Select Committee on Defence Written Evidence

Further memorandum by the Ministry of Defence

DEFENCE PROCUREMENT

  The following key milestones have been achieved in these projects since last year's exercise:

—  Achievement of the BOWMAN In-Service Date ahead of schedule, in March 2004.

—  Selection of the AirTanker consortium as the Preferred Bidder for FSTA.

—  Signature of the Development and Production contract for A400M.

—  Start of manufacture on HMS Daring, the First of Class Type 45 destroyer.

—  Signature of amended contracts reflecting the Agreements between MOD and BAE SYSTEMS on Nimrod and ASTUTE.

—  Delivery of the first Eurofighter Typhoon and acceptance by the RAF.

—  Approval for FRES to go forward to the Assessment Phase.

  The cost and time data in the memoranda reflect the latest estimates as at 31 March 2004, rather than—as in previous years—the endorsed Equipment Plan allocation. This data is therefore still subject to Departmental review and action through the current planning round.

1.  A400M

PROJECT SUMMARY

  1.  The A400M military transport aircraft is being acquired to replace the remaining C-i 30K Hercules aircraft fleet. The Secretary of State announced at the launch of the A400M collaborative programme on 16 May 2000 the Department's intention to order 25 A400M aircraft to meet our long-term outsize airlift requirements from the latter part of the decade. Main Gate approval was achieved in May 2000.

  2.  A single-phase Development and Production contract for 180 A400M aircraft was signed by the European armaments agency OCCAR (on behalf of the Participating Nations) and Airbus Military (AM) on 27 May 2003. National offtakes are as follows:

Germany	60
France	50
Spain	27
UK	25
Turkey	10
Belgium	8 (including one on behalf of Luxembourg).

  3.  Inter-Governmental Arrangements (IGAs) were signed in May 2003 and comprise:

(a)  a Memorandum of Understanding (MoU) committing the nations to the programme;

(b)  an OCCAR Board of Supervisors (BoS) Decision that agrees to the assignment of the A400M Programme to OCCAR;

(c)  a Programme Board Decision (PBD) setting out the management arrangements.

POLICY CONTEXT AND CAPABILITY REQUIREMENT

  4.  The Staff Requirement (SR(A)435) to replace the C-130K Hercules aircraft was endorsed in 1993. In July 1997, the UK announced its intention to rejoin the collaborative European Future Large Aircraft (FLA) programme (as A400M was then called). The associated European Staff Requirement (ESR) matches and in some areas exceeds SR(A)435. It specifies a larger cargo-carrying volume, a greater maximum payload, and a higher cruise speed.

  5.  The Strategic Defence Review (SDR) confirmed the need to replace the capability provided by the 0-130K and concluded that an outsize airlift capability was required to support the deployment of the Joint Rapid Reaction Force (JRRF). SDR New Chapter also came to this conclusion.

  6.  The A400M will provide tactical and strategic airlift capability to all three Services in peace, crises and war. The aircraft will enter service with significantly more capability than the C-130K, and will achieve an intermediate tactical clearance of day/night, poor weather/hostile environment capability by 2011. Full clearance is due in 2015.

COSTS

  7.  Expenditure to 31 March 2004 is £38 million. *** The exact contract price is commercially sensitive, however our commitment in the Memorandum of Understanding earmarks some

3 billion.

IN -SERVICE DATE (ISD) AND SERVICE LIFE

  8.  The current forecast UK A400M ISD is 2011 (at 50% confidence) and is defined as "Entry into service of the 7th aircraft with Strategic Military Aircraft Release and support arrangements".

  9.  The approved ISD at Main Gate was 2009 (at 90% confidence). The ISD slippage is the result of the delay in bringing the contract into effect caused by delayed approvals in Germany. Since contract launch, there has been no further ISD slippage.

  10.  The A400M will have an In-Service life of 30 years. First UK aircraft delivery is scheduled for 2010. Last UK aircraft delivery is scheduled for 2015.

ACQUISITION APPROACH

  11.  On 4 September 1997, the seven-nation FLA Request for Proposals (RFP) was issued to Airbus for an aircraft which met the ESR. This was followed, on 29 July 1998, by the issue of a four-nation competitive UK-led (FR, BE & SP also joined) Future Transport Aircraft RFP to Airbus (FLA), Boeing (C-17) and Lockheed Martin (C-i 30J).

  12.  On the basis of the proposals received, the European A400M was chosen. In selecting A400M, the greater industrial benefits to the UK and technical compliance were taken into account. The UK, Belgium, France, Germany, Italy, Spain and Turkey announced on 27 July 2000 (the Farnborough Declaration) that they intended to procure numbers of A400M aircraft sufficient to launch the programme.

  13.  The IGAs and contract were signed in May 2003 following German Bundestag approval.

  14.  The collaborative procurement approach has enabled nations to acquire a capability that otherwise would have been unaffordable individually. The commercial approach is bringing proven Airbus best practice, from civil aircraft development and production, to the programme. The single-phase approach circumvents the potential delay evident in collaborative programmes needing production approval. In respect of aircraft certification, the intention is to adopt an approach based on civil Joint Airworthiness Requirements, supplemented by military requirements where necessary.

  15.  Management of this programme is being undertaken by OCCAR. The A400M Programme Committee (consisting of senior officials from each participating nation) has direction and oversight of the programme.

  16.  No specific options are being considered at this stage for long-term development. Improvements to avionics and other systems will be required over the life of the aircraft to maintain and/or enhance capability.

INDUSTRIAL ISSUES

  17.  The strategy for A400M has been to adopt a "commercial approach" whereby the emphasis is on the prime contractor to secure a cost-effective solution that meets our requirements. The A400M contract is for the design, development, production and delivery of the complete aircraft, including its engines and all other systems.

  18.  The contract does not prescribe any national workshare arrangements. AM is free to select its suppliers on grounds of performance, time and cost, therefore ensuring that best value for money is obtained. Consequently, there are no impediments to UK companies securing sub-contract business. It is estimated that the A400M programme will create up to 8,000 jobs in the UK of which 2,500 will be long-term skilled in the aerospace sector (notably in design and advanced engineering).

  19.  A key element of Airbus' successful record in meeting challenging delivery timescales is their system of centres of excellence. As a result, Airbus UK has become the Airbus centre of excellence for wing design. The key location will be Filton where Airbus UK will not only exercise overall management of the wing and its design, but also the entire assembly, full equipping and delivery of wings to the aircraft final assembly line in Seville.

  20.  In May 2003 AM selected the European TP400-D6 engine offered by Euro Prop International, a Special Purpose Vehicle comprising Rolls Royce, SNECMA, MTU and ITP. This was followed, in July 2003, by the selection of Ratier-Figeac for the propeller, and, in February 2004, by the selection of Messier-Dowty for the Landing Gear System. 2004 is a key year for selection of remaining A400M equipments and systems.

  21.  AM believes that there is a significant market for the A400M beyond the Participating Nations. AM estimates of the scale of this market vary, but could be around 200 aircraft. Australia, Malaysia, Norway, South Africa and Sweden appear the most likely early export targets for AM.

IN -SERVICE SUPPORT

  22.  There is a wide range of In-Service options from which to choose. Airbus Military has made its own proposals that can be tailored according to the national level of contractor support required, while other service providers may also be able to offer competitive support options, especially when considering PFI solutions. It is anticipated that RAF personnel will provide forward support at RAF Brize Norton, while extensive use will be made of contracted services to provide depth support. This strategy will ensure flexible and responsive support to operations, while making best use of industry experience and resources for the conduct of the more specialised and resource-intensive tasks. Opportunities for common support, including training, are being actively investigated and any operational or cost benefits will be considered in finalising the UK support options.

  23.  The A400M IPT is now also working towards compliance with the guiding principles of the Support Solutions Envelope (SSE), a tool developed by the DLO to ensure that the support options selected by DPA IPTs consider the implications for support through-life, thereby facilitating programme transfer from DPA to DLO.

NEXT STEPS

  24.  The A400M 95-month Development phase is achieving contractual milestones. Airbus Military declared that End of Concept Phase was reached at end 2003 and the programme is now in Pre-Design Phase which will be followed by Detailed Design later this year.

  25.  2004 will be a key year for the selection of equipment and systems. Industrial Partners have been allocated development activities and are working satisfactorily.

  26.  Airbus Military is expected to submit its application for Type Certification by April 2005. Work for the Final Assembly Line site at Seville, Spain, has started and is scheduled to be ready to receive jigs and fixtures for the A400M production line by end 2005. First flight is programmed for December 2007 with Type Validation following in July 2009.

2.  ADVANCED SHORT RANGE AIR-TO-AIR MISSILE (ASRAAM)

PROJECT SUMMARY

  1.  The Advanced Short Range Air-to-Air Missile (ASRAAM) is a highly agile, passively guided advanced air weapon, manufactured by MBDA. It is being deployed on Tornado F3 to replace the Sidewinder AIM-9L missile and it will also be fitted to Typhoon and Joint Strike Fighter. ASRAAM entered service at an interim standard in January 2002 and became available for operational deployment in summer 2002. A series of incremental improvements will lead to a full operational capability by late 2004.

  2.  Since the last HCDC survey, MBDA have delivered the second, and most probably the final, software increment, which has been accepted: work has begun to integrate this standard onto Tornado F3. A cost benefit analysis on a third possible increment will be made later this year.

  3.  The total number of missiles is confidential, but will be supplied if required.

IN -SERVICE DATE (ISD) AND SERVICE LIFE

  4.  The ISD definition was the acceptance of the Certificate of Design and performance statement, with the subsequent delivery of 60 missiles fit for purpose. This was achieved at an interim standard in January 2002.

  5.  ASRAAM entered service 37 months late against the Main Gate approval. The reasons for this slippage were due to missile hardware and software technical difficulties (+18 months), alignment of missile production deliveries with candidate aircraft (+6 months) and failure of the contractor to meet contractual performance (+13 months).

  6.  The previous system on Tornado F3, AIM9, was judged to provide sufficient capability for the period prior to the introduction of ASRAAM. The effect of the delay was somewhat ameliorated by delays to the introduction to service of the primary platform, Typhoon.

  7.  The minimum proven life required for ASRAAM at entry to service was 10 years, and the design was to be such that further life extensions would not be precluded. This has been met. This life will need to be extended by way of In Service Surveillance, Life Extension Trials, Whole Life Assessment initiatives and periodic replacement of pyrotechnics in order to match the Service life of Typhoon and JSF.

  8.  The assumed Out-of-Service date is 2043.

SYSTEM PERFORMANCE

  9.  ASRAAM met 6 out of 10 Key User Requirements (KURS) at ISD. The narrowly missed KURs covered target acquisition and tracking, lethality in key engagement conditions and performance against countermeasures.

  10.  A clear and robust route map towards achieving the missile's full operational capability, and the remaining four KURs, was agreed with the contractor, and endorsed by the Investment Approvals Board (IAB), prior to the acceptance of ISD missiles.

  11.  In December 2003, the IPT accepted "FOC2" standard software which met all the requirements agreed for this performance increment, as well as delivering MBDA's obligations for final (FOC3) performance levels for two of the outstanding four KURs. While performance fell marginally short of the most demanding levels set for the third outstanding KUR, the Department also accepted at this stage that MBDA have maximised the performance available from the current design, and that this KUR had therefore been met. The company has exceeded the requirements of the fourth KUR as endorsed by the IAB in December 2001. Any further performance improvement in this area will be a value for money decision that the Department plans to make later in the year, following a report by the company; this work would be beyond the scope of the current approval.

  12.  The RAF is delighted with ASRAAM's outstanding performance. It is the world's best short range air-to-air missile and gives our pilots a critical edge in achieving air superiority. It was deployed on OP TELIC and showed very high levels of on-aircraft reliability in an adverse environment, although no missiles were fired.

  13.  ASRAAM has been bought by Australia. We continue to work in partnership with the Australians on a programme of through-life development. The programme aims primarily to ensure that the required service life is achieved and could involve the acquisition of emerging technology on an incremental basis.

COSTS

  14.  Expenditure to 31 March 2004 is £798 million. The current forecast cost is £873 million compared with £866 million approved at Main Gate; an increase of £7 million. The variation since the last HCDC report is an increase of £16 million. This was due to having to replace funding taken out of the programme in a previous planning round on the assumption that—although already under contract—we would be able to reduce the number of missiles we would procure. In the event, the Department was unsuccessful in re-negotiating a contract amendment.

ACQUISITION ISSUES

  15.  There are no plans to procure follow on buys of ASRAAM. If further countermeasures improvements are required to achieve an FOC3 standard this will be a new requirement, for which additional funding and a new approval will be needed.

In-Service Support

  16.  ASRAAM is supported through a five-year contract with MBDA, let in March 2003, based on contracting for availability. Responsibility for the project will transfer to the Defence Logistics Organisation (DLO) at the end of 2004.

