Memorandum by the VT Group
VT Group is an international government services
provider. The group is divided into two business units, Support
services and Shipbuilding. Together these activities employ around
10,000 people
VT Support services comprises activities in
both the military and public sectors and now accounts for over
two-thirds of group turnover. Military support is tri-service
and includes training, platform and equipment maintenance, and
facilities management, while services for the public sector focus
on training and education, careers guidance, and secure communications.
VT Shipbuilding designs and builds a wide range
of vessels for the Royal Navy and navies throughout the world.
Smaller boats are also supplied to the commercial market. Specialist
marine equipment is provided to both the naval and commercial
sectors.
OVERVIEW
VT Group welcomes the Defence Committee's decision
to hold an inquiry into Defence Procurement. We believe that this
inquiry is timely as the debate on defence procurement policy
is rapidly evolving. Both industry and Government need to take
full advantage of the opportunities provided by the new business
models being introduced in the commercial sector.
VT Group offers the following broad comments
on current MoD defence procurement. We are happy for these comments
to be made public, and are happy to expand on this issue, either
through an oral evidence session, or with a further written submission
if that would be helpful.
NEW APPROACHES
TO PARTNERING
Traditional contracting is based on providing
capabilities at the lowest possible cost using formal hierarchal
structures with rigid contractual barriers. This isolates designers,
contractors, suppliers and sub-contractors and discourages a collective
approach to project delivery. The complex web of legal agreements
associated with traditional contracting leads to a situation in
which the companies involved are encouraged to focus on their
own internal issues and objectives rather than combining to focus
on the objective of project delivery. This approach also encourages
a duplication of effort in both skills and management.
However other methods of procuring complex and
high value equipment and capabilities are being developed both
in the defence industry and other sectors. One example of this
is in the UK offshore oil industry. In the early 1990s it developed
a new partnering approach to project delivery which typically
resulted in savings of 20%. Broadly this was based upon collaborative
working between organisations and service providers designed to
achieve a shared set of business aims.
This type of partnering depends not upon contractual
clauses and tightly defined agreements but the establishment of
the right attitudes, behaviours and culture among all partners
from the start. Partnering agreements or charters should be introduced
and agreed by all parties at the beginning of a contract. These
would complement rather than duplicate the formal contract terms.
They would set out in detail the principles, attitudes and objectives
that all partners would be expected to adhere to. Issues such
as the degree of openness, the spirit/culture in which problem
solving will be handled and procedures for communication and relationship
management should be included in the charter. Implementation of
the charter would be conducted through a series of team building
and charter development meetings requiring the active participation
of senior management. This will cost time and money but provided
these are effective and productive they will be an essential part
of the success of the partnering arrangement.
By developing and using a shared risk register
which all parties contribute to a joint approach to risk management
can be developed. If all parties are aware of potential risks
to successful project delivery all parties can and should contribute
to the proactive management of these risks.
A high degree of openness and transparency makes
a vital contribution to project delivery. Clearly commercial confidentiality
needs to be protected but more can be done to encourage greater
information sharing. For instance open book accounting, together
with other measures, can continually evaluate and demonstrate
to all parties value for money. Actual costs and agreed profit
margins should be made visible to the customer. This type of arrangement
needs to be agreed at the start of a project.
Relationship management should be a clearly
defined and properly resourced activity. Teams or individuals
should be appointed by all parties to undertake this task. Their
job description would be to keep relationships open and constructive.
This would involve identifying any potential blocks or obstacles
to communication and taking appropriate action to avoid or remove
them.
Finally new incentive structures which enhance
supplier profitability through profit sharing schemes need to
be considered. However it is very important to ensure that any
new structures ensure that increased profitability is seen by
all partners to be properly earned through the successful operation
of the partnering structures.
STRATEGIC PARTNERING
At the strategic level greater openness regarding
long term Government expenditure planning would be helpful. This
would not be detailed information on individual programme budgets
but more general data on for instance future expenditure in a
general capability area Reducing uncertainty for industry would
encourage more effective investment decision making.
A re-assessment of how to protect and how to
encourage innovative proposals in early stages of procurement
programmes should be undertaken. While more effort and resources
has rightly gone into risk reduction at an early stage of the
programme this can lead to problems if innovation developed by
one company is shared with potential or actual competitors. By
its nature an innovative proposal may need to be examined by a
widely dispersed audience to assess its true value. However that
may discourage industry from exposing such proposals to the MoD
if this means that competitors—actual or potential—will
also have access to the IPR contained in their proposals.
A new and combined industry/Government approach
to securing greater access to global defence markets should be
developed and implemented. By developing a common position on
this issue both industry and Government would be able to significantly
strengthen their understanding of what trade barriers actually
exist at present.
CONCLUSION
The work that both industry and the MoD has
been doing in developing and implementing some of these ideas
is welcome. There has for instance been encouraging progress in
improving openness and information sharing but more could be done.
Greater scrutiny of how risk is shared would be welcome. We also
suggest that both Government and industry should look at the new
partnering methods that are being developed across industry and
assess the costs and benefits of introducing the new techniques
in defence procurement.
Paul J Lester
Chief Executive
April 2004
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