Memorandum submitted by the Ministry of
Defence (SHP 8)
MOD Warship Building Programme
1. The MOD has a large naval equipment programme
which, on current assumptions, will lead to more than 30 warships
entering service over the next 20 years. Within the last two years,
the MOD has ordered two Survey Vessels, four Alternative Landing
Ships Logistic (ALSL), and six Type 45 destroyers, and placed
a contract for the lease of three new build offshore patrol vessels.
All of these vessels will be constructed in UK shipyards, in line
with Government policy. It is estimated that the total UK shipyard
workforce employed on naval shipbuilding will need to increase
substantially from its current level of 4,500 in order to accommodate
the planned programme.
2. BAE SYSTEMS Marine (Marine) has already benefited
substantially from this programme, as have other UK shipyards.
Marine's yards at Govan and Scotstoun on the Clyde have the following
MOD work currently in progress or planned:
Completion of Auxiliary Oiler
Completion of 8 Landing Craft Utility
Build of two ALSLs
Type 45 destroyer—modular construction work
and steel production
Assembly of Type 45 First of Class
The Type 45 Prime Contract Office design team is
also based at Scotstoun.
3. Marine estimates that the Type 45 work alone
will secure 1,250 jobs on the Clyde well into this decade. The
two ALSLs should sustain up to 600 jobs at the Govan shipyard.
Other Scottish companies will also benefit from the warship building
programme, by supplying materials and components. The MOD would
also expect Clyde shipyards to have opportunities to participate
in the future programme, which is planned to include further Type
45 destroyers, two future aircraft carriers (Carrier Vessel Future—CVF),
the Future Surface Combatant and a number of support vessels.
Clyde Shipyards Task Force Report
4. The MOD was not represented on the Clyde Shipyards
Task Force, although it provided some information for the report.
The MOD welcomes the report; it is a comprehensive document that
forms a valuable contribution to the wider debate on the vital
strategic issues facing the Clyde shipbuilding industry. However,
it is important to note that competition remains at the centre
of the MOD's procurement policy, because it offers value for money
in the equipment we buy, and is therefore the keystone of our
strategy for warship procurement. Although the current naval warship
programme is the largest for many years, offering a sound basis
for contractors to win other work, the MOD order book alone cannot
be expected to sustain the UK shipbuilding industry. It is up
to the shipyards themselves to be as innovative, efficient and
productive as possible, enabling them to compete not only for
MOD projects but also for commercial and export orders. Within
this framework, companies such as Marine are sometimes forced
to make hard choices, as they did last year when announcing a
redundancy programme. That is primarily a matter for the company,
although, as indicated in the report, they will need to ensure
that they retain and develop the necessary skills to accommodate
the forward shipbuilding programme as currently planned.
5. In addition, it should be noted that the Task
Force report concentrates on one region and one major UK defence
company. The MOD has to recognise at all times that there are
other UK warship builders and all parts of the industry must be
treated on a fair and equitable basis.
6. Although not directly involved in the Task
Force, the MOD will play a full part, in co-operation with the
Scottish Executive, the Scotland Office and the DTI, in addressing
the recommendations of the report. Only a few of these involve
the MOD. The recommendations are being taken forward through the
Shipbuilding and Marine Industries Forum, which includes representatives
of Industry and Government Departments, and informal contacts
between officials of the interested Departments. The present position
on each of the recommendations involving the MOD is as follows:
Recommendation 1: UK Government Shipbuilding
policy should be restated
7. The Task Force report notes that the volume
of MOD work will peak over the next decade, mainly due to the
CVF programme, and then decline from about 2015. The report suggests
that it will be important for all Government Departments to work
together to consider the implications for the industry and that
it would be timely for them to restate their shipbuilding policy
in the light of the report. A statement on shipbuilding policy
is in preparation under the auspices of the Shipbuilding and Marine
Industries Forum. This will include a statement on MOD policy.
As indicated above, this remains that all our warships will continue
to be constructed in the UK, with competition at the core of our
procurement strategy. Regarding the future volume of work, the
RAND corporation has carried out a study for the MOD to examine
the potential advantages and disadvantages of alternative procurement
strategies for the MOD's future warship programmes, including
in broad terms the effect they might have on the UK's shipbuilding
industrial base. The DTI and Scotland Office have been sent draft
copies of the study report for information. RAND's analysis suggested
that, on some estimates, the demand for labour across the UK will
double between 2005 and 2010, driven mainly by the Type 45 and
CVF programmes. The MOD will continue to work closely with industry
to ensure that the programme is achievable, taking account of
the management challenge presented by the need to maintain the
required skills, against the background of an ageing workforce.
