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 Tasks—Ad 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 |
| 1 | Iraq | 29 Apr-24 May 07
| 26 | 17 | Fitting of Electronic Counter Measures (ECM) Installation kits on vehicles.
|
| 2 | Iraq | 21 Jun—1 Jul 07
| 11 | 6 | Fitting of WARRIOR UOR upgrades including: Environmental Control Units (ECU), and ECM kits.
|
| 3 | Afghanistan | 8-20 Aug 07
| 13 | 7 | Fitting 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.
|
| 4 | Kuwait | 22 Oct 07-8 Feb 08
| Up to 108 | Up to 15 | Fitting of WARRIOR UOR upgrades; ECM and WRAP 2. Teams/individuals changed throughout the period.
|
| 5 | Iraq | 14 Jan-6
Feb 08
| 24 | 8 | Fitting of Mine blast protection to CHALLENGER 2 Main Battle Tanks.
|
| 6 | Iraq | 17 Mar-18 Apr 08
| 33 | 5 | Fitting of Mine blast protection to CHALLENGER 2 Main Battle Tanks.
|
| 7 | Iraq/Afghanistan | 13 Jun-3
Jul 08
| 21 | 1 | Specialist support to ECM eqpts.
|
| 8 | Iraq | 8 Sep-18
Oct 08
| 41 | 3 | Fitting of Mine blast protection to CHALLENGER 2 Main Battle Tanks and CHALLENGER Armoured Recovery Vehs.
|
| 9 | Iraq/Afghanistan | 5-26 Jan 09
| 21 | 1 | Specialist 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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