Appendix: Government response
The Government notes the Committee's recognition
that the Department must embrace modern best practice techniques,
including pulse lines and leaning, to realise efficiencies in
the defence support area so as to maximise the military capability
available to the front line. Since the Strategic Defence Review,
the Department has sought to ensure that front line forces receive
the logistic support they need within a framework that provides
the best balance between operational effectiveness, efficiency
and value for money. Its approach has reflected the need for greater
flexibility and agility in logistic support capabilities to meet
the requirements of expeditionary operations. For the air environment,
this has meant a move away from the traditional reliance on multiple
lines of support at operational bases, in second and third line
facilities, and in industry.
This process has required hard, evidence-based, decisions
to remove excess capacity and duplication of facilities/assets
in the depth support chain, both within the Department (with cuts
in both RAF and civilian engineering posts) and in industry (who
will now carry out much of their work at the Main Operating Base,
alongside RAF engineering personnel, rather than at their own
sites), whilst also retaining the capability to surge to support
urgent operational needs. This has been a radical shift in the
way air depth support is delivered to our Armed Forces: it is
essential if we are to ensure that this support is delivered in
the most efficient and cost effective way. As a result we will
achieve significant financial savings, estimated at £70M
over the next four years, and £40M annually thereafter, releasing
resources to the front line whilst, at the same time, significantly
increasing the availability of aircraft for operations. Given
this clear evidence of the operational benefits and savings being
achieved, we are perplexed by the Committee's conclusions that
some of the decisions we have taken are 'perverse' and 'incomprehensible'.
We also do not accept that the MoD has 'contributed
to a period of unnecessary turbulence and uncertainty in aviation
logistics provision'; on the contrary, we believe that the decisions
to reconfigure our support structures in recent years, including
that to establish DARA as a trading fund, have been both necessary
and defensible. We also believe that the new air depth support
arrangements will give greater clarity and certainty to both the
Armed Forces and Industry, and that the arrangements are fully
in line with our Defence Industrial Strategy.
Nor do we accept that the Red Dragon project is a
waste of money. Red Dragon allowed DARA to move from antiquated
Second World War accommodation, spread over the entire St Athan
site, into one single purpose-built facility. Red Dragon provided
a window of opportunity for DARA to win necessary new commercial
work. In the event, this did not happen as a result of a combination
of factors, including the outcome of the end to end work and the
decisions to accelerate the withdrawal from operational service
of the Tornado F3 and Jaguar, and to extend Tornado servicing
intervals. We nonetheless expect to have recovered our investment
in the Red Dragon project by April 2007.
This memorandum sets out, in detail, the Government's
response to each of the Conclusions and Recommendations in the
Committee's report, in the order in which they were raised.
1. We welcome MoD's decision to embrace modern
production techniques that are designed to achieve savings and
efficiencies. The performance of the pulse line system can only
be judged over time. The success of the pulse line will be dependent
on industry's ability to ensure aircraft components are readily
available. Any delay in the availability of components would severely
undermine the effectiveness of the pulse line. The RAF will have
to ensure this risk is managed robustly. (Paragraph 32)
We note and welcome the Committee's support for the
introduction of modern techniques into the support area and agree
that the management of risk is critical to their success. We also
agree that robust planning is key to delivering components to
the pulse-line at the correct time and in sufficient quantity,
and this is a fundamental tenet of our partnering arrangement
with industry. The management of projected risk is already a fundamental
element of our governance regime.
