on support philosophies are at a very early stage. No estimate has been made of the saving from sharing any future support and training facilities with other nations.

FRONT LINE, STORAGE AND RESERVE NUMBERS

27. Pending a decision on procurement options, no decisions have been taken about the total numbers of missiles required or how they will be allocated.

INTEROPERABILITY

28. The BVRAAM programme was conceived exclusively for Eurofighter, where the main carriage method is semi-recessed under the fuselage. This represents a prime driver in the missile design. As such, the requirement provides only for integration on Eurofighter. BVRAAM will therefore be interoperable with other Eurofighter nations who undertake the integration. The four-nation programme also requires integration work to be carried out for AMRAAM.

IN -SERVICE LIFE

29. BVRAAM has required 25-year design life.

DEVELOPMENT POTENTIAL

30. The intention is to incorporate major capability and cost-effectiveness enhancements, not through major in-service upgrades but in accordance with Smart Procurement principles, through incremental acquisition and insertion, as technology allows and the threat evolves.

LESSONS LEARNED FROM PROJECT HORIZON

INTRODUCTION

1. The decision on 25 April 1999 by the Defence Secretaries of UK, France and Italy not to proceed with the tri-national HORIZON programme after the end of its current Project Definition phase (which expired in October 1999), marked the end of a long chapter on attempted collaboration in naval shipbuilding. The reasons for the failure of HORIZON have since been the subject of analysis by the tri-national HORIZON Joint Project Office (JPO) and HORIZON Steering Committee. This short paper synthesises their (and others') views into a single national "lessons learned" report which could be used to inform the UK's approach to future potential collaborative ventures.

KEY LESSONS FOR THE FUTURE

2. The most significant issues arising from the UK's national experience of HORIZON are set out below in the form of key lessons for the future. The lessons are grouped to distinguish between things that went well and should be done again, and things which need to be done better in future. Where a lesson requires implementation the leads (ie Government; Industry; DPA; Central MOD Customer) are indicated (in parentheses) after each point.

Good lessons for the Future:

(b) The JPO organisation and procedures worked well. Future Joint Project Offices should seek ISO 9001 (or equivalent) qualification at the outset to give confidence in their efficiency and to encourage the corresponding industrial organisations to work to the same standards; (DPA).

(c) It is helpful to keep all companies with a potential interest in the project regularly informed of progress so they are ready to participate when called upon to do so and are willing to invest time and resources in competitions. Formal mechanisms for keeping in touch at the level of Prime and sub-contractor level are helpful; (DPA).

(d) The establishment of a joint Acceptance Authority made up of the three national organisations responsible for acceptance into operational service of naval warships proved very useful in establishing a clear definition between acceptance off contract by the JPO and acceptance into service with the prospect of very little duplication of effort between the three navies; (Central Customer).

Areas to improve:

(f) the requirement and (confirmed) budget should be communicated to Industry at an early stage to avoid nugatory effort and time being invested in solutions which are over ambitious and/or unaffordable. Industry should be updated quickly if budgets change; (Governments; DPA; Central Customer);

(g) Industry must be consulted as to what is likely to be practical before the MOU is signed. The views of Industry should be sought on the realism of the operational requirement and the likely risks, particularly with regard to the ISD, the likely cost in relation to the budgets that nations can afford, the procurement strategy and the proposed industrial organisation; (Industry; DPA; Central Customer);

(h) credible industrial structures must be established at an early stage which can act authoritatively in the prime contractor role. Joint venture companies are unlikely to succeed. It would be difficult to find acceptable solutions for co-operation on the scale of a complete warship if partner nations nominate shipbuilders that remain directly operated by Government, unless there was a credible separation between Industry and Government's distinct customer/supplier roles; (Industry; Governments);

(i) work share arrangements should not be allowed to distort industrial management of the programme. The involvement of trans-national companies and OCCAR should help work share issues to be resolved efficiently and economically; (Industry, Governments);

(j) there should be a common view of risks in the project and how to manage them, and technical obstacles to collaboration such as differing national ship building and safety standards must be harmonised early in the programme; (Industry; DPA);

(k) a means of securing the benefits from affordability and risk reduction measures must be found. There must be equality of information between Industry and customer for pricing and risk assessment. A system needs to be developed which ensures that the benefits of risk reduction measures, better definition and capability reductions are recorded and implemented in subsequent rounds of costing; (Industry; DPA);

(l) a complex tri-national programme such as Project HORIZON cannot cope with an ambiguous procurement strategy. The appropriate strategy must be agreed in detail from the outset. From a UK perspective, the optimum approach is to place a performance based contract with a prime contractor who is fully responsible for the selection of equipments, with the project office monitoring the fairness of competitions. In the case of HORIZON, nations were not ready to accept the consequences of this and neither was Industry ready to deliver. We should not under-estimate the difficulty of achieving such an arrangement in future programmes; (DPA; Industry);

(m) given the inter-actions and mutual dependencies between the PAAMS and HORIZON programmes, it would have been better to have combined these two programmes and to have worked towards a single industrial entity to deliver the complete CNGF programme. The boundaries between the two programmes needed careful management with the risk of overlap and redundancy between the two. One solution might have been for UK to join the FR/IT Famille des Systems Sol-Air Futur (FSAF) programme and for the PAAMS common items to be considered as equipments supplied to HORIZON for integration into the Combat System. Another solution might have been to set up one project for the combat system as a whole and another for the platform. This would have required a totally different PAAMS Programme Office. Since the first solution was politically unacceptable, the second might have been more practicable and acceptable to Industry. Closer to the German-Dutch frigate project, the second solution would probably have resulted in three different frigates with a more common combat system; (Governments; DPA; Industry);

(n) significant changes to procurement strategies or project plans should only be made after the possible adverse effects on programme schedules and costs have been assessed. Other nations need to be persuaded of the need to place the same emphasis in minimising Through Life Cost from the outset; (DPA);

(o) Through Life Costs need to be an important factor in equipment selection decisions. Data bases should be established very early on in a project's life to collect Integrated Logistic Support data particularly that required to conduct the comparative analysis of through life costs. These are an important but often neglected aspect in deciding the competition for individual weapon and ship equipments; (DPA);

(p) there must be mutual trust and confidence between the nations, between the national staffs and procurement organisations and the international project office and between the project office and Industry. Without such trust, and the equality of information that this demands, success cannot be assured. For this reason, the personnel serving in the key appointments in both Government and Industry must be chosen carefully and must commit themselves to the achievement of the aims of the programme, distancing themselves from purely national interests. (Governments).



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