Memorandum from A D S (Advancing UK AeroSpace,
Defence and Security industries)
INTRODUCTION
1.1 A D S is the trade organisation advancing
UK AeroSpace, Defence and Security industries with Farnborough
International Limited as a wholly-owned subsidiary. A D S also
encompasses the British Aviation Group (BAG). It is formed from
the merger of the Association of Police and Public Security Suppliers
(APPSS), the Defence Manufacturers Association (DMA) and the Society
of British Aerospace Companies (SBAC).
1.2 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. Through
training thousands of apprentices each year the industry offers
high skilled job opportunities and real careers. Defence is a
diverse sector with world class multinational companies right
through to highly successful small and medium sized (SMEs)indeed
the UK has more SMEs in its Defence Sector than France, Germany,
Italy and Spain combined. UK defence equipment is world class
and internationally competitive and in 2008 defence exports were
worth £5 billion to the UK economy.
1.3 This paper covers the issues arising
from the Committee's Report on Defence Equipment 2009, the Third
Report of Session 2008-09, specifically strategic capabilities
and equipment procurement performance, Progress in implementing
the Defence Industrial Strategy, and Defence Research Spending.
Finally, the paper also covers industry's reaction to Bernard
Gray's report on defence acquisition.
ISSUES ARISING
FROM THE
REPORT ON
DEFENCE EQUIPMENT
2009
A. Strategic capabilities and equipment procurement
performance
2.1 Industry welcomed the creation of DE&S
as it removed the artificial division between procurement and
support. DE&S is still a young organisation but what is clear
is the problems in the procurement process. As Bernard Gray notes
these difficulties stem from the way the entire acquisition process
works and several problems exist prior to DE&S involvement
in the process. Industry believes that the change programme has
had mixed success and that fundamental problems remain.
2.2 The Committee last year commended MoD
for its performance in delivering the programme of UORs, but expressed
concern that the performance on the longer term programme had
declined. Industry remains proud of the contribution it has made,
in partnership with MoD, to the delivery of a significant number
of urgent improvements to the front line. Lessons can be learned
from the UOR process and applied to longer term procurements.
But, as the Committee's Report made clear, significant focus and
funding is essential for the longer term programme. Affordability
of the programme remains a major issue, and it is overwhelmingly
clear that that a balanced programme cannot be achieved without
a Strategic Defence Review. Industry welcomes the commitment of
the major political parties to such a Review and trusts that it
will bring a more predictable backdrop to the position of defence
companies in the UK.
2.3 Industry considers that an essential
element of the Review must be a refreshed Defence Industrial Strategy
in order to recognise the nature and extent of the required strategic
capabilities. The Committee made the same point in their last
Report. The defence industry is an essential element in the delivery
of military capability in the UK, and the operational experience
of the past few years has demonstrated that beyond doubt. Having
a sovereign capability to support and upgrade systems and equipment
in an operational environment has been vital to the front line
effort, and that lesson should not be forgotten. This aspect is
also underpinned by Research and Development. In this respect,
joint MoD and industry activity provides the insurance against
emerging threats thus allowing specific capabilities to be fielded
as operations become a reality. Again, the nation's R&D capacity
is a strategic resource and needs to be managed accordingly. Neither
Systems Engineering capability nor R&D capacity can be switched
on and off and its creation and sustainment does not happen by
accident. It is developed over time and can be sustained through
a clear strategy and through a partnership between MoD and industry
to ensure its delivery.
B. Progress in implementing the Defence Industrial
Strategy (DIS)
3.1 Industry welcomes the implementation
of the Defence Industrial Strategy. Progress has been patchy but
there is clear evidence that where it has happened, it is delivering
the results that the original strategy envisaged. In sectors such
as surface ships, munitions, and complex weapons, agreement on
what national operational capability is required has led to long
term arrangements which will deliver assured capability in return
for a transformed industrial landscape, delivering best value
for money. That should provide the Model for the future.
3.2 Even in sectors where progress has not
been as rapid as the DIS envisaged, there has been success in
the application of partnering arrangements. The Integrated Operational
Support (IOS) programmes for Merlin, Sea King and Apache and the
Tornado ATTAC programme have all demonstrated the value, and better
operational performance, which can be achieved through the application
of sensible through life capability principles. This approach
is now being implemented for other systems, such as Harrier and
Typhoon and points the way for the future.
3.3 Less progress has been made in other
areas. For instance, uncertainty around the status of the Future
Battlefield Helicopter competition jeopardizes a sustainable UK
helicopter design and development capability whilst the development
of sector strategies, such as that for Armoured Fighting Vehicles
(AFV), appear to have placed less emphasis on maintaining a complete
industrial capability in the UK. Industry believes, however, that
a high level of operational sovereignty on AFVs can and must be
maintained by sustaining, at a minimum, a strong systems engineering
and platform integration capability able to develop and adapt
platforms to meet the specific requirements of particular campaigns.
Industry is of the view that the AFV Sector strategy would maintain
that if properly implemented.
3.4 The C4ISTAR sector, described in DIS1
as "healthy," was never such from a business perspective
and has become less so as the Equipment Programme has become less
coherent due to the disruptive effects of UOR programmes. We encourage
the MoD to continue its welcome efforts to clarify thinking in
the C4ISTAR area.
3.5 Finally, industry recommends that Government
must decide if the wider economic and industrial strategies in
regards to defence are to be covered as part of a future Defence
Industrial Strategy or to be considered separately as part of
industrial policy, supported by the Department for Business, Innovation
and Skills (BIS). Industry notes that in considering the defence
industrial base, Government must also take account of the interaction
between defence and other sectors eg security, energy and transport.