2. Given that MoD believes the pulse line will
deliver significant improvements to the provision of support to
RAF aircraft, it is surprising that it was not introduced sooner
at St Athan. We recommend that MoD carefully monitor and evaluate
its pulse lines supporting aircraft, giving particular attention
to ensuring that supplies of components and technical support
are provided in a timely fashion. (Paragraph 33)
DARA has not introduced pulse line techniques at
St Athan. Pulse is a volume-driven process that requires a high
degree of predictability, a consistent flow of activities and
an effective supply chain. Prior to moving into the new Red Dragon
facility, a pilot scheme was carried out to investigate the applicability
of pulse and flow to DARA. The pilot concluded that pulse would
not be appropriate for St Athan, given the transfer of Harrier,
and the fact that Tornado majors were soon to end; there was insufficient
residual work with enough volumes, consistency and predictability
for pulse lines to be the optimal method of maintenance. Nevertheless,
many principles established during the pilot (regarding scheduling,
eliminating waste, and more effective supply chain management)
were introduced at St Athan, not least on VC10. Had the End-to-End
decision been that Harrier and/or Tornado support should continue
at St Athan, DARA would have revisited the applicability of pulse
lines and may have introduced them, as indeed they have with the
Rotary Wing Roll Back work at Fleetlands, with significant success.
The performance of the pulse lines at RAF Cottesmore
for Harrier and RAF Marham for Tornado GR4 is managed through
a partnering arrangement with the prime contractor, and is constantly
reviewed and evaluated at all levels of the management structure.
The effective and efficient management of pulse line requirements,
including the timely delivery of components and technical support,
is an integral part of the MoD supply chain process.
3. We note the apparent success of the leaning
programme at RAF Marham. We also note that this is still at its
early stages and that the full transfer of Tornado support has
yet to take place. We are concerned about the sustainability of
leaning once it has done so. We are concerned that leaning programmes
either have a tendency to lose impetus with inefficiencies re-entering
the system or prove counter-productive in leaning out vital processes.
(Paragraph 35).
We note the Committee's concern about the sustainability
of leaning and recognise the risk of losing impetus. Evidence
from the Harrier pulse-line at RAF Cottesmore shows that, with
a robust sustainment plan, a step improvement in turn round times,
achieved as a consequence of adopting lean techniques, can be
maintained. Similarly, the move to a combined upgrade and maintenance
line for JUMP was only possible using lean techniques. The same
principles are being applied to Tornado at RAF Marham. The Department
is also putting in place measures to identify and manage personnel
leaning skills and 'lean champions' will be embedded on all RAF
Man Operating Bases. We plan to review to ensure vital processes
are not leaned out.
4. We recommend that MoD continue to seek out
and eliminate inefficiencies in all its aircraft support processes
but that it ensure that leaning does not go so far that the quality
of maintenance is undermined by efforts to meet efficiency targets.
(Paragraph 36)
We fully agree with the Committee that the quality
of maintenance must be maintained. The MoD remains committed to
removing all possible inefficiencies, but not at the expense of
overall resilience and airworthiness, which remain paramount.
Stringent quality procedures are also in place to ensure that
the existing high standards at Main Operating Bases are maintained
in our partnering arrangements with industry.
5. We recognise that close partnerships with industry
in the provision of aircraft support through "gain-share"
agreements may result in real benefits for the RAF and value for
money for the taxpayer not least by reducing perverse incentives
for industry. We note Air Vice Marshal Thornton's concerns about
the difficulties of sustaining gain-share over the long term and
we expect MoD to monitor and evaluate these agreements very carefully.
Beginning in January 2006, we intend to consider the wider issue
of MoD's partnerships with industry in our inquiry into MoD's
Defence Industrial Strategy. (Paragraph 39)
We are pleased that the Committee recognises the
real benefits that partnering with industry will deliver. Gain-share
is monitored and evaluated, both ahead of contract award, and
as part of MoD's management of contract performance. Any partnering
relationship with industry must demonstrate savings in comparison
with legacy (previous) arrangements.
We recognise also the difficulty of sustaining gain-share
once a programme is matured, which is why our availability contracts
are usually set for a five-year term, with a rolling extension
beyond this, thereby encouraging continuous improvement and innovation.
6. We note both the Unions' claims of problems
with the Harrier JUMP at RAF Cottesmore and MoD's clear refutation
of these claims. We pressed MoD particularly strongly on the impact
of Harrier flying times and were assured that the decision to
extend them was taken only after a long consultation with the
Harrier design authority and that there was no increased risk
to Harrier pilot safety. (Paragraph 50)
As the Committee notes, the MoD has responded in
full to the Trades Unions, refuting the claims that have been
made.
