Memorandum submitted by the Ministry of
Defence on OCCAR (28 September 1999)
On 12 November 1996, Defence Ministers from
France, Germany, Italy and the UK signed an Administrative Arrangement
formally establishing the quadrilateral armaments structure, known
by its French acronym OCCAR (Organisation Conjointe de Cooperation
en matiere d'ARmement). In joining this work the UK aimed to participate
in setting up a body which, in the words of James Arbuthnot MP,
the then Minister for Defence Procurement, "added value not
bureacracy; one which will lead to more efficient and effective
collaborative ventures than those seen to date, producing equipment
which can compete with the best in the world". In 1998, the
Strategic Defence Review confirmed the potential benefits of improved
collaboration and that OCCAR had a part to play in achieving this.
Signature of the Administrative Arrangement
allowed the creation of an OCCAR Central Office in Bonn, comprising
30 staff, and the re-assignment of a number of existing Franco-German
programme management offices to the OCCAR Executive Administration.
Member nations' control of the organisation's development is provided
through the OCCAR Board of Supervisors, on which the Chief of
Defence Procurement represents the UK, and through a hierarchy
of working groups.
It has long been recognised that, for OCCAR
to manage collaborative programmes efficiently, it needs a separate
legal identity. This will allow it to place and manage contracts
on behalf of its customers, to employ its own staff, and would
allow the development of specific rules and procedures based on
best practice. To this end, UK, French, German and Italian Defence
Ministers signed the OCCAR Convention on 9 September 1998, ratification
of the Convention is expected later this year.
In February 1999, the Counter Battery radar
(COBRA) programme, with its office located in Koblenz, became
the first OCCAR-managed project with UK involvement. Other projects
earmarked for integration into OCCAR are the common elements of
the Multi Role Armoured Vehicle, the third generation anti-tank
guided weapons system (TRIGAT) and the Principal Air to Air Missile
System (PAAMS). Studies are underway to examine the possibility
of OCCAR managing a range of other programmes.
KEY PRINCIPLES
As part of the process of improving the way
collaboration in defence equipment is conducted, a number of key
principles have been agreed for OCCAR:
Global Balance. In a departure from traditional
collaborative arrangements, the OCCAR nations have renounced the
principle of "juste retour" in favour of the concept
of "global balance". This moves away from the strict
application of "cost share equals work share" and allows
the work share to be balanced over a number of programs. It should
permit greater freedom in supplier selection and help gain maximum
benefit from collaboration. It remains to be seen how this will
work in practice and, for a transitional period, there will be
special arrangements for the balance to be redressed if certain
thresholds are exceeded. Action will be taken if a nation's workshare
falls below 66 per cent of its financial contribution on a particular
programme or if there is an imbalance of more than4 per cent in
relation to all OCCAR-managed programmes.
Flexible Voting. Also novel in this field.
OCCAR has introduced a system of qualified majority voting for
decisions related to its central operating policies (decisions
on individual programmes will be determined on a case by case
basis by those involved). For a transitional period of at least
three years from entry into force of the Convention, the founding
nations will have a right of veto. Flexible voting already works
well in other programme management organisations, such as the
European Space Agency, and should help improve the overall efficiency
of OCCAR management.
Competition. It has been agreed that OCCAR
contracts will be placed on the basis of competition. While there
is no declaration of exclusivity for European solutions (which
would compromise our ability to obtain best value for taxpayers'
money) each member state will "give preference to equipment
in whose development it has participated within OCCAR". This
is consistent with our aim to facilitate a strong and competitive
European defence industrial base while, at the same time, maintaining
the possibility of wider competition.
Access by non-European Nations. Bids from
companies in non-member states (principally the US) are possible.
However, this would require unanimous agreement from participants
in the programme concerned and would be subject to the principle
of reciprocity (ie the suppliers market should be similarly opened).
New Members. OCCAR is open to other European
nations, subject to their involvement in a major project involving
at least one of the OCCAR partner nations and acceptance of OCCAR
policies. The Netherlands' application to join has been accepted
by the OCCAR Board of Supervisors and the formal accession process
is now in its final stages. An application for membership by Belgium
is also now under consideration. Other nations have expressed
interest in participation in OCCAR but no further formal requests
for membership have been received.
