Appendix: Government response
Introduction
1. This
memorandum constitutes the Government's response to the House
of Commons Defence Select Committee's report, The Defence Industrial
Strategy (Seventh Report of Session 2005-06, HC 824, published
on 10 May 2006). The Government welcomes the Committee's Report.
2. In responding to the Committee's specific conclusions,
this memorandum outlines what is being done to implement the DIS.
The MOD is improving how we interact with industry, developing
the means by which we procure and support our equipment and working
to sustain critical capabilities in the industrial base. Noting
the Committee's concerns about the relationship between partners
and other tiers of the supply chain, we also take this opportunity
to set out in some detail how the risks, which we recognise, can
be managed.
3. As the Committee knows, we have recently announced,
on 3 July, the results of a review of our acquisition processes
and organisational construct which identified the extent to which
our current ways of doing business hindered or supported excellence
in defence acquisition. This, the 'Enabling Acquisition Change'
report, was a robust study which concluded that we should make
some significant changes to the MOD's organisation. Subject to
consultation with the trade unions, the MOD intends to move rapidly
to implement this report, to have the changes in place by April
2007. We welcome the Committee's continuing interest in this subject.
Production of the DIS and initial reaction to
it
We welcome the publication of the Defence Industrial
Strategy and congratulate the Minister for Defence Procurement
and his team for delivering the Defence Industrial Strategy to
a tight timetable. (Paragraph 9)
4. We are grateful for the Committee's sentiments.
The DIS would not have been possible without the input of hundreds
of people across MOD as well as other Government Departments,
trade unions and industry. We are now putting the same commitment
and urgency behind implementing the Strategy.
During the production of the Defence Industrial
Strategy a wide consultation with industry took place, but we
are concerned about the adequacy of the consultation with Small
and Medium Enterprises and with the MoD trade unions. We look
to the MoD to consult more fully with both Small and Medium Enterprises
and the MoD trades unions as work on the Defence Industrial Strategy
is taken forward. (Paragraph 13)
Small and Medium Enterprises (SMEs)
5. All possible effort was made to consult with defence
companies at all levels in the supply chain, including SMEs, during
the development of the DIS. Ministers and senior officials met
with key suppliers and representatives from SMEs several times
during this period, and throughout the process the door remained
open for any defence company to engage. Indeed, we actively encouraged
companies at all levels to send in their views, even setting up
an internet site open to all to participate in an open debate
on the DIS. We also engaged strategically with industry through
the National Defence Industries Council (NDIC), which includes
the major national trade associations associated with the defence
industry (Society of British Aerospace, Defence Manufacturers
Association, Intellect and British Naval Equipment Association)
and other representatives of the defence industry as a whole.
The evidence offered by the Defence Manufacturers Association
and Defence Industries Council amongst others demonstrated the
significant effort that both MOD and industry had expended to
ensure as full a debate as possible in the time available and
recognising individual companies' commercial sensitivities.
6. The DIS gives a framework against which industry
will be able to make rational investment decisions for the future.
This applies as much to SMEs as to larger companies. We will continue
to seek to engage the defence industry as effectively and efficiently
as possible, recognising that smaller companies at lower tiers
of the supply chain may have limited resources to engage directly
with MOD rather than with their immediate customers. The MOD is
working to develop our understanding of key supply chains and
where vulnerabilities may exist at lower levels which provide
critical military capability. We are also seeking to understand
better the factors that impinge on the innovation process, including
in smaller suppliers. In short, we are changing our focus from
key suppliers to key supply-chains and want to highlight the opportunities
available to all suppliers in the provision of military capability
both now and in the future. In developing proposals for taking
this forward, the MOD has again engaged industry through the NDIC
and trade associations, as well as other government agencies.
We are also already delivering on the commitment to greater transparency,
through briefings open to defence SMEs (described in more detail
at paragraphs 46-47).
Internal Trade Unions
7. The DIS is a development of the Defence Industrial
Policy (DIP) of 2002, and a document of government policy. While
it reflected ongoing change initiatives, many of which had been
or were subject to formal consultation, its publication did not
of itself affect the employment of MOD civilian staff. As a result,
the MOD Trade Unions were not formally consulted on the DIS as
a whole, but were nevertheless informally engaged, two meetings
were held with the Minister for Defence Procurement and a further
four meetings with officials in the latter half of 2005.
8. In the implementation period, we remain fully
seized of our obligations to our Trade Union stakeholders. Trade
Unions representatives have met officials several times since
December for informal discussions and briefings, as well as discussions
at the Whitley Councils. We are also committed to consult formally,
in accordance with existing Departmental procedures, on firm proposals
affecting MOD staff as they develop. In particular, formal consultation
has now begun on the Enabling Acquisition Change report, which
clearly has implications for the organisation and structure of
the MOD, and hence MOD civilian staff.
The initial reaction to the Defence Industrial
Strategy has been generally very positive. However, while the
initial reaction of the defence industry, defence academics, trade
unions, and other organisations has generally been positive about
the publication of the DIS and the broad thrust of what is proposed,
a number of areas were identified where further work was required.
These included:
- Research and Technology
(R&T);
- SMEs and the supply chain;
- security of supply;
- the procurement process. (Paragraph 16)
9. The Government acknowledges that the DIS left
work to do in some areas; indeed the Minister for Defence Procurement
recognised in his first major speech on the DIS that 'by December,
we will not be able to cover all the sectors to the same depth,
and there will be an element of ongoing work'. The Government
itself identified in the DIS areas where further work was required,
and MOD has in hand work that encompasses these, as set out briefly
below, and more fully elsewhere in this memorandum.
Research and Technology
10. For research & technology, the MOD is, as
indicated in DIS Chapter C2, reviewing the research programme
with a view to improving its alignment, quality and military exploitation;
conducting further work to better understand the underpinning
technologies that the UK must have for sovereignty reasons; and
working with industry to develop a better understanding of the
innovation process and to map the technology trees for major capabilities,
systems and platforms. Informed by the outputs of this and lessons
from other work, including a recently launched study of MOD research
and development, we expect to publish a revised Defence Technology
Strategy in the autumn.
SMEs and the supply chain
11. The Government agrees with the Committee on the
need to develop a greater understanding of the defence supply-chain,
its key players, where vulnerabilities may exist and the impact
our decisions could have on SMEs. We also recognise the concern
that the development of long-term partnering arrangements could,
if not managed appropriately, limit the scope for innovation and
new suppliers' entry into the market.