7. We recommend that MoD commission an independent
audit of the Joint Upgrade Maintenance Programme at RAF Cottesmore
to identify any issues and learn lessons which may impact on the
programme to concentrate support of Tornado GR4 at RAF Marham.
We further recommend that MoD adopt a more flexible timetable
for rolling forward the Tornado GR4 to ensure sufficient time
to upgrade the deep repair facilities at RAF Marham and to take
advantage of any recommendations or information that may arise
from the audit of the Harrier JUMP programme at RAF Cottesmore.
(Paragraph 51)
We do not believe that an independent audit of Harrier
JUMP as suggested is warranted; however, we would, of course,
welcome and co-operate fully with any external audit undertaken
by the National Audit Office. The JUMP programme is successful
and will, on average, make an additional eleven Harrier aircraft
available to the front line, as well as delivering savings of
£44M over the next four years. Lessons learned on the JUMP
programme have been, and will continue to be, implemented at RAF
Marham in support of the Tornado GR4. Progress on both the Harrier
and Tornado programmes will continue to be reported regularly
to Ministers. The Department do not believe, given the benefits
that would be foregone, that there is any cause for altering the
planned timetable for rolling forward Tornado GR4.
8. It seems perverse and wasteful for MoD to invest
large amounts of public money to renovate the facilities at RAF
Marham when it has at its disposal a state-of-the-art facility
at St Athan. It is doubtful that the facilities at RAF Marham
will ever match those at DARA St Athan, but given the decision
to base Tornado GR4 support at RAF Marham, it is essential that
MoD ensure that those who work there have the facilities they
need. (Paragraph 62)
We agree that Service personnel and civilians working
at RAF Marham must have the facilities they need to complete the
task placed upon them. The investment in the infrastructure at
RAF Marham, including additional aircraft strip and paint facilities,
hangar cranes and other improvements, will provide cost effective
facilities appropriate to the task. The costs of this investment
were taken into account in the Investment Appraisal (IA) work
which compared the relevant costs for both roll-forward and roll
back. The IA concluded that transfer of Tornado GR4 depth work
to RAF Marham represented better value for money than locating
this work at RAF St Athan, notably because of the significant
investment costs to provide adequate accommodation for the servicemen
and their dependents which would have had to be deployed there
because of the Crisis Manpower Requirement. These conclusions
were endorsed by the Department's Senior Economic Adviser.
9. We reiterate the concerns of our predecessors,
that Tornado support at RAF Marham should match that provided
at DARA St Athan. For this to be so, the RAF must ensure that
its tradesmen are trained to the highest standard and that all
tradesmen are given the opportunity to develop their skills through
regular rotation between the forward and depth environments. (Paragraph
63)
RAF engineering tradesmen, who have carried out such
work throughout the history of the RAF (including at St Athan)
are trained to a standard which is kept under constant review
to reflect any changing requirements of the Service. A policy
already exists to rotate personnel through a range of employment,
including between the forward and depth support environments,
thereby ensuring that they possess a full range of skills. These
arrangements were in place when significant numbers of RAF servicemen
were employed on 3rd Line maintenance work at RAF St
Athan. This rotation of staff is managed by the RAF Personnel
Management Agency, in liaison with Force Commanders.
10. The retention by the RAF of sufficient numbers
of Senior NCOs will be fundamental to the long term success of
this process. (Paragraph 65)
The RAF is confident that its long-term manpower
planning will provide sufficient SNCOs with the necessary training
and experience to sustain the Forward and Depth support functions.
Plans are based on historic and projected outflow rates, and are
tailored to reflect actual manning requirements.