  17.  The DLO plan to combine ASRAAM with other systems from MBDA in a partnering arrangement that will ensure that the full benefits of rationalisation and flexibility between programmes are realised.

3.  LIGHT FORCES ANTI-TANK GUIDED WEAPON SYSTEM (LF ATGWS)

PROJECT SUMMARY

  1.  The LF ATGWS requirement is for a lightweight, man portable medium range anti-tank guided weapon to equip the Light Forces within the Joint Rapid Reaction Force and Mechanised Infantry. It will be met by the US Javelin system produced by the Raytheon/Lockheed Martin Joint Venture. In terms of key milestones over the last 12 months, final design modifications to the UK weapon system were completed in January 2004.

POLICY CONTEXT AND CAPABILITY REQUIREMENT

  2.  The Strategic Defence Review (SDR) confirmed the need for an anti-armour capability. This was reinforced in SDR New Chapter and the 2003 Defence White Paper, which emphasised the role of highly mobile expeditionary forces. Despite the world-wide reduction in tank inventories since the end of the Cold War, nations against which UK forces might be deployed have generally maintained their numbers and several states are actively trying to acquire new tanks with increased capabilities. Accordingly, the armoured threat remains. The more modern Main Battle Tanks not only have increased capabilities, they also have more capable armour and are more difficult to destroy. The requirement for effective anti-armour systems was reinforced by experience in Operation TELIC.

  3.  Operational analysis has demonstrated the need to equip the dismounted soldier with a medium-range man portable weapon that can be used against armour and secondary targets in an offensive and defensive role. Javelin will replace the ageing MILAN system and be effective against all ground vehicles including modern and future battle tanks from all aspects. Effective range will be out to 2.5km.

  4.  The procurement of a Military Off-The-Shelf solution from the US will enable increased interoperability with a number of other nations.

  5.  The quantities of Javelin being acquired for the Light Forces and Mechanised Infantry are in the order of 350 Command Launch Units and ****.

  6.  All Key User Requirements for the Javelin system are forecast to be met.

COSTS

  7.  Expenditure to 31 March 2004 on the LF ATGW is £56 million.

  8.  The current forecast cost of the Demonstration and Manufacture Phase of the programme (at 50% confidence) is £318 million, compared with the cost (90% confidence) approved at Main Gate of £345 million.

IN -SERVICE DATE (ISD) AND SERVICE LIFE

  9.  The planned In-Service Date is November 2005 (at 50% confidence). The ISD (90%) approved at Main Gate is August 2006. ISD is defined as a brigade trained and equipped.

  10.  The planned Out-of-Service Date for Javelin is 2025.

ACQUISITION APPROACH

  11.  The Javelin system is being procured in accordance with the principles of SMART Acquisition. This included, for example, the trading off of some lower priority requirements in favour of increased programme affordability. In addition, competitive pressures during the Assessment Phase resulted in significant cost savings and improved procurement terms.

  12.  Following LF ATGWS Main Gate approval (January 2003), the contract for Demonstration and Manufacture was placed (February 2003) for procurement of the Javelin missiles and training systems from the Raytheon/Lockheed Martin Joint Venture. This contract is combined with a US Foreign Military Sales (FMS) case which will supply the Command Launch Units (CLU) and the first five years support of the equipment. It also includes fixed price options for a further three five year support periods, providing opportunities for equipment support through life. The combination of Direct Commercial Sale and FMS represents a pioneering approach that brings together the benefits of both processes.

  13.  Javelin was selected following a competition with the Israeli Spike system offered by a joint venture between MBDA and Rafael. The competitive pressures resulted in significant cost savings and improved procurement terms.

  14.  The Javelin Memorandum of Understanding with the US allows for future upgrades to the system, in co-operation with the US, should these be required. Javelin is designed to permit easy upgrade; the software required to operate the missiles is held within the Command Launch Units and any software upgrades that are developed can be easily distributed and rapidly deployed to the missiles on launch.

  15.  There are some UK specific modifications to the CLU including provision of a tripod. However, buying the Javelin system essentially off the shelf will ensure highly capable performance is delivered in the shortest possible time and preventing a significant capability gap developing once MILAN is phased out (the option of acquiring further MILAN weapons had previously been discounted as not cost effective). The close working relationships that have been established with industry, using Smart methodology, will simplify problem resolution throughout the acquisition process.

  16.  As a consequence of the off-the-shelf acquisition strategy, the possibilities for collaboration are limited. However, several allied nations including Canada, Australia and Norway have selected Javelin and we are in the process of identifying areas where co-operation would be of mutual benefit.

  17.  Training will principally be conducted by simulation with only very limited live training firings being undertaken. This approach has been facilitated by rapid advances in simulation technology and has the benefit that the number of training missiles we need to procure can be reduced.

INDUSTRIAL ISSUES

  18.  The JAVELIN joint venture has established a team of UK industrial partners including BAE Systems, INSYS, Woven Electronics, Leafield Group Ltd and Thales Optics and has committed to delivering 100% UK industrial participation.

  19.  There is likely to be significant world-wide demand for weapons of this type over the coming years. If Javelin is successful at meeting these demands there is potential for UK industry to provide sub-components for these and potential US Government procurements.

IN -SERVICE SUPPORT

  20.  The system has a simple In Service Support strategy. The missiles are maintenance-free through life, apart from routine surveillance of the stockpile. Other than very basic repair, the Command Launch Units and Training Systems will be maintained at a contractor-run permanent UK repair facility.

NEXT STEPS

  21.  The next major milestone for the Javelin system will be its entry into UK service, which is planned for November 2005.

4.  WAH 64 ATTACK HELICOPTER

PROJECT SUMMARY

  1.  The Apache WAH 64 is an attack helicopter, based on the American AH64D. It is optimised for its long range anti tank capability. WAH 64 will replace the Lynx / TOW (Tube launched, Optically Tracked, Wire guided missile) combination previously used by the Army to attack armoured vehicles and point targets. WAH 64 is seen as a quantum leap forward in capability, mainly due to the surveillance and target acquisition capability of the sensor suite and its significant increase in lethality and survivability compared to previous systems. The WAH 64 Apache will facilitate the introduction of an entirely new Air Manoeuvre doctrine and a new Joint Rapid Reaction capability. Army tactics and formations will change as a result, and the three Air Assault Regiments of 16 Brigade are each being restructured around two x Apache Squadrons (total 16 Aircraft) and one Lynx Utility Squadron (12 Aircraft).

  2.  The WAH 64 prime contract with Westland Helicopters Limited (WHL) for 67 aircraft (including certification and qualification of the complete weapons system), support equipment and particular spares, has a value of £2.2 billion. The warstock munitions contract with Insys Limited (formerly Huntings Engineering Limited) was worth £350 million.

  3.  Key Milestones achieved in the last year include delivery of the first aircraft to arrive at Dishforth on 8 June 2003, Military Aircraft Release 6a clearance (which accepted the embodiment of several elements of Helicopter Integrated Defensive Aids Suite (HIDAS) and an additional software release into the aircraft, vital steps towards Initial Operational Capability, IOC), was achieved on 15 December 2003. 656 Squadron Army Air Corps completed conversion-to-type training on 20 February 2004. Ship Operating Limit Trials on HMS Ocean were completed successfully on 30 March 2004.

IN -SERVICE DATE (ISD) AND SERVICE LIFE

  4.  The approved ISD—based on the delivery of nine aircraft—at Main Gate was December 1999. However, this was subsequently revised to December 2000 as a result of decisions to fit Rolls Royce engines and to ensure that Departmental resources matched the programme requirements. ISD was achieved on 6 January 2001. Problems were experienced with the delivery of the Training Service, with the resulting lack of trained pilots leading to a delay in Apache being fielded. This issue was addressed in the NAO Report Building on Air Manoeuvre Capability: The Introduction of the Apache Helicopter published in October 2002. A key recommendation of the report was that the Department should manage across the six lines of development. Apache has fully incorporated this recommendation into its business practices and, as a result, the programme is now on track to meet the revised Operational Milestones set by the Air Manoeuvre Policy Group (AMPG) of IOC (four AH and two Lynx for peace time operations) in August 2004 and Lead Aviation Task Force availability (the first Apache Regiment) in February 2005. The platform is on target to meet all its KURs, since ISD. The final aircraft is expected to be delivered in early summer 2004. The aircraft is planned to remain in service until 2030.

SYSTEM PERFORMANCE

  5.  At the time WAH64 was procured, no Attack Helicopter that met fully the Department's essential requirements was available off the shelf. An incremental acquisition approach was adopted to deliver this shortfall in capability. The first 36 aircraft were built to an initial, baseline standard and are being retrofitted with the HIDAS, secure communications, Helicopter Usage Monitoring system, Low Height Warning System and Collective Training System. The final retrofitted aircraft is expected to be delivered in Apr 2005. There were technical problems with the HIDAS but MOD has agreed a revised, incremental delivery programme with the contractor. This safeguards the key project milestones set out above, which are being adhered to.

  6.  Apache has secure data transmission facilities and we have allocated resources to ensure compatibility with future communications systems such as BOWMAN. Additional funding is being sought for full secure voice communications; at IOC, Apache will have the capability for secure voice communications with UK ground troops equipped with "NATO Applique" Bowman radios.

COSTS

  7.  Expenditure on the Attack Helicopter Platform and Munitions to date is £2,866 million, whilst the forecast total cost is £3,196 million, compared with £2,974 million approved expenditure (adjusted for change in Cost of Capital to 3.5% from Apr 2003). This is well within the 20% tolerance for pre-Smart Acquisition approvals.

ACQUISITION ISSUES

  8.  Although Apache was procured pre Smart Acquisition, a costed Through Life Management Plan (TLMP) has been developed, including a 30 year strategic roadmap for the modernisation of the Platform, in alignment with the US Apache Programme. MOD has close discussions on all aspects of the programme with our US counterparts and wherever opportunities arise for cooperation, these are addressed through the US/UK Attack Helicopter Memorandum of Understanding. We are planning a Capability Sustainment Package for the platform, addressing issues such as digitisation of the battlespace, ensuring secure voice and data communications with other platforms; Beyond Line of Sight Communications in order to support deep operations; enhanced platform protection to counter the full range of future threats; and improved ability to deploy rapidly to support and conduct smaller scale operations.

  9.  As noted in Paragraph 4, following the NAO report on deficiencies in the delivery of training, Apache has managed the programme with requirements across all of the six lines of development in mind. These describe the full range of issues associated with the delivery of military capability and identify clear responsibility for each line of development at the appropriate level. This has been key to ensuring that the recent project milestones have been met.

IN -SERVICE SUPPORT

  10.  Apache has innovative support arrangements, comprising spares-inclusive repair contracts with industry for key Line Replacement Units (LRUs) including the on-shore Special Repair Activity (SRA) facility at Wattisham (an MOD-owned but Contractor-manned and -operated repair facility for Apache main sensors). These substantially reduce both repair turn round times and the need to hold repair spares stocks compared to MOD's conventional logistic support model. For the future, the AH Support Reappraisal Project (SRP) is intended to reduce significantly WAH 64 whole life support costs. Initiatives being assessed include a range of investments in reliability improvements and a radical review of the aircraft maintenance policy. In parallel, the SRP Team is working up proposals for innovative long-term partnering arrangements to deliver further Whole Life Cost savings.

5.  TYPE 45 ANTI-AIR WARFARE DESTROYER AND ITS PRINCIPAL ANTI-AIR MISSILE SYSTEM (PAAMS)

PROJECT SUMMARY

  1.  The Type 45 will be a versatile Destroyer capable of contributing to worldwide maritime operations in multi-threat environments. It will succeed the capability currently provided by the Type 42s. Equipped with the Principal Anti-Air Missile System (PAAMS), the primary role of the Type 45 Destroyer will be Anti-Air Warfare (AAW), but in addition, it will be a multi-role, general-purpose platform capable of operations across the spectrum of tasks, from peace support to high intensity warfare.

  2.  Recent achievements on the programme include: the opening of the Maritime Integration Support Centre at Portsdown (which will support the integration of the ship's combat system); letting of a tri-national contract with France and Italy to procure the PAAMS systems for ships two to six; letting of a contract (through OCCAR) for the main PAAMS missile buy; the first factory transmission of the PAAMS multi-function radar; factory acceptance of the first two Rolls Royce WR21 gas turbines; and the start of main manufacture on the First of Class, HMS Daring, against a mature ship design. Main manufacture of the second ship (HMS Dauntless) is planned to begin in the summer of 2004.

POLICY CONTEXT AND CAPABILITY REQUIREMENT

  3.  The requirement to provide the capability offered by the Type 45 Destroyer was re-confirmed during the Strategic Defence Review. The key requirements of the Type 45 are to protect itself and ships in its company from the threat posed by supersonic sea-skimming missiles and to contribute to the wider force anti-air warfare picture. As part of this it is required to provide tactical control of at least four fixed wing aircraft or four groups of aircraft assigned to the force. The Type 45 will also be required to operate its own organic aircraft (either Merlin or Lynx); embark a deployable force of Royal Marines and meet demanding targets for range, availability and growth potential. At present, all of these requirements are expected to be met.