12. We have launched a joint MOD-industry study on
the factors that encourage innovation in the supply-chain, using
recent case studies as evidence to understand what factors influence
successful innovation. Additionally, we are working with industry,
DTI, Regional Development Authorities and others to improve our
knowledge of defence supply chains, including work on the Defence
Technology Strategy which aims to locate more precisely where
critical industrial capabilities currently reside. As part of
this, the Supplier Relations Group is developing a process that
will help provide early warning of potential supply-chain vulnerabilities,
particularly those that provide us with key sovereign capabilities,
to ensure that these remain acceptable, sustainable and secure.
We are also reviewing our existing Codes of Practice for Tier
1 suppliers that guide the management of the supply-chain to ensure
SMEs have the opportunity to compete for follow-on work, especially
within long-term partnering arrangements.
Security of supply
13. Even where an industrial capability is not specified
as needing to be retained in the UK as a national security priority,
security of supply will continue to be investigated for all procurements.
While we have benefited from access to the global supply base
in many areas, this is always based on assessment of the potential
risks to supply.
14. We recognise the Committee's particular concern
regarding assuring security of supply for general munitions, following
BAE Systems' announcement of their intention to close their Bridgwater
and Chorley plants. This issue is addressed at paragraphs 75-76
below.
The procurement process
15. Since publication of the DIS the MOD has conducted
a major review of its acquisition systems, processes and organisational
construct, entitled the 'Enabling Acquisition Change' review.
The results of the review were reported on 03 July and we are
now engaging in detailed consultation with industry, trade unions
and staff on how its recommendations will be taken forward. Implementation
of acquisition reform is very important, not only in promoting
consistent excellence in defence acquisition but also to demonstrate
our commitment to the DIS. We expect industry to respond positively
to this signal.
How the Defence Industry needs to change
We welcome the clarity that the Defence Industrial
Strategy has provided to industry about future defence requirements,
which should help to make the UK an attractive market to defence
companies. (Paragraph 23)
16. The Government agrees that this clarity is, together
with other factors including the UK's stable macroeconomic environment,
an important factor in maintaining the attractiveness of the MOD
as a customer and the UK as a base of operations. The UK already
has a successful and sophisticated industrial base with a broad
range of capabilities that deliver a large proportion of our defence
equipment and services. In order to equip the Armed Forces effectively,
it is important that this remains the case. This includes encouragement
of overseas investment where this creates value, employment, technology
or intellectual assets in the UK. The clarity the DIS provides
will help investors to see the long-term, attractive propositions
that our business, and our support to exports, can offer.
We note that BAE Systems is considering selling
its stake in Airbus, which makes us uncertain of where it leaves
their commitment to the UK. Given the possible impact on UK jobs,
and the fact that the MoD is procuring A400M transport aircraft
from Airbus' military arm, we shall keep a close eye on this matter
as it develops. (Paragraph 23)
17. The Government notes the Committee's interest
in the progress of BAE Systems intention to sell its stake in
Airbus. The proposed transaction is a commercial decision for
BAE Systems and the European Aeronautic Defence and Space Company
(EADS). There are however existing inter-company agreements between
EADS and BAE Systems designed to safeguard UK jobs and work. These
agreements would transfer to the UK Government and EADS on the
sale of BAE Systems' interest. The Government is working, as a
precautionary measures to strengthen these undertakings.
18. The MOD has current and potential business involving
Airbus aircraft, namely the A400M military transport aircraft,
under contract through OCCAR (Organisation Conjointe de Coopération
en matière d'Armement), and the Future Strategic Tanker
Aircraft, where negotiations on acquisition of a PFI service are
proceeding with the Airtanker consortium. The Government does
not expect the sale of the BAE Systems stake in Airbus, if it
proceeds, to have any impact on these programmes.
The defence industry has accepted that future
work will focus on the insertion of upgrades and new capabilities
and through-life maintenance of existing platforms, rather than
new platforms. (Paragraph 25)
19. We welcome the Committee's conclusion. A key
principle of the DIS is the importance of through-life capability
management. We signalled strongly that, even in sectors such as
the defence maritime sector where the demand for new platforms
is currently strong, industry and the MOD would generally need
to change focus from new platform design and development to platform
upgrade and maintenance over lengthy service lives. This shift
has been reflected by some companies, others are working now to
adjust their business models accordingly. The Enabling Acquisition
Change report has also identified changes which the MOD itself
needs to make to promote through-life capability management, and
subject to consultation with the trade unions, we intend to make
rapid progress to implement the necessary measures.
20. Our experience will also be informed by lessons
identified by:
- the two Pathfinder programmes
(which are testing tools to deliver through-life capability management,
such as techniques for capability trade-off and integrating projects
across the Defence Lines of Development; both programmes consist
of MOD and industry personnel and are directed by a Pathfinder
steering group consisting of senior MOD and industry stakeholders);
- and by the Through Life Management Group (TLMG),
a joint MOD-industry working group. The TLMG has begun to develop
a through-life 'concept of operations', a guide to assist MOD
and industry project leaders to embed through-life management
within their projects.
The Defence Industrial Strategy will lead to job
increases and job decreases in different sectors of the defence
industry. We look to the Government to assist, where appropriate,
those sectors where job decreases are likely. (Paragraph 27)
21. The Government accepts the Committee's recommendation.
Where employment levels cannot be sustained, a decrease in the
number of jobs may be achieved by active management of hiring
and retirement patterns, as well as voluntary or compulsory redundancy.
While the nature and extent of redundancies are a commercial matter
for the company concerned, the Government recognises the anxiety
and distress caused to employees and their families in such circumstances
and the personal tragedy of redundancy arising from the consequences
of industrial and commercial restructuring and contraction.
22. In general, the Government provides support in
such situations through its regional partners—RDAs and the
Devolved Administrations—and Job Centre Plus, doing everything
it can to support those affected and to help them find new employment
and where required, to retrain. Where employers anticipate redundancies
of 20 or more at one establishment they are legally obliged to
notify the DTI, giving either 30 or 90 days notice depending on
the numbers expected to be affected. Job Centre Plus assesses
the impact of the redundancies on the local labour market before
declaring whether or not a redundancy is large scale. The term
Large Scale Redundancy (LSR) is used by Job Centre Plus and other
partners to allow redundant workers early access to provision
designed to help individuals back into jobs, such as assistance
with job application techniques and retraining.
