Select Committee on Defence Minutes of Evidence


Memorandum from the Ministry of Defence

Q1.   The DPA Annual Report reports a 0% in-year cost growth for 2006-07 (Key Target 3) although the foreword to the Report notes that Key Target 3 was "consistently classified as red throughout most of the year". What specific measures were taken, and on what programmes, to ensure the Target was met?

  Risk of cost growth on a number of programmes was identified during the early part of 2006-07 and was correctly reflected in the relevant performance reports. Plans were put in place to address this. Where practicable, and in line with one of the key principles of Smart Acquisition, we sought to trade cost, time and performance to keep within the limits of our budget. We also maintained the principle established as part of the Departmental review during 2005-06, and supported by the National Audit Office (NAO), of identifying and re-allocating costs and budgets to those best placed to manage them. The measures taken included the reallocation of costs relating to sustainment of industrial infrastructure for production of submarines from the Astute project line to one related to the Maritime Industrial Strategy; the removal of similar costs from the Type 45 programme related to surface ship shipyard rationalisation; a reduction in the planned number of missiles for the Type 45 programme; transfer of the platform integration costs for the Precision Guided Bomb to the Typhoon programme to achieve more efficient management of weapons integration in line with other improvements to the capability of the aircraft; the transfer of spares costs for the Support Vehicle to the support budget instead of the acquisition budget; and a reduction in the number of training simulators for the A400 programme as part of a plan to utilise training assets more efficiently. Moreover, the planned quantity of Guided Multiple Launch Rocket System rockets was reduced pending a further assessment of requirements within the context of the overall procurement of precision munitions. Delivering these plans resulted in an overall in-year reduction in cost to completion of the Key Target population of £25 million.

Q2.   The Committee of Public Accounts' report on the Major Projects Report 2006 (Forty-sixth Report of Session 2006-07) states that, during 2005-06, MoD undertook a review of the 20 post-Main Gate projects and reduced the costs of these projects by £781million. Did the MoD undertake a similar review during 2006-07 and, if so, what were the results? If cost reductions were identified in 2006-07, how were these achieved?

  Building on the specific reviews undertaken in 2005-06, a routine process of senior leader reviews of major programmes was established to manage the risks to the delivery of performance, cost and time parameters. To mitigate these risks, opportunities to trade both within the particular programme or the wider project population were identified. Overall, in the Major Projects Report (MPR) 2007, cost reductions of £989 million have been identified. As detailed in the response to question 1 these were achieved by re-evaluating quantities of equipment required and re-assessing project requirements. In addition, we continued to apply the principle established in 2005-06 of ensuring costs and budgets were allocated to those best placed to manage them. This resulted in a reduction of £609 million. The NAO acknowledged that this was justified. At no time has this been claimed as an overall saving to the MoD.

Q3.   What progress has been made in relation to Phases 3 and 4 of the project to merge the DPA and DLO?

  DPA and DLO merged on 2 April 2007 to create an integrated equipment and support organisation, Defence Equipment & Support (DE&S), concluding Phase 3 of the merger project. Post-launch, DE&S has remained on the "front foot", driving its key business priorities hard.

  We continue to deliver our core outputs, with support to current and future operations remaining our highest priority. This includes all aspects of support, from delivery of logistics and Urgent Operational Requirements (UORs) to current operations through to the management of investment projects supporting future activity.

  Establishing DE&S as a "fit for purpose" organisation at its launch was a major milestone, but we are now focussing on optimisation (Phase 4) to ensure it is properly sized and shaped. This work has been combined with the future development of DE&S to create a single change programme—PACE (Performance, Agility, Confidence, Efficiency)—and is being taken forward under a single change framework against a Blueprint for a more agile organisation, which delivers support to operations more effectively while reducing the cost of doing business and delivering outcomes that further build confidence in DE&S. The Blueprint was issued to Trades Unions for consultation on 18 January and published internally to DE&S staff. Work is already progressing on understanding which activities, functions and skills are key to output delivery, and how the emerging changes from the Defence Acquisition Change Programme (DACP) can be fully embedded in DE&S processes and ways of working. Another important part of the PACE programme will be work examining the potential benefits of "Flexible Resourcing". This is an approach that is widely used in both the public and private sector for maximising the utility and utilisation of people and their skills within project and service delivery organisations. Three pilots to examine the potential benefits of Flexible Resourcing approaches to DE&S will commence in January 2008 and complete in the Spring. If successful, the pilots will be followed by a wider roll-out of Flexible Resourcing across DE&S beginning later in 2008.

Q4.   How many DE&S staff will be in post at the end of September 2007 and how many are expected to be in post as at the end of March 2008. What progress has been made in collocating DLO staff in the Bristol and Bath area?

  There were 26,345 personnel in DE&S as at 1 December 2007. This consisted of 20,064 civilian and 6,281 military personnel.

  In September 2006, prior to the formation of DE&S, the total figure for DPA and DLO was 28,669. Following the merger of DPA and DLO on 2 April 2007 and the formation of DE&S, this figure had reduced to 27,512. As stated above it is currently 26,345.

  The DE&S Manpower Control Total (MCT) for the financial year ending March 2008 is 27,650.

  The collocation of DE&S staff to the Bristol and Bath area is underway. Phase 1 included the refurbishment of two buildings purchased next to Abbey Wood main site to become "Neighbourhood 5". The first team to relocate moved from Andover on 3 September 2007, beginning a steady programme of moves from Andover to the "acquisition hub" in Bristol/Bath. Acquisition staff will be collocated in the Bristol/Bath area from Andover, Caversfield and Wyton.

