APPENDIX 4
Letter from the Minister of State for
Defence Procurement concerning negotiations with BAE Systems on
potential partnering with Royal Ordnance (21 December 1999)
In my letter of 15 December, I advised that
I would write again on the outcome of our negotiations with BAE
Systems over a potential partnering arrangement with Royal Ordnance.
I am now able to inform you that, following
the successful conclusion of these discussions, I have instructed
officials to enter into a 10 year Partnering Agreement with Royal
Ordnance, which will cover the supply of a wide range of ammunition
products from the company's Weapons and Munitions business unit
and from the Small Arms ammunition facility at Radway Green. The
agreement, which will provide Royal Ordnance with a stable workload
worth some £100 million per year, is being announced to Parliament
later today.
Our primary negotiating objective for this arrangement
was to achieve best value for money for the taxpayer, while taking
into account the potential implications for security of supply
of losing Royal Ordnance as an indigenous ammunition manufacturer.
I believe that this is consistent with the Defence Committee's
recommendations in its Fifth Report of 1998-99 on "Security
of Supply and the Future of Royal Ordnance Bishopton". I
am pleased to say that, through hard and determined negotiation
on both sides, this objective has been realised. In particular,
the government will obtain, through contractually and legally
binding arrangements, increasing value for money through the introduction
of initiatives which will drive down the cost of procuring the
ammunition products contained within the agreement. The partnering
will involve the Ministry of Defence and Royal Ordnance in sharing
costs, risks, and benefits over the period of the arrangement.
For BAE SYSTEMS, the agreement will provide the company with a
secure contractual workload for a rolling five year period, which
will create the stability necessary for BAE SYSTEMS to invest
in and re-structure Royal Ordnance.
We consider that the partnering arrangement
represents good prospects for the future of Royal Ordnance as
a whole, although BAE SYSTEMS has stated that some rationalisation
and re-structuring beyond that already announced will be required
to meet our future needs. Such re-structuring will remain a matter
for Royal Ordnance and BAE SYSTEMS management to determine. As
you will understand, we have signed an agreement for the supply
of ammunition products, not for the retention of particular Royal
Ordnance sites, and it is for the company to determine how it
wishes to meet our requirements under the agreement. With particular
regard to Royal Ordnance Bishopton, I understand that BAE SYSTEMS
has advised that manufacture of propellant at the factory does
not form part of its current plans for the future Royal Ordnance
and that, as previously announced, the facility, and those at
Faldingworth and Featherstone, will close after the completion
of existing contracts.
I hope this is helpful
|