23. There is also a Rapid Response Service (RRS)
designed to enhance the Job Centre Plus response to a LSR judged
to have a particularly significant impact on the local labour
market. An essential element of RRS support is partnership working
in the locality affected. The minimum partnership comprises Job
Centre Plus, RDAs/Devolved Administrations and Learning and Skills
Council. In practice local partnerships also include local authorities,
Chambers of Commerce, MPs and Trade Union representatives. RRS
support is directed to the needs of individual employees and is
intended to be made available during the 12 weeks prior to and
the 12 weeks after the date of redundancy.
24. Although not part of any formal process, from
time to time and in response to a specific LSR, a 'community'
task force has arisen spontaneously because of the significance
to the locality of an employer and the close working relationship
between regional partners and local partnerships. These task forces,
such as the Clyde Shipyards Task Force, have in general enjoyed
central government support. They have successfully brought together
local partnerships and regional partners with other local representatives
of central government and DTI sector experts who, through better
coordination of their resources and activities, seek to:
- minimise the extent of current
and possible future redundancies by assisting the company to improve
its product or develop its market as well as through the retraining
and reskilling of employees within the company;
- assist redundant workers find alternative employment,
again, including through retraining and reskilling; and
- assist the local economy to reduce its dependence
upon the single major employer.
25. However, in general, we anticipate that the clarity
given by the DIS will allow industry to plan for the long term,
in some cases while it still has a significant peak of work to
come. As we have clearly indicated, several sectors will thereafter
face a lower level of business, and companies will need to adjust
to this reality. Given the clarity of the long-term perspective,
we expect industry, with the trade unions, MOD, DTI and others,
to be able to manage the changes effectively and prepare those
who may be affected well in advance. With increased understanding
of our plans, and the opportunity for dialogue, industry can work
with us to avoid 'boom and bust' and establish sustainable businesses,
maintaining the key capabilities we need with improved productivity
and delivering a lower but steadier workload once the major platforms
have been delivered.
We shall take a keen interest in any developments
in the restructuring of the dockyards. (Paragraph 33)
26. The Government welcomes the Committee's continuing
interest. The proposed BAE Systems and VT bid for Babcock in the
spring of this year saw the first post-DIS attempt at consolidation
in the UK naval maritime sector. That attempt was unsuccessful
in overall commercial terms; however our work with industry in
recent months has demonstrated the potential for consolidation.
We continue to believe that such consolidation is necessary to
ensure balance in supply and demand over the long term. We will
encourage and support deals which add value, truly transform the
business and deliver the substantial performance improvement
the sector needs. We are working with industry to develop the
best way forward for all parties.
We look to the MoD to ensure that the Maritime
Industrial Strategies are produced, and the strategies implemented,
to the planned timetable. (Paragraph 34)
27. Implementation of DIS in maritime sector is being
driven with purpose and determination by industry and the MOD.
We have asked the defence industry to help identify better ways
of doing business in the future and have been pleased by the response
but much work remains to be done if we are to achieve greater
efficiency, long term sustainment and stability within the industry,
while ensuring that our needs as the customer are met.
28. In the submarine domain, officials have been
engaged in detailed discussions with industry on the scope of
a possible Programme Level Partnering Agreement and invited industry
to consider consolidation, as such action offers substantial performance
improvement . These discussions were necessarily suspended while
BAE Systems and VT considered a bid for Babcock and the MOD is
considering their re-initiation.
29. In parallel, the MOD's Submarine programme management
has recently been unified under Director General Nuclear, who
is responsible to both the Chief of Defence Procurement and the
Chief of Defence Logistics for managing delivery of the submarine
acquisition programme through-life. Industry has responded well
to this appointment.
30. On surface ship build and design, we are making
progress on assessing the Core Work Load required to sustain the
maritime Key Industrial Capabilities (KICs), though we have not
achieved the target of completing this within six months. This
work is complex but it is important to ensure the links and coherency
with the submarine and support programmes are right. Industry
has been, and will continue to be, involved. As the sustainability
strategy for key maritime equipments is intimately linked to this
work, this will also be delayed. We will ensure that this work
is completed efficiently and effectively and as quickly as possible.
31. On surface ship support, MOD has moved forward
with the three dockyard companies (Babcock Support Services Limited,
Fleet Support Limited and Devonport Management Limited) to put
alternative contracting arrangements in place, initially for a
package of surface warship upkeep work (refits and docking periods)
which is currently planned to begin in autumn 2006. This work
will be managed through the exploratory phase of the new surface
ship support alliance announced by the Defence Secretary on 14
February 2006. During this exploratory or 'transition' phase,
which could last up to two years, competition policy has been
suspended (an exclusion order to the 1998 Competition Act was
tabled by DTI on 8 March 2006 and came in to force on 4 April
2006).
In the fixed-wing sector, future work on Typhoon
and Joint Strike Fighter will provide work for engineers for some
to come, and there will be an increasing focus on Unmanned Combat
Aerial Vehicles (UCAVs). (Paragraph 40)
32. We agree with the Committee that the introduction
into service of Typhoon and the Joint Combat Aircraft (JCA), two
highly sophisticated fast jet fighters with long service lives,
will provide highly skilled employment for some time to come.
At the same time, we need to ensure we have access to the correct
skills mix in industry to maintain and develop these platforms
through-life. This will be a challenge, as there is no UK requirement
for a new-design manned aircraft beyond our current plans although
future procurements of uninhabited and/or manned platforms are
envisaged. As with other sectors such as Complex Weapons and Maritime,
which have reached or are close to reaching an investment peak,
we and industry must plan for the future now, to enable the industrial
transformation required to ensure a long term sustainable industrial
base in the Fixed Wing sector.
33. The DIS recognised that this transformation is
likely over the long term to involve industrial rationalisation
that will lead to significant job decreases. The MOD is working
with BAE Systems to manage this transition and explore the viability
of a Long Term Partnering Agreement (LTPA). The objective will
be to sustain a healthy fixed wing sector and thereby the industrial
capabilities, skills and technologies that will be so important
to our ability to support and upgrade our fast jet aircraft fleets,
through-life, over the next 30 years. Discussions with BAE Systems
over an LTPA are continuing. Although the complexity of the issues
and the transformation required make this a challenging task,
we remain on course to agree the way ahead in 2006, for implementation
from 2007 onwards.