  Phase 2 of Collocation will, subject to Main Gate approval later this year, include the further expansion of Neighbourhood 5, through construction of additional office buildings as well as the continuation of moves of staff to the South West.

  Staff at Sapphire House, Telford will not now relocate to the South West. On 11 December, Minister(DES) gave approval for the internal MoD transfer of provisioning and procurement activities, and the staff who carry out these activities, to ABRO/DARA during 2008-09.

Q5.   What progress has been made by the project to improve staff skills in DE&S? What progress has been made to address the skills gaps which have been identified (such as commercial, financial and project management skills)? What level of investment has been committed to addressing the skills gaps?

  An upskilling programme began at the launch of DE&S with the aim of developing a stronger professional skills base in the organisation. The focus on skills development was reinforced by the setting of a target for all staff to complete a minimum of six training days in financial year 2007-08. Further targets may be set for 2008-09. The training can be job-related, personal development or mandatory training. A further target of four training days has been set for staff in the key acquisition disciplines of Commercial, Finance, Programme and Project Management, Engineering and Logistics. The need to develop skills in these areas was reinforced by the DE&S skills survey conducted at the end of 2006.

  Whilst the majority of training will be completed by making better use of existing training opportunities, a dedicated upskilling project budget has been established to fund additional specific strategic interventions in the 5 key skill areas. In-year, £6.6 million has been allocated for this requirement. This funding complements the additional investment of some £5.5 million that is being made through the DACP upskilling programme on the development of new training and education for staff across the acquisition community. This gives a total investment of just over £12 million in acquisition skills development.

  Within the five key skill areas, the programme aims to:

    —  Build capability for the future by increasing the in-take on engineering technician apprenticeships, graduate engineering and accountancy training schemes.

    —  Increase the level of professional qualifications (eg CIMA, ILS PG Cert, APMP/APM (PQ), and CIPS).

    —  Support continuous professional development (CPD) through the delivery of CPD events.

  Key aspects of the programme include:

    Project and Programme Management—Project management licences, which are linked to Association of Project Management qualifications, are being rolled out across DE&S. As at December 2007, 246 Project Management licences had been issued. The target is 325 by 31 March 2008.

    Finance—Over 40% of staff in DE&S finance professional posts are qualified accountants and it is expected that the target of 50% will be achieved by the end of 2007-08. To improve the future position, funding has been allocated to increase the number of graduates joining the Training Accountant Development Scheme (TADS) each year and to fund existing employees on the Corporate Accounting Training Scheme (CATS). 18 graduates joined the TAD Scheme in September 2007, and seven DE&S employees were selected in July to join CATS. In addition, 29 individuals have been provided with funding to undertake the Association of Accounting Technicians (AAT) training.

    Commercial—Over 60% of DE&S commercial professional posts are filled by individuals with the relevant Chartered Institute of Purchasing and Supply (CIPS) qualification. This figure is expected to increase to 65% by the end of 2007-08. An additional target of 80% of Commercial Directors with MCIPS by March 2008 has also been set. DE&S Director General Commercial and the Defence Commercial Director have engaged with CIPS to determine how this can best be achieved.

    Logistics—To address skills gaps within the logistics area, a new five day Supply Chain Management course for middle and senior logistics managers, which examines "best practice" in respect of procurement, contracting, inventory management, logistics and supply chain management within the Defence supply/support chain, is being delivered. The DACP upskilling programme has also developed an Integrated Logistics Support e-learning course that is available to all staff to improve awareness of the discipline.

    Engineering—Systems Engineering, an essential skill needed by the whole of the acquisition community, including Project Managers, Commercial Managers, Scrutineers, Requirements Managers and Technical staff, was recognised as a weakness within the DE&S skills survey. A series of presentations/courses, based around the systems engineering functional competency framework, are being run by the Defence Academy to address this requirement. In addition, individuals are being encouraged to register with their professional institutes to become chartered engineers, incorporated engineers and engineering technicians and to undertake continuous professional development. Over £200k has been allocated to individuals to support attainment of professional engineering qualifications.

  Further funding, totalling £40.9 million, is available in future years to continue the upskilling work. As a clearer picture of the skills required across DE&S emerges as a result of the Performance, Agility, Confidence and Efficiency (PACE) programme and skills gaps are identified, the focus of the upskilling project will evolve to address these requirements.

  As well as investing in the development of functional skills, in October 2007 DE&S launched a new high potential leadership development programme (the Aspire programme) specifically for the Acquisition community, and will put in place a DE&S leadership development strategy in April 2008.

  Finally, a review is underway into the Role of the Military in Acquisition (ROMIA). This review will include identification of acquisition posts which need to be filled by Military personnel to utilise specific military skills including those obtained through recent operational experience.

Q6.   How are DE&S staff held accountable for their results and what changes have been introduced to ensure there is a real focus on outcomes in the new organisation?

  The Defence Values for Acquisition placed an emphasis on delivery against a range of Departmental objectives and priorities. This emphasis is reflected by the DE&S Main Board, which includes four Non Executive Directors to provide an external perspective and independent challenge to the Board. It is the DE&S Main Board that sets the strategic direction and priorities of DE&S, which then flow down through the organisation to be reflected within Team plans and, ultimately, alignment with individual objectives and priorities. As a feature of the organisation's Governance structure, a People Board, reporting to the Main Board, sits to provide the strategic direction of HR policies within DE&S and ensure that alignment of DE&S objectives and priorities is translated into personnel policies that focus on outcomes. The DE&S mission recognises that support to operations is its highest priority.

