SDR 14

Memorandum from General Dynamics UK

EXECUTIVE SUMMARY

Britain’s front line troops cannot be confident of having the right equipment at the time they need it until the defence procurement process is radically overhauled (a change from which the tax-payer and industry would also derive considerable benefit). General Dynamics UK is already a major contributor to the UK’s defence capability-Scout and Bowman-and, more widely, the economy. We are well-placed, and keen, to build on these foundations, either as part of UK sovereign capability or through open international competition. However, maximum utility can be derived from the Defence Sector’s capability only when a series of new principles is enshrined into defence procurement. General Dynamics UK makes a number of recommendations to that end.

INTRODUCTION

1. By common consent, the systems by which the Ministry of Defence (MoD) procures equipment are fundamentally flawed.

2. Those defending the UK’s interest do not have enough of the necessary equipment when they need it, the cost of providing equipment repeatedly and far exceeds budget, and industry feels that its and its customers’ interests are ill-served by procurement processes which are inefficient and ineffective.

3. The Strategic Defence and Security Review (SDSR), and the changes to defence procurement processes which will follow in its wake, are a once-in-a-generation opportunity for the MoD to transform how it obtains and maintains equipment to ensure that:

· front-line forces have what they need when they need it

· the MoD can extract the greatest possible utility from industry’s expertise and resources

· industry can exploit all available business opportunities and secure fair profit

· the tax-payer receives the best possible value for money

4. This evidence from General Dynamics UK considers the SDSR from our particular perspective-what might be termed the "micro-level" standpoint. It analyses the contribution which GD UK makes to the UK economy’s Defence Sector, considers that Sector’s wider contribution to the furtherance of the UK’s strategic and economic interests and advocates a number of approaches designed to maximise the possibility of ensuring that all interested parties derive full benefit from the SDSR’s conclusions.

5. The SDSR’s impact on industry will, of course, be felt also at the "macro-level"-this aspect will be addressed in the parallel submission by A|D|S, to which GD UK is contributing in parallel.

GENERAL DYNAMICS UK’S RELATIONSHIP WITH MoD

6. Based in the UK for almost half a century, GD UK has a strong history of successful engagement with the MoD as a Prime Systems Integrator.

7. The three main components of our business are Advanced Projects and Technologies, C4I and Mission and Security Systems.

Advanced Projects and Technologies (APT)

8. General Dynamics is the World’s largest supplier of Armoured Fighting Vehicles (AFVs), and also specialises in platform integration, that is the creation, installation and maintenance of complex, scalable Electronic Architecture in military vehicles.

9. GD UK was selected in 2008 for the FRES Utility Vehicle Programme, although in the event it did not prove possible to agree on the terms of a contract with the MoD.

10. In July this year, GD UK signed the Scout Platform contract with the MoD, under which we will supply the Army with its next generation of AFVs; at the same time, the Demonstration Phase of that contract, providing for the construction of seven prototypes, was activated.

11. The vehicle has a full survivability suite, and sufficient additional weight-carrying capability to ensure that survivability can be increased to meet future threats. Scout enjoys the best "for weight" capability in the World, with the agility to avoid being predictable in when and how it travels and the ability to move quickly when threatened. Its electronic architecture optimises the management, distribution and display of ISTAR data, and is fully integrated with Bowman. To complement this capability, the vehicle has a larger turret, in order that such critical data can be easily and appropriately managed, and crew task sharing can be optimised.

12. In parallel we are working on a number of Urgent Operational Requirements (UORs), for instance as System Architect Advisor on Wolfhound TSV and Integrator on Husky.

Command, Control, Computers and Communications, and Intelligence (C4I)

13. General Dynamics UK is the Prime Systems Integrator for the MoD’s Bowman C4I Programme.

14. The Bowman contract was let in 2001, following the failure of the Archer Programme. Bowman provides UK forces with both exceptional quality secure voice communications and secure tactical internet, incorporating situational awareness.

15. Bowman provides a mobile battlefield tactical internet system offering secure voice and data communication and situational awareness throughout the Battlespace. Voice communication is both secure and conducted without the need fro encryption, and orders and vital information can be sent in text from. Key decision-makers can see the location of all key assets, and deploy forces accordingly.

16. The system is now almost fully deployed; in addition to being fitted on 13,000+ vehicles, it has been made available to ships, aircraft and soldiers. Bowman is widely used under the most testing conditions in Afghanistan, and has been widely praised those using it in theatre.

17. As a result of the incremental enhancement of capability being undertaken under the latest phase of the Programme, improved equipment is being installed and deployed. Considerable scope exists to extend Bowman deployment-for example, the Future Infantry Soldier Technology (FIST) Programme, to counter the threat from Improvised Explosive Devices (IEDs) and in support of Special Forces.