34. This work will need to expand to embrace the
wider defence fixed wing sector, including other companies besides
BAE Systems. As progress is made in developing a LTPA, MOD will
also continue to consult other key stakeholders, including the
Treasury, DTI and RDAs. We are also encouraged by the Society
of British Aerospace Companies (SBAC) initiative to improve the
management and performance of the aerospace supply chain, and
look forward to the publication of their 21st Century
Supply Chain report later this summer.
35. We will also continue to invest in Unmanned Combat
Aerial Vehicles (UCAVs) to understand and de-risk the technologies
that are likely to play an important role in future military capability.
This investment will also help sustain aerospace engineering and
design capabilities in the UK, providing further assurance of
our ability to operate and support our current and future fixed
wing aircraft. Appropriate funding and commercial arrangements
for a substantial UCAV Technology Demonstrator Programme (TDP)
are currently being negotiated between the Government and the
companies involved. We continue to expect to announce the commencement
of the TDP this year.
We note that substantial job decreases are likely
to be seen in the complex weapons sector as the MoD's investment
in such weapons is to be substantially reduced. We look to the
MoD to work closely with this sector so that this important capability
and the current skills are not lost. (Paragraph 44)
36. The Government accepts the Committee's conclusion.
The DIS makes clear that following our planned reductions on current
investment, there will be overcapacity in the UK Complex Weapons
industrial base. Industry is aware of this, and of the need to
work with us throughout 2006, in order to be in a position to
implement solutions in 2007. To this end a joint MOD and industry
virtual team was established in February, including key players
such as MBDA, Thales, QinetiQ, Raytheon Systems Ltd and BAE Systems
Underwater Systems. The team is investigating projected workloads
against industrial capacities and is considering a wide range
of proposals for industrial restructuring.
37. This work is being taken forward at pace. We
are developing an initial joint sustainment strategy, to inform
industrial decisions so that our critical capability requirements
can be met by a sustainable industry at value for money in the
long-term. We plan to announce this shortly.
38. In the latter half of 2006 we intend to implement
this strategy with industry. We are also considering wider restructuring
options with our European allies to identify if a co-ordinated
approach to sustain key capabilities is possible, and will explore
this in more detail in the same period.
How the MOD needs to change
We agree with the Minister for Defence Procurement
that the MoD needs to demonstrate through its own change that
it is serious about the Defence Industrial Strategy and we look
forward to being "surprised" by the pace of change that
the MoD achieves. (Paragraph 47)
39. The Department welcomes this support from the
Committee and wishes to emphasise that it remains committed to
change—DIS implementation is a top priority. Whilst significant
work remains, we have achieved much already.
40. We have completed the Enabling Acquisition Change
review, as announced on 3 July. This represents achievement of
a key milestone in implementation and highlights our willingness
to embed in our working practices and structures the key principles
of DIS. The proposed changes will enable us to take a better view
of what we can afford, and allow us to plan for new military capability
in the round. In particular, running costs will become a greater
focus of attention when we decide what to buy, and as we plan
with industry for its support from the outset, we will be able
to improve support for our Armed Forces, and get the best value
for money for the tax-payer. Equally, as we organise ourselves
to buy and support our equipment in a more joined-up way, industry
too will reform itself.
41. We have developed a plan, with industry, to embed
the Defence Values for Acquisition across the acquisition community,
and will continue to work with the National Defence Industries
Council to ensure that they are the foundation upon which working
relations within the MOD, and between the Department and industry,
are based. Within the MOD's acquisition community, the values
are being reflected in individuals' personal objectives and reward
arrangements. Individual companies are already using the Values
to inform their in-house corporate values and behaviours. The
Defence Academy will introduce joint training courses with industry
to embed the values, and we are also ensuring that partnering
agreements with industry reflect the values explicitly.
42. We are also making senior appointments on a through
life basis as envisaged in the DIS, for example the appointment
of Director General Nuclear to both the DPA and DLO boards as
the first dual-accountable Operations Director, as well as the
Director General Typhoon. We also announced the appointment of
a pan-Defence Commercial Director, as envisaged in the DIS (C1.16,
page 134), on 26 June.
43. We have also established Pathfinder teams in
the Maritime and Land environments. These are now beginning to
test solutions that will enable the MOD acquisition community
to deliver through-life capability management in and across projects.
44. We have recently concluded negotiations with
AgustaWestland on the terms of a Strategic Partnering Arrangement.
The arrangement provides for a sustainable onshore industrial
base in the Helicopter sector, whilst at the same time placing
hard targets for supplier improvement. Negotiations with key suppliers
will continue apace during the rest of 2006 in order to put into
place the other sector sustainment strategies as outlined in the
DIS.
45. We will keep the Committee updated on the progress
of DIS implementation initiatives, and welcome its continuing
interest in this subject.
We look to the MoD to build upon the DIS and provide
more information to industry in the future. (Paragraph 50)
46. The Government accepts the Committee's recommendation.
One of the aspirations of the DIS is to be more transparent to
industry so that we can help our suppliers, and their investors,
to plan for the future, and retain and develop the right industrial
capabilities for our Armed Forces' needs. We expect to see resulting
benefits, in terms of cost-base and overhead reduction, increased
readiness and reduced cost of capital through better investment.
In the DIS itself, we have provided more detail of our future
plans than ever before, but also signalled that, where it is in
our mutual interests to do so and subject to appropriate safeguards,
we are prepared to share even more detail with industry. We have
begun delivering on this policy already, with a series of briefings
to industry setting out more details of our forward plans (for
instance, for armoured fighting vehicles, cryptography and Deep
Target Attack). Industry has welcomed these.
47. Learning lessons from these events, we have produced
guidelines on the conduct of such information release to embed
the revised policy into normal business, and these will be discussed
with industry in the next month. We have also been reinforcing
existing partnering arrangements by providing industry with a
clearer view of our planning assumptions, recognising that these
are subject to final investment decisions by Ministers and the
MOD, and that plans necessarily change over time.
We welcome the fact that the MoD is seeking to
identify improvements to its acquisition arrangements, including
ways to speed the process up, and we look to the MoD to implement
quickly the improvements identified. We expect the MoD to ensure
that best practice is promulgated and the commercial skills of
its officials are improved, particularly the legal and contract
compliance skills needed to ensure well-drawn legal and production
agreements involved in the new long-term partnering approach.