  In aligning individual objectives with the MoD's Departmental objectives, the current pay system and specifically annual performance pay awards are targeted, and success measured, at an individual level in achieving the challenging business objectives set. Poor performers, or those who do not achieve the objectives set, do not receive a bonus. This focus permeates the organisation's performance management regime, which emphasises accountability for delivering results whether in direct relation to Urgent Operational Requirements (UORs) in support of operational theatres or in the myriad of other DE&S outputs.

  In addition to aligning performance related pay with achievement of specific, challenging objectives, DE&S is piloting a wide range of specific Reward and Recognition strategies to further enhance and link improvements in business performance with the effectiveness, and hence efficiency, of Business Units and Teams, as well as that of the individual. These include a High Performance Package that seeks to reward team leaders for achieving exceptional business results with a blend of financial and non financial incentives together with a "Rate the Leader" scheme that is being developed to strengthen leadership within the organisation. Where appropriate, active career management intervention is undertaken to manage personnel; this includes developing means of identifying "potential" high performers and succession planning for key areas, for example in Project Management and, conversely, taking prompt and positive action to manage poor performance which ultimately can lead to dismissal. There is also a programme aimed at improving line managers' skills in these areas. In parallel, DE&S is sponsoring a MoD wide Talent Development Scheme (ASPIRE) that seeks to identify and develop the leaders required in the Defence Acquisition community of the future. This developing scheme embraces civilian, military and industry personnel in seeking to provide a partnership approach within the MoD and maximising the contributions that this blend of experience and culture can bring to future acquisition.

Q7.   What progress has been made to develop new performance targets for DE&S, in particular, new targets covering through-life capability management and the speed at which DE&S responds to the needs of the Armed Forces? Will DE&S's achievements against new performance targets be validated by the NAO?

  The initial set of targets established for DE&S in the first year seek to reflect the broader nature of the mission—"To Equip and Support our Armed Forces for operations now and in the future". Support to current operations is a key focus with targets established against delivery of equipment into theatre and satisfying Urgent Operational Requirements. These exist alongside measurement of support to the Front Line Commands in their preparations for Operations and the former DPA measures of delivering new capability to performance cost and time. We have also established internal measures related to development of our people, including upskilling to meet the challenge of a more joined up approach to Through Life Capability Management. We are building on these as part of the wider Defence Acquisition Change Programme to ensure they fully reflect DE&S's significant contribution to Through Life Capability Management recognising that it encompasses a wide range of Departmental components across all lines of development and therefore must be a pan-Departmental solution.

  We are involved in a benchmarking programme with allies to identify our relative performance in the key area of delivering equipment into theatre in an effort to identify opportunities to improve our performance in this area.

  There are no plans for DE&S new performance targets to be validated by the NAO. As the key measures will contribute to wider Departmental performance, they will be reviewed by the Defence Management Board. This will inform both the Department's Annual Report and Accounts and the Public Service Agreement results.

  The measures in place for the Departmental Public Service Agreement for procurement agreed in Spending Review 2004, of which 2007-08 is the last year, are subject to validation by the NAO. These cover performance, cost and time of Category A—C projects that have passed their major investment decision but not yet achieved their In Service Date.

Q8.   The MoD Annual Report and Accounts 2006-07 reports that equipment acquisition targets were met, but the DLO did not meet its target to deliver 98% [94.9% delivered] of logistic support for funded levels of readiness and funded support to enable force generation within planned readiness times (page 136). What lessons have been identified in relation to this area and how are they been applied in the new organisation?

  The former DLO targets were based around ensuring our forces were ready for operations with the appropriate levels of contingency in place. Inevitably, supporting two concurrent medium scale operations (Afghanistan and Iraq), and some 30 smaller operations around the world had an impact on delivering readiness levels as priorities changed accordingly.

  Over this period, we have continued to provide new equipment, delivered UORs whilst continuing to develop and deliver new approaches to supporting existing capability, as well as meeting the efficiency targets placed upon the Department. We prioritise our efforts to meet the needs of operations. Effectiveness in our ability to do this whilst minimising the impact on our contribution to generating readiness, is a key lesson. Whilst acknowledging that the target was missed, when viewed in the context of the overall operational picture, that should be viewed as an understandable, if regrettable, consequence.

Q9.   How will DE&S report on its achievements against its performance targets and its financial performance? Will the annual Major Projects Report to Parliament continue and, if so, what aspects of DE&S activity will it cover?

  DE&S achievement of targets and financial performance will be reported as part of the MoD's Annual Report and Accounts. These Departmental targets will be supported by internal measures which will seek to focus activity on delivering efficient and effective through-life capability management across the complete life cycle of equipment. The Major Projects Report (MPR) by MoD to Parliament will continue. Proposals for the evolution of the MPR to provide Parliament with a broader view of the Department's acquisition performance, developed in conjunction with the NAO, have been submitted to the Committee of Public Accounts.

Q10.   What efficiency gains are expected to be delivered from the merger of the DPA and DLO and over what timescale? Are these efficiency gains in addition to the existing efficiency targets set for the DPA and DLO?

  Although there are no specific additional efficiency targets resulting from the DLO/DPA merger, the post merger change programme is designed to deliver the DE&S contribution to the Central Enabling Services (CES) efficiency targets as well as meeting its primary aim of greater efficiency through continuously striving for ever greater effectiveness. The benefits will be achieved through streamlining the organisation and transforming how business is conducted.

  Under the new Administrative Cost Regime and as part of the associated CES targets, DE&S budgets already assume cost savings of 5% per annum over the next three years. These savings are in addition to the major efficiency initiatives already delivered by the DLO and DPA.

