Defence Acquisition

DAQ 001

Written evidence from the Ministry of Defence

Defence Reform & The Materiel Strategy

Transforming Defence will deliver the Future Force 2020 structure set out in the Strategic Defence and Security Review (SDSR), supported by a smaller, capable and more flexible Department, within the resources available for defence. It is the MOD’s highest priority after operations and the programme is personally overseen by the Secretary of State for Defence (SofS). Transforming Defence comprises over 40 separate projects and programmes that include Defence Reform, which is based on the report published by Lord Levene in June 2011 [1] , and The Materiel Strategy, which builds on the Gray Report of 2009 [2] .

The recommendations made in the Gray and Levene reports are mutually supportive. Both reports identify the key issues around needing to strengthen financial and performance management; decision making and accountability (including clarifying roles and responsibilities); improving the delivery of enabling services; and getting the best out of our people.

The Blueprint for the Department [3] sets out the new operating model for Defence, in response to the Levene report. This recognises fully the ongoing work in a number of areas, such as consideration of the best business model for Defence Equipment and Support (DE&S - The Materiel Strategy) and the need for future development of the operating model to take account of this work.

Progress has been made. The Chief of Defence Materiel (CDM) is a member of the new Defence Board, established in September 2011 and has the lead for commercial and industrial policy across Defence. The independent costing capability provided by the Cost and Assurance Analysis Service is mandated in the Deputy Chief of Defence Staff (DCDS) Capability (Cap) area and work is underway to extend this across the Front Line Commands (FLC) as part of the wider process of financial management reform.

At its essence, the organisational reform of the Department aims to enable us to deliver our outputs more effectively so that we can deliver what is required for the front line, within the available resources (both financial and human), in a way that is sustainable.

The Materiel Strategy, led by Bernard Gray, CDM, was launched in May 2011. Its aim is to consider how DE&S, the organisation that equips and supports the Armed Forces for current and future operations, can operate differently to become more effective and more efficient. Building on the Gray Report of 2009, the Materiel Strategy work complements Lord Levene’s wider Defence Reform activity and is one of the main elements of Defence Transformation. From its outset, The Materiel Strategy has had three desired outcomes:

· best value in Defence Materiel;

· a balanced Equipment and Support programme; and

· creating a more capable DE&S with engaged and motivated staff and the behaviours, accountabilities, skills and processes required to do the job.

Within the last 15 years there have been numerous major initiatives to reform Defence acquisition, including Smart Procurement, Smart Acquisition, the Defence Acquisition Change Programme and the Defence Acquisition Reform Programme. While each made progress in addressing key issues, serious problems remain. The Gray Report of 2009 highlighted major cost and schedule overruns in Defence acquisition; that, on average, equipment procurement projects cost 40% more, and take 80% longer, to be delivered than the Department forecasts at Initial Gate. The largest, most complex, projects overrun the most. Cost increases on projects must be found from elsewhere within the programme, project teams must be sustained for longer, and time delays mean running on elderly, often unsuitable equipment longer than planned. The factors that cause this are complex and inter-related, and the underlying reasons varied. But Materiel Strategy analysis has identified three root causes:

· the overheated programme;

· the weak interface between DE&S and the wider MOD that results in poor discipline and change control; and

· insufficient levels of business capability in DE&S for the size and complexity of the programme it is asked to deliver.

In order to address these problems, The Materiel Strategy has considered a range of organisational design options intended to break current organisational constructs that have in the past hindered improvement in DE&S’s performance. Three options were presented to Ministers in December 2011, these being:

· a Trading Fund;

· an Executive Non-Departmental Public Body with a Strategic Partner; and

· a Government Owned Contractor Operated entity.

The ability to achieve a step change in the delivery of equipment procurement, support and logistics rests on two key principles: greater support from the private sector to help transform skills, tools and processes; and the ability to introduce a firmer interface between the wider MOD, with robust change control around budgetary and specification changes. As announced to the House on 1 March 2012, SofS has asked CDM to conduct further investigations into those options that increase the role of the private sector. This analysis is still underway. DE&S has now begun a soft market testing exercise to obtain the market’s view and explore the potential roles for the private sector.

