Memorandum from Professor Trevor Taylor
This Defence Industrial Strategy is a long document
covering a wide range of issues. This paper highlights four important
aspects of it.
THE POTENTIAL
OF THE
DIS IS TO
LOOM LARGE,
OR TO
DISAPPEAR WITHOUT
TRACE
The Defence Industrial Strategy paper is of enormous
potential importance for UK defence and security over the long
term. The emphasis should be placed on the word "potential".
On the one hand, the paper brings formal recognition
of the importance of defence industry for the UK's capability
to conduct military operations. Preparing a book on British defence
industry with Keith Hayward some 15 years ago, we were told by
a three star military officer in the Ministry of Defence that
any future war in which the UK took part would be a "come
as you are war" in which the activities of industry would
have no place. The DIS represents a formal and sound rejection
of that position, a significant consideration. There is a clear
link between the DIS and the UK experience in early 2003 when
Britain could confidently go to war in Iraq only after spending
more than £500 million with industry to meet Urgent Operational
Requirements. Large scale military operations today require industrial
support, as every UK war since 1982 has shown. Thus, defence policy
should include some reference as to where that industry is to
be found.
On the other hand, the Ministry of Defence shapes
industry only through procurement choices and, unless the DIS
has an impact in this area, it will steadily pass into irrelevance.
The danger that this could happen is increased by the omission
from the paper of any explicit consideration of costs. The paper
speaks at some points in binary terms about the desirability of
different UK defence industrial capabilities: for some areas there
is a "need" but "we would be prepared to source
torpedoes from abroad provided . . . " At other points it
has more detailed sense of value: for instance, for the UK to
be able to design complex ships and submarines is a "high
priority"; "there are a number of specific maritime
system capabilities and technologies that we should retain onshore",
and in aerospace "critical mission systems . . . are also
areas where we wish to retain onshore capability".[11]
While the particular calculations that led to such judgements
are not explained, the report does indicate that there was a system
for earning credit involving estimated contributions to the survival
of the state, the operational capabilities of UK forces, UK strategic
influence and potential value in the civilian economy.[12]
But nowhere is there any clear sense of the different
premiums that the UK is willing to pay in terms of cost, performance
or time, for the variety of defence goods and services that are
provided by industry in Britain and contribute to "appropriate
sovereignty" for the country. It is understandable why the
Government might not want to be too explicit about what costs
it views as acceptable, since this may induce complacency in industry.
It is also clear that the government will want to hold such premiums
to a minimum and is looking to a closer dialogue with industry
as a means of achieving this when competitive tendering may not
be possible. However, it is also possible that the lack of reference
to premiums for a British product disguises significant disagreements
within government as to what those premiums should be in practice.
Such disagreements could arise between MoD Main Building and the
Defence Procurement Agency, with its focus on bringing individual
projects into service on time and to the performance specified.
They could also arise between the MoD and other sections of Government,
especially the Treasury. The Treasury has endorsed the document
issued but may not appreciate how it could be interpreted.
On the other side of the ledger, there is also no
sense of the magnitude of the savings that the Government expects
to make from stressing its lack of commitment to specific sectors,
most prominently manned combat aircraft and surface ship hulls.
ORGANISING THE
MOD TO
IMPLEMENT THE
DOCUMENT
The document recognises that implementation, or perhaps
interpretation, will be a key consideration and is looking at
the creation of new senior posts in the MoD to direct implementation
of the DIS. The DIS implies a significant burden on the Equipment
Capability Customer area, which does not have a four-star head
and which numbers only around 300 people. The ECC is charged with
the specification of required capabilities and presumably henceforth
these should refer not just the basic performance of a piece of
equipment but also to the need for the equipment to be modifiable
and sustainable by British industry so that British appropriate
sovereignty about its use can be maintained. The ECC area already
has formidable responsibilities for the specification of requirements
and their prioritisation into an affordable Equipment Programme
that then has to be amended every year or so. In recent debates
about how the ministry should assure itself that all Lines of
Development (Support, Infrastructure, Personnel, Organisation,
Training, Doctrine and Information) are available to enable delivered
equipment into usable military capability, ECC staff have been
given additional responsibilities as Senior Responsible Owners.
