Defence Support Group - Defence Committee Contents


Memorandum from the Ministry of Defence

THE DEFENCE SUPPORT GROUP (DSG)

Q1.   Developing the role, status and work of the DSG

  1.  DSG is a trading fund agency of the Ministry of Defence (MoD). It was launched on 1 April 2008 following the merger of ABRO, the Defence Aviation Repair Agency's (DARA) Electronics and Large Aircraft business units and certain other defence support facilities.

  2.  DSG has been retained within MoD ownership to support (a) delivery of the Defence Industrial Strategy, and (b) UK military operations, by securing access to responsive, cost-effective in-house capacity and capability for the maintenance, repair, overhaul and upgrade of strategically important Land and Air in-service equipments.

  3.  The four main DSG business streams covering Armoured Vehicles, Land and B Vehicles, Large Aircraft and Electronics and Components operate across 18 sites supported by the DSG Head Office, currently located at Andover.

  4.  MoD has set DSG the goal of transforming the ABRO-DARA businesses into a single, viable entity that secures the benefits of the merger and delivers better value for defence in the provision of these support services going forward. Good progress has already been made with £10 million of benefits realised and programmes in place to continue the transformation of the new combined business.

  5.  MoD will review DSG progress on a regular basis, through the established governance structures, including the Owner's Advisory Council chaired by Minister for Defence Equipment and Support, to ensure that the synergies and benefits of the merger are fully exploited and that DSG's business strategy and capability retention and development plans continue to be well aligned to both MoD customers' needs and developments in the market environment.

  6.  As required by HM Treasury, MoD will also review DSG's trading fund status regularly to ensure that this business model remains the best way of delivering the services customers need in the most cost-effective way. In this respect, MoD is following developments with the current DBERR review of the Government trading fund model and will examine what this means for DSG, and MoD's three other trading funds, once the review's conclusions are finalised.

Q2.   DSG performance against Key Targets

  7.  DSG's performance to date against its 2008-09 key targets is outlined in tabular form at Annex A to this memorandum. The organisation forecasts that all the targets will be achieved or exceeded at year end.

Q3.   Progress in amalgamating ABRO and DARA

  8.  Work on the merger of ABRO and DARA began in May 2007 following the Ministerial announcement, and in August 2007 Archie Hughes, then Chief Executive (CE) of DARA, took on the additional roles of CE ABRO and CE DSG Designate, in order that all necessary arrangements to secure the successful vesting of DSG as a new trading fund on 1 April 2008.

  9.  DARA and ABRO continued to operate as two separate trading funds with separate executive management and trading fund boards until DSG formally came into operation. The formation of a single executive management and trading fund board was the first tangible synergy benefit of the merger and delivered annualised savings in the region of £1 million.

  10.  Since 1 April 2008, DSG has, in accordance with its business plan, focused on developing a sustainment strategy for the organisation through a number of initiatives at both the strategic and business unit level. This work has, among other things, been designed to identify and fully exploit the synergy and benefit opportunities of the DARA and ABRO merger and set targets for future improvements. The work will also inform the development of DSG's corporate strategic plan, setting out the DSG business agenda for the next five years, for approval by MoD Ministers in March 2009.

  11.  Transfer of the Sapphire House staff at Telford from MoD Defence Equipment & Support was successfully achieved on 1 September 2008 and significant manpower savings have already been realised. Work will now begin to identify how best to exploit this new DSG capability in the context of availability contracting and support of existing and future in-service equipments.

  12.  Overall benefits of £10 million have already been achieved primarily through manpower reductions at a corporate level and a tranche of further measures will drive down costs across the whole of the business. Excellent progress has already been made in driving up efficiency in each of the business units. The increase in efficiency in 2008-09 is forecast to be almost double that set in key target 4.

  13.  DSG has also put in place key changes to streamline the management and business structure across the various businesses to establish operational integrity and give the transparency and accountability necessary to ensure operational discipline. The robustness and credibility of these new measures is being progressively validated by the increasing correlation between financial planning and in-year outturn, and they will be concluded by the end of this financial year.

  14.  A synergy study is currently underway examining how best to exploit the benefits of merger within the Electronics and Components work-streams currently undertaken at Sealand, Stafford and Donnington.

Q4.   The strategic need to keep DSG capabilities within Trading Fund status

  15.  The aim of trading fund status and its associated arrangements is to create accountability within the service supplier organisation and to improve its responsiveness to customer requirements. It also imposes commercial disciplines on the trading fund that encourage greater efficiency and effectiveness while providing customers with visibility of the real costs of the services and capabilities they require, allowing them to make informed choices on value for money grounds.