C. Defence Research Spending
4.1 The Committee's last Report highlighted
its concern about the reduction in R&D spending, and industry
shares that concern. Given that the downward trend is continuing,
we are not convinced that MoD has got the message, although the
funding position once again distorts the picture, and militates
against long term decision-making.
4.2 The Defence Industrial Strategy noted
the correlation between R&D spending in early years and long
term military capabilities, not to mention the wider impact on
other high technology sectors of the economy. R&D spending
is also the seed corn for future industrial capability that provides
the basis for competitive advantage in the export market.
4.3 Industry proposes that Government not
only has to continue support of defence R&T but also invests
more wisely. The key interest here for industryand we believe
the MoDis in ensuring that more money is spent in areas
where technology can be pulled through to the front line in real
operational capabilities. That requires a strong connection between
the SIT community in MoD, the capability development organisation,
and DE&S.
4.4 The defence industry would have more
confidence in its own investments if Government were to demonstrate
clarity about the type and scale of its investment and also a
stronger commitment to early stage funding.
4.5 Finally, AIDIS is considering the latest
changes to the management of science in MoD, announced recently
by CSA, in this context. While we have not yet formed a considered
view, we would want to be persuaded that MoD can deliver this
objective more effectively in the new organisation.
D. Review of Acquisition for the Secretary
of State for Defence
5.1 Industry was consulted by Bernard Gray
and welcomes the publication of his report into defence acquisition.
The Gray report highlights some of the systemic problems which
have given rise to an overheated programme over an extended period,
and points to the need for a more stable framework within which
long term acquisition decisions can be made. As the DIC's report,
Securing Britain's Future and Prosperity makes clear, we
support the need for acquisition reform, and the Gray report is
a major contribution to the way forward.
5.2 We do not underestimate the major challenges
faced by DE&S in acquiring equipment in the current operational
environment, and against the background of the funding difficulties
faced by defence in recent years. As the industry made clear in
its evidence to the Committee last year, the establishment of
the DE&S in these circumstances has been an excellent example
of implementing change in difficult circumstances. And, as Gray
points out, the challenge of complex defence acquisition is not
peculiar to the UK. Industry would contend that equipment acquisition
in the UK is at least, probably more, effective, than in the US
and Europe. But we should not shy away from the need for reform.
5.3 Much of the Gray report goes to MoD
organisational matters. That is a matter for MoD. Industry would
support the call for regular Strategic Defence Reviews, as a realistic
means of keeping the defence programme in balance over time. The
implementation of structural changes which will ensure that the
overall affordability of the programme is considered systematically
is also to be welcomed.
5.4 On acquisition itself, the industry
considers that the future should be based on a system which provides
for the earliest possible introduction into service of operational
capability, and the development of that capability through incremental
or spiral change over time. That seems to be an aspiration shared
by Gray and we welcome the changes recommended that would enable
this change. Some of this can build on the lessons learned from
UOR acquisition, especially the early engagement of industry in
the definition and development of the requirement, and an increased
focus on the trades between time, cost and performance. It also
requires a more sophisticated understanding of how to manage early
collaboration with industry so as to determine the optimum solution
to a capability requirement alongside the need to achieve value
for money through life. This calls for changes to the MoD's approach
to competition, in terms of assessing when collaboration needs
to translate into competition.
5.5 Industry also endorses the need for
an up-skilled DE&S, which has clearly been the aim for some
time, and which currently has the focus of CDM and 2nd PUS in
MoD. We welcome Gray's recommendations on this. It is in the interest
of industry to interact with a credible, competent acquisition
organisation with top class commercial and project management
skills. We do not underestimate some of the difficulties of achieving
this in a public sector environment, and it may be that there
is a need for augmenting the capability of DE&S with private
sector capability. But we would accept the Government's decision
that it would be a step too far to establish the DE&S as a
Go-Co.
5.6 There are two other aspects of Gray
on which we would wish to comment. First, is the need for exportability
to be a factor systematically taken into account in future acquisitions.
Industry wholeheartedly supports this objective. Exportability
may not need to influence every acquisition decision, but whether
or not changes in the requirement could change our ability to
export a capability should at least be considered, and, with increasing
modularity and scaleability in design, it is more possible to
achieve today than it has ever been before. Some good work is
already being done in this area, and we welcome the attention
that this issue is now receiving.
5.7 Second, is Gray's concern about Through
Life Capability Management (TLCM). We understand, and share, some
of the reservations expressed about the complexity of its implementation,
but the principles of TLCM remain valid, especially at its core,
which is the need to consider how best a particular capability
can be delivered over a long period. We would not wish to see
the baby thrown out with the bathwater. Rather, we would wish
to see a more pragmatic approach, building on the success of programmes
such as Tornado ATTAC, whereby incentivised availability contracts
could be extended to include the incremental insertion of capability.
This would require the MoD to challenge the industrial consortium
concerned to generate even greater efficiencies so that the resulting
resource headroom could be re-invested in that platform or capability
according to the Through-Life Management Plan.
5.8 An issue not addressed is the need a
more coherent policy on international cooperation. This will allow
long-term value for money and secure a volume of orders that ensures
the viability of key capabilities in the UK.
5.9 Finally, we note that it is the Government's
intention to publish a new strategy for acquisition, based on
its response to Gray, and the work of the Defence Acquisition
Reform Programme, and we look forward to that in the New Year.
7 December 2009
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