  In the DLO, there was a coordinated programme that was designed to improve effectiveness and therefore deliver efficiency. The DLO's Strategic Goal (the merger of the three single-service logistics organisation to provide a more effective and coherent logistics service to the front line commands) delivered efficiencies of £1.2 billion by 1 April 2007. In addition to this and the CES efficiencies noted above, further reductions are already included in the DE&S programme; these amount to £116 million by 1 April 2008 (largely Spending Review 04) and £165 million by 1 April 2011 (STP 07). Other main achievements were:

    —  The Logistics End to End initiative, taking forward logistics initiatives across defence organisational boundaries, from "factory to foxhole" (by FY 06/07 achieved a cumulative £114 million).

    —  Procurement Reform, managing expenditure from a supplier perspective and ensuring coherent procurement strategies (by FY 06/07 achieved a cumulative £144 million).

  In the DPA, efficiency was treated differently and monitored using three key performance indicators designed to monitor and improve the timeliness of asset deliveries, as well the cost of procuring and delivering these assets. The Agency Accounts for last year show the following achievements against these key performance indicators.
2004-05
2005-06
2006-07
TargetOutturn TargetOutturn TargetOutturn
Asset turnover (months)<70 59<8372 <5249
Assets delivered per £ of op costs (£) >10.7214.36>13.20 15.23>15.4418.11
Assets procured per £ of op costs (£) >16.2319.13>23.16 23.83>18.0120.26


Q11.   What progress has been made in implementing the other changes (in addition to the DPA and DLO merger, and staff skills and training) set out in the Enabling Acquisition Change report, such as the recommendations relating to the "Planning Process" and "Approvals and Scrutiny"?

  The Defence Acquisition Change Programme was established to deliver the recommendations of the Enabling Acquisition Change (EAC) report. A great deal of progress has been made within the Department; delivering significant organisational and process improvements, as well as a programme to upskill our acquisition people and develop the behaviours articulated in the Defence Values for Acquisition. The EAC report contained 44 recommendations, the vast majority of which have been fully delivered, with the remainder in the process of being completed and embedded.

  A new departmental planning process brings together previously separate plans for equipment and equipment support. Planning Round 08 is significantly different from previous years. Responsibility for programming equipment support costs has transferred from the DLO to the Sponsor and the Front Line TLB, thereby aligning programming responsibility with those organisations that have the ultimate responsibility for delivering coherent future equipment capability (the Sponsor) and for integrating the Defence Lines of Development to deliver military capability (the User). Equipment support resources are being programmed in detail over 10 years. The Front Line Commands programme the costs of support for in-service equipment for Years 1-4, and the Sponsor programmes the costs of support of all new equipment and for in-service equipment over Years 5-10.

  We have introduced Through Life Capability Management, which considers a much wider range of options for meeting new capability needs, examining both new and in-service equipment solutions, exploring opportunities and implications across all Defence Lines of Development, while considering capability delivery on a much longer term programme basis. Success in finding the best capability solution demands a greater unity of purpose and collective responsibility from all involved, often beyond their specific areas of financial or programme responsibility. This activity is led by the Sponsor (the Equipment Capability Customer) through an improved capability planning process. A new Capability Management Group and Capability Planning Group regime is in operation, using consistent processes and structures. Each group brings together key MoD stakeholders. Through Life Capability Management was established in April 2007 and has been embedded throughout the year.

  The People, Skills and Behaviours workstream of the DACP has been taking forward work to develop the skills of our people in acquisition (both within and outside DE&S). A range of training courses has been, and is being, developed to address skills shortages in the commercial, programme/project management, integrated logistics support and through life capability management areas (see Question 5). The Defence Values for Acquisition are being reflected in the annual objectives of people across the acquisition community, and work is underway to develop arrangements to link the payment of annual bonuses to demonstration of these behaviours (see Question 6). The DACP has established a programme of audits to monitor the behaviours of key acquisition individuals and groups and, through the identification of good practice and highlighting of deficiencies, we will continue to embed the behavioural changes. It is acknowledged that these behavioural changes will only deliver the more constructive, less adversarial relationships with industry if they are matched by similar behavioural changes within industry. Industry engagement is being led by the Human Resources Sub-Group of the National Defence Industries Council (NDIC).

  A revised, streamlined scrutiny and approvals process has been developed and is being applied progressively to projects. The new process builds on best practice and introduces a new "Central Scrutiny and Approvals Staff" team, consisting of representatives from all scrutiny branches. These teams will facilitate a more co-ordinated approach to scrutiny and, through ongoing engagement with both Directorate of Equipment Capability (DEC) and IPT staff, help to ensure that there is clarity on the information required at each decision point. A small number of pilot projects have already been identified and are using this revised process.

  Having largely delivered the recommendations of the Enabling Acquisition Change report, the DACP is continuing work to embed these changes. The DACP is now working together with industry, primarily, but not exclusively, through the NDIC Sub-Groups, to develop a defence acquisition system that is more responsive to the requirements of the front line and provides better value for money for the taxpayer, while reducing costs for industry. New, challenging objectives have been agreed to build upon the good work done to date, focused on delivery of an affordable equipment and support plan, reducing uncertainty for MoD and industry. This is a key enabler, alongside process improvement and the development of alternative approaches to acquisition, to the achievement of a significant reduction in acquisition cycle times. The objective is to halve the time it takes from Main Gate to delivery of capability to the front line. The process improvement necessary to achieve this would reduce the cost of doing business for both parties.

Q12.   How many UORs have been approved in the current financial year? What is the value of the UORs approved in the current financial year? Which operations do these UORs relate to?

