Select Committee on Defence Sixth Report



The Government's Defence Industrial Strategy (DIS) was published on 15 December 2005. The Minister for Defence Procurement, Lord Drayson, considered that 2006 was the year in which the DIS would be implemented; and overall, good progress has been made.

However, progress in reshaping the maritime sector, both surface ships and submarines, has been disappointing. The Ministry of Defence (MoD) requires the restructuring of the surface ship sector to be completed before it makes the main investment decision on the Future Carrier programme and places contracts for the construction stage. There are signs that the restructuring is underway. This needs to be pushed forward quickly to avoid delays to when the new carriers and associated aircraft come into operational service.

A key theme of the Strategy is operational sovereignty, enabling the UK to maintain, upgrade and use equipment independently. This is a central issue on the Joint Strike Fighter (JSF) programme. At the end of 2006, the MoD obtained assurances from the US that the UK would receive all the information it required to operate the JSF aircraft independently and signed the Memorandum of Understanding (MOU) for the next stage of the programme. This news is to be welcomed, but the MoD would not provide us with the supplement to the MOU detailing the nature of the assurances given. We have concerns about how things will work out in practice and intend to take further evidence on this.

The DIS identified alternatives to competitive procurement, including long-term partnering arrangements. The MoD has announced a number of such arrangements which, because of limited opportunities for competition within the UK, are let with monopoly suppliers. The MoD needs to incentivise these partners to improve the efficiency of their businesses to match the best overseas suppliers. The MoD must also ensure that opportunities are provided for small and medium size suppliers to compete for the work underpinning the long-term partnering arrangements.

Realising the substantial benefits offered by the DIS will cost money. In addition to the MoD's internal implementation costs is the much larger cost of the future equipment programme. The outcome of the Comprehensive Spending Review will determine whether the benefits and improvements offered by the DIS are fully realised. It would be a real missed opportunity if adequate funding were not provided.

To assess whether the Strategy has been successful, the MoD will need both to ask the Armed Forces whether they are seeing improvements and to measure its own performance in acquiring equipment and managing equipment on a through-life basis.

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Prepared 15 February 2007