Memorandum from Defence Manufacturers
Association (May 2003)
SMART ACQUISITION, DEFENCE INDUSTRIAL POLICY
AND A POSSIBLE US ITAR WAIVER AS THEY AFFECT SMALL/MEDIUM ENTERPRISES
SMART ACQUISITION
(SA)
The overall conclusion of the affect of SA is
that it is, probably, delivering improvements to defence procurement
for the MoD but at significant cost to UK contractors, including
SMEs, and risk to the UK defence industrial base. Coincidentally
the DMA has recently completed its' fourth annual SA survey of
member companies. It has confirmed previous findings (see
Annex A for key results). On the positive side, relationships
between the MoD's Integrated Project Teams (IPTs) and companies
are far less adversarial and communications are much better than
pre-SA. At the same time excessive transfer of risk to suppliers,
increased bureaucracy, difficulties in MoD in dealing with innovative
bids and reducing technical knowledge/experience in IPTs are matters
of concern—especially to SMEs. Further, companies with generic
technology products (eg electronic warfare, NBC) have to deal
with many IPTs; an administrative burden for SMEs with limited
resources, exacerbated by a lack of common process amongst IPTs.
The emphasis by the MoD of dealing with Prime
Contractors is having considerable impact. Suppliers, especially
SMEs, now have far less direct dealing with IPTs, reducing customer
knowledge for the former and awareness of some of the best technology
and innovation for the latter. At the same time, the increased
risks now incurred by Primes are, inevitably, cascaded down their
supply chain, to SMEs. The Committee will recall that (as the
DIC's recent evidence confirmed) Primes outsource up to 70% of
their project business.
The bureaucracy of the process of MoD procurement
has increased substantially under SA as the MoD seeks to reduce
risks to time, cost and performance of projects. Additional
stages and demands for information from companies have been added
to the process. Companies/SMEs are generally required to complete
a burdensome amount of paperwork in the process of contracting
with MoD. This starts with an Expression of Interest (EOI) from
the company in response to an announcement/advertisement in the
Defence Contracts Bulletin, which in turn sparks MoD, assuming
the company is judged potentially capable of carrying out the
work, to require the completion of a Pre-Qualifying Questionnaire
(PQQ). The PQQ seeks such details as the company's composition,
holding company, Directors, trading background, financial position,
quality assurance procedures and experience in dealing with similar
work to that which is being considered. Apart from some "Key
Suppliers" this PQQ is currently required to be submitted
on each and every occasion a company starts a particular bidding
process. Thereafter, an Invitation to Tender (ITT) is sent by
MoD to companies who have been short listed and in due course
supplementary questions and presentation can be sought, before
a contract is awarded. There is thus much duplication of information
being supplied to the MoD, in the main because of the autonomy
of the IPTs.
Unfortunately there is also a lack of standardisation
of many of these processes and SMEs find themselves having often,
to provide the same information many times in different formats
to different IPTs or Prime contractors. The MoD is aware of this
problem and is trying to resolve it, but progress has been very
slow. Equally the extra bureaucracy adds, in turn, to the time
taken by the IPTs to progress their own assessment stages, particularly
where innovative procurement techniques such as PPP and PFI are
involved. All of this is adding, considerably, to companies costs
of doing business with the MoD.
The loss of technical knowledge and experience
within IPTs is noticeable and of concern to Industry. Companies
observe that technical dialogue and understanding of their products
and services is more difficult than before. This is perhaps a
consequence of the reduction of the MoD in-house technical employment
base (that previously included DERA, Quality Assurance staff etc)
from which IPT staff can be drawn.
DEFENCE INDUSTRIAL
POLICY
SMEs, along with larger companies in the Defence
Industry, have welcomed the Government's Defence Industrial Policy
with its declared aim of ensuring the retention of defence technology
and jobs in the UK—irrespective of ownership of the companies
involved. A major dichotomy arises, however, between this intention
and the MoD's increased emphasis on doing business via Prime Contractors.
Prime Contractors are put under great budgetary pressures by the
MoD, operate globally and will seek systems and sub-systems from
wherever in the world they can be procured most cheaply for the
benefit of the project in hand. Whilst there are MoD guidelines
for the fair and open conduct of business by Prime Contractors,
there is currently no clear MoD mechanism for assessing and influencing
the Defence Industrial Policy aspects of the procurement decisions
of Primes. This is leading to an erosion of capability amongst
some well established UK SMEs, with unique products and expertise,
and a threat to exports for companies that can no longer claim
to be "chosen suppliers to the UK Armed Forces". Furthermore,
whilst immediate project value may be delivered, there can be
additional whole life costs across the Services as a result of
reduced commonality of sub-systems and the need for different
training and spares holdings. Ironically, this situation arises
most with non-competitive procurements (eg Type 45 Destroyer). For
major competitions (such as CVF) there is often political and
public guarantee by the bidders, out with the MoD procurement
process, of the security of jobs and technology in the UK.
Within the context of the DIP, SMEs strongly
support competition as the bedrock of procurement policy. They
are concerned, however, that as a result of the risk reduction
policy of IPTs, they are being excluded from bidding, directly,
for some MoD business; even where they have a good track record
as a previous supplier. In such a case recently not only was the
SME excluded but the contract was awarded non-competitively to
a large company.
ITAR WAIVER
An ITAR waiver would be welcome in principle
for both Prime Contractors and many SMEs. If offered by the US,
our understanding is that participation by UK companies will be
voluntary. SMEs have two significant concerns. As is the case
for US companies, default or non-compliance carry financial penalties
that are so severe that many SMEs will be deterred from participating.
It is likely, too, that future UK Export Licence
Applications will include the need for companies to identify the
US content of the items they wish to export and confirm that appropriate
US approvals for re-export are in place. For ITAR Waiver participants
this will be reasonable. If it is applied to all UK exporters
it will place a new and highly onerous burden of monitoring, recording
and reporting on non-participants, for no benefit to themselves.
|