We have recognised in The Materiel Strategy that a substantial increase in skills and capability is central to the future success of DE&S.  That is why we are exploring ways of increasing private sector involvement, and the ability to increase and sustain levels of capability will be a key factor in the choice of future construct for the organisation.   As part of The Materiel Strategy work we have assessed, with external help, the levels of capability we have at the moment and the key areas of gap which the strategy is designed to address. 

In parallel to Materiel Strategy analysis, work has commenced on the organisation’s Interim Structure. The Interim Structure project is examining how the DE&S can continue to run effectively until the broader changes associated with The Materiel Strategy take effect. The overriding aim is to ensure that DE&S continues to meet its outputs in a safe and professional manner whilst delivering the reductions announced in the SDSR. The work is currently in its analysis phase and the intention is to agree plans for the new structure through the course of Summer 2012.  In the analysis phase we have developed the DE&S resource baseline by project team and functional activity. Using this baseline we have then developed an understanding of the drivers of workload and team sizes using benchmarking, we have validated and risk-adjusted existing Operating Centre plans and we have developed a set of efficiency opportunities including, for example, increased centralisation of some functions, removal of duplicative processes, better demand management and outsourcing. We are now working with Operating Centres to assess our ability to take forward the potential efficiencies identified.  We have used the Department’s initial Voluntary Early Release scheme to achieve the first phase of reductions in civilian numbers that we will need to make.  In doing so, we have been very careful to assess the skills level and value of the skills to the business of every applicant before deciding whether to accept their applications, to ensure that we retain those whose skills we most need.  Whilst we have not got a complete picture of our future skills requirement when making those judgments, we have sufficient understanding of the skills that are most important to our business to be confident that we are not taking undue risk by pressing ahead in tandem with design of our new operating model.

Within DE&S we have key designated posts within each of the five key skills areas (Commercial, Programme and Project Management, Engineering, Finance and Logistics) which require to be filled by suitably qualified and experienced professionals.  We now also expect Project Team Leaders, both military and civilian, to have tour lengths of at least four years to ensure greater continuity through the project lifecycle.

As our Interim Structure is finalised in the coming months we will have a more detailed picture of our forward skills requirement to inform our further decisions on exits.  We will also look, where there is a justified business need, to continue with a certain amount of recruitment of more specialised staff so that we refresh key areas of skill at the same time.  This more detailed understanding of our skills requirements will also inform the Department’s workforce planning, helping both DE&S and the Department more widely to decide where to focus its future investment. 

The Identification and Delivery of Capability

Deputy Chief of Defence Staff(Military Capability)

DCDS(MilCap) reports through the Vice Chief of the Defence Staff to the Chief of the Defence Staff. He is the military capability adviser to the Defence Board, the Armed Forces Committee and Ministers. DCDS(MilCap) currently oversees the delivery of new equipment, in particular, the coherence of all supporting Defence Lines of Development (DLoDs).

As part of Defence Transformation, the majority of DCDS(MilCap)’s current capability planning and delivery responsibilities will be delegated to the Front Line Commands (FLC). DCDS(MilCap) will, however, retain responsibility for joint capability coherence in the future. He will also be part of the Head Office Top Level Budget Holding to Account process, working alongside Director General Finance.

Identification of Required Capabilities

The MOD translates government policy and strategy objectives into tangible defence outputs through a comprehensive planning process.

Within the overall framework of cross-cutting National Security Tasks and the SDSR, the contribution of the Department to National Security, in terms of capabilities required, is identified through the following steps:

· The National Security Strategy (NSS) and the SDSR set a policy baseline, from which the MOD defines the Military Tasks which the Armed Forces should conduct. On the basis of an analysis of the strategic global context and an assessment of the UK’s place in the world, the NSS sets out the UK’s core security objectives - ensuring a secure and resilient UK and shaping a stable world - and also identifies, analyses and prioritises the key security risks the UK is likely to face in the future.  The quinquennial SDSR sets out the ways and means (or resources) across Government to deliver the ends set out in the NSS.

· Within the overall framework of the eight cross-cutting National Security Tasks, the contribution of the Armed Forces is further defined through seven Military Tasks, which describe what the Government may ask the Armed Forces to undertake. Guidance on how to achieve Military Tasks is developed and articulated in Defence Strategic Direction (DSD).

