Select Committee on Defence Appendices to the Minutes of Evidence

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.


  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.


  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.


  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.

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