CURRENT WORK
Since the creation of the organisation in 1996,
the focus of work, both within OCCAR and in member states, has
been the development of the organisation's rules, procedures and
modus operandi, particularly with a view to its operation following
its achievement of legal status.
The UK has held the OCCAR chair since January
this year and will relinquish it to France in December. This is
a critical period in the run up to Convention ratification and,
although there are many factors which may hamper progress towards
legal status, our chairmanship has provided the ideal opportunity
to maximise our influence on the development of the organisation.
Value for money is recognised as the cornerstone of OCCAR's work
and many of the UK's Smart procurement concepts, including the
creation of integrated project teams and a whole-life approach
to acquisition, have been adopted for use in the organisation.
Best practice and continuous improvement underlie the philosophy
of the organisation.
Agreement has now been reached between partners
on a post-legal statues organisational structure. As at present,
there will be a small Central Office providing corporate services
(financial and contractual policy and oversight, human resources,
operations development, strategic management etc) and decentralised
project management. It has also been agreed that pay, pensions
and allowances for OCCAR staff should be based on those of co-ordinated
organisations (eg NATO, ESA etc). The Board of Supervisors has
made clear to the OCCAR Executive Director the absolute need to
ensure that OCCAR running costs are kept to the minimum necessary
to allow effective management of collaborative programmes.
CONCLUSION
The development of OCCAR since its creation
in 1996 continues to be consistent with our initial aims for the
organisation: to maximise the benefits of collaboration in defence
equipment acquisition; to provide an established framework on
which to launch future collaborative skills and techniques; and
to provide value for money improvements in future defence equipment
procurement. These aspirations remain the Organisation's raison
d'etre. The move to legal status will improve significantly the
opportunities to realise the potential benefits offered by participation
in OCCAR.
Answers to the Committee's specific questions
on OCCAR are attached at Annex A.
Q1. Why it was decided to move OCCAR from its
original basis in its founding charter to a Treaty-basis as set
out in the Convention (Cm 4367)? What alternative models were
considered (see your note printed on pp 46-47 of the Seventh Report
of last Session (HC 675)?
A1. For OCCAR to manage collaborative programmes
efficiently, it requires a legal personality separate from its
member states. This will allow it to place and to manage contracts
on behalf of member nations and to employ its own staff, allowing
the development of specific rules and procedures based on best
practice.
Other options to establish this legal identity
which were investigated included establishing OCCAR as a subsidiary
body of NATO or of the Western European Union (WEU). The NATO
route was rejected as it did not reflect the European composition
and context of OCCAR. The WEU route was thoroughly investigated,
but it became apparent in late 1997 that consensus on the matter
could not be reached among the 10 full WEU members. This was largely
because a number of the non-OCCAR WEU members were concerned that
renunciation of the principle of juste-retour in OCCAR could have
set a precedent for any future European armaments agency established
under WEU auspices. OCCAR members therefore decided that, in order
to prevent further delay, a treaty should be negotiated between
the OCCAR nations to establish the organisation's legal identity
while, at the same time, working to address the concerns of the
other WEU nations. No substantial progress was made on the WEU
route and, the treaty having been negotiated, OCCAR members duly
signed it as the OCCAR Convention on 9 September 1998. Ratification
by all four states is expected around the end of the year.
Q2. Whether the convention differs in any of its
details from the founding charter or memorandum of understanding
and, if so, what is the effect of such changes?
A2. The main change implemented by the Convention
was to transform the organisation from an informal partnership
of four states into an international organisation with a separate
international legal personality (Article 39) and certain privileges
and immunities (Article 40 and Annex I). These provisions follow
the normal form for international organisations, and the privileges
and immunities follow closely those of the European Space Agency
established in 1975. These include: immunity from jurisdiction
(except in certain circumstances); inviolability of the organisation's
archives; and exemption, within the scope of OCCAR's official
activities, from direct taxes.
Another key change was the introduction of the
concept of "flexible voting" in the organisation. This
allows decisions on certain, pre-determined aspects of the organisations
work (such as the admission of new members and the organisation
of the Executive Administration) to be taken on the basis of qualified
majority voting. An amendment to the existing OCCAR Administrative
Arrangement was made at the same time as the Convention was signed,
bringing in the new decision making regime with immediate effect.
