Select Committee on Defence Seventh Report

Conclusions and recommendations

1.  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)

2.  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)

3.  The initial reaction to the Defence Industrial Strategy has been generally very positive. (Paragraph 16)

4.  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. However, 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)

5.   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)

6.  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)

7.  We shall take a keen interest in any developments in the restructuring of the dockyards. (Paragraph 33)

8.  We look to the MoD to ensure that the Maritime Industrial Strategies are produced, and the strategies implemented, to the planned timetable. (Paragraph 34)

9.  In the fixed-wing sector, future work on Typhoon and Joint Strike Fighter will provide work for engineers for some time to come, and there will be an increasing focus on Unmanned Aerial Vehicles. (Paragraph 40)

10.  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)

11.   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)

12.  We look to the MoD to build upon the DIS and provide more information to industry in the future. (Paragraph 50)

13.  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)

14.  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)

15.  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)

16.  We expect the further work on Research and Technology to encourage and maintain the Centres of Excellence for defence-related research. (Paragraph 66)

17.  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. We look to the MoD to improve its visibility of such companies. (Paragraph 76)

18.  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)

19.  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)

20.  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)

21.  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)

22.  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)

23.  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)

24.  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)

25.  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)

26.  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)

27.  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)

28.  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)

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