Supplementary memorandum from the Ministry
of Defence
HCDC FOLLOW-UP
QUESTIONS
(Q) The DMA considers that without a real
increase in the MoD's research investment many of the aspirations
in the Defence Technology Strategy will remain unfulfilled. How
much defence research investment does the MoD think is needed
to deliver the aspirations set out in the Defence Technology Strategy?
(A) The Defence Technology Strategy is affordable
within the current research budget provided that both MoD and
industry invest to develop and sustain the necessary technology
base. The Defence Commercial Director will work with the Defence
Industries Council to develop research funding models which allow
a better match of risk and return for industry, and provide a
basis for joint funding of technology development. The key tasks
are prioritising research spend—DTS sets out MoD's views
on priorities—and ensuring that MoD bridges the "Valley
of Death" described by the NAO by improving exploitation
and alignment of technology and industry strategies.
The Government has set a target to raise the
national investment in R&D to 2.5% of GDP by 2014 and has
increased its own national R&D spending to meet this target.
UK industry needs to play a part in this endeavour. The DTS brings
clarity to MoD's R&D priorities and requirements for up to
20 years in the future and will give industry a better understanding
of the areas that MoD will invest in.
(Q) Does the MoD expect the proportion of
defence equipment contracts which are let competitively to drop
in the future and, if so, by how much [the DIS states that over
the past four years some three-quarters of the MoD's contracts,
by value, had been let competitively].
(A) Over the past four years some three-quarters
of the MoD's contracts, by value, have been let competitively.
It will remain central to our acquisition strategy that competition
should be considered in all procurements and pursued wherever
it offers the potential to secure best long-term value for money.
Procurement for non-warlike goods and services will continue to
be conducted in accordance with the European Union Procurement
Regulations. However, the Defence Industrial Strategy (DIS) recognised
that there are occasions when competition may not be able to deliver
the best long term value for money or sustain key UK defence industrial
capabilities. We will not pursue competition beyond the point
where it can offer long term advantage or where the cost of running
a competition is demonstrably disproportionate to the benefits
that might be achieved.
Whilst there has been a reduction in the total
number of contracts let over the last four years as the market
moves to longer-term arrangements, there has so far not been a
significant drop in the proportion, by value, that are subject
to competition. There is an underlying assumption that as DIS
is more widely implemented the proportion of contracts let by
competition may decline; however, in parallel the MoD will be
seeking to work more closely in long-term partnering arrangements
which would place a responsibility on primes to compete requirements
at a sub-prime level wherever possible with full transparency
of the value of work being offered across the supply chain.
(Q) How many long-term partnering arrangements
were agreed in 2006, and in what areas? In which other areas are
long-term partnering arrangements being considered?
(A) In June 2006, the MoD signed a Strategic
Partnering Arrangement (SPA) and contractually-binding Business
Transformation Incentivisation Agreement (BTIA) with AgustaWestland
(AW). This represented a key early deliverable of the Defence
Industrial Strategy and will incentivise and drive forward business
transformation across the full spectrum of MoD business with AW.
The SPA and associated BTIA will provide better value for money
by improving speed of delivery, reducing costs and increasing
operational availability. It will also help ensure a long term,
viable and cost effective support of the MoD's helicopter fleet.
However, partnering is a broad term and there
are many programmes which have elements of partnering. In addition
to the above, in 2006 MoD entered into agreements for availability
contracts for through-life support of major assets including the
£450 million Merlin Integrated Operational Support contract
let in March, the £200 million Chinook Through Life Customer
Support contract let in February and the £1.52 billion Hercules
Integrated Operational Support contract let in June.
In 2007, work will continue to progress other
LTPAs:
Complex Weapons—positive progress
is being made on a Strategic Partnering Agreement (SPA), but there
remain areas where negotiation is needed. Speculation on a date
for finalising this work is premature. The primary objective for
MoD and industry is to develop and deliver a robust agreement.