· Defence Strategic Direction therefore sets out to the Department the Defence Board’s direction on implementation of the NSS and SDSR. It has a particular focus on a planning horizon 10 years out from the SDSR, but given the timelines in Defence also looks out 20 years or more where necessary. The Strategy for Defence is the first element of DSD. This sets out what Defence plans to achieve over the next 20 years and how it intends to deliver that outcome, whilst remaining affordable. . DSD also incorporates the Defence and Financial Planning Assumptions as well a detailed planning guidance out to the Department (Top Level Budget areas or ‘Commands’). DSD therefore forms the basis for generation of the Command and TLB plans which set out how each of TLBs will deliver the outputs and activities for which they are responsible.

· The Strategic Force Development (SFD) and Strategic Balance of Investment processes are then conducted to determine the capabilities which Defence needs to meet the policy baseline. This is an iterative process, balancing potential policy aspirations with the available resource envelope. This work includes the development of a set of illustrative planning scenarios, set in projections of our World, covering an appropriate range of plausible threat and topographical environmental combinations in regions of Defence and Security policy interest. Strategic Balance of I nvestment ( BoI ) will consider the key drivers and constraints on the Defence programme, across all Defence Lines of Development, and seek to match (and as far as possible optimise) options for expenditure against benefits. The BoI will address options for delivering Defence Outputs (such as the Military Tasks defined in DSD) alongside other factors, such as Defence Industry capability and capacity, the relationships with and dependencies on Allies and partners and other important criteria and prioritise big Defence programme choices and profile of investments to derive the best fit and value for money against a Single Integrated Joint Capability Priority List. Risk judgements and the consideration of risk appetite will be a key factor in the process, which will inevitably be a combination of auditable structured judgement and evidence derived from a variety of sources.

· The task based conditions and effects identified by the SFD process are translated into pan-defence capability goals and requirements with indicative financial envelopes.  The responsibility for the delivery against these capability requirements is delegated to the FLC through the Defence Plan (DP).

· Analysis is conducted with scientific support, to determine the means to address identified capability gaps, from short to long-term: new equipment requirements may emerge from this analysis and enter the Equipment Programme subject to joint priorities and affordability.

· The process from joint SFD to new equipment requirements and a balanced and affordable equipment programme is the responsibility of DCDS(MilCap), but is a co-operative venture involving the Front-Line User , Dstl, DE&S and where appropriate, industry.

Project Initiation

The Gray Report and the subsequent Strategy for Acquisition Reform (SfAR) highlighted the need to implement more effective controls over the initiation of activity within the Equipment Plan (EP). Consequently, the MOD has developed a process for Project Start Up - Project Foundation (PSPF), which controls the entry of new projects into the EP.

PSPF is the mechanism that controls all Category A and B projects [4] entering the Equipment Programme and their subsequent foundation across all contributing Delivery Organisations and DLoDs. PSPF builds confidence in the overall viability, affordability and priority of projects as they enter the Concept Phase. PSPF was established as a key Defence Acquisition Reform Programme DARP work stream - jointly sponsored by Deputy Chief of Defence Staff DCDS (Cap) and DE&S Chief Operating Officer following reviews in 2009. Initial work produced the overall model [5] which was then fully defined within guidance issued on the Acquisition Operating Framework. Work is now progressing to incorporate PSPF as a fundamental building block of Defence Reform and the DE&S Materiel Strategy.

Progress towards the Target Operating Model

Following publication of the Future Blueprint for Defence, extensive work has been underway to define the high level operating model for the future Finance and Military Capability organisation to be retained in the MOD Head Office. This model depicts the high level functions, inputs and outputs of the new organisation and its interfaces with the Front Line Commands (FLC), the Joint Forces Command and other key parts of the MOD (DE&S and the Defence Infrastructure Organisation in particular). Work on the high level operating model is due to complete over the next few months. After this, a period of detailed design will commence leading to the new structures being in place by April 2013 and embedded by April 2014. So, whilst by April 2013 we aim to have changed the structures in Head Office and prepared the Front Line Commands to take on delegations for capability, we anticipate that in the following year further work will be required to make further improvements or to make adjustments in light of experience.

Approvals Process

Scrutiny is an independent, non-advocate, expert and critical analysis of an investment proposal. It aims to determine whether the evidence presented supports the recommendation made over other options. Building on the output of assurance activity where appropriate, it tests the strength of the proposal, the soundness of future planning and the validity of assertions in the case, and assesses whether they adequately underpin the recommendation. Every project is independently scrutinised at least once before the main investment decision. The degree of scrutiny required will vary according to a number of factors, including the value of potential investment, the level of risk and the quality of the project management applied. Those scrutinising on behalf of the Investment Approvals Committee (IAC) Approving Authority members are independent of the line management chains of the project. This will continue to enable the IAC to decide between alternative solutions.