  As the UOR process is used to address the theatre-specific needs associated with our current deployments in Iraq and Afghanistan, much information on specific UORs remains operationally sensitive and we do not comment in detail on individual items of equipment or in year approvals. However, a very considerable proportion of the equipment procured using the UOR process is for Force Protection, including a world-class system of new combat body armour; protection upgrades to vehicles on operations, and a fleet of new Protected Patrol Vehicles to supplement the vehicles already in theatre. Over £1 billion of Force Protection UORs have been approved for operations in Afghanistan and Iraq since 2003 in response to the specific conditions and changing threat in theatre. Up until December 2007, 796 UORs had been approved to a value of £2.4 billion. A total of 219 UORs were approved in 2006/07 (124 for Afghanistan and 95 for Iraq) at a value of £793 million.

Q13.   The Committee would be grateful for a note setting out how the Government plans to replicate the service provided by DESO when responsibility for defence trade promotion is moved to UK Trade and Investment. The note should include details of the timescale for implementing the changes announced on 25 July 2007.

  The Chief of Defence Materiel is not responsible for the Defence Export Services Organisation (DESO) or for policy on defence export promotion.

  The Secretary of State for Business, Enterprise and Regulatory Reform in a statement to the House on 11 December (Hansard, Columns 16-17WS) announced the arrangements under which responsibility for defence trade promotion would transfer from DESO in the Ministry of Defence to UK Trade and Investment.

  Work to achieve the transfer on 1 April is progressing well in line with the implementation plan.

Q14.   The Committee would be grateful for a short progress report on the following equipment programmes:

    —  Astute submarine.

    —  Future Carrier.

    —  Joint Strike Fighter (JSF).

    —  Chinook Mk 3 helicopter.

    —  Type 45 Destroyer.

    —  Typhoon.

    —  Future Rapid Effect System (FRES).

    —  Military Afloat Reach and Sustainability (MARS).

  For the above programmes which have passed Main Gate, the progress report to include:

    —  The Current Forecast Cost (against Approved Cost at Main Gate).

    —  The Current Forecast In-Service Date (against Approved In-Service Date at Main Gate).

  For each of the programmes, the progress report to include:

    —  A summary of the key events/decisions since the Committee last examined the programme[9] and the key events/decisions expected in the near future (next six months).

  For the progress report on the Future Carrier, the report should set out how the Royal Navy plans to maintain a carrier strike capability until the new carriers enter service in 2014 and 2016.

  For the progress report on the JSF programme, the report should include the MoD's assessment of how the arrangements (set out in the MoU covering production, sustainment and follow-on development and the unpublished supplement) to ensure that the UK will get all the technology transfer it requires to operate the JSF independently are working out in practice.

ASTUTE
Original MG Approval (90%) Current Forecast (50%)Difference
Cost (£m)2,578* 3,798+1,220
ISDJune 05November 08 +41 (Months)

*  Approval only given at 50% confidence level

Key Events/Decisions since last Review (October 2006)

    —  Construction on the Astute class submarine has now been optimised to a 22 month drumbeat, which is the optimum approach to sustain the industrial base and enable a smooth progression to the construction of the successor submarine programme. This drumbeat is based on a 7 boat Astute programme, subject to affordability.

    —  In May 2007 a contract was placed to start initial construction on Boat 4 (AUDACIOUS), which covers initial build work until March 2008, when it is intended to place a contract extension to cover construction until March 2009, before subsuming this into a whole boat contract. This strategy will ensure that the ongoing design and cost reduction requirements are fully captured and incentivised.

    —  Review Notes covering a re-submission of Boats 1-3 (reasons for, and extent of, cost growth), and seeking permission to commence work on Boat 4 were approved by the Treasury in May 2007.

    —  ASTUTE was launched from BAES in June 2007 from Barrow and is due to enter service in 2009.

    —  The building of the Astute Class is crucial to sustaining the industrial capability necessary to design and build the successor deterrent. The revised drumbeat of 22 months provides optimal integration with the Successor Deterrent Programme. MoD acknowledged the need to maintain the key supplier base for the Astute and Successor programmes in the DIS. There are a number of lessons from the Astute programme which we will apply, particularly the potential benefits of the Design for Cost Reduction programme for Boat 4, which covers procurement, production and design initiatives that are being managed and worked on collaboratively by BAES and MoD.

    —  In August 2007, while undergoing testing on Astute (Boat 1), power was lost to a lubricant oil pump which caused damage to the Turbo Generator bearings. A full investigation has been conducted into the incident. MoD agreed that an in-situ repair would be the best way to repair the damage and final repairs are expected by Spring 2008, which will not delay the planned undocking of ASTUTE in readiness for the final phase of trials at Barrow, prior to departure for Sea Trials. ASTUTE is scheduled to be delivered by the contract date of November 2008.

    Costs will be agreed between MoD and BAES once all repairs have been completed.

    —  ASTUTE successfully completed weapon discharge trials in September 2007 and Trim & Basin dives in November 2007.

Key Events/Decisions expected in the next six months

    —  ASTUTE has now returned to the Devonshire Dock Hall for fitting-out work and Core load (fuelling). ASTUTE is expected to leave Barrow in August 2008.

FUTURE CARRIER
Original MG Approval Current ForecastDifference
Cost (£m)3,900 3,900
ISD2014 & 20162014 & 2016


Key events/decisions since HCDC Report on CVF in December 2005

    —  14 December 2005—As part of the incremental Main Gate the announcement was made to move into the Demonstration Phase.

    —  6 March 2006—The UK/French co-operation Memorandum of Undertaking was signed.

    —  25 July 2007—The final Main Gate approval was announced to move into the Manufacture Phase.

    —  25 July 2007—BAE Systems & VT Group entered into a legally binding Framework Agreement to establish a Joint venture (JV). BAE Systems, VT and the MoD also signed a Heads of Terms which set out the intended role of this JV in the CVF programme. At the same time the three parties signed a non binding Heads of Terms on the planned Terms of Business Agreement (ToBA) MoD intends to conclude with the JV in relation to the future surface warship programme.