(Paragraph 51)
48. The Government accepts the Committee's recommendation.
The MOD's acquisition arrangements have been reviewed by the Enabling
Acquisition Change Team. Its report is subject to consultation
with the trade unions, but in principle the MOD agrees strongly
that it must implement speedily the necessary reforms in order
to deliver consistently excellent acquisition.
49. The DIS also highlighted the existing schemes
to train our acquisition and commercial staff, including our Business
Graduate Development Scheme, the Acquisition Leadership Development
Scheme and the MSc in Defence Acquisition Management run by the
Defence Academy. Nevertheless, the DIS recognised the need to
do more to address shortages of commercial skills across the Department.
The Department has completed an initial skills gap analysis, with
industry, of the skills, behaviours and training needed to transform
commercial and procurement approaches. Further analysis of skills
and training requirements and the design of solutions will be
taken forward in the second half of 2006.
Research and technology
We are concerned that the decline in defence research
spending will impact upon the quality of future equipment for
the armed forces. We look to the MoD to address the level of spending
on defence research in its Technology Strategy to be published
this year. It would be useful if the Technology Strategy could
set out clearly the level of defence research spending by Government
and industry over time. (Paragraph 63)
We look to the MoD to make a strong case for increased
funding of defence research during the discussions with HM Treasury
on the Comprehensive Spending Review. We see this as a key investment
for the future. (Paragraph 64)
50. The Defence Technology Strategy will provide
a strong base for dialogue between industry and MOD, recognising
that in most sectors companies would expect to undertake the majority
of investment in new research and developing products for market
themselves. The Government has recognised the importance of investment
in Science and Technology and has set a target to raise the Nation's
Research and Development spend to 2.5% of GDP by 2014, working
in cooperation with industry. Over the past three years the MOD
research budget has remained broadly level, and this year has
increased. The current plan is for it to rise in line with inflation
over the next four years. The balance of investment when next
reviewed, taking into account other priorities, will also reflect
the work underway this year (including the Science & Technology
Capability and Alignment Study which will be published by the
end of the summer and the work informing the Defence Technology
Strategy) to ensure that the value of the budget is maximised.
We are discussing the Comprehensive Spending Review with the Treasury
and acknowledge the Committee's concern, but we note that the
Comprehensive Spending Review will not conclude until next year.
The Defence Technology Strategy will reflect the planning assumptions
as they stand at the time of publication, now scheduled for this
autumn.
Lord Drayson acknowledged that the Centres of
Excellence in military research worked well and was a model which
had been used very successfully in the pharmaceutical industry.
He told us that "Centres of Excellence are definitely working
for us. It is an example of a new approach to the management of
R&D which is giving benefits". We expect the further
work on Research and Technology to encourage and maintain the
Centres of Excellence for defence-related research. (Paragraph
66)
51. The Government notes the Committee's expectation.
MOD is seeking to increase the early sharing of Defence needs
with industry to facilitate joint planning and the development
of research roadmaps for important Defence technologies and capabilities.
This enables both MOD and industry to plan their investment and
to work cooperatively to build Defence capability in the UK. The
National Audit Office has recognised that MOD has made progress
in encouraging joint working with industry through the establishment
of Towers of Excellence and Defence Technology Centres.
52. Towers of Excellence are selective partnerships
with industry and academia, directing resources into priority
areas of technology research. The development of technology through
to a final product and more general technology transfer to industry
are a major benefit of operating Towers of Excellence. Defence
Technology Centres are examples of an alternative partnering approach
which are jointly funded by MOD and industry (usually as consortia).
The Centres are based around topics which are critical to Defence
and where investment is judged likely to produce significant returns.
A range of suppliers, including SMEs and academia, provide input
to the Centres, which are managed to allow a flexible response
to emerging needs and priorities. We intend therefore to maintain
the use of both Defence Technology Centres and Towers of Excellence
as a means of managing research for defence.
Small and Medium-size Enterprises and the supply
chain
We note that the MoD has sought to become more
"user friendly" to Small and Medium-size Enterprises
which are a vital part of the UK defence industry. (Paragraph
76)
53. The Government welcomes the Committee's acknowledgment
of MOD's efforts, and notes its expectations for future progress.
54. MOD has sought and continues to seek to become
more user-friendly to SMEs, through a number of ongoing SME- focussed
activities, and to improve its knowledge of supply chains. In
terms of improving visibility to SMEs, the MOD has made
significant advances in recent years, including:
- complementing a number of wider
Government initiatives to increase support for small businesses,
the Small Business Charter introduced by the Defence Export Services
Organisation (DESO) in 2004. DESO recognises the vital role played
by SMEs in defence exports, either within the supply-chain of
the large platforms which DESO has traditionally supported, or
as exporters in their own right. DESO also sees the potential
for much greater defence export success by UK SMEs. The Small
Business Charter is a free and voluntary service designed to provide
a "way in" to the defence export field for UK SMEs,
raising awareness of the range of MOD and wider Government services
available to assist them in winning overseas defence business
and enabling them access to this support. It has been warmly received
by UK SMEs, with almost 300 Charter members joining the scheme
since inception and subsequently reporting overseas defence sales
of £80 million in the last financial year;
- in the research area, the MOD science community
is developing several initiatives to continue broadening MOD engagement
with SMEs, including a "Competition of Ideas" for defence
research challenges, industry briefings, and greater engagement
with universities. The "Competition of Ideas" concept
is designed to encourage all levels of the supply-chain to contribute
ideas for innovative research to meet military capability research
requirements. Successful proposals will be funded by the MOD.
Additionally, a research Supplier Day will be held in November,
when attendees will be briefed on the research programme and ways
in which they can become involved, including through the "Competition
of Ideas". Last year's Supplier Day attracted approximately
120 SMEs' representatives. In addition, relevant SMEs will be
welcome at the new briefings for particular sectors or capability
areas, which are being offered by MOD as a result of the new transparency
policy introduced by the DIS, as described at paragraphs 46-47
above;
- recognising that MOD could be a confusing organisation
for new suppliers as well as others to interact with, we published
earlier this year a 'Who's Who in Defence Acquisition', available
on the Internet, which builds on the explanations given in the
DIS itself of our internal processes by explaining the organisations
involved, including points of contact. This supplements other
material freely available to all industry via the Acquisition
Management System (AMS). The AMS is currently being reviewed for
ease of use and over the next year is itself likely to become
significantly more user-friendly for both industry and MOD staff.