  4.  Type 45 and PAAMS are planned to replace the capability currently provided by the Type 42 destroyer and its Sea Dart weapon system. It is planned that the Type 42s currently in service will be replaced progressively by Type 45s from 2007.

  5.  The current planning assumption is for the acquisition of a class of up to 12 Type 45s.

  6.  Commonality of many of the PAAMS systems and sub-systems, including in particular the Aster missile, will ensure a good level of interoperability with both France and Italy. The ship will be able to share its operational picture with allies, and control assets in theatre with NATO land, sea and air forces that are similarly equipped, providing maximum flexibility in force mix. The Type 45 is planned to be fitted with the UK Co-operative Engagement Capability which will greatly enhance the force situational awareness and bring the full benefits of the Sampson radar (leading edge radar technology that will form part of the UK PAAMS system) to other suitably equipped platforms in the task force. The Fully Integrated Communications System will provide the infrastructure to support a wide range of communications facilities, including Bowman, which will provide a secure command and control net with UK land forces.

COSTS

  7.  Total expenditure on the project to 31 March 2004 is £1,421 million. The current forecast cost of the first six ships[4]is **** against a cost approved at Main Gate, of £5,668 million.[5]

IN -SERVICE DATE (ISD) AND SERVICE LIFE

  8.  The definition of ISD for the Type 45 is the date by which the First of Class will meet the Customer's minimum operational requirement, as represented by all of the Key User Requirements. The ISD approved at Main Gate is November 2007; this is currently under review. Deliveries of the Class are planned to complete by the middle of the next decade. The Type 45 is planned to have an in-service life of 25 years, giving it an out-of service date in the 2040s.

ACQUISITION APPROACH

  9.  The Type 45 project is effectively hybrid insofar as the warship element of the project was approved in the SMART era, while the original approval for PAAMS was in 1999, thereby pre-dating SMART. The project is currently in the Manufacture stage of the acquisition cycle.

WARSHIP ACGUISITION STRATEGY

  10.  In late 2000, the MoD awarded a contract for the Demonstration and First of Class Manufacture to BAE Systems Electronics (the Prime Contractor Organisation—PCO). The MoD accepted a joint BAE Systems Marine/Vosper Thornycroft proposal for Marine to assemble the first six ships from "blocks" built by both companies. The contract was amended to this effect in February 2002.

  11.  This strategy was further refined in March 2003 when, following MoD agreement to a company request, BAE SYSTEMS announced that all of their Type 45 production work planned to be undertaken at Barrow would be transferred to their yards on the Clyde. This was to avoid the risk (which due to slippage on the Astute programme was then considered to be high) of conflict between the Type 45 and ASTUTE production programmes at Barrow.

PAAMS ACQUISITION STRATEGY

  12.  Following the termination of the Horizon programme, collaboration between the UK, France and Italy continued on PAAMS. Contracts are now in place (through the French contracting authority) for the development of PAAMS plus systems necessary to equip the first six Type 45s. To take advantage of economies of scale of the OCCAR managed Franco-Italian Future Surface to Air Family programme (which is a tri-service air defence programme using the same missiles as the PAAMS system) the main PAAMS missile buy is being managed by OCCAR through the FSAF programme.

BENEFITS OF SMART ACQUISITION

  13.  The MoD and Prime Contractor are both committed to partnering on this programme, which provides the following benefits:

(a)  There is open-book working and a Charter outlining the responsibilities of both sides of the IPT which each side has confidence in. This has enabled issues and potential problems to be aired earlier than might have otherwise have been the case, leading to more effective resolution.

(b)  A joint project control system is used by both sides of the IPT on a day-to-day basis which means that all those involved on the project have access to the same (up to date) information.

(c)  The prime contract contains a gain-share clause which incentivises both sides to maximise efficiency.

(d)  Early design maturity reducing risks introduced by change.

(e)  The ability to "progressively accept" the ship's design thereby allowing issues to be dealt with as they arise rather than coming out during the production phase where they are more expensive in time and money to rectify.

  14.  In order to get Type 45 and PAAMS in service as quickly as possible, a strategy of incremental acquisition of platform capability, from a baseline standard which is both affordable and achievable in the time to in-service date, has been adopted. This will enable the insertion of additional capability throughout the life of the Type 45s as requirements become affordable and to take advantage of future changes in defence requirements and advances in technology. Following the placement of the Demonstration and First of Class Manufacture (DFM) contract on 20 December 2000 it was decided to accelerate part of the Incremental Acquisition Plan (IAP), and a hull-mounted sonar (the top priority in the Plan) will be fitted to all the ships on build.

  15.  The principal cost/capability trade-off in the PAAMS programme has been the acceptance of a capability sufficient to meet the threat at ISD, rather than beyond. However, the PAAMS Full Scale Engineering Development and Initial Production (FSED/IP) contract includes a Growth Potential Study that examines the modifications that may be required to meet the emergence of more demanding threats and new capabilities.

INDUSTRIAL ISSUES

  16.  The fact that there is an order for six Type 45s means that there is guaranteed shipbuilding work at BAE SYSTEMS' yards on the Clyde, and at VT's Portsmouth facility, until at least the end of the decade. In addition to the shipbuilding contractors involved, there are around 30 UK firms engaged as major sub-contractors with many more feeding into them.

  17.  With PAAMS systems for the first six ships now on contract, the main issue for industry will relate to the potential Type 45 class size and avenues for fitting PAAMS or pulling through its technology to other classes of ship. The key UK elements, Sampson and associated command and control, are specific to the Type 45.

  18.  Export potential for the Type 45 system as a whole is constrained by its high technological specification and cost, but elements of the system such as propulsion (the Rolls Royce/Northrop Grumman WR21 gas turbine), the electric propulsion system (Alstom), and PAAMS (in particular its associated multi-function radar) have considerable potential export prospects up to the value of several billion pounds over the next 15 years.

IN -SERVICE SUPPORT

  19.  BAE SYSTEMS is leading study work to examine options for the optimum support solution for T45, expected to report in mid 2005.

NEXT STEPS

  20.  The next significant steps for the programme are the beginning of production on the second of class (HMS Dauntless) in the summer of 2004, followed by launch of the first of class (HMS Daring) towards the end of 2005.

6.  METEOR

PROJECT SUMMARY

  1.  Meteor is an all-weather, beyond visual range air-to-air missile, which is being procured from MBDA UK Ltd (formerly Matra BAe Dynamics) in collaboration with Germany, Italy and Spain (our Typhoon partner nations), France (for Rafale) and Sweden (for Gripen). It was selected in May 2000, following a competition between MBDA and Raytheon Systems Ltd. The combined design, development, production and support contract was placed on 23 December 2002 following approval and signature of the Meteor Memorandum of Understanding (MOU) by all partner nations. It is forecast that Meteor will enter service on Typhoon in 2012.

  2.  Meteor is currently in the Demonstration Phase. Since contract let, the project has been performing well against its schedule.

POLICY CONTEXT AND CAPABILITY REQUIREMENT

  3.  The Beyond Visual Range Air-to-Air Missile (BVRAAM) requirement is for a medium range air-to-air missile for Typhoon. Meteor will be the primary air-to-air weapon for Typhoon, and will provide a key capability in achieving and maintaining air superiority wherever Typhoon is deployed. Meteor will allow Typhoon to engage multiple and manoeuvring targets simultaneously, at greater range than before, in all weathers, day or night, and with greater survivability. The Strategic Defence Review concluded that BVRAAM remained a key capability.

  4.  Currently, Meteor is forecast to meet all the Key User Requirements agreed at Main Gate. The Meteor Main Gate approval includes a requirement to procure Advanced Medium Range Air-to-Air Missiles (AMRAAM) as an interim capability for Typhoon, pending the availability of Meteor. The total number of missiles is confidential but will be supplied if required.

  5.  The BVRAAM programme was conceived exclusively for Typhoon, where the main carriage method is semi-recessed under the fuselage—a key design driver. Meteor will be integrated on Gripen (for Sweden) and Rafale (for France) and will therefore be interoperable with these nations in addition to our Typhoon partners. Whilst the extant UK requirement provides only for integration on Typhoon, we are conducting an assessment of Meteor's deployability from the UK's Joint Strike Fighters.

COSTS

  6.  Expenditure up to 31 March 2004 is £118 million. The current forecast cost (at 50% confidence) is £1,354 million, including the purchase of interim AMRAAM missiles, compared to a cost (90% confidence) of £1,362 million approved at Main Gate. The approval and forecast have been changed to reflect the revision to the Cost of Capital Charge. There has been a cost increase of £16 million since the last report, driven principally by: cost increases for AMRAAM; the net effect of $ and

 exchange rate variations on AMRAAM and Meteor respectively; and increased provision for UK ranges for the trialing of Meteor.

IN -SERVICE DATE (ISD) AND SERVICE LIFE

  7.  Meteor ISD definition is the achievement of an operational capability with an initial number of missiles and supporting infrastructure.

  8.  Current forecast ISD (50%) is August 2012, which matches the ISD of August 2012 (90%) approved at Main Gate.

  9.  Meteor has a 25-year design life, and is expected to remain in service until beyond 2040.

  10.  The delivery of the first batch of AMRAAM 120C-5 missiles to provide an interim BVRAAM capability for Typhoon will be complete by late 2006.

ACQUISITION APPROACH

  11.  The Meteor programme embodies a number of Smart Acquisition principles. Importantly, the contractor has agreed to a series of four key technological milestones, to demonstrate successful progress during the development phase. If MBDA fails to achieve any of these milestones, against clearly measurable and acceptable criteria, termination of the contract can be initiated, with all monies returned to the partner nations.

  12.  Meteor is a collaborative project with Germany, Italy, Spain, France and Sweden. An MOU, setting out the contractual, financial and management arrangements, has been signed by all partner nations. This appoints the UK as the lead nation; responsible for the procurement of Meteor on behalf of all the partners. Germany's concluding signature of the MOU in December 2002 enabled the UK to award the Meteor contract to MBDA UK Ltd that same month. MBDA UK Ltd is the Meteor prime contractor and has placed principal subcontracts with its sister MBDA companies in France and Italy, and with suppliers in Germany, Spain and Sweden. The development workshare arrangements detailed in the MOU, and now reflected in the Meteor contract, are based principally on technical excellence, manageable risk, and best value for money. The UK development workshare is 39.6%. The Meteor contract covers development, production and in-service support (10 years from delivery of the first production missile). Currently, the other partner nations have committed only to development, but production and support options exist within the contract, which it is envisaged the partner nations will wish to exercise during the progress of the development programme.

  13.  Meteor employs a modular design, which facilitates the cost-effective upgrade of sub-systems to exploit emerging technologies and to match the evolving threat. There are no current plans to enhance the missile's performance once introduced into service, with the exception that the missile's processing algorithms can be reprogrammed to optimise seeker performance against new targets and emerging counter-measure techniques. The energetic (ie explosive) elements of the missile are "lifed" items, and there is a planned mid-life replacement of these items.

  14.  No suitable "off-the-shelf" missile was assessed as being able to meet the BVRAAM requirement. Options considered in the early stages, but deemed not to have the required performance to meet the full capability requirement, were: Raytheon's AMRAAM; Matra's MICA; Alenia's Aspide; and the BAe Dynamics' Active Skyflash.

  15.  A contract is being negotiated with the US manufacturer, Raytheon Missile Systems, for the procurement of the interim solution AMRAAM 120C-5 missiles, for delivery in 2006. Once those have been delivered, the current in-service stock of AMRAAM 120B missiles will be refurbished, re-motored and rebuilt as AMRAAM 120C-Ss, for use on Typhoon. Once Meteor becomes available, those AMRAAM 12CC-S missiles will continue to be available for use on Tornado F3 until its out-of-service date, and can continue to be employed on Typhoon for operations that do not demand the long range capabilities of Meteor. They can also be used on Joint Strike Fighter.

INDUSTRIAL ISSUES

  16.  Industrial factors were taken into account in the assessment of bids. Meteor offered particular advantages to the UK in terms of the quality and sustainability of the jobs involved. MBDA have stated that a total of 2,400 jobs would be created or sustained in Europe; 1,200 of which are in the UK.

  17.  Meteor has good prospects for sales, particularly as an integrated package on Typhoon. Sweden and France could widen the opportunities for overseas sales through sales of Gripen and Rafale, respectively.

IN -SERVICE SUPPORT

  18.  The aim of the Meteor Integrated Logistic Support strategy is to minimise the support costs whilst maintaining weapons availability. The weapon is being designed under an "all up round" principle (ie a complete munition that requires no assembly or maintenance immediately prior to loading) to reduce through life logistic support. MBDA will be responsible for the first 10 years of logistic support. Contracts after the initial 10-year period will be subject to negotiation.

