Defence Equipment 2010 - Defence Committee Contents


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 industry—and we believe the MoD—is 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




 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2010
Prepared 4 March 2010