We look to the MoD to improve its visibility of
[SMEs]. (Paragraph 76)
We are concerned that the MoD is only at "the
start of a journey" in terms of understanding supply chains
and how to manage them. We note that the MoD is working with the
DTI, the Regional Development Agencies and the agencies of the
devolved administrations to understand defence supply chains better.
We expect this work to be progressed quickly and good practice
to be identified and promulgated. (Paragraph 77)
55. As industry witnesses to the inquiry acknowledged,
there has been substantial work in recent years which has improved
the MOD's knowledge of supply chains. For instance, the Defence
Logistics Organisation, under the Procurement Reform Category
Management programme which commenced in 2002, has also increased
MOD's visibility of its suppliers including SMEs, both directly
and indirectly through larger Primes, utilising an approach known
as 'partnered category management'. For example, we have worked
successfully with AgustaWestland to help develop sourcing strategies
for its supply-chain, determining the best route to market for
specific areas of the supplier base.
56. However, we accept that there is more to do.
MOD's transparency initiative will help improve our knowledge,
providing not only mechanisms for transmitting MOD information
to industry, but also a forum for discussions on a sectoral basis.
But more directly, we are also continuing to develop our understanding
of supply chains, especially to identify and locate key underpinning
technologies. The objective is to ensure the security and viability
of capabilities and technologies critical for appropriate sovereignty,
through an improved awareness of potential vulnerabilities which
the Department might be able to address, for example through adjustments
to its acquisition plans and strategies. This work is being undertaken
in conjunction with the Defence Industries Council (DIC) and the
DTI amongst others, taking into account the variety of work underway
within MOD which can contribute to this objective, including:
- the continued Procurement Reform
Category Management programme;
- the production of the new Defence Technology
Strategy, which is helping locate key industrial capabilities
for appropriate sovereignty, including those potentially represented
by very small teams, within supply chains;
- the ongoing Key Supplier Management (KSM) process,
whose aims include deepening our understanding of prime contractors'
management of their supply chains. This process is currently being
developed to build on the information being derived in particular
from the Defence Technology Strategy work. It includes the work
mentioned in paragraph 12, to provide early warning of supply
chain vulnerabilities;
- the innovation study also mentioned in paragraph
12, which may provide insights into those areas of the supply
chain which most repay investigation.
57. Overseen by the new Commercial Director, whose
appointment was announced on 26 June, the Department will identify
and promulgate good practice across the MOD, ensuring that these
initiatives are complementary. We are grateful for industry's
continued support for this work to date.
58. We are not seeking however to map all of our
supply-chains in their entirety. We are focusing our efforts on
those supply-chains which provide us with critical capabilities
and technologies for appropriate sovereignty reasons, as outlined
in the DIS. In the broader context however, to further put this
improved knowledge to use, we are also continuing to work with
industry to develop further our supply-chain management techniques,
as we will maintain our monitoring of how our major suppliers
manage their supplier-base. This work is explained in more detail
in paragraph 63 below.
Competition and partnering arrangements
In a sector such as fast-jet aircraft, the UK
only has one company with the capacity and capability to deliver
the MoD's requirements: competition in that environment is not
achievable, or at least not compatible with maintaining national
capability. We agree that competition is not the right answer
for all procurement and that the MoD should move towards long-term
partnering arrangements in a number of areas. (Paragraph 85)
59. The Department welcomes the Committee's recognition
that competition is not the right answer for all procurement,
and that long-term partnering arrangements in principle are appropriate
in a number of areas. Where a monopoly supplier provides us with
existing equipment that will be in-service for a lengthy period
of time, partnering arrangements can develop mutually beneficial
business relationships based on trust, aligned incentives, and
predictable demand. However, partnering is but one of a range
of commercial tools that we could use when contracting with suppliers
for equipment and services. We will ensure that the right tool
is used to provide value for money, based on a range of factors,
such as the nature of the market, supplier performance or capabilities
required onshore to maintain appropriate sovereignty.
Concerns have been raised about BAE Systems being
in the position of a monopoly supplier in many areas. The company
is likely to be the main contractor on a number of the long-term
partnering arrangements that the MoD is considering. We look to
MoD to demonstrate its awareness of these concerns and to build
into long term contracts incentives which encourage performance
improvements. (Paragraph 92)
60. The Government accepts the Committee's conclusion;
it is indeed our intent to incentivise partners for continuous
improvement. Through the long-term partnering agreements that
we are developing with companies such as BAE Systems, we will
be looking for significant performance improvements from industry.
For instance, our recently agreed Strategic Partnering Arrangement
with AgustaWestland includes targets for improved supplier performance,
which if met will provide us with better, cheaper service but
with incentive payments for the company. We will look to apply
the lessons from this agreement to other partnering arrangements
in order to share best-practice and realise improvements in other
sectors.
We recognise that some of the contracts for long-term
partnering arrangements will be let on a non-competitive basis.
But for work underlying these arrangements there must be real
competition. This is a matter about which we have considerable
concern. We look to the MoD to ensure that there are rules in
place which give clarity and transparency to the route to market
for 'sub-primes' and SMEs. Other companies must be assured of
an opportunity to compete for the work underlying the long-term
partnering arrangements. We will return to this subject again.
(Paragraph 94)
61. The Government acknowledges the Committee's concern
and agrees that the potential risks need to be managed.
62. Competition will remain a significant procurement
tool but it will be used selectively alongside other procurement
models, including partnering. The MOD is developing these models
so that the capability we require, the nature of the market in
the relevant sector and the need to sustain capabilities and technologies
that are critical to the UK are all considered properly before
a procurement strategy is confirmed. In the following paragraphs,
we outline how, when partnership is decided as the way forward,
the risks can be managed, by both general tools, and specific
provisions in the associated agreements.
63. General oversight of primes' supply chain
management. The MOD already has contractual mechanisms in
place that provide an oversight of underlying work placed with
Primes to ensure equitable treatment and value for money, often
through sub-contract competitions. As mentioned in paragraphs
12 and 57, given the increasing emphasis on acquiring and supporting
capability through-life and on long-term partnering arrangements,
the MOD is re-examining these mechanisms, including the Code of
Practice— MOD/Industry Commercial Policy Group Guideline
No 5, which focuses on relationships between the Department and
its prime contractors, and between the primes and their suppliers
to ensure they deal adequately with the new commercial challenges.