  16.  DSG operates on these principles, employing the flexibilities that trading fund status bring, to provide responsive key strategic capacity and capability in support of UK Armed Forces. This has proved especially important in allowing DSG to respond at short notice to urgent overseas operational support requirements. MoD has no plans to change DSG's status but is required to keep trading fund status under review, especially in light of the DBERR review of trading funds generally.

  17.  Trading fund status also provides DSG with the potential to adopt best market practices and skills to sustain value for money advantage against industry competition, as well as the opportunities to engage in, and compete for, wider market work using spare capacity, thereby reducing overhead costs across its MoD programme work. DSG, as a trading fund, plays a valuable role as a competitive lever for driving fair and reasonable industry bids for work that falls within DSG's capability (but outside their capacity). Trading fund status also provides the opportunity to create a separate non-exclusive industry-facing identity that enables partnering and other commercial models.

  18.  Details of DSG's key strategic core capacity and capability for Land equipment, aircraft avionics and large aircraft are contained at Annex B to the memorandum.

Q5.   Long Term viability of DSG

  19.  DSG is MoD's preferred in-house option for equipment maintenance, overhaul and upgrade support solutions. To sustain this, the business must continue to build on its strengths—particularly its ability to adapt and flex its capabilities to meet MoD customers' changing needs—while demonstrating that it provides best overall value for defence in an increasingly competitive and challenging market environment.

  20.  Building successful partnerships with the industry prime contractors, responsible for the through-life support of the UK Armed Forces' current and future land and air equipment, will also be critical to the long-term viability of DSG. Maintaining the organisation's competitive edge, and therefore its attraction as a partner of choice for the industry primes, will depend in large part on the capability investment and restructuring choices the organisation implements over the next few years.

  21.  With the ABRO and DARA merger now complete, DSG is on a sound footing going forward in the short to medium term. Plans are being prepared for MoD Ministers' approval in March 2009 which will aim to ensure that the business is best configured to achieve success in the longer term by continuing to offer the most competitive, high quality output required by the Armed Forces customer.

  22. While it is too early to report on the detail of these plans and their likely impact on the future size and shape of DSG, they will address the significant challenges facing the long-term viability of the Large Aircraft business unit at St Athan as the VC-10 tanker fleet approaches its out of service date of 2014. DSG is working closely with MoD, other agencies and government departments, including the Welsh Assembly, to identify what future opportunities exist.

Q6.   DSG support to the Defence Industrial Strategy

  23.  The Defence Industrial Strategy (December 2005) set out the key capabilities that MoD wished to retain in the UK and how this would be achieved. The DSG has contributed significantly in this regard. For example, the DIS stated that the UK requires an on-shore capability to repair and overhaul armoured fighting vehicles both for routine maintenance and in response to operational needs. DSG has the only operational armoured fighting vehicle repair and overhaul facility in the UK. As such, it has a key role to play in development of the market for the support of the in-service and future fleet for armoured fighting vehicles including the Future Rapid Effects System (FRES). Similarly DSG's air support assets provide a unique, operationally strategic capability and utility of this resource should also be maximised and the core capacity and capability sustained.

  24.  Through application of its unique skills, practical know-how, intellectual capital and platform specific expertise, DSG has demonstrated its ability to meet its primary objective of ensuring continuity of service to a significant number of in-service, operationally critical platforms in support of the Defence Industrial Strategy. In particular, DSG's flexibility in responding to the significant levels of operational activity and urgent operational requirement projects has highlighted the pivotal role it plays in support of operations.

  25.  In recognising that this resource requirement will change over time in response to changing operational demands, the capacity and capability of DSG will consequently be jointly assured by DSG and the MoD customer. The mechanism that helps ensure MoD provides the necessary sustainment support for DSG into the future is the publication of Defence Equipment and Support Standing Instruction 20. This instruction requires that, as a retained defence capability, DSG's capabilities and resources should be maximised and the core capability and capacity sustained to ensure their continued availability to the MoD customer.

Q7.   Status of the £875 million contract between DSG and MoD

  26.  The DSG Repair agreement[1] covers the five-year period 1 April 2008 to 31 March 2013 and has a potential value of £875 million over the period. It covers the maintenance, repair and overhaul of vehicles and equipments for predominately the MoD Land Equipment (LE) area plus significant repair, maintenance and inspection work for the 3 Services. This work is provided to DSG as follows:

    —  Programme Load—Programme Load is planned and budgeted work identified by Defence Equipment and Support teams, for which DSG is required to provide a firm price. These teams load the work throughout the year and delivery is against a schedule. On completion of repair the tasks are invoiced to the customer.

