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DE 05
Memorandum from VT Group
1. Executive Summary
This memo:
a. Provides an introduction to VT Group b. Offers VT's views on the performance of DE&S c. Offers VT's views on MoD's short examination of the equipment programme d. Offers VT's views on progress in implementing the DIS
2. Introduction
VT is a leading defence and support services contractor, providing engineering focused, mission critical support to the defence, nuclear and secure communications sectors, supported by a comprehensive specialist training business.
The
Group employs over 14,000 people and has an annual turnover of over £1.2bn as
well as a current order book of over £6bn.
The Group is a long-standing supplier to the MOD and operates in a
number of countries world-wide, with over one hundred offices, ranging from
In
July, as part of the DIS process, VT combined its shipbuilding assets with
those of BAE Systems to create BVT, a new
3. Performance of DE&S
Milestones Passed
Three major programmes with which VT is involved - the Future Carrier (CVF), the Military Flying Training System (MFTS) and the Future Strategic Tanker Aircraft programme - have all been approved to proceed and/or reached financial close. Improvements can and should be made to reduce the time taken to negotiate and approve deals of this sort; this should not obscure DE&S' achievement in bringing these projects to fruition in the currently testing financial climate.
Impact of Current Operations
VT is a strong supporter of the structural reforms of the acquisition process set out in the McKane Report, including Through Life Capability Management (TLCM), incremental acquisition, the merger of DPA and DLO and more widespread use of longer-term partnering arrangements. Structural changes take time to bed down; more importantly, it is necessary to build a new culture and set of behaviours to support the new structure.
VT
is sensitive to the fact that any assessment of DE&S' performance must be set
in the context of the MOD's current budgetary challenges and the pressure of supporting
simultaneously deployed operations in
There is a widespread consensus that the Urgent Operational Requirements (UOR) process is very effective in delivering quickly much needed equipment and support to the frontline. Over the last three years, VT has delivered equipment and support to the frontline under a number of UORs and can testify that the process works well. Examples include: a. Tactical radiation and monitoring equipment b. Construction vehicles for Operation Herrick c. Quick turn-around training for Operations Herrick and Telic However, it is self-evident that the UOR process does not sit comfortably with the TCLM approach that is at the heart of the MOD's acquisition reforms, with the emphasis on considering through-life support implications and costs at the time of the initial capital acquisition.
VT's view is therefore that the direction of travel is the right one, though the time taken to reach the desired destination takes longer than all involved in the process would like; the challenge is also made significantly more complex by the demands of current operations.
Development Areas
In building on the achievements that the merged DE&S organisation has already made, there is scope to focus attention in a number of areas:
· Clarity on strategic defence priorities and requirements
DE&S is a delivery agency. Its performance is impacted by other parts of the defence planning process. Priorities and requirements under review or subject to change will have significant implications for DE&S performance against time and cost benchmarks.
Decisions surrounding the equipment programme can often appear painfully slow to industry. This is a function of the scale and complexity of the issues and the number of people who need to be involved in the approvals process. This means that DE&S can frequently be perceived as a "risk averse" organisation where it is better not to make a decision, than to make a decision (however soundly based) and be penalised for getting it wrong.
By way of example, although rapid progress was made by MoD and industry on the size and shape of industry rationalisation following the publication of the DIS in 2005, it took a significant amount of time to reach final agreement on the shipbuilding joint venture, BVT.
The MOD's short examination of the equipment programme should help to clarify priorities and give DE&S a stable framework within which to work (see below).
· Breaking down the silos
The merger of DPA and DLO has successfully brought within single Integrated Project Teams the through life perspective. IPTs often enjoy considerable autonomy over the programmes for which they are responsible and their decisions can have major long-term impacts both on industry, and therefore on the activities of other related IPTs. DE&S has recognised the need for a more holistic view; DE&S senior management is also organised to have an overview across areas of capability.