The DTI is currently examining ways in which the productivity
and competitiveness of UK yards might be improved, for example,
through the establishment of a national skills database, which
could have particular benefits in this respect. The final RAND
report, which should be published shortly, is expected to outline
areas requiring further investigation, such as future manpower
demand and how the industrial base might be sustained.
Recommendation 6: The Government should consider
whether there are lessons to be learnt from other industrial sectors
in the promotion of exports where there are competing bidders
8. The report suggests that industry should
be encouraged to adopt a more collaborative approach for export
bids and that the Defence Export Services Organisation (DESO)
has a part to play in ensuring that UK shipbuilders are not competing
against each other for overseas orders. DESO already operates
a system whereby the most likely candidate is supported, if it
becomes clear that continuing competition between UK bidders would
seriously undermine the prospects of success. The MOD recognises
that there could be better ways of bidding for export orders other
than having several companies prepare separate proposals for the
same contract. However, equitable treatment must also be assured.
The MOD will continue to assess, on a case by case basis, the
best way of supporting bids by UK warship builders, recognising
the substantial cost to contractors of competing, while ensuring
an even-handed approach.
Recommendation 7: The DTI should continue to
engage with the MOD to consider the industrial implications of
procurement strategies
Recommendation 8: The Government should continue
to take account of the detailed industrial implications of its
procurement decisions for naval shipbuilding, including design
and integration capabilities
9. The report acknowledges the difficulties
of balancing value for money considerations on major contracts
with the industrial implications of pursuing a particular procurement
strategy. It suggests that procurement decisions on individual
programmes should promote the longer term availability of the
industrial capability required to provide competition for future
orders. These recommendations are consistent with current
Government policy. There are long established formal and informal
mechanisms for ensuring that all relevant issues, including industrial
implications, are considered and interested Government Departments
consulted, before procurement decisions are made. As far as shipbuilding
is concerned, the DTI Marine Team has regular review meetings
with its contacts in the Defence Procurement Agency, including
individual Integrated Project Teams. All MOD procurement proposals
include a section on industrial implications and major programmes,
such as the Type 45 and CVF, are subject to Cabinet level approval.
The MOD is well aware of the importance of retaining a healthy
industrial base for warship building in the UK, with companies
potentially available to compete for future orders. As the Task
Force report acknowledges, this was a driving factor in deciding
to change the procurement strategy for the Type 45 destroyer.
Recommendation 9: As the specification for
replacement vessels for the Royal Fleet Auxiliary becomes clear,
early clarification on their designation as warships would be
welcomed
10. The Task Force report notes the MOD's
stated requirement for a number of replacement vessels for the
Royal Fleet Auxiliary (RFA). The programme to provide future
afloat support capability, following the retirement of existing
RFA vessels, is currently in its concept phase and it is too early
to say what the specifications might be or how the capability
might be provided. The MOD will nonetheless endeavour to identify,
as soon as practicable, whether new afloat support vessels will
be designated as ``warlike stores''.
Recommendation 10: The current high level of
support from the most senior Scottish and UK Government Ministers
for the industry should continue
11. The report calls for support in recognition
of the shipbuilding industry's strategic significance in the economy,
with particular focus on the high technology and knowledge components
in warship construction. The MOD is the biggest single customer
of UK shipyards, which are currently engaged in the largest warship
building programme for many years. There is no doubt that there
is strong and continuing Ministerial support at the most senior
levels for the shipbuilding industry. It is important that the
industry is efficient, competitive, innovative and able to identify
``smart'' solutions so that the MOD's requirements can be met
at an affordable price.
Other recommendations not attributed to MOD
but in which there is a specific MOD interest
Recommendation 5: In addition to Government
activity, every appropriate opportunity should be taken to include
Scotland Office Ministers in promoting Clydeside's case in securing
new export orders
13. The Task Force report recognises the importance
of high level political support in major defence equipment sales.
DESO keeps Scotland Office officials informed of relevant sales
campaigns to ensure that Scotland Office Ministers have all available
opportunities to support Clydeside companies' ventures in the
defence export market.
Recommendation 12: The Scottish Executive should
assess the potential of offset as an export development opportunity
for appropriate Scottish companies
14. The Task Force report suggests that offset
(direct or indirect through technology transfer) has increasingly
featured as the competitive advantage in winning orders and that
BAE SYSTEMS Marine requires expertise in offset arrangements to
succeed in gaining exports. The report also states that there
may be potential benefits for other British companies in being
part of indirect offset deals in export warship sales. The
DESO Offset Adviser is available to assist British defence companies
in formulating and delivering competitive offset packages which
could be of wider benefit to British industry.
May 2002
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