Mission and Security Systems (MSS)

18. General Dynamics UK specialises in developing systems which provide the armed forces with high quality spatial information on battlefield disposition in real time, thus significantly enhancing security in vulnerable locations.

19. The focus of our Intelligence, Surveillance, Target Acquisition and Reconnaissance (ISTAR) work is the protection of highly exposed military operating facilities in theatre (given the sensitive nature of this capability, it would be inappropriate to go into greater detail here; we would, naturally, be delighted to furnish the Committee with a more detailed account separately).

20. The balance of our MSS work relates to airborne capability. GD UK provides avionics capability for Typhoon, Tornado, Harrier and Future Lynx. Our contribution to Airborne Network Enabled Capability involves work on TIEC, CIDS and Netlink.

ECONOMIC IMPORTANCE OF THE DEFENCE SECTOR

21. The parallel A|D|S submission will analyse in detail the very significant contribution which the Defence Sector makes to the UK’s overall economic well-being.

22. General Dynamics UK is proud of our increasingly important role within the sector. In as much as it is possible to capture the essence of what we do in statistics, the nature of GD UK’s contribution can be broken down thus:

· Investment in High-Quality and High-Value Manufacturing: Our acquisitions over recent years of Anteon, Page Europa and Kylmar have significantly strengthened our already well-laid foundations, leading to annual turnover of:

2006 £526m

2007 £333m

2008 £340m

2009 £401m

· Research and Development and Research and Technology Spending: R and D and R and T are self-evidently critical elements of the work of cutting-edge, high-tech companies such as GD UK. Annual values stand at:

2005 £1.48m

2006 £2.15m

2007 £2.77m

2008 £3.67m

2009 £2.87m

· Employment: The significant recent growth in our workforce numbers resulting from organic growth and acquisitions tells only part of the story; no less significant is its geographical distribution. When, at the turn of the decade, our business expanded very rapidly as a result of the award of the Bowman Programme, we took a deliberate decision to concentrate that growth on South Wales. Following the recent signature of the contract for the Demonstration Phase of the Scout Platform, we expect the size of our workforce to grow steadily over the next three years, again with much of that in South Wales.

· Exports: Although the focus of our business traditionally has been on supplying the UK market, overseas contracts have recently been an increasing feature, standing in 2009 at some £10m, and expected to exceed £20m in 2010.

· Supply Chain and Small and Medium Enterprises (SMEs): GD UK believes passionately in building a strong supply chain based on British companies, and in particular SMEs; and we practise what we preach. 70% by value of our work on Bowman is undertaken by British companies. We will achieve broadly similar values on the Scout Platform (and had planned to do likewise on FRES UV).

STRATEGIC IMPORTANCE OF THE DEFENCE SECTOR

23. History has repeatedly proven the advantage which the UK has derived from retaining the ability to manufacture the equipment needed by our armed forces to protect and enhance our strategic interests. The coincidence of this Inquiry with the celebration of the 70th Anniversary of the Battle of Britain perfectly illustrates the critical role which sovereign capability can play in shaping our fate.

24. As a UK Profit and Loss company, GD UK naturally welcomes and supports defence procurement policies geared to procurement from UK suppliers. This is reflected in our long-standing commitment - mentioned earlier - to maximising the proportion of the equipment which we manufacture being of UK origin, and to building supply chains dominated by British SMEs. In the event of it being deemed that any given equipment must be acquired under the aegis of sovereign capability, GD UK meets all of the MoD’s requirements.

25. GD UK recognises, however, that there will always be circumstances in which onshore manufacture is not possible, for instance either where such an approach does not make economic sense or because there is simply no British supplier of such equipment. There are bound to be circumstances, for instance, in which a capability that can be produced in the UK only at a given cost is available from elsewhere at considerably lower cost. Similarly, certain pieces of equipment are so specialised, and the need for them in a given economy so rare, that it simply does not make business sense for anyone to manufacture it there. So long as there are no compelling strategic reasons why such a capability has to be created in the UK, General Dynamics UK believes that it is in the wider national interest for that equipment to be procured from overseas.

26. Elements of the Scout Platform on which we recently signed a contract with the MoD fall into that category. For instance, the core chassis design is based on AFVs already in service in Spain and Austria. Further, in order to minimise risk, MoD has directed that the first batch (of (?) 100) vehicles must be manufactured in Spain.

27. General Dynamics UK is keen to stress, however, that in both cases, we are taking the utmost care to minimise the element of such work which is undertaken overseas. Scout will bear only scant resemblance to the Spanish and Austrian vehicles already in service. All design and development is being undertaken in the UK. And once manufacture of the first tranche in Spain has been completed, the entire process will be moved to the UK.