The UK, France, Germany and Italy each have the maximum 10 votes
and the power of veto; any nations that subsequently join OCCAR
would have fewer than 10 votes each and would not have a veto.
The underlying founding principles of OCCAR,
as set out in the Administrative Arrangement, are carried over
in the Convention.
Q3. What are the anticipated running costs
of OCCAR, how will they be shared and where will the UK funding
come from?
A3. Work continues on determining the running
costs of OCCAR, with final decisions awaited on grades and number
of staff, salaries etc. The cost of the OCCAR Central Office for
the year 2000 is, however, likely to be in the region of £3
million to £4 million, with the UK paying around £750,000
directly proportional to our vote share in the organisation (and
assuming accession of the Netherlands). The costs of running the
OCCAR Programme Divisions will be split entirely on the basis
of usage (eg the UK will not contribute towards the costs of programme
sites comprising exclusively non-UK programmes). The UK share
of funding for the running costs of OCCAR's COBRA Division is
expected to be around £300,000 (based on a one-third cost
share). UK funds will be provided through the Defence Procurement
Agency.
Q4. How was consultation on the legal basis
for OCCAR conducted?
A4. The four member nations held lengthy
and detailed consultations, at both policy and legal expert level
about the most appropriate legal vehicle for OCCAR, before deciding
to proceed with signature of the Convention.
Q5. How many personnel will be employed by
OCCAR's Bonn HQ?
A5. A staff plan with a specific ceiling
for the OCCAR Central Office following achievement of legal status
was endorsed by the OCCAR Board of Supervisors on 9 July 1998.
This set a long term target of 46 posts. Budgetary constraints
in the various nations mean that this figure is unlikely to be
reached for some time. At present, there are 30 people employed
in the Central Office.
Q6. Who will be the UK's representative on
the Board of Supervisors?
A6. The Convention stipulates that each
Member State shall have a representative on the Board of Supervisors
with the right to vote, and that representatives shall be Ministers
or their delegates. We expect that, for routine management of
the organisation, the Chief of Defence Procurement will continue
to represent the UK once the Convention enters into force.
Q7. What are anticipated to be the likely
effects of the provisions of Article 6 on the procurement decisions
of the MOD?
A7. It has been agreed that OCCAR contracts
will be placed on the basis of competition. While there is no
declaration of exclusivity for European solutions (which would
compromise our ability to obtain best value for taxpayers' money)
each member state will "give preference to equipment in whose
development it has participated within OCCAR". This is consistent
with our aim to facilitate a strong and competitive European defence
industrial base while, at the same time, maintaining the possibility
of wider competition.
Q8. How many projects, and to what approximate
value, have been placed by the UK under OCCAR's supervision, and
what forthcoming UK projects are under consideration for being
put into the OCCAR system?
A8. In February this year, the Counter Battery
radar (COBRA) project, with its office based in Koblenz, became
the first OCCAR-managed project with UK involvement. The UK's
share of the procurement costs of COBRA is around £200 million.
Other projects earmarked for integration into
OCCAR are the common elements of the Multi Role Armoured Vehicle
(MRAV), the Third generation Anti-Tank Guided Weapon system (TRIGAT),
and the Principal Air to Air Missile System (PAAMS). Additionally,
studies are underway to examine the possibility of OCCAR management
of a range of other programmes.
Q9. By what means will Parliament and the
public be able to reach a judgement as to whether the UK is getting
a fair deal from the OCCAR arrangements? What are the formal arrangements
for both financial audit and value for money audit of the organisation?
A9. Discussions are underway to determine
arrangements to allow value for money audit and financial audit
of the organisation, both internally and by national audit authorities.
The OCCAR Convention stipulates that ".
. .to enable them to discharge their audit functions as regards
their national administrations, and to report to their Parliaments
as provided in their statutes, national auditors may obtain all
information and examine all documents held [by OCCAR] which relate
to the programmes in which their Member States are participating,
and to the operation of the Central Office". Consultations
have taken place between the OCCAR Executive Administration and
the Member States' supreme national audit authorities to establish
the necessary arrangements. It is expected that national audit
authorities will have full and open access to OCCAR.
Q10. How will the Board of Supervisors report
on their achievements, the discharge of their duties and their
financial management of the organisation?