    —  District Load—District Load work is provided predominantly from the Army customer but also from the RAF and RN. This is essentially unscheduled work and covers a vast array of repair, maintenance and inspection work at a number of sites and in-barracks to ensure convenience to the three Services' customers. This part of the agreement is covered under a yearly Limit of Liability for each customer.

    —  Ad hoc TasksAd hoc tasks can be raised on DSG by either the Defence Equipment and Support teams who contribute to the Programme Load work or other MoD customers that require work undertaken at short notice. Urgent operational requirements are also loaded to DSG in this manner. Each task is separately priced.

  27.  Maximum provisional rates have been agreed for 2008-09 and these rates together with material costs will be the basis of the prices that will be firmed up in February 2009. Rates are currently being compiled for 2009-10 and these will be forwarded to the customer in the early part of 2009 for consideration.

  28.  Agreement terms and conditions are all agreed. Regular dialogue and meetings are held with CDLE and his team to ensure the smooth operation of the agreement.

  29.  The estimated total value of this agreement for the period 2008-09 to 2012-13, at the point the agreement was placed in April 2008, was £875 million. This will change as actual requirements are clarified year on year.

Q8.   Impact of operational tempo on DSG work

  30.  There has been a significant increase in demand for DSG support with Land vehicle repair as a result of operations in Afghanistan and Iraq above that originally forecast and funded through the MoD core programme. This increase is due to the high operational tempo, it has been funded via the Conflict Prevent Fund, and met through DSG's ability to surge and flex its capabilities. A more detailed summary of the impact of Operations TELIC and HERRICK on DSG is provided at Annex C to the memorandum.

Q9.   DSG staff in operational theatres

  31.  Besides having a long-established tradition of deploying its skilled personnel to support on-going military operations, operational deployments also characterise DSG's utility and flexibility during critical vital Front Line operations. Deployments have included Operation GRANBY during the first Gulf conflict, through Operation OCULUS in the Balkans to current Operations HERRICK and TELIC in Afghanistan and Iraq. DSG deploys teams of various sizes depending on the unique requirements of the work that needs to be done. The following table outlines, for the Committee's information, DSG's most recent deployments.


Op Theatre


From/To

Duration
(days)
No of
Personnel
Deployed


Activity
1Iraq29 Apr-24 May 07 2617Fitting of Electronic Counter Measures (ECM) Installation kits on vehicles.
2Iraq21 Jun—1 Jul 07 116Fitting of WARRIOR UOR upgrades including: Environmental Control Units (ECU), and ECM kits.
3Afghanistan8-20 Aug 07 137Fitting of WARRIOR UOR upgrades including: ECU, ECM and Additional Protective armour (WRAP 2). This was a continuation of DSG work carried out in barracks in Germany.
4Kuwait22 Oct 07-8 Feb 08 Up to 108Up to 15 Fitting of WARRIOR UOR upgrades; ECM and WRAP 2. Teams/individuals changed throughout the period.
5Iraq14 Jan-6
Feb 08
248Fitting of Mine blast protection to CHALLENGER 2 Main Battle Tanks.
6Iraq17 Mar-18 Apr 08 335Fitting of Mine blast protection to CHALLENGER 2 Main Battle Tanks.
7Iraq/Afghanistan13 Jun-3
Jul 08
211Specialist support to ECM eqpts.
8Iraq8 Sep-18
Oct 08
413Fitting of Mine blast protection to CHALLENGER 2 Main Battle Tanks and CHALLENGER Armoured Recovery Vehs.
9Iraq/Afghanistan5-26 Jan 09 211Specialist support to ECM eqpts.



  32.  DSG personnel actively support deployments with many taking more than one tour and requests for volunteers are consistently oversubscribed. There is no shortage of keen, capable volunteers, even when they know they may be faced with the threat and reality of enemy indirect fire.

  33.  Deployment volunteers are drawn from several DSG sites but are inevitably limited to the various skills available and the business needs of each site. They include personnel from Donnington, Bovington, Catterick, Colchester, Stirling and Warminster. DSG anticipates increasing manpower numbers on deployments to support the future Equipment Sustainability Solution at Camp Bastion in Afghanistan.

  34.  DSG staff work under REME Command, helping optimise the skills of Service personnel while delivering support at the point of need, and potentially saving on the base workload. DSG manpower are extremely enthusiastic about providing vital support direct to deployed operations and many have won campaign medals for their efforts which are recognised and applauded by their Service colleagues.



1   As DSG is a constituent part of the MoD, trading between MoD and DSG does not have the same legal force as a contract, and is more properly referred to as being an agreement, as opposed to a contract. Back


 
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