The time and energy they have left for the implementation of the
DIS is worth monitoring. Significantly the Director General Equipment
in the ECC has long had industrial sector responsibilities but
not the human resources to do effective work. The drive and effort
for the Defence Industrial Strategy came from David Gould and
his staff at the DPA.
Along with the ECC, the Defence Procurement Agency
itself now has more demands on it. Its National Audit Office overseer
remains focussed on the delivery of individual new projects from
industry to the MoD on their time, cost and performance schedules.
At the same time procurement is supposed to take account from
an early stage of the whole-life costs of a piece of equipment,
not just its procurement and production costs. A further aspiration
is that projects can be knitted together to form a network permitting
Network Enabled Capability, but it is not clear how the costs
of linking projects are to be allocated. The DIS means that procurement
choices will also be expected to reinforce the "appropriate
sovereignty" linked to UK defence industrial capacity. As
well as sometimes paying some time, cost or performance premiums
for the British content of a deal, this could occasionally mean
placing an order for something that the MoD does not urgently
need so that an industrial team can be kept together. In the US
and to a lesser extent France, where defence industrial considerations
have long been prominent, this latter has long been a familiar
if not especially welcome feature of defence life.
Diagram A summarises the outputs that are expected
from DPA procurement on individual systems. These constitute a
difficult challenge and there must be real questions about the
capacity to deliver of the current management structure (a small-staffed
ECC in Central London, a DPA marked by only loosely-linked IPTs
in Bristol, and a separate DLO with its own IPT structure in Bath,
Andover and Wyton). It is notable that in France the DPA equivalent,
the Delegation Generale pour l'Armement, has a separate and powerful
section devoted to support for French (and perhaps European) defence
industry.
Diagram A
COMPETITIVE TENDERING
AND THE
UK AS AN
UNATTRACTIVE PLACE
TO DO
DEFENCE BUSINESS
There is no doubt that military experience with
mobilising industry for Operation Telic was one factor behind
the generation of the DIS. However, perhaps of greater importance
was the need to stem the flow of defence industrial effort and
resource out of the United Kingdom towards the US. British defence
industry, led by first GEC and then BAES and Rolls Royce, has
for some years been heading westwards, in part because of the
size of the American market. A major further consideration, however,
has been the greater profitability associated with dealing with
the US Government, which does not ask its defence suppliers to
take on risky fixed-price development contracts. The DIS only
implicitly accepts that, by asking defence firms in competition
to make fixed price commitments when perhaps only 6% of the initial
procurement cost has been spent on risk reduction work, the government
has made the UK a rather unattractive place to do defence business.
The readiness of the US to welcome British defence investment
funds has meant that British firms that traditionally felt restricted
to the UK have a choice about the customer they will pursue, and
many of them have seen the UK as unappealing. Thus DIS implementation
will need to address not just any preference for UK solutions,
or the technology transfer arrangements that will be required
for any major defence import, but also the nature and place of
competition in defence procurement.
INTERNATIONAL IMPLICATIONS
The document's focus on national capability leaves
open how the UK will address international cooperation. The stress
on the need for the UK to be able to modify and support its equipment
is most likely to be problematic for the United States Government
with its acknowledged reluctance on technology transfer issues.
Equally significant is the belief of some in the Defence Procurement
Agency that the US is more reluctant to release technology when
there is no other (i.e. European) alternative available. On the
other hand, reconciling the DIS with the aspirations of the European
Defence Agency and the European Code of Conduct on a European
defence market is not straightforward. Implementing the DIS, coordinating
it with British international policy commitments and making sure
all are reflected appropriately in procurement choices, will not
be easy.
CONCLUSION
The DIS is an impressive and thoughtful piece of
work but it is far from being a strategy in the sense of something
that defines a desired end-state and lays out how it is to be
achieved in the face of potentially hostile forces. It indicates
that a few areas will certainly be protected (and so funded) but
these concern technologies that anyway cannot be easily bought
from overseas. It can be quoted selectively to indicate support
for a range of procurement stances. The real work will come from
deciding what "appropriate sovereignty" should mean
and organising the government's defence machine so that it delivers
what is wanted.
19 January 2006
11 DIS Executive Summary pp 8-9. Back
12
Defence Industrial Strategy pp 22-3. Back
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