SUMMARY
The MoD and the Department of Trade and Industry jointly published a Defence Industrial Policy in October 2002. It set out the factors that the MoD will take into account when making equipment procurement decisions. While insisting that competition remains the bedrock of MoD procurement policy, the document also clarifies government thinking on the circumstances when competition will not be used or have to be curtailed. It also recognises that firms should not be over-burdened with risk. The publication of the Policy therefore brings a useful, though long-overdue, increase in transparency to this important area, although its practical interpretation will depend on building-up a 'case law' of projects.
Although, the MoD's focus on open competition helps secure value for money in defence procurements, the Defence Industrial Policy properly recognised its limitations. As firms rationalise and their number in particular market sector diminishes, we will not be able to rely on open competition if that gives foreign suppliers a level of access to the UK's open defence market which is not reciprocated by other countries.
The UK must maintain pressure on its European and US partners to conclude already existing international agreements aimed at opening up defence markets. An aspect of the UK's agreement with the US—involving a waiver for the UK on the International Traffic in Arms Regulations—has been delayed in Congress. That has unfortunate consequences because it is a touchstone for our relations with our closest ally, and the delay risks conveying a message about the nature of the US-UK relationship.
The contracts for two major projects—Astute and Nimrod—have been renegotiated because of difficulties stemming from poorly managed risk. The contractor—BAE Systems—was over-ambitious about the technical risk and agreed with the MoD fixed priced contracts which held the firm to prices and delivery deadlines which under-estimated the risks, either in error or by being blinded by the must-win nature of those competitions. Insisting on the firm delivering as promised would have been a hollow victory if that had left the projects stalled. In making the extra financial contributions necessary to rescue them, the MoD will have made a sensible use of taxpayers' money, provided that the bail-outs do not exceed the amount by which the firm under-priced risk in the first place.
The Future Carrier programme is following a very different track, with the MoD being part of an 'alliance' with the two firms that had been previously in contention for the programme. It will involve some very difficult negotiations to iron out the complex relationship between the alliance partners, and between the firms and the MoD which will be on both the customer and supplier side of the fence. But it deserves support as a model for trying to avoid some of the pitfalls of the Nimrod and Astute programmes.
The Smart Acquisition initiative, now five years old, has done much to reform the MoD's procurement processes, and has helped reduce cost and time overruns. There remains a question about the agility of these procedures, however, to provide equipment for the Armed Forces when they need it. The way new requirements, such as for the Watchkeeper UAV and FRES armoured vehicles, are managed will be tests for the MoD's ability to increase its procurement agility. But on those programmes the conflicting pressures to reduce both their timescales and their risk have served to highlight how difficult it will be to balance such factors. We will watch with interest how the new Chief of Defence Procurement conducts his re-examination of Smart Acquisition in order to find that agility and to reflect the provisions laid down by the Defence Industrial Policy.
| 