11. We are concerned about potential difficulties
that over-leaning of processes at RAF Marham may bring. We expect
MoD to monitor the pulse line, particularly during surges of demand,
and to make credible contingencies in case of overload. We do
not consider the reduction of leave entitlement or training to
meet surge demand to be credible contingencies for meeting demand
surges. We regret the loss of the flexibility to meet demand surges
which the support arrangements at DARA St Athan currently provide.
(Paragraph 68)
Pulse line workloads are closely monitored at all
times to ensure reasonable and safe demands on the workforce.
Surge requirements can—as they have in the past—be
met by transferring personnel between Forward and Depth. Indeed
the strategy for implementing the new arrangements for Depth maintenance
at RAF Marham has been built around the need to retain the flexibility
to surge output to meet peaks in demand. In times of surge the
Department will also make use of Agency staff, as was previously
the case at DARA. Whilst we would always aim to keep this to a
minimum, cancellation of leave or training courses for military
personnel may, exceptionally, be required to meet operational
surge.
12. While the RAF's Crisis Manpower Requirement
was the major factor in the decision to shift responsibility for
depth support from civilian to RAF tradesmen, the decision of
where to base depth support was taken largely on cost grounds.
In the case of fast jets, it was considered cost-effective to
move depth support to RAF MOBs: for rotary wing support, it was
not. (Paragraph 78) (Addressed with Paragraph 80)
13. We are concerned that MoD's decision about
its aircraft support provision was not founded on consistent principles.
MoD's emphasis on CMR as the driver for rationalising its support
arrangements is undermined by its later acknowledgement that the
decision was taken on cost grounds. This leads us to conclude
that the new arrangements will not stand the test of time. (Paragraph
80)
These decisions were not made solely on cost grounds
but on the basis of wider cost effectiveness considerations. The
CMR for all aircraft types was calculated using a common formula
based on Defence Planning Assumptions, and this was then factored
into work to determine the most cost effective location for depth
support. Because of their deployment patterns, complexity and
relatively large deployed manpower requirements, fast jet combat
platforms have a significantly larger CMR than other aircraft
types, including helicopters. A large element of the fast jet
CMR manpower therefore had to be placed in depth support, and
this in turn made it more cost effective to collapse depth support
for fast jets forward onto the Main Operating Bases, rather than
at St Athan. This decision was underpinned by an extensive independent
investment appraisal. An independent review of the CMR process
and calculation was undertaken by the Senior Economic Adviser
in tandem with the Investment Appraisal work.
The rationalisation of support arrangements was therefore
driven by both operational (CMR) and cost-effectiveness considerations,
together with a rigorous assessment of risk. There is therefore
every reason to suppose that it will be resilient, and will be
sustainable in the long term.
14. During the course of our inquiry, neither
the performance of DARA as a trading fund nor the quality of its
workforce and support for RAF aircraft has ever been brought into
question. (Paragraph 85)
We are pleased that the committee recognise, as do
we, the excellent work that DARA's workforce have undertaken over
the years. None of the decisions taken by the Department reflect
in any way on the past performance of the Agency.
15. Despite its protests, DARA management was
not fully included from the outset in the End to End Review process.
That was wrong. (Paragraph 86)
The first McKinsey report into 'Re-Energising the
DLO Change Programme', published in August 2002, covered all the
operational environments supported by the DLO, and was very wide-ranging.
It was not feasible or necessary to include every stakeholder
at every stage of the work, but DARA were indeed included in the
circulation of the report, and provided detailed responses on
areas of interest to them. The then Chief Executive DARA was involved
in the subsequent End-to-End review, feeding in his comments at
the drafting stage and presenting DARA's perspective prior to
the final publication of the report in July 2003. Once the E2E
report was published, DARA were fully and extensively involved
in all stages of the follow-on work, particularly the revalidation
of the Red Dragon business case and the full and detailed investment
appraisal on whether to roll depth support forwards or backwards.
Clearly, whilst DARA would have preferred a different
set of outcomes, their views were thoroughly taken into account
prior to any decisions being made and the current CE DARA acknowledges
that their level of involvement throughout the process was appropriate.