The team of scrutineers contribute to a Scrutiny Team Leader’s report which is submitted to the IAC or other Approving Authority in parallel with the Business Case. In order to maintain the current independence of the scrutiny process and the central point of contact for Treasury, the Department is intending to retain Head Office teams which can deliver the process for Category A and B projects, (except Category B In-Service Support, which will rest with FLC Directors of Resources), and the scrutiny functions currently undertaken by Secretariat (Equipment Capability) (requirement and affordability scrutiny), Operational Analysis and Technical Scrutiny, Commercial Assurance & Due Diligence (commercial scrutiny), Defence Analytical Services and Advice (value for money scrutiny) and Central Legal Services (legal scrutiny). As final approval of Urgent Operational Requirements (UOR) is held by Treasury there is no intention to delegate these approvals to the FLCs; UOR approvals will remain the responsibility of the central staff.

The Scrutiny Process will continue to examine projects in terms of whole life costs and ensure that projects have considered the implications of all DLoDs (which includes support such as training and infrastructure) as well as reflecting industrial and commercial issues, including the information gained from Subject Matter Experts via independent reports and operational analysis and other inputs provided from industry. The greater involvement of FLC under the new model should increase the input from the end military user.

Monitoring and Control of Projects

The Major Projects Review Board (MPRB) was established in June 2011 and chaired by SofS, reviews the most significant projects for the Department, both pre and post Main Gate, using the Sentinel [6] scoring system as the basis for considering projects under three categories of Monitor, Review or Project of Concern. Identification of projects for consideration at each MPRB meeting is based on a combination of the reported performance, the Sentinel score and senior management judgement. The agenda is provided by CDM, following consultation with Minister (Defence Equipment Support & Technology (Min(DEST)).

The MPRB responsibilities are to ensure that key investment decisions for the largest projects in MOD are soundly based, that projects are closely monitored and cross-cutting themes or issues that could affect project, departmental or industrial performance are addressed. The MPRB may recommend that a project should be cancelled, subject to formal approval. No projects reviewed by the MPRB to date have been cancelled or recommended for cancellation.

Since its inception, following the 22 February 2011 Civitas speech by SofS where he announced his intention to form this Board, the MPRB has met four [7] times. In these meetings a total of seven projects [8] have been reviewed and one project, Valiant Jetty, has been named as a Project of Concern [9] . In considering a project the MPRB members judge whether slippage or cost growth is due to poor performance by the project team, poor performance by industry, or factors outside the control of either, such as adverse foreign exchange movements or deliberate Planning Round decisions, or a combination of these factors.

For the projects reviewed, direction provided by the MPRB has been fed back to project teams and the appropriate company CEO for consideration and where appropriate action. This has led to measurable improvements in overall project delivery performance. Specifically, on an important new communications project the MOD and industry teams agreed an incentivised action plan to successfully resolve a technical problem that has led to success in deployment trials; on another project, industry agreed to cover the leasing costs to extend a capability on operations following delay of its replacement; and on the Valiant Jetty, which was publicly listed as a "project of concern", the project is now moving forward under a MOD and industry agreed plan of work which will see it commissioned later this year.

Senior Responsible Officers (SROs) are appointed for all of the Department’s capability programmes rather than for specific projects.  The primary responsibility of the SRO is to realise the expected benefits from delivery of a programme. The Department accepts that SROs in the MOD have a different role from SROs in other Departments.  The delivery of military capability requires the co-ordination of equipment, doctrine, training and a range of other DLoDs.  No single individual could take responsibility for delivery of all these DLoDs.  The Department recognises the need to provide greater clarity about the relationship between SRO accountabilities and accountability for delivery of individual project strands and is committed to ensuring that the issue of SROs authority, span of control and tenure is addressed in line with establishing the new Future Blueprint for Defence. As we develop this new operating model we are continually considering ways to meet the concerns raised by the Public Accounts Committee on the roles and responsibilities of SROs in the MOD. However, for military capability programmes it should be noted that changes brought about under Defence Reform will see further turnover of SRO responsibilities in the short-term.