A10. An Annual Report and Balance Sheet,
available for public scrutiny, will be prepared by the OCCAR Executive
Administration. The report will indicate achievements against
the Organisation's five-yearly Strategic Plan and annual Business
Plan.
Q11. Whether the various recommendations,
rules and regulations determined by the Board of Supervisors under
Articles 12 and 13 will be published, and in what form? What consultation
will be undertaken before they are made? Will they require any
further legislative enactment? How do OCCAR's powers relate to
the broader framework of European Union law—is there any
overlap?
A11. The Convention does not require recommendations,
rules or regulations made by the Board of Supervisors to be published.
The decisions are on essentially internal matters and would be
made available to all the member states of OCCAR and to prospective
member states. Since the matters are internal, the main consultations
before decisions are taken tend to be held within the Board of
Supervisors, on which all member states are represented. There
would generally be no need for external consultations (although,
where appropriate, advice has been sought from other interested
parties, including industry). In this, OCCAR does not differ from
other international organisations of a similar size. As they are
internal regulations, no legislation would be required in the
member states. That said, work on OCCAR's security regulations
has highlighted a possible need for an OCCAR Security Agreement.
Such an Agreement would need to be ratified by member states but,
in order to avoid a delay to the entry into force of the Convention,
work on this has been de-coupled from the Convention ratification
process.
On the question of whether there is any overlap
between OCCAR's rules and EU laws, it is important to note that
OCCAR is not part of the EU. OCCAR's legal personality, when achieved,
will be entirely separate from those of its member states. The
organisation will not be subject to directives made under the
Treaty of Rome. Indeed, future member states may not necessarily
be members of the EU. That said, it is envisaged that, for non-military
purchases against OCCAR's administrative budget (eg office supplies),
the organisation will adopt procurement rules very closely aligned
to those in force in the EU.
Q12. Given the proposed absorption of the
WEU into the EU, what are the proposals for the future of the
WEAG and the WEAO, and where will their functions be located?
A12. There is no proposal to absorb the
WEU into the EU. At the Cologne European Council meeting in June
1999 Ministers agreed to include in the EU those functions of
the WEU necessary for the EU to exercise its new responsibilities.
Decisions should be taken by the end of 2000, when the WEU as
an organisation should have completed its purpose. This is consistent
with the UK's approach of examining what decisions the EU needs
to take and then rapidly to translate those decisions into actions.
The WEAG nations are currently considering two
main options for the future of the WEAG/WEAO:
(a) to maintain WEAG/WEAO activities independently;
(b) to take forward their activities within
the EU.
Proposals will be put to a meeting of WEAG Defence
Ministers in Luxembourg on 22-23 November this year.
It is important to note that OCCAR does not
operate within the WEAG/WEAO framework and decisions concerning
the latter will not directly affect the status of OCCAR.
Q13. How OCCAR now fits into the broader plans
for the restructuring of the European defence capability within
the CFSP of the EU? What is the current position on the establishment
of a wider European armaments agency?
A13. It is too early to say how, or whether,
OCCAR will fit into the new and evolving security architecture
following the Cologne Declaration.
The move to establish a European Armaments Agency
(EAA) is being taken forward by the WEAG. Currently, early work
on EAA functions, its outline structure and policy and procedures
is being undertaken by the group of national experts from WEAG
nations. Results of the preparatory work will be presented to
WEAG National Armaments Directors and Ministers in November 1999.
It is then envisaged that a pilot project will be selected in
2000 to further develop and test the preparatory work. It is planned
that the preparatory legal work, on the basis of which Ministers
will be able to decide whether to proceed, will be completed by
the autumn of 2001. Ministers will also need to consider, in this
context, the development of OCCAR and its relationship and compatibility,
with the prospective EAA.
Q14. In what circumstances would the Board
of Supervisors be likely to recommend further states for membership
of OCCAR? You reported last February that the Netherlands was
seeking membership of OCCAR. What is the current state of play
on this?
A14. OCCAR is open to membership by other
European nations subject to their participation in a substantive
collaborative defence equipment programme, and to agreement to
OCCAR's principles, rules, agreements and procedures. An application
for membership by the Netherlands has been accepted by the OCCAR
Board of Supervisors and the accession process is now underway.
An application for membership by Belgium is also now under consideration.
Other nations have expressed interest in participation in OCCAR
but no further formal requests have been received.
| 
