6 Beyond the White Paper
152. Parallel to and supplementing the main equipment
programme is procurement of "urgent operational requirements"
(UORs). Equipment in this category is funded by extra Treasury
money to provide the fast equipment solutions that ever-changing
operations demand. The UOR system is designed to deliver the speed
and flexibility necessary to respond to particular operational
environments and emerging threats. A great deal of the equipment
currently in use in Afghanistan has been procured through the
UOR process. The MoD assured us that there was no possibility
of using UOR money for equipment that should come from the core
the Levene reforms, responsibility for UORs will not be delegated
to front-line commands but will remain with central staff.
153. While UORs do not come out of the MoD equipment
budget, if the MoD decides eventually to keep it, it must meet
a proportion of the original cost. Otherwise, the equipment must
be given away, sold or destroyed.
154. The UOR system has advantages. It can cut
through bureaucracy. EADS pointed out that "its advantage
is that those with authority who normally slow down the process,
sometimes for cultural reasons, are disinclined in times of war
to take the risk resulting from blocking a proposal". 
UORs allow a swift response to unforeseen circumstances, the sought-after
"flexibility" and "agility". Our predecessor
Committee has in the past recommended that the MoD should learn
from the UOR process.
Ideas for Future Defence Procurement, prepared for the
official Opposition, comments that "UORs can be acquired
much more quickly than business as usual" but that the process
does not take the equipment's life-cycle into account. It suggests
that "The UOR model should be expanded so that the process
can be employed more widely and become the path to a complete
solution. A new UOR-plus process is required". Intellect
suggested that the UOR process enabled the MoD to be aware of
the options the supply base already possessed, enabling it to
make significant cost savings.
Bernard Gray also wanted to see more of the
urgency of the UOR process injected into the normal course of
155. On the other hand, UORs are open to a number
of criticisms. Dr Dover (Loughborough University) and Professor
Phythian (Leicester University) argue that in themselves they
represent a failure adequately to predict/identify future threats,
which runs counter to the thrust of the SDSR. Dover and Phythian
also thought that an emphasis
and reliance upon UORs represents poor value for money, saying
that historically, within the defence sector, value only comes
156. UORs also have the potential to distort
the main equipment programme. Logica suggested that UORs were
designed to fill a gap quickly, and only for a short period of
time, and then thrown away when they are replaced by the Equipment
The reality is, however, that due to the length of
the main acquisition cycle, these solutions can remain in service
long term. Such is the concern that coherency projects have now
been established to manage the portfolio of UORs. While the UOR
has been a useful commercial exercise in cutting through the layers
of acquisition process and proving that Defence can procure equipment
quickly, until the main equipment programme can be as agile, there
will still remain coherency issues with running a UOR portfolio
alongside the main equipment programme.
157. Other criticisms are that (as noted above)
"they do not provide proper through life support and like
any off-the-shelf requirement, require compromises".
Dover and Pythian argued that the system is posited on the assumption
would be available to be bought on a short-time
frame, implying equipment surpluses within the global market and
also that the UK would possess and retain the skills necessary
to maintain and adapt the equipment.
158. Christopher Donnelly, Director of the Institute
for Statecraft and former Senior Fellow at the Defence Academy,
and one of our advisers, suggested that UORs were not the only
way to acquire essential equipment quickly. He told us that during
the Cold War period, two acquisition programmes had been run in
parallel. One was the 25-year programme based on maintaining deterrence
through a conventional military force. In addition:
Simultaneously, the UK set up and ran for 38 years
a highly responsive acquisition system which was able to provide
equipment to the troops in Northern Ireland in a matter of days.
The "Wheelbarrow" robot for IED destruction took only
5 days from the first requirement being established to a functioning
prototype being deployed to theatre. A similarly responsive system
was set up to support the 1982 Falklands War deployment. This
acquisition process was grounded in "war-time" attitudes
and procedures. Better was seen as the enemy of "good enough".
Prototypes and lash-ups were provided at very short notice to
the troops, enabling them to experiment and identify the modifications
they needed, which were made quickly and easily.
He thought that the current UOR process was neither
as efficient nor as effective as the system existing up to 1994.
159. We asked the MoD to comment on the suggestion
that during the Cold War period there had been a better way of
acquiring equipment speedily. Their response was that this
promotes a positive view of acquisition during the
Cold War which contrasts with much of the historical evidence,
including the succession of significant studies (Gibb-Zuckerman
(1961), Downey (1966), Rayner (1971) and Jordan-Lee-Cawsey/Learning
from Experience (1988)) that recurrent problems in acquisition
necessitated; the Committee's own Eighth report of Session 1997-98,
particularly the section on 'Equipping the Forces', is very clear
in this regard.
160. We accept that not every
threat can be predicted, and that therefore some system for urgent
procurement will remain necessary. We recommend that further work
be done to align the main equipment programme with the UOR system,
to establish how the speed and other benefits of the UOR system
can be imported into the main equipment programme. One method
might be to consider and learn from the 'FIST' (Fast, Inexpensive,
Simple and Tiny) process about to be considered by the US Government.
161. At present 40% of defence procurement, amounting
to about £9 bn annually, is sole-source, that
is awarded without competition, and governed by the "Yellow
Book" (the Government Profit Formula and Associated Arrangements
(GPFAA). It is expected that this will continue.
This means, CDM told us,
that "there is a considerable baseline of effectively sole-source
suppliers, which are largely UK suppliers".
The current arrangement
dates back to a 1968 Memorandum of Understanding with the defence
sector that determines in advance both profits and the costs suppliers
can charge.  In
January 2011 the MoD announced that Lord Currie of Marylebone
would chair a review of this system.
162. Following consultation, Lord Currie recommended
removing current caps on profit margins to give suppliers a real
incentive to cut costs and share savings with the MoD. He recommended
that 50/50 sharing of savings should be the default, and that
there should also be a move towards a common approach to cost
transparency, thus enabling MoD to question how money is spent
and see how this changes over time. Changes to those effects have
now been agreed and are now to be implemented by legislation.
Peter Luff explained the MoD's approach:
I am grateful to industry for a very constructive
approach to what is quite a big change for them. As Bernard says,
this is 40% of our procurement, and getting that right is very
This is not about attacking their profits; I want
a vibrant, competitive defence industry to make decent profits.
It is about attacking their cost base, and making sure that costs
are not unreasonably high. A good rate of returnthat is
great by me. That is what they need to do to stay in business
and make the investments they need to be there for the future,
but I will not have excessively high costs underpinning a level
of profit that is, therefore, unreasonable.
167 Q71 Back
Ev w11, para 39 Back
HC (2008-09) 107, paras 27-37 Back
Ev w18, para 16 Back
Ev w26, para 33 Back
Ev w11, para 39 Back
Ev w7 Back
Ev w54 Back
Ev 56 Back
MoD website Back