16. It is striking that MoD has reconfigured its
air logistic provision only four years after a similarly significant
reconfiguration had been completed. This suggests that either
the original decision to establish DARA was unsound or the recent
decisions affecting its future are misjudged. Either way, it is
hard to escape the conclusion that MoD has in recent years contributed
to a period of unnecessary turbulence and uncertainty in aviation
logistics provision. (Paragraph 90)
The Department does not agree with the Committee's
conclusion. Since the Strategic Defence Review, the Department
has sought to ensure that front-line forces receive the logistic
support they need within a framework that provides the best balance
between operational effectiveness, efficiency and value for money.
Its approach has reflected the need for greater flexibility and
agility in logistic support capabilities to meet the requirements
of expeditionary operations. For the air environment, this has
meant a move away from the traditional reliance on multiple lines
of support at operational bases, in second and third line facilities
and in industry.
DARA was formed in 1999 to exploit the synergies
between support for fixed and rotary wing aircraft. It was established
as a Trading Fund in 2001 to reflect both a declining need to
retain in house depth repair capabilities as strategic assets
and the imperative to achieve greater efficiency. In 2003/04,
following the fundamental review of end-to-end logistics support,
the Department concluded that only two lines of support were necessary:
Forward and Depth. Subsequent decisions on where Depth facilities
should be located have reflected the industrial support requirements
for each aircraft type.
The Department does not therefore agree with the
Committee's conclusion that it has "contributed to a period
of unnecessary turbulence and uncertainty in aviation logistics
provision". In particular, the End-to-End conclusions did
not invalidate the decision to establish DARA as a trading fund.
The commercial freedoms from trading fund status have enabled
DARA to deliver substantial benefit in terms of meeting customer
requirements while achieving demanding targets and efficiency
gains. Inter alia, this has placed DARA, as a whole, in
a better position to adapt to changing circumstances. Overall,
the Department's approach has been consistent, and has reflected
the need to adjust its logistic support capability to a rapidly
changing strategic environment.
17. We recommend that MoD provide more detail
of what the 'market testing' of DARA Fleetlands and DARA Almondbank
will entail. The longer the period of market testing, the more
uncertainty there will be for DARA management and employees. This
will inevitably impact on DARA's business planning and ability
to attract commercial work. It is vital that the future arrangements
for RAF aircraft are of the highest possible standard and, at
the very least, match the service provided by the current arrangements.
(Paragraph 91)
Initial market testing was completed at the end of
last year by Morgan Stanley on behalf of MoD. On the basis of
this advice, Minister (AF) announced on 8 November 2005 his intent
to take DARA's VC10, rotary wing and components businesses to
the market to determine if this would deliver the best value for
defence. Following completion of the formal national trade union
consultation process on 23 January 2006, further work to develop
the methodology for market testing these businesses is now being
undertaken.
Until alternative arrangements are put in place,
DARA's relationship with MoD will remain unchanged. It will continue
to operate under trading fund status, seeking out commercial opportunities
while maintaining the very high standards of support it currently
provides to the MoD.
18. We are concerned about the sustainability
of MoD's commitment to concentrating rotary wing support at DARA
Fleetlands. It is crucial that MoD give DARA Fleetlands the necessary
time, resources, and backing it requires to establish itself as
a first class provider of rotary wing depth support. (Paragraph
92)
The Government remains committed to making the roll
back of rotary wing support to Fleetlands a success. DARA have
a comprehensive plan in place to transfer depth maintenance for
Sea King, Lynx and Chinook back to Fleetlands. Roll back commenced
in April 2005 and will complete between March 2006 (Chinook) and
March 2007 (Lynx). The establishment of the pulse lines and site
rationalisation plans is fully on course. The increased volumes
now going through DARA's Rotary Wing business, together with the
increased efficiency already being experienced through the introduction
of the pulse lines and lean techniques, have already resulted
in a reduction in turn around times for each platform, and further
reductions are on course to be achieved. The increased volume
and efficiencies/new working practices have also substantially
reduced costs in line with the Investment Appraisal on which the
roll back decision was based.