Fixed Wing—MoD and BAES are working
together to explore the viability of a long-term partnering agreement
with the objective of sustaining a healthy fixed wing sector with
industrial capabilities, skills and technologies crucial to our
ability to support and upgrade our fleet over the next 30 years.
General Munitions—a Framework Partnering
Agreement, that jointly addressed the Munitions Acquisition—the
Supply Solution (MASS) procurement strategy and Framework partnering
Agreement (FPA) issues, is under consideration. Currently we are
exploring the commercial issues to provide assurance that a single
source procurement strategy would be better value for money than
other practical alternatives.
Armoured Vehicle Support Initiative (AVSI)—As
part of the need to maintain reliability and availability of the
AFV fleet and provide better value for money, MoD has a desire
to secure future industry support and on-shore capability. One
of the procurement options being considered is partnering with
the Design Authority.
(Q) How is the MoD addressing the concerns
expressed by some sub-primes and suppliers that they will not
get an opportunity to compete for the work underlying long-term
partnering arrangements?
(A) The MoD has acknowledged this concern
and is taking a range of measures to ensure that sub-primes and
SMEs will have the opportunity to compete for work in future.
MoD is working closely with Industry, at all
levels, to ensure that best practice is applied in all our supply
chains so that sub-primes and suppliers, including SMEs, are treated
fairly. This includes:
— More in-depth understanding of the
make-up of the supply chains in each Industrial Sector in terms
of criticalities and vulnerabilities.
— Improved supply chain intelligence
through direct links from MoD to the supplier databases maintained
by relevant Trade Associations and the British Defence Equipment
Catalogue.
— Review of the joint MoD and Industry
Commercial Policy Group code of conduct on best practice supply
chain management to reflect the means by which best value is realised
from the supply chain, at all tiers.
— Our support for industry initiatives
such as recently launched "21 Century Supply Chain"
(SC21) initiative led by the SBAC
MoD works with industry to provide access and
opportunity to compete for work in the Defence Supply Chain, in
particular:
— The Defence Supplier Service provides
a focal point for advice and guidance to companies interested
in becoming defence suppliers.
— MoD's Prime Contractors are encouraged
to advertise their sub-contract opportunities in the Defence Contracts
Bulletin which provides a gateway to new business opportunities
for companies, large and small, who wish to compete for defence
business.
— A wide range of shop window events
are organised for SMEs where they can access the range of capabilities
that the MoD is currently seeking to address.
In 2005-06 SMEs were directly awarded some 43%
of all contracts placed by MoD, with a total value of almost £1
billion.
(Q) How much will it cost the MoD to implement
the DIS? Will the funding needed to support operations reduce
the funds available to implement the DIS?
(A) DIS implementation costs within MoD
are estimated at being £23 million in the current financial
year, and some £30 million for the coming financial year.
These costs include dedicated sector teams taking forward sector
implementation, specialist legal and financial advice as support
to those teams, and the initial costs of the Defence Acquisition
Change Programme. Recognising the criticality of DIS implementation
to the future of the UK industrial base and the affordability
of our equipment programme, each budget holder has found these
costs within their existing budgets. Set against the £18.2
billion of contracts that MoD placed during the last financial
year, this is a small investment for the future with the potential
for major payoff.
Funding to support operations should not effect
DIS implementation although operational experience often drives
future equipment requirements which may become part of the DIS.
MoD attaches priority to operational needs, but recognises the
need to strike a sensible balance between short term needs and
the long term sustainment of an efficient and competitive industrial
base.
(Q) In its first inquiry into the DIS, the
Committee examined the issue of munitions and security of supply.
What progress has been made with Project MASS? Has the MoD decided
how best to sustain the required access to general munitions and,
if so, what was the decision?
(A) Project MASS was charged with delivering
a value for money and secure supply of general munitions. At Initial
Gate in December 2004 approval was given to pursue a long term
partnering agreement with BAES Land Systems Munitions (LSM), based
on an integrated manufacture/supply/storage solution. The integrated
solution failed to prove value for money, leading to a review
of the way ahead. Subsequently LSM adopted a more radical modernisation
agenda and produced a transformational proposal. This revised
partnering arrangement offers a potential value for money solution,
and is in accordance with DIS guidance on the retention of indigenous
capabilities.