  19.  All partner nations have indicated that they would like to pursue a collaborative logistic support contract for Meteor with the benefit of greatly reducing each partner nation's support costs. The draft 10-year logistic support contract has been worded to enable any partner nation to join in this combined support contract as they commit to production.

  20.  Provision of initial operator and maintainer instructor training and the associated training package are the responsibility of MBDA. Future continuation training will be undertaken with in-service resources. A number of ground-handling training missiles, telemetered operational missiles and explosive ordnance disposal training missiles will be procured.

NEXT STEPS

  21.  The Meteor development programme is fully holding to its contracted schedule. Free jet trials of the ramjet motor in a supersonic wind tunnel are scheduled to complete in early 2005 and will provide the basis for clearance for the first air launched demonstration firings of the missile (from a Gripen aircraft), commencing in early 2006. These air-launched firings support the demonstration of achievement of the programme's Key Milestones 1 and 2, scheduled for completion in late 2006 and mid 2007 respectively.

7.  ASTUTE

PROJECT SUMMARY

  1.  The Astute Class will replace the existing Swiftsure and Trafalgar Classes of nuclear-powered attack submarines. Its greater weapons capacity, improved communications facilities, and enhanced ability to operate in the littoral represents a significant enhancement of capability for the Royal Navy.

  2.  In February 2003, the Government announced that it had reached agreement with BAE SYSTEMS on a way ahead for the Astute and Nimrod programmes. Since then a new structure for the Astute contract has been agreed which reduces risk, while placing new incentives on the company to perform. The MoD increased its funding by around £430 million (in cash terms) as against an increased contribution by BAE SYSTEMS of about £250 million. An amendment to the Astute contract to enact the "Agreement" was signed on 17 December 2003.

  3.  On 22 October 2003, Min (DP) performed the "keel-laying" ceremony for HMS AMBUSH, the second of the three Astute-class submarines on order.

  4.  The "Agreement" sought significant project management improvements. Since February 2003, all the programme's anchor milestones planned to date have been met on time. The Earned Value Management technique is being introduced, and is due to provide initial reports by July 2004.

POLICY CONTEXT AND CAPABILITY REQUIREMENT

  5.  The 1998 Strategic Defence Review reiterated the need to maintain a strong, well-balanced maritime force, including a modernised nuclear-powered attack submarine capability, able to conduct joint operations with its NATO partners. Astute Class submarines will fulfil this role from 2009. They will be flexible, adaptable platforms with a global reach. As well as the continued role of SSNs in supporting Trident SSBNs, the Astute class attack submarines will undertake a wide range of other tasks, including:

—  supporting Special Forces;

—  land attack (Tomahawk Land Attack Missile -TLAM);

—  intelligence gathering;

—  support of surface forces such as task groups.

COSTS

  6.  Expenditure to 31 March 2004 on Astute is £1,331 million. The current forecast cost of £3,498 million takes full account of the "Agreement", compared to £2,578 million which was approved at Main Gate in 1997. Last year's report made a forecast (in hindsight pessimistic) of £3,600 million ahead of the complex negotiations that followed.

IN -SERVICE DATE (ISD) AND SERVICE LIFE

  7.  The ISD is defined as Stage 1 acceptance of HMS ASTUTE from the contractor, which encompasses "safe operation and the start of operational work up". The current forecast ISD is January 2009, compared to that of June 2005 approved at Main Gate.

  8.  The in-service life of each Astute class submarine is planned to be 25 years.

ACQUISITION APPROACH

  9.  The prime contract for the Astute Class Submarine was placed in March 1997 which makes this project pre-Smart Acquisition.

  10.  Following restructuring and rebaselining of the programme, measures have been introduced to incentivise and improve project management. This includes the amended Target Cost Incentive Fee arrangement for the design and development, construction, testing and commissioning of HMS ASTUTE. HMS AMBUSH and HMS ARTFUL continue construction pending agreement of prices; once there is sufficient learning from the first submarine. Project management methods introduced include the use of anchor milestones, risk-sharing, Earned Value Management, joint MoD/BAE SYSTEMS three-point estimates, and knowledge transfer from the US submarine supplier, the Electric Boat division of General Dynamics. The MoD has increased its permanent presence at the Barrow shipyard and now works with much greater transparency between the MoD and BAE SYSTEMS on risks and opportunities.

INDUSTRIAL ISSUES/SUBSEQUENT PROCUREMENT

  11.  The contract with BAE SYSTEMS is for three Astute Class submarines, HMS ASTUTE, HMS AMBUSH and HMS ARTFUL. The proposals for a second buy of up to three more Astute Class submarines had been expected during 2002, but difficulties with the existing programme have delayed this. BAE SYSTEMS' equipment subcontractors have completed, or are nearing completion, orders for the first three submarines and are heavily dependent on future Astute orders.

  12.  BAE SYSTEMS continue to examine methods to reduce cost to benefit the Astute programme. As part of this, the company announced a rationalisation programme on 2 April 2004, to reduce their workforce by 760 people, following the delivery from the yard of the Landing Platform Dock, HMS BULWARK.

  13.  The MoD, with US DoD, has been facilitating assistance from the Electric Boat Division of the General Dynamics Company to help strengthen BAE SYSTEMS' skills, notably in Computer Aided Design management, and to benefit from recent Electric Boat experience in the SEAWOLF and VIRGINIA submarine programmes for the US Navy.

IN -SERVICE SUPPORT

  14.  The strategy for an initial period of Contractor Logistic Support has been revisited. This has been made possible by the delay to the Astute programme, emerging Defence Logistic Organisation initiatives, and an inability to converge with Industry on an acceptable price for the novel, Prime Contract-led, support period. A definition study has been undertaken with key suppliers[6] that successfully identified a framework for a new support solution. This is now being developed in a MoD-led Joint Integrated Project team with Industry.

NEXT STEPS

  15.  Key future activities include:

—  Conclude the pricing of HMS AMBUSH and HMS ARTFUL once we have sufficient learning from the first submarine.

—  Consider further orders of the Class, recognising many factors, including: the plans for the retirement of in-service Swiftsure and Trafalgar Class submarines; the cost-effective interval between successive submarines of the Astute Class; and BAE SYSTEMS cost and schedule performance on the first three submarines.

8.  NIMROD MARITIME RECONNAISSANCE AND ATTACK AIRCRAFT MK4

PROJECT SUMMARY

  1.  The Nimrod Maritime Reconnaissance & Attack Mk4 (MRA4) will succeed the current Nimrod MR2 as the RAF's maritime patrol aircraft (MPA), providing significantly enhanced maritime surveillance and attack capability (primarily Anti Submarine and Anti Surface Unit Warfare) through improved aircraft and sensor performance. The aircraft, training system and in-service support are being procured from BAE SYSTEMS (BAES) as Prime Contractor.

  2.  In February 2003 the government announced that it had reached agreement with BAE systems on the way ahead for NIMROD following identification of significant time and cost overruns and losses to the company. Since then, a new structure for NIMROD has been agreed which reduces risk and provides new incentives. This recognised that there was, and remains, no alternative comparable programme, as well as the potential of the NIMROD MRA4 aircraft to offer longer term capability enhancements.

POLICY CONTEXT AND CAPABILITY REQUIREMENT

  3.  The Strategic Defence Review (SDR) confirmed the requirement for a maritime patrol aircraft with the capabilities of MRA4. The multi-role surveillance and attack capability provided by MPA facilitate and support the world-wide expeditionary deployment of joint UK forces, optimising access to the littoral. MPA are highly flexible and their capability is often used to provide much needed support to other tasks such as Homeland Security, *** and Search and Rescue, some of which will be in support of Other Government Departments (OGDs).

  4.  The currently planned requirement is for 18 MRA4 aircraft. The Nimrod MRA4 will provide longer range and patrol endurance, improved sensor performance and communications. Enhanced processing capability, greater automation and improved ergonomics will allow a reduction in crew numbers from the existing Nimrod MR2 minimum of 13 to 10.

  5.  Concept work on the adaptability of the MRA4 is exploring the extent to which the aircraft can serve as a multi-role platform, contributing to Network Enabled Capability and helping to meet the UK's future Intelligence, Surveillance, Target Acquisition and Reconnaissance (ISTAR) needs.

COSTS

  6.  Expenditure to 31 March 2004 on the Nimrod MRA4 programme is £1.8 billion. The current forecast cost for the programme is £3.5 billion compared to £2.8 billion approved at Main Gate and the £3.4 billion reported in last year's survey. However, production prices beyond the three development aircraft remain to be negotiated.

IN -SERVICE DATE (ISD) AND SERVICE LIFE

  7.  The In-Service Date (ISD) for Nimrod MRA4 is defined as the delivery of the sixth production aircraft to the Royal Air Force (RAF) together with the associated infrastructure and personnel to support the in-service use of the aircraft. The first series production aircraft is expected to be delivered in 2008; the currently forecast ISD is 2009 compared to the date of 2003 approved at Main Gate. The February 2003 Agreement between the MOD and BAE SYSTEMS made further production, beyond the first three development aircraft, dependent upon the design and development phase delivering a product of acceptable maturity.

  8.  Nimrod MRA4 has an assumed in-service life of 25 years based upon 650 flying hours per year. This results in an out of service date (OSD) of 2034, but a longer life may be feasible

  9.  Those remaining MR2 aircraft which have not been converted as part of the MRA4 programme will then be withdrawn from use in their present role. The timescale for this remains to be assessed in detail. MOD has already introduced improvements to existing Nimrod MR2 aircraft by using some of the technology planned for the new MRA4, thereby both reducing risk in the new programme and increasing existing capability.

ACQUISITION APPROACH

  10.  The MRA4 programme pre-dates the introduction of Smart Acquisition. The original 1996 contract for the supply of aircraft, training systems and an interim support package was the result of competitive tendering, with BAE SYSTEMS appointed as the prime contractor.

  11.  The February 2003 Agreement changed the contract from the previous fixed price basis, to a Target Cost Incentive Fee (TCIF) arrangement for Design and Development. A contract amendment to this effect was signed on 23 February 2004. The Department believes the TOIF mechanism to be the best means of incentivising BAE SYSTEMS to deliver the aircraft without further cost and time slippage. Beyond an outer cost boundary of ***, the Department is liable to bear all of the excess (subject to Departmental approval for work beyond that point). Under the re-structured contract, design/development and manufacture have been separated as far as possible. This will reduce risk to the subsequent production programme.

  12.  The production price for all aircraft has yet to be negotiated, although a unit cost aim was set by the Agreement. The recent contract amendment therefore refers—but does not commit—to an option for the production of the remaining 15 aircraft. However, the contract allows for the approval of long lead items and activity to preserve skill sets in the supply chain, where appropriate, and minimise risk to the ISD schedule. In this context, and as part of the work done by BAE SYSTEMS under the old fixed price contract, substantial commitments have already been made to long lead materiel requirements for production.

  13.  The re-structured contract has provided a contract framework that has enabled the Department and BAE SYSTEMS to work together much more closely and effectively, with combined resources and with regular reviews of risk and progress. The reformed project control system (integrated schedule, earned value management (EVM) and risk management) is in place and recent independent reviews have confirmed improving pace and progress. The MOD and the Company have committed to ensuring that a proportion of future payment is related to Earned Value performance.

INDUSTRIAL ISSUES

  14.  The MOD has worked closely with the Company to restructure the Nimrod MRA4 programme so that design and development activity could be brought to an effective and timely conclusion. Except for work being carried out by major sub-contractors, where we have agreed with the Company to allow work to continue rather than re-negotiate major contracts, the controlled stop in the supply chain has now largely been implemented, except to the extent where it makes sense to continue with low level production activity to protect essential skills and the schedule.

  15.  The re-start of production activity depends on acceptable design maturity, price negotiation and MOD approvals. The MOD and BAE SYSTEMS are working to determine the most cost effective overall programme.

IN -SERVICE SUPPORT

  16.  Joint work with BAE SYSTEMS is on-going to define the scope and scale of the in service support structure for Nimrod MRA4, including engagement with the Company's supply chain. This work will help to inform the quality of the cost estimates to inform departmental decisions about through life support. The aim is to develop commercial arrangements that enable a coherent, integrated support solution, inclusive of aircraft availability, to be in place for the Ready For Training (RFT) and Logistics Support Date milestones which need to be achieved before ISD.

NEXT STEPS

  17.  The key priority remains the 3 aircraft development and manufacture programme, whilst work continues in parallel to develop the in service support solution, the most effective further production programme and to further embed reformed programme management.

  18.  Engine trials are now underway on the first aircraft, PA-i. These will lead to low speed taxi trials in June 04 and then first flight, scheduled for July to August 2004 PA-2, evaluating the mission system, is scheduled to fly late 2004 and PA3 in mid 2005.