A project’s history is maintained as a "Project Record", ensuring a consistency in scope and content, the promotion and completion of which is outlined in formal guidance within the Acquisition Operating Framework structure.  The revised guidance now means the Project Record is included in the MoD-wide Project Management Methodology and a check of the Project Record is recommended as part of Health Check, Assistance, and Advice Reviews.  In this way assurance is now provided that Project Managers are maintaining a Project Record detailing all major decisions.

Research and Development

The White Paper National Security Through Technology announced the Government’s intention to sustain investment in the MOD’s Science and Technology Programme at a minimum of 1.2% of the Defence budget; over £400 million in cash terms per year. The MOD’s Research and Development Board is chaired by Min(DEST) and provides strategic direction and priorities for Science and Technology investment and is responsible for ensuring that robust management processes are in place to plan, fund and oversee a coherent programme. The presumption is that work should be conducted by external suppliers (e.g. industry, universities and other research organisations) unless there is a clear reason for it to be done or led by the MOD. However, there remains significant bridging between civil and national security science and technology, particularly in the Defence and aerospace industrial sectors.

We remain committed to the Centre for Defence Enterprise (CDE), as the first point of contact for new science and technology providers and anyone who wishes to submit an idea to the MOD. The role of the CDE is also being enhanced, with increased focus on Small and Medium Enterprises (SMEs). CDE will act as a bridge linking SMEs with the main Defence suppliers, mentor SMEs to guide their approach and maximise opportunities for exploitation, and promote SMEs through providing the opportunity to present their innovations to leading Defence suppliers and users. Additional funding has also been secured through the Technology Strategy Board’s Small Business Research Initiative, to progress successful projects which show the most potential for Defence purposes.

White Paper - National Security Through Technology: Technology, Equipment and Support for UK Defence and Security

The White Paper is our high level policy on how we procure technology, equipment and support for the UK’s defence and security needs. Together with work on the EP and Materiel Strategy, it displays a new realism about the equipment budget, programme costs and how best to deliver defence capabilities. These initiatives will allow the MOD to give industry a clear, comprehensive and credible view of its ability to meet the specified requirements, as well as to plan more effectively and invest more confidently in the development of new technologies.

The MOD’s Relationship with Industry

The major conduit for MOD-industry relationships is the Defence Suppliers Forum (DSF), chaired by SofS and which includes representatives from Prime Contractors, international companies and SMEs. This allows for a broad, representative and productive focus for interaction between the MOD and industry. This is complemented by a dedicated SME Forum, chaired by Min(DEST) which has proved successful at establishing a dialogue with these important suppliers.

In March 2012, Min(DEST) also launched a new Defence & Security Industrial Engagement Policy with overseas based defence and security suppliers. The aim of this is to build upon the long and successful relationships that the MOD has with such companies, by encouraging investment in the defence and security sectors in the UK.

Procurement Processes

The White Paper identifies the different approaches to procurement the MOD may have to take to ensure we meet the objective of providing our Armed Forces with the best capabilities we can afford; and in doing so, to provide the best possible value for money. Underpinning the White Paper, the MOD’s Acquisition Operating Framework sets out policy, process and good practice for MOD staff, and our industry partners concerned with Defence acquisition. It defines how we conduct, govern and control our defence acquisition processes.

Lord Currie’s review of the pricing regulations used by the MOD in single source (non-competitive) procurement, with the focus on increasing supplier efficiency and value for money, and the aims of benefitting SMEs and exports, is an important element to help achieve the delivery of best capabilities, for best possible value for money.

The delivery of Centralised Procurement through an integrated Government Procurement Service (GPS) is working to deliver a 25% reduction in central government spend in the CSR period across a number of common commodities including: energy; office solutions; print and print management; professional services; travel; fleet; learning and development; information and communications technology and; advertising and media. The MOD is fully committed to the Centralised Commodity Procurement (CCP) initiative and to working closely with the GPS to reduce commodities costs. The MOD has signed a Customer Services Agreement with GPS and continues to make good progress toward transitioning commodity volumes to GPS arrangements. GPS figures for February 2012 show that MOD spend (excluding our Arms Length Bodies) through GPS has reached £675m in 2011/12. This figure will increase to in excess of £1Bn during 2012/13 as key commodity areas including travel, energy and technical services are fully transitioned to GPS arrangements.