28. We also recognise that, in cases where purchase must be from overseas, difficulties and delays resulting from "infection" by US International Traffic in Arms Regulations (ITAR) can have a significant bearing on the optimum method of procurement. Our experience on Scout is again relevant. We have ensured that the offshore element of procurement deliberately is entirely ITAR-free. Further, Intellectual Property Rights rest with the MoD.

MAKING THE BEST OF THE OPPORTUNITIES THE SDSR OFFERS

29. General Dynamics UK endorsed the view of the Conservative Party in Opposition that it is was imperative to conduct a root-and-branch Strategic Defence Review, since it is undoubtedly the case that: (i) there is no definitive sense within Government of what constitutes the UK’s strategic interests and (ii) (whatever those interests are judged to be) the resources available to protect and enhance those interests are at best ill-matched to need and, almost certainly, inadequate.

30. We particularly welcomed the intention to prevent the conclusions of such a Review being at the mercy of budgetary considerations by deferring all analysis of the affordability of perceived national interests until after those interests had been identified.

31. GD UK therefore is disappointed that the conclusions which the SDSR reaches will, in the event, be influenced by funding decisions taken as a result of the implementation of the Comprehensive Spending Review (CSR). However, we recognise that the scale of the inherited Budget Deficit, and the approach which the Coalition Government has adopted towards tackling it, have meant that the originally intended separation has not been possible. That said, we are reassured that MoD and HM Treasury are both committed, as far as possible, to minimise dilution of the "purity" of the analysis of strategic national interests.

32. The SDSR is, of course, part of an inter-related series of analyses of the MoD’s work currently, or shortly to be, underway-the other components being the CSR, the work of the Defence Reform Unit and "DIS 2". General Dynamics UK believes it is imperative to build into the work of these different reviews a series of measures which will result in defence procurement being overhauled, in order to ensure that the capability which front line troops need is available when they need it.

33. GD UK believes that the scale of the overhaul required, and the importance of making such change, is so great as to make the issue worthy of separate investigation by the Committee. This would ensure that the Committee’s considered views could be incorporated into "DIS 2".

34. That said, we strongly endorse the five so-called "-abilities" which the then Shadow Defence Secretary Dr Liam Fox identified as the criteria against which to judge the suitability of the acquisition process.

35. So far as it is possible to identify the principles which should govern defence procurement within the space constraints of a contribution to an analysis of strategic interests, GD UK offers the following thumbnail analysis, focussing on the "Five Fox -abilities’:

· Capability: industry has a duty of care to provide Britain’s Armed Forces with equipment that is fit for purpose for the tactical and operational demands of current operations. In order to facilitate this, the by-words which should henceforth shape the procurement process are better, faster and cheaper.

· Adaptability: much military equipment is likely to be in-service with our Armed Forces for decades. Over the lifetime of such equipment, the nature of the operations on which those Armed Forces are likely to be deployed is almost certain to change significantly, thus presenting a very wide range of operational challenges. The need to future-proof against such possibilities requires that equipment must be designed to accommodate a variety of systems and emerging technologies where these offer operational advantage. In particular, the practice of defining Common Base Platforms will minimise the requirement for costly bespoke design variations in response to changing needs. The practice of "gold-plating" to ensure that equipment meets 100% of the predicted requirements expected of it should be dropped. 80-85%, delivered quickly, invariably will better serve national interests.

· Interoperability: there is an increasingly strong likelihood that the UK’s Armed Forces will in the future be deployed on overseas missions as part of wider multi-national forces. This should dictate that the industry and military standards applied to the design and operation of equipment are consistent with those applied by our most likely partners.

· Affordability: defence equipment manufacturers have a duty to offer the MoD (and, by extension, the taxpayer) the best possible price by focussing on design features and supply chains which reduce both acquisition and operating costs without compromising performance. Further, manufacturers should commit themselves to the principle that they gainshare with the MoD any further price reductions which can be achieved, and to the practice of Open Book Accounting for all contract changes.

· Exportability: the initial capital costs of creating specific military capability for the UK’s Armed Forces largely from scratch will often be very considerable-particularly, though not exclusively, where the principle of sovereign capability applies. There is therefore considerable attraction in ensuring that such capability can be easily modified to meet the needs of other armed forces, especially those of the UK’s close allies, since sales to such countries would help to dilute the initial capital costs. Against that background, GD UK strongly welcomes the decision to appoint a Minister with specific responsibility to promote defence exports.

36. General Dynamics UK wishes to stress that we have enshrined each of the principles outlined above in the successful bid which we made for the Demonstration Phase of the Scout Platform.

6 September 2010

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