9.  BOWMAN

PROJECT SUMMARY

  1.  BOWMAN will provide a secure, robust, tactical data and voice communications system in support of land, amphibious and air manoeuvre operations, to replace the Clansman combat radio and some of the HO infrastructure element of the Ptarmigan trunk communication system. It will be a key enabler of Network Enabled Capability and also play a major role in the MOD's Command and Battlespace Management initiative under which it will be progressively integrated with specialist applications. It will serve as the primary means of voice and data communication for tactical level operations—characterised by mobility and undertaken by numerous individual fighting platforms and dismounted combatants—and will be based on radio communications that can operate without relying on fixed infrastructure.

  2.  The BOWMAN system will be made up of: a number of radio communications sub-systems that are connected to provide a tactical internet; a range of computers that provide messaging, situation awareness and management information; a local area sub-system that interconnects data terminals and voice users within a vehicle or group of vehicles forming a deployed divisional, brigade or battlegroup headquarters; and connections to trunk, satellite and strategic communications systems. It will have a capability for fast data communications and connections with external networks, and high-quality voice and data transfer. As well as being man-portable, BOWMAN will be an integral part of the communications fit of major equipments such as the Challenger two Main Battle Tank, helicopters such as Merlin, and warships, including T45.

  3.  BOWMAN achieved its ambitious ISD on 26 March 2004, ahead of the target of 30 March. On current plans, BOWMAN equipment will be fitted to some 20,000 vehicles, 139 naval vessels (including five capital ships) and 239 aircraft, and some 75,000 Service personnel will be trained to use it. Around 47,000 radios (excluding the Personal Role Radio) and 26,000 computer terminals will be procured.

IN -SERVICE DATE (ISD) AND SERVICE LIFE

  4.  The BOWMAN ISD was defined as "a Brigade Headquarters, two mechanised battalions and support troops capable of engaging in Operations Other than War" (ie peacekeeping). The latest acceptable ISD date approved at the main investment point was December 2004. ISD was achieved on 26 March 2004. BOWMAN's planned Out-of-Service Date is 2025.

SYSTEM PERFORMANCE

  5.  The achievement of Key User Requirements is linked to the progressive stages of System Acceptance. For BOWMAN, this will be concurrent with the delivery of the operational war fighting capability in the land, amphibious and air manoeuvre components. The BOWMAN Initial Operating Capability was fielded and put through operational field trials towards the end of 2003. Further trials were conducted in March 2004 on an uplifted capability fielded to meet the ISD. We plan to field the Full Operating Capability later in 2004 to deliver the operational war fighting capability for the land component in 2005.

  6.  The provision of robust secure VHF and HF voice communications down to section level demonstrated during the trials conducted in March 2004 represents a step-change in capability for the Armed Forces. Voice intelligibility is proving markedly superior to CLANSMAN, electronic protection modes allows operation in a hostile electronic environment that would defeat CLANSMAN, and embedding a bespoke cryptographic processor has removed the need to use time-consuming methods of encoding critical tactical information. The ability of BOWMAN to deliver other functions, such as automatic position reporting and the ability to pass digital data around the battlefield, has been demonstrated and further trials of these are planned this summer.

  7.  International interoperability will be achieved through the implementation of all endorsed NATO Standards applicable to the operating environment. To achieve secure interoperability, BOWMAN mandates the endorsed NATO appliqué unit to meet NATO encryption interoperability standards.

COSTS

  8.  Costs incurred to 31 March 2004 are estimated to be some £1,100 million. On a full resource basis, the current forecast Demonstration and Manufacture cost of BOWMAN is estimated to be £1,991 million compared with a cost of £2,041 million approved at Main Gate. These figures are consistent with the estimated acquisition costs, excluding long term support, previously reported.

ACQUISITION ISSUES

  9.  Where BOWMAN is mandated as part of a future capability supporting the land component, for example the Future Rapid Effects System, the additional equipment will be sourced direct from the suppliers within that procurement. Software upgrades to correct identified faults in, or to enable the integration of further specialist applications with, BOWMAN will be incorporated within an annual incremental acquisition supporting the land component Command and Battlespace Management capability. Although it is too early to approve plans to enhance BOWMAN, we recognise that there will be requirements to address hardware obsolescence and/or software unsupportability either on the basis of incremental acquisition or through periodic upgrades. We adopted an incremental acquisition approach and delivered the Personal Role Radio ahead of the main BOWMAN system. Spending more than the Smart Acquisition target on risk reduction activities during the Assessment Phase enabled the project quickly to re-open the competition following the decision to remove preferred supplier status from the Archer consortium in 2000. The Prime Contract incorporates smart acquisition principles, in partnering, incentives and a shared data environment with Industry.

IN -SERVICE SUPPORT

  10.  The Prime Contractor has been responsible for supporting the equipment since it entered service. An MoD developed support solution will be initiated from July 2004. The strategy is to use proven traditional methods of support on operations, while delivering an innovative, business-proven solution for more effective support when not deployed on operations. These solutions will combine MoD and contractor provided support systems.

10.  TYPHOON

PROJECT SUMMARY

  1.  Typhoon (formerly Eurofighter) is an agile fighter aircraft that will serve as the cornerstone of the RAF's future fighting capability. It will bring a significant increase in our air superiority capability as it replaces the Tornado F3 while its multi-role capability will allow Typhoon also to fulfil the ground attack roles now performed by the Jaguar. Its adverse weather, multi-role capability will enable Typhoon to be employed in the full spectrum of air operations from air policing to peace support through to high intensity conflict. Typhoon is being developed in a collaborative project with Germany, Italy, and Spain. Contracts for the production of the first Tranche of 148 aircraft, of which 55 are for the RAF, were signed in 1998.

  2.  Typhoon achieved Type Acceptance in June 2003 which signalled the start of the process to bring the aircraft into service with the RAF[7] Following Type Acceptance, Typhoon flight test and safety evaluation was conducted and, after some delays, the first aircraft was accepted off contract in December 2003. This allowed RAF Operational Evaluation and Service Instructor Pilot Training at BAES Warton to get under way utilising the 18 month initial contractor support arrangements known as "Case White". The first solo RAF flight took place in February 2004 and to date, four RAF aircraft have been accepted off contract. Very good progress has been made and some 100 sorties have now been flown. On 27 February 2004 the first instrumented production standard single-seat Typhoon made its maiden flight in Spain.

  3.  International Memoranda of Understanding (MoU) between the four partner nations envisage a total requirement for 620 aircraft to be procured in three tranches: 180 for Germany, 121 for Italy, 87 for Spain and 232 for the UK. The nations are committed contractually to the first tranche which includes 55 aircraft for the UK. Future production orders would commit the UK to 89 and 88 aircraft for Tranches 2 and 3, respectively. Industry proposals for Tranche 2 are currently being evaluated; Tranche 3 is not scheduled to be ordered before 2007.

IN -SERVICE DATE (ISD) AND SERVICE LIFE

  4.  ISD is defined as the date of delivery of the first aircraft to the Royal Air Force and this was achieved in 2003.

  5.  The Typhoon ISD slipped by a total of 54 months compared with the date approved in 1987 at the start of formal development (the point now regarded as "Main Gate"). Of this slippage, 32 months has been attributed to difficulties with the application of complex technologies required to enable the equipment to meet the original Staff Requirement. The remaining 22 months delay was caused by the "reorientation" of the programme in response to the end of the Cold War, budgetary pressures on the four nations and to delays in signature of the MoU for the Production and Support phases. Of the 54 month overall slippage to ISD, a total of 12 months occurred after the award of the production contracts in 1998.

  6.  Every effort is being made to accelerate the entry to service and work-up process to prevent or minimise any delay in the operational employment of Typhoon, scheduled for the second half of the decade. The Operational Employment Date (OED), defined as the date when Typhoon capability is declared to NATO, is currently ***, a date assumed in the latest budgetary round to provide a high-confidence basis for RAF planning. There is no gap between the planned out of service dates for the F3 and Jaguar fleets and the OED of Typhoon.

  7.  The service life of the Typhoon fleet is expected to be ***.

SYSTEM PERFORMANCE

  8.  Many of the Key User Requirements are not capable of demonstration at ISD either because they relate to in-service reliability over time, or because of the limitations routinely placed on a new aircraft's initial flight "envelope" at such an early stage. Currently, only one of the 10 KURs is predicted not to be achieved and that relates to the aircraft's landing distance. The shortfall (in the most adverse conditions) was accepted by the Department's Equipment Approvals Committee in 1994.

  9.  The standard of aircraft delivered at ISD has proved satisfactory for initial service pilot training and for the operational test and evaluation activity planned for this stage in the programme. The Typhoon programme philosophy is to provide incremental capability clearances that match the evolving requirements of the nations' air forces. The first of these, IOC, should occur towards the end of 2004. Full Operating Clearance (FOC) is defined as the functionality, cleared for operational use, of the last Tranche 1 aircraft. The precise level of capability to be provided at this stage is the subject of ongoing discussions between the nations and industry and will form the baseline for the Tranche 2 aircraft. The final planned capability increments will be delivered through Enhanced Operational Capability (EOC) packages which will be introduced after Tranche 2 deliveries start to provide Typhoon with the full, multi-role capability. The Meteor Beyond Visual Range Air to Air Missile is expected to be cleared for use on the aircraft at this stage.

  10.  Early experience, albeit with only 100 hours of UK in-service flying experience, has shown a good level of aircraft availability and reliability and pilot feedback is particularly encouraging.

  11.  Interoperability is fundamental to the Typhoon design. The programme has adhered to NATO Standardisation Agreements (STANAGs) and protocols to ensure Typhoon's compatibility with current and future systems, both operational and logistic.

COSTS

  12.  Expenditure to 31 March 2004 is estimated at £8.6 billion.

  13.  Typhoon total UK acquisition costs are currently forecast at £19,018 million compared to £16,670 million at "Main Gate" approval dating from 1987, which represents an increase of some £134 million since last year's review. The majority of this increase, some £1 30M, relates to Cost of Capital Charge (CoCC) increases as a result of an assumed six month delay to the aircraft's `beneficial use date' as defined for accounting purposes.

ACQUISITION ISSUES

  14.  The design standard of delivered aircraft will follow an incremental acquisition path, with the first aircraft being delivered to an initial standard—to allow early training—and the full standard delivered later to meet the declaration of operational capability.

  15.  The programme has encountered problems primarily due to the lack of development maturity and the major overlap between the various phases of the CADMID cycle. The main learning point, reflected in the Smart Acquisition reforms, is that a greater proportion of costs should have been expended on risk reduction activities prior to commencing development and reducing the large overlap between the phases. Actions have now been taken to ensure that these issues are fully addressed prior to placing the Tranche 2 production contract.

  16.  Whilst there are clear benefits from collaboration, the decision-making process can be slow and reconciling national requirements can be difficult. The problems with lack of design maturity and overlap between phases was greatly compounded by the poor industrial organisation (in this case, national partner companies reporting to a co-ordinating management company) for understanding, planning and managing such a large and complex programme. The Smart Acquisition process has also highlighted shortfalls and inefficiencies in the way industry and work is organised. These issues are being addressed to ensure improvement in the industrial arrangements going forward with Tranche 2. Similarly, improvements are being sought in the organisation of the NATO Agency (NETMA) which administers Typhoon contracts on behalf of the four partner nations.

  17.  Unlike previous programmes, where major enhancements were incorporated via a major in-service upgrade, we shall, following Smart Acquisition principles, establish a programme for through-life evolution of the RAF Typhoon fleet. The aim is to acquire and incorporate emerging technology, on an incremental basis, to maintain the capability of the weapon system. Partnering between the MoD and industry will provide the necessary expertise and focus to enable us to identify, prioritise and pursue modifications to Typhoon that balance operational effectiveness, life cycle costs, and component obsolescence issues.

  18.  Typhoon has major significance for the UK defence and aerospace industry sustaining some 16,000 direct UK jobs at BAE SYSTEMS, Rolls-Royce, and direct subcontractors such as Smiths. It is also expected to sustain, directly and indirectly, some 100,000 jobs across the UK when the aircraft is in full-rate production. Typhoon further helps secure key skills and important supply chain benefits which will maintain UK industry's capability in advanced combat aircraft programmes.

IN -SERVICE SUPPORT

  19.  Support for Typhoon is being managed collaboratively to reduce life-cycle costs. MoUs and International Framing Agreements aim to ensure that all elements of the project are taken forward on an agreed international basis. Costs are shared by the four nations involved in the programme, based on a variety of funding "keys" depending on the type of support, but are broadly in proportion to the aircraft off-take of each nation. This is the first major international project to apply integrated logistic support (ILS) procedures, thus enabling all aspects of logistic support to be optimised. Emphasis is being placed on partnering with industry to define the most cost-effective solution.

  20.  The RAF is closely involved in the planning process, to ensure that the end users contribute to the development of support policy and have a clear understanding of the developing support concepts. The Typhoon support strategy will be compliant with the DLO Support Solutions Envelope.