    —  CVF Long Lead items were contracted for over the latter part of 2007. The first contract with Selex Communications was signed on 1 October 2007 As part of the process towards the Joint Venture formation, a legally binding Side Letter of assurance was signed with the two companies on 11 January 08 in support of the ToBA

Key Events/Decisions expected in the next six months

    —  Placement of the Manufacture Contract subject to legal formation of the Joint Venture.

How the carrier strike capability will be maintained until the new carriers enter service in 2014 and 2016

  The current Maritime Strike capability is provided by the CVS Class carriers with Harrier GR9 and Sea King ASaC embarked. This capability will be sustained until the Future Carriers enter service, in 2014 and 2016. On current plans CVF01 will be in service before the last of the CVS carriers, ILLUSTRIOUS, goes out of service (2015), with CVF02 coming into service the year after. This ensures continuity of a maritime strike platform at all times.

  Carrier Strike is a future Joint Force capability comprising Joint Combat Aircraft (JCA), the two new aircraft carriers (CVF) and a Maritime Airborne Surveillance and Control (MASC) component, supported by associated enablers. Combined, these components represent a step change in capability, and providing this capability includes managing the transition from the CVS to the CVF and Harriers to JCA.

JOINT STRIKE FIGHTER
Original MG Approval (90%) Current Forecast (50%)Difference
Cost (£m)2,236 1,858-378
ISDISD will not be set until MG is approved for the delivery of the aircraft to the UK.


Key events/decisions since December 2006

    —  Signature of the Joint Strike Fighter (JSF) Production, Sustainment and Follow-On (PSFD) MoU in December 2006.

    —  First flight of the first development CTOL JSF achieved in December 2006.

Key Events/Decisions expected

    —  First flight of the first development STOVL JSF in May 2008.

Progress on Production, Sustainment and Follow-On (PSFD) Arrangements

  The UK continues to work closely with the US to secure the commitments it requires with regards to operational sovereignty. Progress is being made in this area by the UK's inclusion in the JSF Operational Test and Evaluation (OT&E) development planning, continued presence and increased access of UK SME's within the JSF programme in the USA and proposals to increase the level of access to JSF information for UK Industry.

CHINOOK MK3 HELICOPTER
Original MG Approval Current ForecastDifference
Cost (£m)90.1* 90.1*Nil
ISDSeptember 2009*September 2009* Nil
*  Estimates are at 50% confidence


Key events/decisions

    —  March 2007—announcement of the cancellation of the Chinook Mk3 Fix-to-Field programme and conversion of the aircraft to the Support Helicopter role to make the helicopters available to operations as quickly as possible.

    —  August 2007—launch of Phase 1 to commence design work, procure long lead items, conclude aircraft characterisation flight trials and prepare robust proposal for the full programme.

    —  December 2007—Main Gate investment decision for the full programme and signature of the contract with Boeing (£62 million).

    —  These helicopters will deliver a significant boost to the UK's operational heavy lift helicopter fleet. Chinooks are a key battle-winning capability. The first helicopters are expected to be operational in 2009. The eight converted Chinook will join the existing fleet of 40 RAF Chinook helicopters and will be based at RAF Odiham in Hampshire.

TYPE 45 DESTROYER
Original MG Approval Current ForecastDifference
Cost (£m)5,475 6,464+989
ISDNovember 2007November 2010 +36 months


Key events/decisions since February 2007

    —  May 2007—revised commercial arrangements agreed with BAES/conclusion of contract negotiations. Price of Type 45 ships 1—6 in place, increased incentive for completion of programme.

    —  July 2007—The first Type 45 vessel, Daring, undertook Initial Sea Trials.

    —  August 2007—Treasury signed off revised costs and revised contract for Type 45 ships 1—6 let with industry. This is a major achievement, providing a firm boundary around the programme risks of this hugely complex and demanding programme and which will put in place incentives for industry to deliver. As such, the revised contract should provide a very positive foundation on which to deliver the Type 45 programme.

    —  August 2007—Initial Sea Trials were successfully completed on Daring. While a number of teething problems were highlighted, this is to be expected on the first sea trial of the First in Class of a ship of the complexity of the Type 45.

    —  November 2007—The third Type 45 in the Class, Diamond, was launched.

Key Events/Decisions expected in the next six months

    —  Continue to exploit ways of joint working with BAES through Strategic Programme Board with aim of identifying opportunities and ways to resource the programme more efficiently and effectively.

    —  Dragon (4th in Class) is due to be launched in November 2008.

    —  Daring's second sea trials are currently expected to take place in April, with the third set in August/September. First sea trials for Dauntless (2nd in Class) are currently expected to take place in September.

TYPHOON
Original MG Approval Current ForecastDifference
Cost (£m)16,671 RestrictedRestricted
ISDDecember 1998June 2003 +54 months


Key events/decisions since February 2007

    —  A contract was signed in March 2007 to provide Typhoon aircraft with an advanced Air-to-Surface capability from 2011. This will complement the initial Air-to-Surface capability that is due to be available from 2008.

    —  Stand-up of second operational squadron (11 Sqn) at RAF Coningsby in March 2007.

    —  Typhoon took on its first operational role by assuming responsibility for Quick Reaction Alert (South) in July 2007.

    —  The Government of Saudi Arabia reached agreement with the UK Government in September 2007 to purchase 72 Eurofighter Typhoon aircraft.

    —  The return of the initial Request for Quotation response from the Eurofighter industry consortia for Tranche 3 in December 2007.

    —  Air Defence Operational Employment Date in January 2008.