This is to ensure that there is sufficient supply chain focus
below prime level and that there are adequate incentives to promote
competitive subcontract opportunities, especially for SMEs. While
the Code of Practice is applicable to all kinds of procurement,
we expect these mechanisms to help ensure long term value for
money within these extended partnering deals, and to continue
to promote access for potential new suppliers to commercial opportunities
arising from MOD business.
64. Information requirements in partnering arrangements.
In the particular field of partnering, MOD is at the outset establishing
the need for shared information between MOD and its partner; for
us to understand (and by implication agree) the means by which
the primes intend to deliver their contracted output, as well
as for industry to understand our forward plans. This includes
an understanding of the cost drivers and within that an understanding
of their supply chain. It is inevitable, in these long term relationships,
that our needs will change and that technology will offer opportunities
to either enhance effective capability or reduce the costs associated
with its delivery. The contracts we place must allow such flexibility,
driven by a real understanding of the business models that underpin
delivery—including the relationship and contracts between
the prime and those supplying the prime. This will be a requirement
that the Department will place on primes in the negotiations to
reach contract.
65. Partnered category management. To illustrate
this approach in practice, we are working with AgustaWestland
to develop sourcing strategies for key elements of their supply
base, through a partnered category management approach (also discussed
in paragraph 54 above). Here a joint team is engaged using modern
procurement techniques to determine the best route to market for
specific elements of the supplier base. The ability to do this
is a direct result of the investment the MOD has made in its successful
Procurement Reform programme, extending these processes into key
areas of the defence supply chain. Similar work is being discussed
with BAE Systems and a partnered category management approach
similar to that with AugustaWestland is likely to result.
66. Also relevant is the work entitled 'Commodity
Availability Procurement Strategy' (CAPS). This looks directly
at the suppliers who provide the current common components of
support to both Fixed Wing and Rotary Wing Platforms. It is anticipated
that the management of this 'commodity' supplier base will be
transferred to the prime contractor to ensure that the supply
risk of these commodities is held by the prime. However, in transferring
those responsibilities, both formal requirements and financial
incentives will be built into the Contracting for Availability
contracts to ensure proper management of the supplier base. Within
this will be the need to demonstrate the delivery of value for
money through the supply chain, including through competition
where suitable markets exist. Innovation, including through the
full engagement of SMEs, will also be encouraged through incentives
to improve performance and the contracted delivery of support
which meets rigorous value for money tests.
67. Armoured Fighting Vehicles: Through the
development of a Joint Business Plan under the AFV Partnering
Agreement, BAES Land Systems (BAES LS) are planning a major improvement
programme addressing overheads, margin improvement and operational
strategy with the aim of transforming the value of the business
to shareholders, and improving value for money to the MOD as the
major customer. A key element of the business plan is the transformation
required by both BAES LS and their supply chain. A Joint Business
Plan specifically addresses BAES LS' management of its supply
base, and the contribution of those suppliers to an effective
end-to-end solution for the supply of goods, services, technology,
and information. BAES LS will develop improved Supply Chain
Management, including the creation of long-term supply chain and
technology development partnerships with other companies where
appropriate.
68. Fixed Wing: MOD is exploring with BAE
Systems the viability of a Long Term Partnering Agreement (LTPA)
to sustain a healthy fixed wing sector. A key requirement of any
deal will be that it not only meets MOD requirements but also
offers clear value for money for the taxpayer. It also has to
make sound business sense for BAE Systems. Accordingly, MOD will
be negotiating the inclusion of robust incentivisation arrangements
that will drive down costs by focussing attention on the effective
and timely removal of surplus capacity as well as the delivery
of improved efficiency through better ways of working, joint
overview of capacity management to smooth out workloads and open
book accounting to monitor costs. The Agreement will also incorporate
exit and step in provisions as well as a change mechanism to facilitate
enhancements based on experience and future changes in MOD requirements.
It is not the intention to ossify the relationship; it needs to
be both flexible, as requirements change, and agile, to react
quickly to changing needs.
69. Clearly, an optimised use of the BAE Systems
and the wider fixed wing supply chain to promote effective access
to innovation and to reward innovation and continuous improvement
where it arises is a key objective for MOD. In this sector however
we are likely to face similar challenges in the supply chain in
terms of rationalisation and sustainment of key capabilities consequent
upon the long term decline in new programme work in fast jets.
Although we are at an early stage of exploring these issues with
BAE Systems and other defence companies there is a possibility
that we may find key capabilities at subcontract level that are
only available from a single supplier. It follows that in such
instances, for example, subcontract competition may not always
be appropriate—but we would expect these cases to be limited
and where they arise, we would expect the robust incentivisation
arrangements to be included in the LTPA with BAE Systems to flow
down to the associated suppliers, so that productivity improvements
and innovation are rewarded at the level at which they arise.
The position will become clearer over the coming months as discussions
mature, and we will take into account the observations of the
Committee.
70. Key Supplier Management scrutiny: More
generally, MOD has established Key Supplier Management arrangements
with its most significant suppliers. These arrangements include
systematic measurement of performance across MOD business with
a view to developing jointly plans for improvement. One of the
areas specifically addressed is the management of lower tiers
in the supply chain, which might include providing access to innovative
suppliers, promoting competition, best practice and security of
supply for the future. These factors will also be considered more
explicitly in future in developing procurement strategies.
71. MOD also is involved in exploratory discussions
with a group of regional trade bodies who are seeking to represent
small to medium size company capabilities directly to MOD to meet
our capability and technology needs, particularly where there
might be supply base vulnerabilities. If this seems likely to
be effective, such contacts would supplement, but not replace,
our established mechanisms for engaging industry, including the
Key Supplier Management process and through the national trade
associations.
72. We hope this detail provides some reassurance
that MOD is alive to the concerns the Committee raises, and is
taking practical steps in the agreements it negotiates with partners,
as well as other modes of procurement, to address them. We will
continue to consider any further improvements that can be made,
not least any policy implications identified as a result of the
study of the innovation process, mentioned in paragraph 12.
Sovereign capability and international issues
We consider it vital that the UK can maintain
and upgrade equipment independently. We expect the MoD to obtain
all the information and technology transfer it requires to do
this. We will continue to monitor the progress on technology transfer
in relation to the Joint Strike Fighter. (Paragraph 99)
73. The Government agrees that it is important that
the UK can maintain and upgrade critical equipment independently.
Accordingly, when the MOD places contacts for the development
of equipment, contract conditions provide the MOD with broad rights
to use information generated by its funding. This includes the
maintenance and rights to use information for upgrades and modifications
either by the Department or other contractors.