  21.  From the limited time that Typhoon has been in RAF Service under Case White, it is not possible to draw any concrete conclusions regarding support. However, the early signs are encouraging. Aircraft serviceability rates have been satisfactory given the current immaturity of the Weapon System. RAF groundcrew find the aircraft easy to maintain at first line and have had little difficulty converting to the new "paperless" maintenance management system. When faults have occurred, diagnosis using the available test equipment and databus analysers has been relatively straightforward. "Teething" problems include the aircraft software generating a large number of spurious fault indications, which have had to be cleared laboriously on the Ground Support System at the end of each day's flying. However, the next aircraft software release is imminent, which will largely eliminate this problem.

11.  WATCHKEEPER

PROJECT SUMMARY

  1.  The WATCHKEEPER system will consist of unmanned air vehicles, sensors, and ground control stations. It will provide UK commanders in the land environment with a 24-hour, all-weather, Intelligence, Surveillance, Target Acquisition and Reconnaissance (ISTAR) capability, providing accurate, timely and high quality imagery to answer commanders' critical information requirements.

  2.  Proposals for the delivery of WATCHKEEPER have been received from Thales and Northrop Grumman and are currently being assessed prior to the main investment decision.

POLICY CONTEXT AND CAPABILITY REQUIREMENT

  3.  The UK continues to move towards the goal of fully supportable expeditionary forces that are capable of decisive force projection and will be able to act rapidly and decisively at a place of their choosing and with an enhanced detect, decide and destroy capability. The Defence White Paper stresses the need to exploit new technologies, introducing multi-role capability and to develop a Network Enabled Capability, the heaviest burden of which will fall on the "key enablers" of "better intelligence and target acquisition". The White Paper also stresses the need for the network to produce "effects that can far exceed the sum of the parts". This area is one where the capabilities offered by a UAV system, such as persistence and endurance, are best able to contribute. UAV systems also offer significant growth potential, allowing for inclusion of new technologies.

  4.  The Strategic Defence Review New Chapter identified the ability to gather information about an opponent and to then use it to maximum effect as central to future combat capabilities in both high intensity conflicts and peace support operations.

  5.  Within this strategic context, WATCHKEEPER will be a critical element of tactical ISTAR capability in the land environment. It will enhance commanders situational awareness of the battlespace such that UK forces can achieve information superiority, thereby exploiting Network Enabled Capability to facilitate decision making and effects-based targeting.

  6.  The broad range of users of the WATCHKEEPER product will require imagery and imagery intelligence (IMINT) for immediate support to manoeuvre operations concurrently at both unit and formation level. They will require access to imagery across the full range of climatic environments, the ability to identify and accurately locate targets of interest and provide data into the "kill chain" for subsequent engagement by weapon systems. The system is required to integrate with BOWMAN and the accompanying management applications to ensure that WATCHKEEPER is part of the Land communications network. WATCHKEEPER is required to be able to deliver a capability to support rapid reaction forces deploying by air or sea. The requirements include the requisite standards to achieve interoperability with other NATO UAV systems.

  7.  The number of systems to be procured is the subject of an ongoing assessment which will inform the main investment decision. We are aiming to procure sufficient systems to be able to support two concurrent Medium Scale deployments.

COSTS

  8.  To 31 March 2004, expenditure on WATCHKEEPER has been £50.5 million.

  9.  The current forecast cost (at 50% confidence) for the Assessment Phase is £51.7 million against an Initial Gate approval of £51.7 million.

  10.  The overall cost of the programme is in the region of £1 billion.

IN -SERVICE DATE (ISD) AND SERVICE LIFE

  11.  The definition and timing of the In-Service Date for an Initial Operating Capability for WATCHKEEPER will not be confirmed until Main Gate. Proposals have been solicited on the basis of delivering a UAV capability to support a Medium Scale warfighting deployment by the end of 2006.

  12.  The main investment decision for WATCHKEEPER is planned for late 2004.

  13.  The currently planned Out-of-Service date for the WATCHKEEPER capability is 2036.

ACQUISITION APPROACH

  14.  WATCHKEEPER was anchored in the Smart Acquisition process at Initial Gate. The programme combined three UAV Requirements (SENDER, SPECTATOR and the Phoenix Enhancement Programme) to derive a single statement of requirement. The acquisition strategy has been based on selecting UAV systems to suit a defined capability requirement rather than an air vehicle centred approach.

  15.  The programme is completing the Assessment Phase of the acquisition cycle and is in the process of recommending the preferred system solution to support a main investment decision to enter Demonstration and Manufacture next year. Through evaluation and system concept demonstration, the Assessment Phase has driven down technical and schedule risks and derived the whole life costs associated with the proposed options. Trade-offs between User and System Requirements continue to be identified and final decisions can shortly be made, taking full account of the impact across all Lines of Development and supported by balance of investment studies.

  16.  Alternative acquisition options have been considered. Collaboration was explored during the early stages of the Assessment Phase but it was not possible to align requirements. High levels of co-operation amongst allied nations on matters of requirement definition, technology, operational experience and acquisition are being maintained.

  17.  The requirement to deliver an early capability, coupled with the need for significant system integration with the emerging Network Enabled Capability requirements, has led the DPA and the potential prime contractors to adopt an incremental approach. This approach also supports the Force Readiness Cycle and provides for a phased uplift of capability at discrete intervals.

  18.  Opportunities to enhance WATCHKEEPER beyond the Full Operating Capability have been considered during the assessment, with options for enhancement included in the bidders' proposals. Assets such as airframes will in any case need to be renewed during the life of the programme.

INDUSTRIAL ISSUES

  19.  WATCHKEEPER will be the first major UK procurement of UAV systems since they achieved a heightened prominence for Defence. Both the potential prime contractors, Thales and Northrop Grumman, will offer UK industry the opportunity for involvement in the programme and, potentially in the growing UAV world wide market through Industrial Participation and the transfer of UAV system technology to the UK.

IN -SERVICE SUPPORT

  20.  WATCHKEEPER will be operated and maintained by military personnel with in-depth repair carried out by the selected contractor. It will be supported by a comprehensive Contractor Logistic Support package and will be compliant with the Defence Logistic Organisation's Support Solutions Envelope (SSE).

  21.  It is planned to have the initial logistic support elements in place by early 2006.

NEXT STEPS

  22.  The next significant step for the project will be completion of the assessment of the two WATCHKEEPER bids, leading to a main investment decision currently planned for later in 2004.

12.  FUTURE JOINT COMBAT AIRCRAFT—FJCA (FORMERLY FUTURE CARRIER BORNE AIRCRAFT—FCBA)

PROJECT SUMMARY

  1.  The Future Joint Combat Aircraft (FJCA) will replace the capability currently provided by the RN's Sea Harrier and the RAF's Harrier GR7/9 in the second decade of this century. The aircraft will be operated in a joint force, from both the new aircraft carriers and land bases, in the manner of the current Joint Force Harrier.

  2. The Short Take Off and Vertical Landing (STOVL) variant of the US-led Joint Strike Fighter (JSF) has been selected to meet the requirement, and the UK is currently engaged in the System Development and Demonstration (SDD) phase of that programme, as the only Level 1 collaborative partner.

POLICY CONTEXT AND CAPABILITY GAP

  3.  The original FCBA requirement was intended to provide the Royal Navy with a new multi-role fighter/attack aircraft to replace the Sea Harrier from about 2012. There has been no significant change to the requirement, in terms of the aircraft's capabilities, since the Staff Target was approved in 1996. The Strategic Defence Review (SDR), however, concluded that we should plan to replace Invincible class carriers with two new larger aircraft carriers and establish the Joint Force 2000 (since renamed Joint Force Harrier), comprising RN and RAF elements. Therefore, the FCBA project assumed a common aircraft to replace both the Sea Harrier FA2 and RAF Harrier GR7, capable of being deployed in both land and sea based operations. FCBA was later renamed FJCA to reflect the move away from a purely sea based capability.

  4.  The important features of the Key User Requirements (KURS) are to provide a single seat supersonic aircraft, incorporating advanced "stealth" technology, that is capable of performing multi-role (ground attack, reconnaissance and air defence) operations from aircraft carriers and land bases, in pursuit of independent UK objectives or as part of coalitions with the US or other allies. Reliance on US framework capability has been fundamental to the success of operations in the Gulf since 1991 although, as indicated in the New Chapter to the Strategic Defence Review, there could still be a need for the UK to operate independently or as a lead nation in a coalition.

  5.  Interoperability is a key tenet for JSF in terms of maintaining commonality within the three variants of the aircraft and across national fleets. In addition, there are multiple information exchange requirements that seek to ensure interoperability within the Network Enabled Capability of the future.

  6.  As development has progressed, the work to mature the design to meet weight targets necessary to achieve desired performance levels has proved much more demanding than expected. Whilst the problem affects all three variants, it is the STOVL performance projections that present the greatest concern given the tighter margins associated with this variant. A significant rebaselining of the SDD phase is in staffing for approval by the US Defense Acquistion Board (due June 2004), which will allow for additional design effort to ensure requirements are satisfied through a range of options, including air vehicle weight reduction. The initial assessment of the outcome of this work is not likely to be possible before Summer 2004, when the necessary data will start to become available to estimate overall performance with a higher degree of confidence than is possible now. Until then, performance against the KURs is difficult to predict, but the re-baselining will unavoidably carry with it a significant time and cost penalty to the JSF programme. The predicted ISD for the US Marine Corps STOVL aircraft, for example, is expected to slip from 2010 to 2012, whilst the overall cost of the SDD phase will rise by some $7 billion, from $33 billion to $4l billion, although not all of the cost increase is attributable to the additional design effort. The consequential impact on the JCA programme is still being assessed.

  7.  The current UK planning assumption is for 150 Short Take Off and Vertical Landing (STOVL) aircraft. Final numbers will depend on the outcome of ongoing work to confirm overall future offensive air capability requirements.

COSTS

  8.  The spend on the project to 31 March 2004 is £342 million, of which some £144 million was incurred by the end of 2001-02 on the UK's contribution to the US JSF Concept Demonstration Phase and UK Feasibility Studies. Despite the $7 billion increase to SDD, the UK contribution (in cash terms) to the phase remains at $2 billion, which equates to £1.4 billion using current mandated exchange rate assumptions. This contribution will be paid over an 11-year period that began in October 2001.

  9.  The current estimated cost of the JCA Demonstration phase including costs incurred on UK national work is £2.57 billion (50% confidence), against an approval (at 90% confidence) of £2.2 billion.The growth of £337 million reflects areas of cost increase offset by decreases elsewhere. The increases include emergent aircraft system requirements, exchange rate fluctuation and a systematic re-examination of overall risk. The intention is further to examine cost, time and performance trade options to bring the programme back to within approval by March 2005.

  10.  Overall aircraft numbers, which have yet to be determined, will drive the cost of the programme. It is currently estimated to be in the region of £7-10 billion.

IN -SERVICE DATE (ISD) AND SERVICE LIFE

  11.  The FJCA ISD is defined as the ability to conduct sustained operations with 8 aircraft. As a result of a new investment strategy to take forward Joint Force Harrier (JFH) into the era of FJCA and Future Carriers (CVF), we plan to increase the offensive capability of our carrier-borne aircraft by upgrading the Harrier GR7 to GR9 standard and withdrawing the Sea Harrier FA2 from service in the period 2004 to 2006. ISD approval for FJCA will be sought in the Production/Support Main Gate, which is not likely to be required before late 2006, on the basis of current US programme timescales. The FJCA Out of Service Date is envisaged to be in the 2040s.

ACQUISITION APPROACH

  12.  FJCA is in the UK Demonstration phase of the CADMID cycle, although it predates Smart Acquisition. The JSF programme that is providing the solution is also pre-Smart Acquisition but accords with its principles. The joint US/UK programme office operates as an integrated project team, including close partnering arrangements between the programme office and the prime contractor, and operational staffs are contributing to the development of the requirement. The concept of "cost as an independent variable" means that through life affordability has been taken directly into account, along with lethality, survivability and supportability, in the evolution of requirements and design solutions. The US programme has also made significant "front end" investment, for example through the Technical Maturation Program, designed to reduce risk by proving technology before it was offered to both companies for potential incorporation in their solutions, and in the Concept Demonstration aircraft flown by both companies.

  13.  Seven other countries have now joined the JSF programme: Italy and the Netherlands as Level 2 Participants, and Australia, Canada, Denmark, Norway and Turkey as Level 3 Participants. Israel and Singapore have joined as Security Co-operation Participants (SCP) in JSF. SCP status is a separate bilateral arrangement with the US and does not involve accession to the joint programme MOU.

  14.  Alternative options considered for FJCA were a "navalised" Typhoon, the US F18E/F, the French Rafale and an updated Harrier. JSF was the clear value for money winner, on both cost and capability grounds.