Key Events/Decisions expected in the next six months

    —  Tranche 2 Type Acceptance in April 2008, prior to delivery of first Tranche 2 aircraft in late Summer 2008.

    —  Multi-Role Operational Employment Date in July 2008.

FUTURE RAPID EFFECT SYSTEM (FRES)
Original MG approval Current ForecastDifference
Cost (£m)N/AN/A N/A
ISDN/AN/A N/A


Key events/decisions since February 2007

  Real progress has been made on FRES. Implementation of the FRES competitive Acquisition Strategy is being driven hard to ensure we deliver, as early as possible, a FRES capability that meets the Army's needs through life. Specific achievements include:

    —  June 2007—Min(DES) announced the three vehicle designs selected to take part in the Utility Vehicle (UV) Trials (the UV Design Competition). They are VBCI (Nexter), Piranha Evolution (GD (UK)) and Boxer (ARTEC).

    —  September 2007—Herbert Smith appointed to provide legal advice to FRES IPT to ensure to the MoD receives strong legal, intellectual property and alliancing advice. This appointment reflects the importance of having access to the best possible legal advice to achieve the FRES DIS objectives in full.

    —  October 2007—Competition to select the System of Systems Integrator successfully completed. Min(DES) announced the selection of the Thales (UK) and Boeing team as the preferred bidder on 5 October 2007—2 months ahead of schedule.

    —  November 2007—Industry responses to Pre-qualification questionnaire for the UV Integrator role received by FRES IPT and assessment under way.

    —  November 2007—Min (DES) announced the outcome of the UV Design trials. UV Trials completed on schedule in September 2007, producing a recommendation based primarily on technical considerations. Review of commercial implications of the three competing designs launched.

Forthcoming key events/decisions

    —  January 2008—Award of contract for the initial phase of SOSI support to the FRES programme.

    —  2008—Announce the one preferred UV Design to be taken forward to the next stage of the FRES UV programme.

    —  Selection of 1 or more UV Integrators to proceed to the next stage.

MILITARY AFLOAT REACH AND SUSTAINABILITY (MARS)
Original MG approval Current ForecastDifference
Cost (£m)N/AN/A N/A
ISDN/AN/A N/A


Key events/decisions since Initial Gate approval (July 2005)

    —  July 2005—entry into Assessment Phase announced via Written Ministerial Statement. The Procurement Strategy at the time was the formation of an Alliance, comprising the MoD, an Integrator, a Design, Outfit and Build Alliance Partner (DOBAP) and a Through Life Support Partner (TLSP).

    —  February 2006—3 companies (Amec, Raytheon and KBR) selected to compete for the role of Integrator for the MARS project. This was announced via Written Ministerial Statement.

    —  May 2007—Min (DES) approved a decision to rethink the Procurement Strategy to take account of changing market conditions and the opportunities generated by the delivery of the DIS.

    —  June 2007—The MARS IPT wrote to the three Potential Integrators, formally informing them that the Integrator competition had been discontinued.

    —  October 2007—Industry Day held to inform the supply chain on the Fleet Tanker requirement and provide a general programme update.

    —  December 2007—Following Min(DES) approval, advert placed in the Official Journal of the European Union (OJEU) seeking expressions of interest from companies who may wish to compete for the design and build elements of the MARS Fleet Tanker programme.

Key Events/Decisions expected in the next six months

    —  2009—Preferred Bidder selected for MARS Fleet Tankers and approval sought for Main Gate Business Case.

Q15.   The MoD Annual Report and Accounts 2006-07 (page 342) states that Networked Enabled Capability (NEC) "will enable the MoD to operate more effectively in the future strategic environment by more efficient sharing and exploitation of information within the UK Armed Forces and with our coalition partners". The Committee would be grateful for a note setting out:

    —  The key programmes (in-Service or currently being acquired) which will deliver NEC and their expected cost.

    —  The key challenges to exploiting the benefits offered by NEC and how these are being addressed.

    —  MoD's timetable for reaching the different "NEC Maturity States" [JSP 777 Edn 1 defines three NEC Maturity States].

    —  How the MoD is co-ordinating its overall programme to deliver NEC with its coalition partners."

  The requirement for NEC is not a DE&S responsibility; the lead within the MoD is the Equipment Capability community. The Department adopts a long-term and holistic approach to NEC. Equipment programmes are only part of the picture: how we organise our business is as important to delivering NEC as the underlying equipment technologies. It would therefore be helpful to consider the key challenges for NEC before looking at the main programmes.

Key Challenges

  The following are considered as the most significant issues but the list is by no means exhaustive.

    Organisational Change.  Whilst the technical complexities of NEC are important, organisational change to realise the benefits of NEC requires major effort in a number of areas, for example, comprehensive staff training, reviews of the size and shape of headquarters and a project to update our Ways of Working are underway. At the practitioner level, new Tactics, Techniques and Procedures are being written, and a series of tests, trials and demonstrations are being run to enable the potential of NEC to be fully exploited.

    Information Assurance.  This covers a wide spectrum, from confidence that information can be trusted to protecting our systems from attack. Work is in hand to create an overall architecture, with some aspects already developed. There is, for example, a policy on how Computer Network Defence should be conducted and an initiative to provide assured reference data.

    How to Share Information.  The demands of security or "need to know" can conflict with the "need to share" approach implicit in NEC. Security remains essential but a new approach to security architectures and seamless information sharing are being investigated together with methodologies to simplify networks and hence reduce interfaces.