74. In cases where information originates from foreign
contractors, the administration of export controls can impact
on our ability to obtain information, and/or pass it to UK contractors.
We note the Committee's intention to monitor progress on technology
transfer for JSF in particular and welcome its continuing interest.
The MOD is seeking sufficient assurances from the US for timely
access to data and technology required to provide the sovereign
capabilities required to operate, maintain and upgrade the UK
JSF fleet and so meet national requirements.
We welcome the assurances given by the MoD that
the Royal Ordnance Factory sites at Bridgwater and Chorley would
not be closed until it was "absolutely sure" a secure
alternative supply of the munitions existed. We consider that,
in an area as vital as general munitions, the UK should never
be in a position where it cannot guarantee security of supply.
(Paragraph 107)
75. DIS recognised the importance of ensuring long-term
security of supply and identified a number of General Munitions
capabilities that we would wish to retain onshore noting that
the key is to ensure a sustainable and secure supply that provides
best value for money. Further DIS gave explicit direction on the
need to retain onshore a Design Authority for munitions manufactured
in the UK, Insensitive Munitions and related energetic material
capabilities, and an intelligent customer capability for non-UK
designed munitions, to deliver a robust onshore through-life management
capability. Nonetheless, DIS is also clear that whilst it
is desirable to maintain a more general onshore manufacturing
capability it is not essential and in the case of Small Arms Ammunition
we would aim to do so, but not at any cost
76. Regarding the ongoing site rationalisation of
the former Royal Ordnance Factory sites at Bridgwater and Chorley,
BAES LS remain responsible for successful transition to the new
arrangements and are currently implementing contracts to manage
the new suppliers. The MOD has formed a joint project team with
the company to oversee the transfers and verify that they are
taking every reasonable step to guarantee supply to our armed
forces. All of the companies that are potentially substitute suppliers
have good track records in meeting our production standards and
quantity requirements. MOD officials are also working with the
new suppliers, seeking to ensure that the recipient companies
are fully content with the transfer of technology and skills.
BAES LS have provided an assurance that they will not close their
sites until the new supply chain arrangements are sufficiently
mature.
We consider that international co-operation is
vital and that the European Defence Agency is likely to have an
important role in the future in many areas covered in the DIS.
(Paragraph 111)
77. As the DIS makes clear, the Government recognises
the benefits that international co-operation can bring. The European
Defence Agency will play a crucial role in facilitating co-operation
within Europe, but we will continue to co-operate with our allies
in the US and elsewhere where there is benefit from doing so,
and where the industrial implications do not conflict with our
policy.
78. In addition to facilitating co-operation to improve
military capability, the EDA also has an important role to play
in encouraging greater openness within the European Defence Equipment
Market. We fully support the code of conduct on defence procurement
being introduced by the Agency, which is an integral part of this
aim. We also expect that the EDA will help strengthen the defence
technology base in Europe and contribute to the improvement of
European defence capabilities overall.
Implementation of the DIS
We welcome the impetus that the Minister for Defence
Procurement is giving to the implementation of the Defence Industrial
Strategy and his aim to make a difference to the UK's defence
capability and strengthen the UK's defence industry. (Paragraph
115)
79. The Government welcomes the Committee's conclusion.
The aim of the DIS was 'driven by the need to provide the Armed
Forces with the equipment which they require, on time, and at
best value for the taxpayer.' In undertaking this aim, we recognise
the vital contribution played by industry and believe that the
clarity provided by the DIS will promote a dynamic, sustainable
and globally competitive defence industry.
80. We will continue to work hard to achieve this.
The DIS, under Minister (DP)'s leadership but with support from
across Government, is the vehicle for driving this forward and
we will maintain this impetus though an aggressive programme.
The checklist set out the actions that are to
be taken in the various areas, such as completing the Maritime
and R&T strategies. The vast majority of the actions are to
be completed in 2006. We expect the MoD to meet the deadlines
set for the additional work flowing from the Defence Industrial
Strategy, in particular the Maritime Industrial Strategies, the
Technology Strategy and the review of its acquisition arrangements.
(Paragraph 117)
81. The Government notes the Committee's recommendation.
As noted above, the Maritime Industrial Strategies work is progressing
but it has not been possible to meet the original timescale, while
the Defence Technology Strategy will now be delivered in the autumn.
The Enabling Acquisition Change review, however, notably one of
the deliverables entirely within the Department's control, has
been delivered, and we have also passed a number of other significant
milestones, including agreement of a Strategic Partnering Arrangement
with AgustaWestland, establishing joint teams for Armoured Fighting
Vehicle partnering and complex weapons, and completing the Science
and Technology Capability Alignment study, which will be published
shortly. We expect to be in a position to make further announcements,
outlining progress to date, in the next month.
Given the importance of the Defence Industrial
Strategy, we plan to monitor closely the progress in implementing
it and whether it delivers the expected benefits. We expect to
inquire further into other aspects relating to the Defence Industrial
Strategy. (Paragraph 119)
82. The Government welcomes the Committee's continuing
interest in this subject.
Restructuring the defence industry, and ensuring
that research and skills are maintained despite reduced production,
will cost money. Adequate funding will be vital for the success
of the Defence Industrial Strategy. This will be a key issue for
the MoD to negotiate with HM Treasury in the Comprehensive Spending
Review. (Paragraph 121)
83. The Government and industry both recognise that
the DIS will necessitate industrial restructuring, as the emphasis
on large platform procurements shifts to one of through-life provision
of support services and incremental capability upgrades, and maintaining
key industrial capabilities in the absence of major new platform
programmes will require some companies to change their business
models. Indeed, recognition of the need for business change and
restructuring was one of the reasons for the DIS' urgent production.
We will not micromanage industry's restructuring, but it must
be customer-focused, delivering benefits to both MOD and industry.
Fundamentally, we expect industry in the long-term to be more
productive and efficient, not least as a result of better alignment
with the MOD customer's current and likely future demand, and
even better able to compete for civil and export work. We will
not dismiss options which require upfront investment by the Government,
but we expect the overall outcome, in terms of both improved industrial
productivity and more consistently excellent acquisition practice
within MOD, to demonstrate improved value for money for the taxpayer
in the longer term. MOD and the Treasury, as well as other Departments
and agencies, will continue to coordinate closely as the DIS is
implemented.
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