3 Value for money from the Defence
Industrial Strategy
13. The Government's Defence Industrial Strategy
takes forward the 2002 Defence Industrial Policy by providing
greater transparency of future defence requirements and by setting
out the industrial capabilities needed in the United Kingdom to
meet those requirements and protect our national security. The
Strategy was in part developed in response to the changing threat
facing the United Kingdom and consequently the manner in which
defence capability will be procured and used in the future.
14. The Strategy aims to promote a sustainable and
globally competitive defence manufacturing sector. The aspirations
of the Defence Industrial Strategy face a tension between economical
and effective procurement and the need to retain a significant
level of defence industrial capacity for security reasons, with
the consequent need to support the British defence industry. The
Department reported that though this tension was unlikely ever
to disappear, there was now more scope for multinational competition
for contracts.[26] Competition
is still the preferred route for procurement when the civilian
market is strong and the Department is a small customer.[27]
For example, in Command, Control, Communication, Computers, Intelligence,
Surveillance, Target Acquisition and Reconnaissance there is a
highly competitive market and the Department is a relatively minor
customer.
15. The Defence Industrial Strategy is explicit sector
by sector as to which areas of capability need to be maintained
in Britain and those areas which should be subject to greater
competition. This greater visibility is designed to allow industry
to make clearer assumptions about future work so they can plan
and manage their business better, in particular when investing
in new facilities[28]
16. A lack of competition, and a limited number of
suppliers, might well erode value for money.[29]
Competition at arms' length has meant that decisions on contractors
have often been made on the basis of information which turned
out to be faulty when negotiating the detailed contract.[30]
Where it is not possible to have a full-blooded competition, the
Department believes that other means must be found to make its
suppliers provide value for money. The Department is doing further
work including pilot projects where the contractor is given incentives
to provide savings which are shared with the Department.[31]
17. The Department had introduced comprehensive arrangements
to assess and get feedback on the performance of its 18 largest
suppliers. These arrangements will be used in the assessment of
future procurement bids by the suppliers. Innovation often comes,
however, from the second and third tier suppliers that feed into
the larger prime contractors.[32]
The Department has also improved its engagement of industry in
work in the assessment phase on achieving greater cost efficiencies,
for example, in the provision of munitions. Recognition of the
benefits resulting from such early engagement has been fed into
the development of the Defence Industrial Strategy.[33]
26 Q 17 Back
27
Defence White Paper, Defence Industrial Strategy, Cm 6697
December 2005, Section B8, pp 106-113 Back
28
Q 53 Back
29
Q 39 Back
30
Q 36 Back
31
Q 40 Back
32
Q 40 Back
33
Q 35 Back
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