    Providing the Network.  Investment in network capability has to be balanced against other demands on the Defence budget. Equally, there is no point in providing information systems infrastructure and communications bearers if commensurate investment in applications and other network users cannot be made. Getting this balance right is addressed in the regular planning rounds the Department undertakes to review the forward Defence programme to make sure that we continue to spend money on the right priorities. A particular case is the issue of linking the business space and battlespace where for example there is a need to provide a restricted level bearer solution for logistics command and control reaching into the deployed environment. We are looking carefully at how to improve the position in order to avoid legacy system run-on costs, reduced efficiencies and a fragmented capability.

    Urgent Operational Requirements (UORs).  Some UORs that have been delivered to support current operations by their nature make a significant contribution to NEC in theatre. For example the Hermes 450 Unmanned Air Vehicle, improvements to Logistics Information Systems and capabilities for the Operational Intelligence Support Group highlight the breadth of such UORs. While support to operations is our priority, there is a potential tension which needs to be managed between the short term, operation specific capability being acquired and our longer term, more measured plans.

Key Programmes

  By definition, almost all equipment capabilities contribute to and/or benefit from NEC. However, we currently estimate that nearly 60% of the current 500 or so projects in the equipment plan could be described as significant contributors in some way to NEC. The following list illustrates the range of the more prominent examples.

    Defence Information Infrastructure (DII)— This network is being rolled out in the fixed sites in UK. An initial capability has been approved to extend to deployed HQs at a cost of some £370 million for delivery in 2008-09. An initial top secret capability is being considered for deployment shortly afterwards. Decisions have not yet been made on the remaining requirement for deployed, fixed and top secret capability.

    FALCON—This will provide a modern high capacity communications network principally for deployed land operations. Increments A and C have been approved at a combined cost of some £250 million with ISDs in the 2010-11 timescale. Increments B and D remain under consideration and no decisions have been made.

    Skynet 5—This is a military satellite communication service provided under PFI arrangements. Costs are around £200 million per annum until around 2020. The first two satellites of this system have been launched.

    Bowman CIP—The Bowman Combat Infrastructure Platform (CIP) secure tactical radio and information system is already in service. A capability upgrade, Bowman CIP 5, was trialled late last year and the results are currently being analysed. Bowman CIP is a £2.4 billion programme and brings major capability improvements to situational awareness, communications and operational tempo.

    Multi-National Information Sharing (MNIS)— This is an incremental programme to deliver effective operational interoperability between nations with a priority for command and control applications, initially with the US.

    Tactical Data Links—Multiple programmes using technology such as Link 16 that contribute to overall capability for tactical command and control.

    DABINETT—This programme is currently in the concept phase and intends to deliver a system of systems to address our future Intelligence, Surveillance, Target Acquisition and Reconnaissance (ISTAR) requirements. DABINETT aims to address two distinct but related capability gaps—the ability to undertake deep and persistent surveillance of the battlefield and the ability to manage the intelligence cycle efficiently from end to end. Given its wide scope, DABINETT plans to adopt a programme approach with individual projects or groups of projects managed within an overall programme framework. Delivery is likely to be incremental and include a combination of existing and future platforms and sensors, support centres and links to intelligence systems.

NEC Maturity States

  The Department set out a broad framework for taking NEC forward in Joint Services Publication (JSP) 777 over two years ago. This is an area of particularly fast moving ideas and technology and as the JSP 777 foreword says, "We live in a world where change is . . . fundamental". The passage of time has confirmed that the logic that underpins NEC remains sound but has also highlighted the need to update the initial timelines used in Part II. This work is in hand with the aim of bringing a greater degree of objectivity to the process of describing the maturity states and setting milestones. The initial state definition will accordingly be adjusted to reflect progress made to date. On this basis, we currently expect the first initial state milestone to be set at 2012, the second milestone for the beginning of the transitional state milestone at 2017 with the mature state yet to be fully defined. A 3-Star Senior Responsible Owner has been appointed in recognition of the significance of NEC as a Defence priority.

Co-ordination with Coalition Partners

  The Department expends significant effort engaging with its coalition partners to ensure that as much coherence as possible is obtained with key allies. While this is a complex area and staying exactly in step with other nations is neither achievable nor desirable, key dependencies have been identified. In order to address core interoperability concerns that sit at the heart of NEC, we engage actively in the following fora:

    The Interoperability Commission (IOC).  The IOC is the key UK-US senior official level bilateral forum that addresses operational and technical interoperability. Fourteen UK-US "tiger teams" meet regularly to progress interoperability across the whole C4ISTAR domain.

    Bilateral Meetings.  These include for example meetings with Australia to progress pan-environment military harmonisation.

    Combined Communications Electronics Board.  This addresses communications policy, interoperability and publications amongst the 5-Eyes member countries to "enable interoperable C4 capabilities that make warfighters more effective in Coalition Operations". Working Groups cover all communications and information systems aspects and outputs are harmonized with those of NATO wherever possible.

    National Armaments Directors (NADs).  The NADs of France, Germany, Italy, the UK and the United States supervise a number of working groups which address NEC issues such as coalition combat identification, research and technology projects and future UAV operational concepts.

    NATO.  NATO has a full sub-committee structure under the NATO C3 Board that covers all aspects of C4ISTAR.

23 October 2007








9   The Astute submarine, Future Carrier, JSF and Chinook Mk 3 helicopter programmes were examined in the Committee's Defence Procurement 2006 report (First Report of Session 2006-07) published on 8 December 2006. The Astute submarine, Future Carrier, JSF, Type 45 Destroyer and Typhoon programmes were examined in the Committee's The Defence Industrial Strategy: update report (Sixth Report of Session 2006-07) published on 15 February 2007. The FRES programme was examined in the Committee's The Army's requirement for armoured vehicles: the FRES programme report (Seventh Report of Session 2006-07) published on 21 February 2007. Back


 
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