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Memorandum from the Defence Industries Council (DIC)

 

In response to the call for evidence to support the committee's inquiry into MOD's progress in improving the way it procures and supports defence equipment, the future programme and the Defence Industrial Strategy I hereby provide a submission on behalf of the Defence Industries Council.

 

The Defence Industries Council is the senior forum for industry to engage with the government over defence industrial issues. Its membership includes nine senior industrialists (CEOs/chairman) from a variety of companies across the sector (including multinationals, primes, mid-tier, SMEs, platform and sub-system, manufacturers, technology and service providers) and the Presidents and Director Generals of the four major UK Defence Trade Associations (i.e. Society of British Aerospace Companies, Defence Manufacturers Association, Intellect and the British Naval Equipment Association).

 

The UK Defence Industry employs more 300,000 people throughout the UK and makes an enormous contribution to the nation's science, engineering and skills base. We train thousands of apprentices each year to which we can offer high quality, value adding careers. It includes world class multinational companies right through to highly successful SMEs - indeed the UK has more SMEs in its Defence Sector than France, Germany, Italy and Spain combined. Our products are internationally competitive and last year the UK was the world's leading defence exporter capturing a third of world orders worth some £10bn to the UK economy.

 

The Committee requested comments on a number of issues:

 

· The progress made to date to develop DE&S into a 'fit for purpose' integrated procurement and support organisation.

 

Industry welcomed the creation of DE&S as an important step forward which removed the artificial division between procurement and support and therefore should improve the efficiency and effectiveness of the organisation. MOD deserves praise for the expeditious way the transformation was managed and executed. Although the process remains to be completed we recognise and support the efforts that have been made to embed Through Life Capability Management (TLCM) in the heart of the organisation's structures and processes. We believe the department is heading in the "right direction" even if many remain impatient for greater progress.

 

However it is difficult to judge the overall success of the transformation in the current circumstances. DE&S has, quite rightly, focused considerable attention on support to operations and the overall impact of the MOD's current financial and programme difficulties have slowed the decision making processes in many areas and slowed progress in the introduction of newer, longer term, acquisition approaches based on the principles of TLCM. Companies may therefore find it difficult to divorce some systematic improvements from the impact of programme delays and may be more conscious of the disruptions caused as a result of reductions and changes amongst their regular contacts in project teams. When the current programme difficulties are resolved it should allow the newly transformed organisation to demonstrate its true capabilities.

· The extent to which support for current operations is impacting upon DE&S performance relating to the procurement of core defence equipment.

 

We are conscious of the impact Urgent Operational Requirements has had on the workloads of key individuals within DE&S and other parts of the MOD including the Equipment Capability directorates. We hope that the Committee will acknowledge the contribution these teams, and their counterparts in industry, have made to support the Armed Forces in operations. Inevitably there has been some impact on the core programme however, we regard the current financial and budget uncertainties that MOD face more generally as more significant delaying factors.

 

· The progress relating to the 'short examination of the equipment programme' announced by MOD in June 2008

 

We understand MOD expects to report on the examination shortly and we are aware that individual companies have been asked to provide detailed inputs on possible consequences of programme decisions. We trust that the decisions to be taken are informed by these consultations, and that their industrial implications are understood fully. Industry would welcome an early read out of outcome of the examination and its implications for projects and programmes in the short term. Prolonged delays or paralysis in MOD decision making will have serious implications for the retention of industrial capabilities and company's investment planning.

 

· The progress made to date in implementing the DIS and the delay in publishing the updated version of DIS.

 

Since its publication in December 2005 there have been many steps taken towards embedding the principles set out in the Defence Industrial Strategy into normal business. There is now a greater understanding and appreciation within Government of the contribution industry makes to delivering defence capability and its overall value to the nations industrial, technological, scientific and economic base. MOD has begun to take steps to embed the concept of TLCM in its' processes and culture. A number of innovative long term acquisition arrangements have been agreed which should deliver better value for taxpayers, the Armed Forces and shareholders. These include the agreements and strategies which have been developed for Combat Air, Maritime, Rotary Wing and Complex Weapons. Overall there has been a noticeable willingness for MOD to work closely with individual companies on developing practical and pragmatic solutions to the current difficulties.

 

However overall progress has been much slower than industry would have wished. In part this reflects MOD's ongoing financial and programme problems but also difficulties progressing some commitments on policy issues i.e. greater transparency over its plans, clarity over how operational sovereignty would be assessed and how to present, measure and deliver Value for Money. It also needs to reconcile the key roles that the Defence sector can make to delivering wider Government objectives for Innovation, skills and manufacturing.

 

We are heartened that the new Defence Secretary and Minister (Defence Equipment and Support) have already confirmed their commitments to the key principles in DIS and their willingness to work constructively with industry. We hope that we can make progress over the coming months on those outstanding policy issues like transparency etc.

 

We continue to believe the original commitment to provide a DIS which sets out "those industrial capabilities we need in the UK to ensure we can continue to operate our equipment in the way we choose" remains the correct goal. Such a DIS should also fulfil the commitment to provide "overall indicative planning assumptions for each sector" in sufficient detail to enable "our suppliers to make informed decisions". A retreat from this level of transparency would be a disincentive to company investment plans in the long term.

 

Companies of all sizes still need the clarity for planning decisions that we had hoped DIS v2.0 would provide. However we need to be pragmatic about what it is sensible to publish now in light of the recent financial crisis and when a general election will be held within the next eighteen months. Given these circumstances we do not believe it is the right time to push for early publication of a DIS v2.0 at a time when it may not provided the clarity industry needs to plan with confidence for the long term. We have advised HMG of this conclusion and we hope that the Government will prepare a revised DIS when the necessary conditions are in place. In the interim we believe Government and industry should regard the principles of DIS v1.0 as remaining extant.

 

In summary, we believe that the principles underpinning the Defence Industrial Strategy are alive and well within MOD. There are clearly difficult financial and programming issues that need to be addressed but we believe MOD understands the importance of considering the long term consequences of those decisions for delivering both defence capability and value for money. Indeed we are particularly pleased that the significant contribution that the defence sector makes to the economy, manufacturing and employment is now recognised more widely across Whitehall. The Defence sector can quickly offer long term, value adding employment in key regions, generating further income for the economy and importantly providing the capabilities that our Armed Forces need now and in the future.

 

We have separately agreed to provide an industry team to participate in your evidence session on the 18^th November. If you would like to clarify any of the points in this letter ahead of the evidence session please do not hesitate to contact me.

 

12 November 2008