Further, DARA is moving to an output based approach
and will shortly sub-contract with Boeing for depth maintenance
on Chinook for the life of the aircraft. Sea King is likely to
follow a similar path with their second stage of logistic transformation
but with Agusta Westland rather than Boeing. The DLO rotary wing
Integrated Project Teams associated with DARA have provided, and
continue to provide, strong engineering, logistic and transformation
support to DARA.
19. We remain concerned about the long term viability
of the St Athan site. In light of the end of the fast jet business
and the VC10 having an Out of Service Date of 2011, Government
departments must work with the National Assembly for Wales and
its agencies in encouraging alternative commercial investment
to guarantee the long term viability of St Athan as a matter of
urgency. (Paragraph 97)
The Ministry of Defence will continue to work closely
with the National Assembly for Wales and, in particular, the Welsh
Development Agency, to attract investment to St Athan, through
our jointly funded and staffed marketing team based at St Athan.
Working together, we have already ensured the arrival of the commercial
company ATC Lasham and continue to work very closely together
to promote the site to other interested parties. We will also
continue to ensure that St Athan relocation is considered fully
in any internal MoD proposals, noting that proper procurement
procedures must always apply and final decisions must be based
on overall value for money.
20. We consider that the decision to go ahead
with the funding for the Red Dragon project in 2003 was incomprehensible
given the uncertainty surrounding air logistic provision at the
time. MoD admits that the viability of DARA was an issue even
before the decision to commit £104m of public money to Red
Dragon and the decision on support for fast jets were taken. With
the future so uncertain it was extraordinary to go ahead with
Red Dragon in the knowledge that the provision for future support
was under review. The decision is a clear example of a lack of
joined-up government within Whitehall and between MoD and the
National Assembly for Wales and its agencies. As things currently
stand, the Superhangar is a valuable facility with no clear future.
We recommend that the National Audit Office and the Wales Audit
Office examine whether public money was properly spent on the
Superhangar. (Paragraph 100)
We do not accept that the decision to proceed with
the Red Dragon Project in 2003 was incomprehensible. The Red Dragon
project was, inter alia, intended to improve the ability
of DARA St Athan to win new commercial work to offset the already
established forecast decline in MOD workload, as legacy aircraft
such as Harrier and Tornado, on which DARA depended for much of
their business, reached the end of their service lives. Red Dragon
allowed DARA to move from antiquated Second World War accommodation,
spread over the entire St Athan site, into one single purpose
built facility.
The Red Dragon business case was based on strong
evidence - particularly a compellingly short payback period as
a result of increases in efficiency. As the case was being considered,
the possibility of an end-to-end review of air and land logistic
support was raised but, when Red Dragon was approved in early
2003, the review had only just started and there was no substantive
evidence that would have put approval of the project into question.
Once the results of the review were available - and as the review
itself recommended - an investment appraisal into the continuing
viability of Red Dragon was commissioned in October 2003. This
confirmed that the business case remained valid over the payback
period. In the event, we expect to have recovered our investment
in the Red Dragon project by April 2007.
Red Dragon provided a window of opportunity for DARA
to win new commercial work but this did not prove possible because
of a combination of factors, including the impact of the End-to-End
review, the early withdrawal from service of the Tornado F3 and
Jaguar aircraft and the extension of service intervals on the
Tornado GR4.
21. Nevertheless we believe that the combination
of state-of-the-art facilities and an enthusiastic and skilled
workforce at St Athan provide a tremendously attractive opportunity
for commercial investment. We expect government departments to
work energetically to attract commercial investment to the St
Athan site. (Paragraph101)
The Government agrees with the Committee's assessment
of the opportunities for commercial investment at St Athan. We
are working closely with the Welsh Assembly Government to attract
new business to St Athan as MoD's fast jet work draws down.
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