Industry has yet to see this translated effectively on the ground. Good examples are: a. VT is currently bidding to one IPT for Whole Fleet Management, whilst at the same time re- bidding for the White Fleet contract; b. VT is part of the Ascent Team that is starting to implement the MFTS contract, whilst the Group is currently re-bidding for the Tucano training contract, which is a key part of the overall training system; c. the Defence Training Rationalisation is currently being negotiated (with major estates implications), whilst in parallel there is a process to select Regional Prime Contractors (RPCs) to manage the Defence Estate. There is a tension between the vertical integration (with economies of scope) implicit in one approach and the horizontal integration inherent in the other (economies of scale). The advantage of the vertically integrated model over the horizontal is, for example, where the horizontal model is effective at reducing the cost of providing a building, the integrated model - by being able to take a more holistic view - might be able to do away with the need to provide a building at all. In addition, where programme flexibility is required, the integrated model allows for greater freedom to facilitate change without the cost of re-negotiating numerous contracts.
· Avoiding duplication
In any new acquisition process it takes time to build up trust and confidence in a new system. One benefit of SMART acquisition is to clarify and simplify the organisation of procurement. There is a need however to ensure - with greater emphasis on TLCM and greater use of strategic partnering arrangements with industry - that the structures do not become more complicated. There is an opportunity for DE&S to devolve responsibility and to transfer risk to industry for delivering against specified outputs and capability requirements. The value of this approach will be lost if the MOD establishes parallel teams to "mark" the industry teams charged with delivery.
· Making a reality of Incremental Acquisition
The theory is there, the practice needs further development. For example, today's kit should be put on today's ships; then upgraded/retrofitted as necessary. One major cause of delay, not to mention cost increases, is that platform design is constantly being changed to take account of likely future developments in the systems and equipment that they will accommodate - an issue that the Committee has previously noted in the context of the FRES Programme.
· Long-term partnering - securing accountability and VFM
Successful long-term partnering (LTP) arrangements are dependent on objectives being set up front. Because of the long-term nature of LTP, flexibility is essential to accommodate variations in requirements. Both MoD and industry also need to be flexible when it comes to programme implementation. Critically, contracts between MoD and industry need to be robust enough to demand continuous improvement, where savings are debated on both sides of the table as and when the opportunity arises.
4. The Equipment Programme
VT welcomes the MoD's short examination of the equipment programme and looks forward to its conclusion being made known. For the reasons stated above, this review should help the acquisition process by bringing greater clarity to the MOD's priorities and provide a more stable framework within which industry can plan and invest.
If the capability review is to be effective, it will need to bring requirements and resources into better balance. The current uncertain situation is causing blight on decision-making. There is also an opportunity, if the MOD can define the nature of the challenge, for industry to be part of the solution. For example, BAES and VT identified ways to smooth the spending profile of the future carriers to maintain the momentum of the programme, whilst alleviating the MOD's budgetary constraints.
5. DIS Progress
Industry warmly welcomed the publication of DIS as the most comprehensive attempt in recent years by the MOD to create a clear policy framework to better enable industry to plan ahead and invest.
At the heart of DIS was the recognition of a link between the need for industry to restructure to make itself even more internationally competitive (thereby reducing the burden on the UK defence budget of supporting our defence industrial overhead) and the importance of having visibility of future work and of stable and sustainable workloads.
Industry
has responded to the agenda initiated by the publication of DIS. The formation of BVT is a direct response to
DIS as part of the Maritime Industrial Strategy (MIS). It was facilitated by the Government's
agreement to proceed with the Future Carrier Programme. If this progress is to be sustained, then
focus is required now to pin down the programmes that will follow the future
carriers, not least to ensure that we are able to keep together the
However, DIS embodies a long-term approach. The short-term requirements of supporting current operations and the need to find immediate savings within the defence budget do not facilitate the implementation of DIS. Industry hopes that the current capabilities review will create the circumstances in which it will be possible for the DIS process to regain momentum and for DIS 2 to be published finally.
7 November 2008
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