  15.  JSF is an incremental acquisition programme. The SDD phase will provide a fully developed and tested aircraft as well as trained pilots. The Production and Support phases will be conducted on a multilateral collaborative basis and will be the vehicles for purchasing aircraft and support. An incremental approval approach to the phases is envisaged to minimise the risk inherent in concurrent development and production programmes. Block upgrade programmes will be the means to introduce performance updates, as required, throughout the life of the aircraft beyond ISD. It is too early to comment on the potential UK options for the post ISD work.

INDUSTRIAL ISSUES

  16.  UK participation as a full collaborative partner in the JSF programme represents a significant opportunity for UK industry and the UK economy. UK companies have won, on merit, substantial high quality work valued in excess of £4.5 billion and this is expected to continue in the future production and support phases of potentially the largest military procurement programme ever. BAL Systems is a main player in the Lockheed-Martin team developing the aircraft and aircraft systems, and Roll Royce has major roles in the STOVL propulsion system (contracted with Pratt and Whitney) and the Fl 36 engine programme (contracted with General Electric), which will eventually compete against the Pratt and Witney F135 engine for aircraft fits. The requirement for the partner nations and world wide Third Party Sales is estimated to amount to between 3,000 and 5,000 aircraft, at a production cost that could reach over $3008n. UK industry can be expected to play a significant part in this work.

  17.  Central to the continued involvement of UK companies in the high technology areas of the JSF programme is Information and Technology release. Whilst a number of difficult issues remain to be resolved, the UK has achieved considerable success in obtaining release of sensitive data at both a Government to Government and Government to Industry level. The release of information to meet the requirements of our involvement during the SDD phase is almost complete.

  18.  The requirement to provide the UK with the ability to operate and support the aircraft on a sovereign basis was set out in the UK Exchange of Letters (EOL) between the US and UK Defence Secretaries in January 2001. The UK intends during the next two years to refine further the detailed data release requirements and will work closely with our US colleagues in both Government and Industry to establish a jointly agreed sustainable plan. There are a number of issues to be considered in the context of a best value solution for the UK, including the establishment of an in-country assembly facility.

IN -SERVICE SUPPORT

  19.  Support arrangements are currently being examined, including the desirable extent of collaborative support and the role of industry in direct support. Detailed plans for the transition from the current Harrier fleet to FJCA will be formulated nearer the time.

NEXT STEPS

  20.  The intention is for the UK to play a full part with the US over the next few months to determine the efficacy of the SOD re-baselining efforts. Once the necessary initial data is available in the Summer, an assessment will be made of the ability of the STOVL variant to meet UK KURs, together with impacts, if any, on the design of the CVF.

  21.  Despite these problems, other areas of development are proceeding satisfactorily. For example, the first mechanical component for the SDD phase aircraft was produced in November 2003, and the F135 engine that will be fitted to the first production batches of the aircraft has passed its Critical Design Review ahead of schedule and testing is well advanced. The propulsion system for the STOVL variant, comprising the Fl 35 engine and the lift fan and roll ducts, is scheduled to commence testing in April 2004, some six weeks ahead of schedule.

13.  FUTURE STRATEGIC TANKER AIRCRAFT

PROJECT SUMMARY

  1.  The Future Strategic Tanker Aircraft (FSTA) is planned to replace the Air Refuelling (AR) and elements of the Air Transport (AT) capability currently provided by the RAPs fleet of VC1O and TnStar aircraft. The Ministry of Defence is considering whether the capability could be provided through a service contract, under the Private Finance Initiative (PFI). Under such an arrangement, a contractor would own and maintain the aircraft and provide training services, infrastructure and some personnel, whilst the RAF would be responsible for all military operations. The contractor would be able to earn commercial revenue, using spare aircraft not required by the RAF in peacetime, to offset the cost of the service.

  2.  On 26 January 2004, the Secretary of State for Defence announced that a bid from AirTanker Ltd, a consortium comprising EADS, Rolls Royce, Cobham and Thales, had been judged to offer the best prospective PFI solution. AirTanker Ltd proposed a service solution utilising Airbus A330 aircraft. Negotiations are currently being taken forward with AirTanker Ltd.

POLICY CONTEXT AND CAPABILITY REQUIREMENT

  3.  The Strategic Defence Review highlighted that "the ability to rapidly deploy, sustain and recover our forces is of critical importance if we are to be able to respond quickly to future crises". This indicates the continuing need for an AR capability, to provide force multiplication and operational range enhancement for front-line aircraft across a range of defence roles and military tasks. The importance of AR has been demonstrated on operations over many years, and remains a central element of defence capability in this era of expeditionary warfare. Its importance has been reaffirmed in the Strategic Defence Review New Chapter and in last year's Defence White Paper.

  4.  The RAF's fleet of 19 VC10 and nine TriStar aircraft provide current AR/AT capability. All of the VC10s and six of the TriStars are configured for AR and of these 11 VC1O0 and six TriStars are also capable of carrying passengers and freight. Three TriStars are configured for the passenger carrying role. The VC10s first entered service in the 1960s while the TriStars first entered RAF service in the early 1980s. The VC10 was retired from commercial airline service in the early 1980s and the type is now unique to the RAF. Therefore, our current AR aircraft, particularly the VC10s, are old and in need of replacement. FSTA aims to provide the RAF with a modern and effective replacement AR capability, commencing from around the end of the decade.

COSTS

  5.  The FSTA programme is currently in an assessment phase designed to confirm whether a PFI solution can provide the required capability at best value for money. At 31 March 2004, the cost of the assessment phase is estimated to be £24 million, at 50% confidence. This compares to a cost of £13 million approved at Initial Gate. The variation results from the Department's need for additional external legal and financial advice, following an extension to the Assessment Phase (£21 million), coupled with an agreement, in Oct 2002, to fund some of industry's assessment phase risk reduction work (£10 million). The estimated whole life cost of the PFI programme is shown in the table below:

£m (outturn prices)	Lowest	Most Likely	Maximum
Current forecast cost of PFI programme	11,300	12,300	13,100
Forecast cost of PFI programme at Initial Gate	—	12,400	13,900

IN -SERVICE DATE (ISD) AND SERVICE LIFE

  6.  On current plans, it is anticipated that a PFI service would commence around the end of the decade. However, FSTA project timescales are dependent upon the outcome of ongoing discussions with AirTanker Ltd. AirTanker Ltd has been judged to offer the best prospective value for money PFI solution to the FSTA requirement, but a number of complex issues remain to be resolved before the Department can be confident that a PFI solution could provide a value for money and affordable solution. Consequently, the Department has decided not to make a final decision about whether to proceed with PFI until further contract negotiations with AirTanker Ltd have been completed.

  7.  A PFI contract of around 27-years duration is anticipated. This would break down, broadly, into a four-year establishment phase, a three-year transition phase and 20-years of full service capability. The In-Service Date would fall between commencement of the PFI service (known as the Introduction to Service Date) and the date on which full service capability is achieved (the Full Service Date). The expected date for achievement of ISD is also subject to ongoing discussions with AirTanker Ltd.

  8.  ***.

ACQUISITION APPROACH

  9.  FSTA was nominated as a potential PFI programme in 1997, when it was judged that the project, scoped as a service, could offer better value for money than conventional asset-based procurement. A key tenet of the PFI acquisition strategy is the potential to transfer the through life risk of ownership of the aircraft assets to the private sector. Considerable innovation could also result from the PFI approach. This includes the opportunity for the contractor to earn commercial revenue through third party use of the aircraft assets. Furthermore, a mix of Regular RAF and civilian contractor personnel, some of whom will have a Sponsored Reservist obligation, will be employed in delivery of the service.

INDUSTRIAL ISSUES

  10.  Industrial issues were not a factor in the selection of AirTanker Ltd. Both PFI bids offered potential benefits for UK industry. A PFI contract could be expected to create or sustain several thousand jobs in the UK, over the lifetime of the service. The UK decision to take forward single bidder negotiations with AirTanker Ltd represents an opportunity for Airbus to gain a foothold in the global air refuelling market, which is currently dominated by Boeing.

IN -SERVICE SUPPORT

  11.  In service support of the aircraft and associated infrastructure is planned to be an integral part of the PFI contract, although the support arrangements are being mapped against the Support Solutions Envelope model developed by the Defence Logistics Organisation. In order to safeguard our ability to deploy the operational capability effectively, Regular RAF maintenance personnel will be employed in support of the aircraft. They will work alongside civilian contractor personnel, some of whom will have a Sponsored Reservist obligation.

NEXT STEPS

  12.  Negotiations aimed at agreeing a PFI contract that is acceptable to all parties are underway. Successful completion of these discussions represents the next key milestone for the project. The Department plans formally to review progress in the Summer of 2004.

14.  FUTURE RAPID EFFECT SYSTEM (FRES)

PROJECT SUMMARY

  1.  The Future Rapid Effect System, FRES, will be the central pillar of a capable, coherent and highly deployable medium Land Force, networked to harness joint effects, and with broad utility across the spectrum of operations. It is envisaged that FRES will significantly enhance the speed at which Land Forces can operate and the effect they can bring to bear through improvements in mobility, lethality and a reduced logistics footprint. It is anticipated that the capability will be provided by a family of medium-weight armoured vehicles that will replace the GVR(T) series, Saxon, elements of the existing FV430 series.

  2.  The FRES Initial Gate investment decision was approved in April 2004. Achieving Initial Gate took longer than expected, but it was important to get our strategy right in order to lay solid foundations for success. We therefore spent time considering how best to balance a number of issues such as a challenging and complex requirement, technological risk and the need for an early deployment of the capability.

POLICY CONTEXT AND CAPABILITY REQUIREMENT

  3.  In setting out the need for the UK to be able rapidly to project military power world-wide, the Strategic Defence Review (SDR) made specific reference to FRES. The New Chapter further explained the strategic context for the requirement, stating that as part of our move towards more rapidly deployable forces we are pursuing the concept of a Future Rapid Effect System, a family of air-transportable medium-weight armoured vehicles.

  4.  Ongoing Future Army Structures work envisages restructuring the Army into the "Balanced Force" with heavy, medium and light brigades. The Future Land Operational Concept provides the conceptual basis for the development of the Balanced Force, capable of operations across the full spectrum of conflict but with a significantly improved rapid intervention capability.

  5.  FRES will provide a capability to deploy an effective, combined arms land based force between the two existing extremes of heavy armour (slow to arrive and with a large footprint) and light forces (quick strategic deployment but limited endurance and reach). It must be able to be deployed quickly with minimal logistical support in agile combined-arms force packages to engage in missions across the spectrum of conflict from war-fighting to peacekeeping and be able to achieve knowledge superiority and contribute to Network Enabled Capability through its own and linked assets.

  6.  FRES will be the first Land combat vehicle system fully able to exploit the capabilities of Command and Battlespace Management (CBM). The plan is to network FRES so that it can greatly enhance joint force situational awareness, sensor-shooter links, flexible reorganising, agility and effects-based planning. This will result in improved control, targeting precision and time sensitivity, rapidity of effect and force protection.

  7.  The FRES capability will embrace a number of roles, including Protected Mobility, Reconnaissance and Communications. The size of the force will be determined during the Assessment Phase, informed by any trade-off decisions that are made.

  8.  The four requirement drivers for FRES are: the need for an armoured rapid effect land capability; wide operational utility; maximum interoperability with other parts of deployed forces, other components and allies; and the need to address the obsolescence of existing fleets. The priority for the FRES programme is to deliver the central pillar of a credible and balanced land medium rapid effect capability, thereby helping to fill the significant capability gap between the current heavy and light forces.

  9.  FRES will be required to integrate fully with a wide range of battlefield assets to enable the delivery of joint effects. It will also be expected to support joint operations with NATO allies. Achievement of interoperability requirements is a factor to be addressed during the Assessment Phase.

  10.  Co-operation during the Assessment Phase is likely to focus on harmonising requirements for interoperability in support of coalition operations and mitigating common areas of technology risk. However, opportunities for collaborating on sub-systems and sharing information on technologies and requirements will be explored during the Assessment Phase, and the scope for future collaboration assessed prior to the Main Gate investment decision.

COSTS

  11.  The full Programme cost has yet to be established, but the provision could be in the region of £6 billion. Whole life costs are expected to be in the region of £50 billion.

IN -SERVICE DATE (ISD) AND SERVICE LIFE

  12.  FRES has just achieved Initial Gate, and ISD will not be formally endorsed until Main Gate. One of the aims of the Assessment Phase work will be to identify and reduce risk in the programme to enable us to define an appropriate ISD in both capability and programme terms for endorsement at Main Gate. The planning assumption is to introduce the early variants of FRES around the end of the decade, with a phased approach to achieving full operational capability.

  13.  FRES is expected to be in service for some 30 years. The ability of potential solutions to accommodate incremental enhancements to upgrade the capability by exploiting new technologies in response to changing threats will be a key consideration for the Assessment Phase.