Currently we are exploring the commercial issues
to provide assurance that a single source procurement strategy
would be better value for money than other practical alternatives.
We expect to identify the preferred procurement strategy early
this year.
By the End of 2007 we aim to have made a firm
investment commitment to proceed with MASS, to have completed
any necessary performance/cost trade offs, and confirmed that
the UK is not being disadvantaged in cost terms when compared
to other nations who have a similar requirement.
A joint MoD/Industry General Munitions and Energetics
Technologies (GMET) Steering Group has been established to facilitate
cooperation on delivery of DIS and Defence Technology Strategy
(DTS) objectives for all general munitions and the underpinning
energetic materials technologies. Within this forum a draft General
Munitions Industrial Strategy (GMIS) has been drafted and is being
developed openly with industry.
In summary, no decision has yet been taken on
how best to sustain the required access to general munitions but
the ongoing work with Project MASS and the General Munitions Industry
Strategy (GMIS) will provide the basis for this decision.
(Q) During its first inquiry into the DIS,
the Committee was told that the Royal Ordnance Factory sites at
Bridgwater and Chorley would not be closed until a secure alternative
supply of the munitions existed. Have alternative suppliers been
identified and, if so, how has the MoD assured itself that there
is security of supply?
(A) Following the first inquiry into the
DIS, BAES Land Systems Munitions (LSM) are now finalising the
alternative supply arrangements to replace production at Bridgwater
and Chorley. Most of the initiator production is being transferred
to the Nobel Energetics site at Ardeer in Scotland. The high-value
and high technology aspects of explosive manufacture are being
transferred to the BAES LSM site at Glascoed in Wales, supported
by considerable investment from the company. Raw materials for
explosive manufacture will be imported from Holston in the US
(run by BAES under a government-owned, contractor operated arrangement)
and from Eurenco in France for some specialist products.
These proposed supply arrangements have been
carefully scrutinised by MoD officials. The new manufacturing
sites have been visited and inspected, contractual arrangements
reviewed and supply chains assessed. Should the unforeseen happen
and supply be interrupted from one source, BAE Systems will retain
the technical ability to switch to the alternative (Holston or
Eurenco), or draw on existing stockpiles. The Defence Ordnance
Safety Group has been testing the quality of the new raw materials
and, although not quite complete, results are excellent thus far.
All of the companies being considered as new suppliers have excellent
track records in meeting our production standards and quantity
requirements. A top-down review of the site rationalisation programme
was conducted in November 2006 and all sides were content to allow
it to continue.
As has been previously stated, there are a number
of existing agreements with our allies such as the "Implementing
Agreement on Security of Supply" with France, Italy, Germany,
Spain and Sweden or the US/UK Defense co-operation Memorandum
of Understanding (MoU) which provide assurance on security of
supply from these overseas suppliers. As an extra layer of protection
and, due to the Department of Defense ownership of the Holston
Army Ammunition Plant, officials have exchanged letters with the
United States Armament Director to underline the importance of
reliable supply between the various companies and to avoid any
potential difficulties in the future.
New arrangements to rationalise the production
of Insensitive Munitions (IM) (including 105mm, 155mm and 4.5
inch ammunition) at Glascoed are dependent upon the continued
development and proving of the new High Volume Filling Facility:
the company is working hard to rectify this situation.
As the Bridgwater site enters its final 12 months
of production it faces considerable challenges in achieving its
final production runs prior to closure due to legacy plant and
equipment and the requirement to comply with new Health, Safety
and Environmental regulations. The MoD is assured that the new
arrangements will provide security of supply at least as great
as that provided by Bridgwater and Chorley.
At the evidence session on 19 December 2006, the
Committee asked for, or was offered, the following notes.
A DIS checklist for 2007 [Qs 4 and Q101].
To be provided to Committee by end of January
A table showing on a year-on-year basis, for
the next 10 years, the forecast spending (the financial commitments)
on equipment procurement and the funding (budget) expected to
be available. A separate table showing the forecast spend by sector
(sea, land, air) would be helpful [Qs 68-71].
FORWARD EQUIPMENT
PLAN
The Equipment Plan (EP) is sub-divided into
11 capability areas which broadly match the way in which the Armed
Forces operate. Examples of these capability areas include Above
Water (AWE), Under Water (UWE), Ground Manoeuvre (Land Forces),
etc Capability can generally be defined as "the ability to
conduct defined tasks & effects within a given environment".
Each of these capability areas manage a set
of equipment projects where each projects has its own year-by-year
funding line . There is a close relationship between the Directors
of Equipment Capability who manage the capability areas and the
Integrated Project Team Leaders and "Sector leads" in
the Defence Procurement Agency (DPA) who have direct interface
with industry.
The silt chart below sets out the Equipment
Plan based (like the data in the DIS published in December 2005
on the outcome of the 2005 planning round), broken down by capability
area, with a level of spend matched to our assumptions about the
future level of resources available for equipment procurement,
which may be adjusted by the outcome of the Department's current
planning round, and which in the longer term is dependent on the
outcome of the Comprehensive Spending Review.
GLOSSARY TO
TABLE
DAES (Directorate Analysis Experimentation
& Simulation)—test and evaluation facilities (managed
by QinetiQ)
GM (Ground Manoeuvre)—covers armoured
fighting vehicles, engineer vehicles, weapons and ancillaries,
along with dismounted close combat systems (weapons and clothing
systems) for the soldier, sailor and airman up to Battlegroup
level.
TA (Theatre Aerospace)—Responsible
for the capability to achieve control and denial of theatre aerospace
and effective operations in the air environment. Major equipment
includes Typhoon, BVRAAM missile and the Advanced Jet Trainer.
SP (Special Projects)—Special Forces
equipment
CBRN (Chemical, Biological Radiological &
Nuclear)—DEC CBRN delivers a coherent CBRN defence capability
for joint forces to be able to operate in a CBRN threat environment.
Major equipments include General Service Respirator and biological
detection systems.
ALM (Air Littoral Manoeuvre)—Responsible
for those capabilities that move personnel and material in and
around the land and littoral environments by ship and helicopter.
Platforms include Chinook, Merlin, Attack Helicopter, Puma, Sea
King, and Lynx aircraft together with HMS Ocean, HMS Bulwark and
Albion and the new Landing Ship Dock Auxiliaries.
ELS (Expeditionary Logistics & Support)—Responsible
for the delivery of logistics effects in the land environment
for joint and combined operations. Major equipment includes Support
Vehicle, Operational Utility Vehicle System(OUVS) and deployable
accommodation.
ISTAR (Intelligence Surveillance Target Acquisition
& Reconnaissance)—responsible for capabilities relating
to the collection and delivery of Intelligence and targeting data.
Major projects include Watchkeeper and Airborne Stand Off Radar
(ASTOR)
CCII (Communication, Control & Information
Infrastructure)—responsible for equipment programmes
covering defence communications and battlefield systems eg Bowman
and other tactical radios, SATCOM and Falcon
DTA (Deep Target Attack)—responsible
for delivering of the capability required to attack surface targets
. Major equipments include Tornado GR4, Harrier GR9, Joint Combat
Aircraft, Stormshadow cruise missile, Tomahawk Land Attack Missile
(TLAM), AS90 self-propelled howitzer, and MLRS.
UWE (Underwater Effect)—Submarines
(including Astute), torpedoes, Nimrod MRA4 and Merlin ASW helicopters.
AWE (Above Water Effect)—AWE provides
Control and Denial of the Above Water Battlespace. Major equipment
projects include the future Aircraft Carrier (CVF), the new T45
Air Defence Destroyer and the Future Surface Combatant.
16 January 2007
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