ACQUISITION APPROACH

  14.  The acquisition strategy for the Assessment Phase was determined against the key principles of harnessing the broadest range of industrial capability, creativity and innovation, and keeping open the widest possible options for all future phases in order to best meet our requirements. The endorsed approach is to engage a Systems House (SH), through a short competition, to lead the initial Assessment Phase. The SH is required to be independent of product or manufacturing capability and will be selected for programme management, risk management, systems engineering and supply chain management capabilities. It will therefore be in a strong position to leverage the widest possible industrial involvement whilst leaving the options open for future acquisition phases. As well as the capabilities noted above, the SH will bring an objective view of the ideas and technologies which may be applicable to FRES, and a detailed understanding of the risks inherent in complex "systems of systems" integration.

  15.  Our intention is to take an incremental approach to capability acquisition for the FRES programme; this will, in particular, apply to the insertion of technologies as they mature. FRES is not intended to be a high technology risk programme, but there is a need to mitigate the risks of certain technologies in order to determine if they are suitable for FRES. Much of this risk reduction work will be carried out during the Assessment Phase.

  16.  The planned Integrated Technology Acquisition Programme (ITAP) approach links technology to capability in order to enable the pull-through of mature technologies at the optimum time without delaying the implementation of FRES. A series of Technology Demonstrator Programmes (TDPs) will be undertaken during the Assessment Phase as a means of assessing and, where necessary, accelerating, the maturity of technologies and enablers. Technologies will only be considered for inclusion in FRES if they are at an appropriate level of maturity at pre-designated key decision points.

  17.  It is too early in the project to determine the strategy for future phases, however a range of alternative options will be explored during the initial Assessment Phase in order to arrive at the optimum strategy for later phases.

  18.  The project is looking to exploit Smart Acquisition initiatives and to identify and pursue additional opportunities to introduce new or revised practices to deliver the FRES capability. The size and impact of the project offer the potential to improve existing processes and procedures, and implement innovative ideas.

INDUSTRIAL ISSUES

  19.  Industrial issues related to FRES are being assessed in line with the Defence Industrial Policy, and in association with Other Government Departments, in order to determine how these issues may influence the project. The detailed development of acquisition options will be made against the background of wider industrial factors. One of the considerations will be the potential role for the UK Armoured Fighting Vehicle industry.

  20.  The FRES programme is at an early stage, therefore it is difficult to assess future export opportunities. However, we would expect it to attract interest from potential export customers, based on both the export success of some of the vehicles it is planned to replace and the interest expressed by other nations in a medium force capability.

IN -SERVICE SUPPORT

  21.  A key requirement of FRES is the need to sustain operations of extended duration and operate over long lines of communication with limited transport assets. This will necessitate high levels of operational availability, and significantly reduced logistic demands. It will need to be frugal in its consumption of fuels, oils, road gear (tracks or wheels) and technical spares in comparison with the current in-service equipment. It must be reliable and easy to maintain and service. The anticipated improvements in efficiency will contribute to speed of deployment and reduce the logistic footprint.

  22.  Development of the support strategy for the system will be an important element of the work to be conducted during the Assessment Phase.

NEXT STEPS

  23.  It is imperative now to proceed with the planned Assessment Phase activities, and to regain the momentum on this important programme. The broad aims of the Assessment Phase are: to further define the FRES capability required within the developing medium force and network enabled operational concepts and thus develop a series of affordable options for meeting the FRES requirement; to develop optimum procurement and support strategies for future phases in order to present a robust case at Main Gate; and to manage technology and supplier risk to acceptable levels.

15.  FUTURE CARRIERS (CVF)

PROJECT SUMMARY

  1.  Under the CVF project, we will procure two large aircraft carriers to replace the three Invincible-class carriers from around 2012. These carriers will operate the Short Take Off and Vertical Landing (STOVL) variant of the Joint Strike Fighter (which has been selected to fill the role of Joint Combat Aircraft), the Maritime Airborne Surveillance and Control (MASC) capability and other aircraft in a variety of roles.

  2.  CVF received Initial Gate approval in December 1998 and in November 1999, competitive contracts for the Assessment Phase were awarded to BAE SYSTEMS and Thales UK. Following the January 2003 announcement of an alliance approach involving BAE SYSTEMS, Thales UK and the MOD as the best method for delivering CVF, Stage 3 of the Assessment Phase formally started on 5 September 2003 and ran until 31 March 2004. Work is continuing to develop the carrier design to a high degree of maturity and the MOD is discussing the alliancing strategy for the Demonstration and Manufacture (D&M) Phases with the two companies. The programme remains on target to meet the ISDs of 2012 and 2015.

POLICY CONTEXT AND CAPABILITY REQUIREMENT

  3.  The requirement for the Future Aircraft Carrier (CVF) was endorsed in the Strategic Defence Review (SDR) which identified a continuing need for rapidly deployable forces with the reach and self-sufficiency to act independently of host-nation support. The SDR concluded that the ability to deploy offensive air power will be central to future force projection operations, and aircraft carriers can provide valuable flexibility in a range of operational circumstances. The SDR conclusions were endorsed by the New Chapter work of 2002 and the Defence White Paper in December 2003.

  4.  It was therefore decided to replace the three INVINCIBLE-class carriers with a new class of two larger and more capable carriers known as CVF. These ships—which will be called "Queen Elizabeth and Prince of Wales"—will have the objective of supporting an increased emphasis on offensive air operations and force projection as a central component of joint maritime operations.

  5.  The design parameters for the ships continue to evolve to meet our capability requirement; as a routine part of the Assessment Phase, cost capability trade-off work has been carried out to ensure that the programme provides the best value for money capability that is consistent with the needs of defence policy and is affordable within the overall defence budget. We anticipate being in a position to refine our assumptions towards the end of the year and in the meantime, our primary focus remains on delivering the capability that offers the best value for money solution.

COSTS

  6.  Costs incurred to the end of 31 March 2004 (including pre-feasibility studies) total around £153 million. This represents an increase of £35 million over the approved Initial Gate costs of £118 million as a result of the revised procurement strategy and renegotiations to the Stage 3 contracts that were placed with the two companies in September 2003. The costs remain within the boundary set for the project.

  7.  Estimates for the Demonstration and Manufacture (D&M) are being prepared on a progressive basis throughout the Assessment Phase. The current estimate of most likely (50%) cost for the carriers is around £3 billion (including combat system but excluding the aircraft). Cost of Capital charges add a further £450 million to the estimate. Total acquisition costs are being refined during the remainder of the Assessment Phase to take into account maturing design and price information from BAE SYSTEMS and Thales UK.

IN -SERVICE DATE (ISD) AND SERVICE LIFE

  8.  ISD will be declared when the military capability provided by CVF is assessed as available for operational use. The first CVF is scheduled to enter operational service in 2012 and the second in 2015. Current work in the CVF Assessment Phase suggests that it is possible to meet these dates, although work is continuing to identify the optimum design and build strategy. Each CVF is planned to have an in-service life of 30 years with a stretch target of up to 50 years.

ACQUISITION APPROACH

  9.  The CVF Assessment Phase began in November 1999 with the award of competitive contracts to BAE SYSTEMS and Thales UK and has been split into a number of phases. Stage 1 involved the examination of several carrier designs and an assessment of the costs of extending the lives of the three existing carriers by 10 years to provide a baseline against which the cost effectiveness of all the options could be evaluated. During Stage 2, BAE SYSTEMS and Thales UK concentrated on refining their designs and taking key trade-off decisions. From September 2002, work concentrated on building the carriers to an innovative, adaptable design which will enable them to operate the STOVL variant of the JSF aircraft; and with modifications, a further generation of conventionally launched aircraft. This represents a sensible way to secure the best return from our investment in the carriers and good long term value for money.

  10.  An innovative Continuous Assessment process was used throughout Stage 2 to evaluate the contractors' performance. This concluded that an alliance approach involving BAE SYSTEMS, Thales UK and the MOD represented the best approach to delivering CVF within the time and cost parameters. The alliance procurement strategy was announced in January 2003. The alliance is envisaged as a co-operative relationship between the customer (the MOD) and the key contractors which will enable us to make the most of the resources and strengths of all the alliance members with the shared objective of improving on agreed performance targets.

  11.  A third Stage of the Assessment Phase was taken forward on the basis of an evolving alliance approach and formally started on 5 September 2003. The maturity of the design was increased and discussions continued to be held with the companies on the alliancing strategy to take the programme through the D&M Phases. Design maturity has already reached a comparatively higher level for CVF than for other legacy maritime projects. We believe that the alliance approach remains the best method for delivering the programme to time and cost. Stage 3 completed on 31 March 2004. Advice has been submitted to Ministers on the way forward for the programme, and an announcement is expected shortly.

  12.  Opportunities for international co-operation are being reviewed during Assessment, especially for equipment systems and subsystems. Although whole ship collaboration is unlikely to be a viable option, opportunities to share best practice in assembly integration and outfitting will be explored. In particular, discussions are continuing with the French and US to explore areas for possible co-operation in common areas of aircraft carrier technology at a system or sub-system level. There is agreement between the UK and France, at Ministerial level, that industry to industry co-operation represents the best way forward for any UK/France co-operation on aircraft carrier issues.

  13.  The CVF programme is adopting and further developing a range of Smart Acquisition techniques and has embedded a number of Smart Acquisition processes into its activities with the Aircraft Carrier Team (formed by BAE SYSTEMS and Thales UK). A greater emphasis is being placed on identifying, evaluating and implementing effective trade-offs between system performance, whole-life costs and time. Incremental acquisition is being adopted in areas such as mission systems, which will allow for the incorporation of up-to-date technologies to avoid obsolescence. SMART project management processes are being used to achieve early risk reduction, such as the use of Technology Readiness Levels (TRL) to ensure that any technologies that need developing have reached a sufficient TRL at appropriate points within the acquisition cycle. We are also developing a mature risk assessment process based around a joint risk register, linked with Earned Value Management (EVM), which enables the project team to track and manage key risks and ensure that, if required, appropriate mitigation strategies are being implemented.

INDUSTRIAL ISSUES

  14.  In accordance with current government policy for the construction of Royal Navy warships, the CVF will be assembled in UK shipyards. Industrial factors were taken into account in the decision to adopt the alliance approach for CVF; in January 2003, we identified that, subject to value for money considerations, the best way forward was for CVF to be potentially built by a combination of four UK shipyards (BAE SYSTEMS Naval Ships at Govan, Vosper Thornycroft at Portsmouth, Swan Hunter on Tyneside and Babcock BES at Rosyth) although the involvement of other UK yards has not been ruled out. This approach was underpinned by a detailed analysis of facilities, capabilities and likely capacity across the UK shipbuilding industrial base. Final decisions will be made based on achieving value for money while taking due account of the capability, capacity and resources of UK industry to meet the full range of planned naval programmes. Discussions are continuing with the yards on the precise arrangements and work allocation on this basis. The predicted overall loading in the yards during the CVF construction timef name is also being examined. It is estimated that CVF will sustain or create some 10,000 jobs across the UK during the course of its design and manufacture.

  15.  It is unlikely that this project will lead directly to whole-ship sales, although the commercial marketing of CVF design skills and production technology could benefit UK industry. Much of the ship's equipment could have export potential. Industrial Participation proposals will be invited, as appropriate, for offshore content of the proposed solution.

IN -SERVICE SUPPORT

  16.  Contractor Logistic Support (CLS) will be considered for some or all of the maintenance and logistics and OLS options for up to 30 years are being examined during Assessment. One option to be considered is the adoption of best practice in supply chain techniques, to minimise MOD ownership of spares, by contracting for agreed spares availability from industry. We are also developing options to let a contract for an Initial Support Period up to and including the dry docking of the first vessel.

  17.  The upkeep cycle of the CVF will reflect both the vessels' modern design and developments in upkeep practice such as "reliability centred maintenance" rather than lengthy and expensive refits. This will enable availability requirements to be met by only two carriers.

NEXT STEPS

  18.  Stage 3 completed on 31 March 2004. Advice is currently with Ministers on the way forward for the programme, and an announcement is expected shortly. In the meantime, work on the project continues and negotiations are on-going between the MOD and the companies over the alliance strategy for the Demonstration and Manufacture phases. The target ISDs for the carriers remain unchanged at 2012 and 2015.

April 2004

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4   There is currently approval for the first six ships, LAP and associated missiles. Approval for further ships will be sought at the appropriate time, but probably by 2006. Back

5   The approval figure differs from figures reported in previous years' memoranda which included pre-Main Gate costs associated mainly with the Horizon Programme. The figures now quoted are consistent with those reported in the Major Projects Report. Back

6   BAE Systems, Devonport Management Ltd, Babcock Naval Services and Rolls Royce Naval Marine. Back

7   Type Acceptance is the process to confirm that a defined standard of aircraft has been properly documented, that the minimum acceptable performance standard has been demonstrated and that industry has provided the required safety evidence. Back

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Prepared 28 July 2004