The Relationship between Principles of Open Competition and Technological Advantage

The principle of open competition is qualified by the principle of technological advantage in that we will take action to protect our operational advantages, and freedom of action, where this is essential for national security.

We will usually seek to fulfil the UK’s defence and security requirements through open competition on the domestic and global market. We judge that this approach maximises the likelihood of finding a solution to our needs at an affordable cost and at best value-for-money. We also believe this offers the best catalyst for UK-based industry to be efficient and competitive, which is essential for both its long-term viability and for UK growth. Open procurement cannot, however, be the whole answer because the Defence and security sectors are, in two fundamental respects, different from other fields. That is, to defeat our adversaries and to protect ourselves at times when we most need to do so:

· we often need superior technology and other forms of battle-winning edge (operational advantage); and

· we must be able to operate, maintain, and refresh certain capabilities effectively, without being dependent on others (freedom of action).

As with all acquisition choices, this is subject to affordability and value-for-money. The extent to which we choose to protect our operational advantages and freedom of action always involves a balance of risk and opportunity cost.

Maintenance of the UK Military Industrial Base

The long-term prosperity of UK industry depends on being competitive and market sensitive, in order to offer value-for-money to the British taxpayer and compete successfully in foreign markets. Our policy is designed to provide the catalyst for making UK industry competitive and therefore able to win a large proportion of additional orders within the global market. We are doing our utmost to assist UK-based suppliers to obtain export orders and increase opportunities for small- and medium-sized enterprises to fulfil their potential. A healthy and competitive industry in the UK, making world class products such as the Sea Ceptor missiles is able to sustain many UK jobs and contributes to growth and a re-balanced economy.

We will take action to protect our operational advantages and freedom of action, but only where this is essential for national security. In doing so, we will sustain the necessary people, skills, infrastructure, and intellectual property that allow us to build and maintain our national security. In some instances, to preserve the UK’s operational advantages and freedom of action we have entered into some long-term partnering arrangements with industry. We will maintain these agreements as long as they are delivering the necessary capabilities and continue to provide value-for-money.

Additionally, we are prioritising investment in science & technology and it is our intention to sustain this investment at a minimum of 1.2% of the defence budget; this means over £400m per year. A small rise in cash terms in defence science & technology spending is planned over the period of the Comprehensive Spending Review.

Support for Exports and Compatibility with Off-The-Shelf Procurement

Support to exports is not inconsistent with buying off the shelf. By challenging domestic suppliers to be lean and competitive, we will drive up their competitiveness in international markets; and we will also support them in those markets. At a time of declining defence budgets, the key to UK-based industry’s success lies not in dependency on the MOD, but in winning new business overseas. So our support for exports and our encouragement to new and innovative UK SMEs will help create competitive UK businesses.

We are taking measures to assist companies seeking to operate in a competitive global market. First and foremost, UK Ministers are now more personally involved in supporting defence and security exports. It is a principle of this Government that, when travelling abroad, Ministers from all departments are there in part to promote the UK and what it has to offer and will be briefed to raise important export prospects with their interlocutors. The Department has recently announced the appointment of a Director with overall responsibility for export issues within MOD. Susanna Mason will act as a single point of contact to lead and coordinate the support MOD provides to export campaigns. The MOD will also consider exportability issues early in the acquisition cycle and are taking steps to ensure that training alongside the UK Armed Forces can be made available at a competitive cost for major export prospects, providing it also delivers value-for-money.

Moreover, while we will look first to procure off-the-shelf we recognise that this is not appropriate in all circumstances. Off-the-shelf procurements may either not be available, or may still require modification before being brought into use.

Bi- and Multi-Lateral Procurement

There are two main reasons for working with other countries on defence and security procurement. First, we may wish to take the economies of scale that become possible when working with another nation, as well as the opportunity to harmonise requirements, pool resources, share facilities and overhead costs, and benefit from longer production runs. This also allows us to spread the cost and risk of research and acquisition, as well as to secure better value from our respective investments in defence and security. Second, working with another nation may allow us to maximise our capabilities, by sharing technologies and aspects of capability that would not otherwise be available to the UK. This may involve fostering cooperation in research and technology, as well as developing cooperative or collaborative equipment programmes that increase interoperability.

There are also broader benefits to working with other countries, including increasing participant nations’ military interoperability, capability, and effectiveness, as well as strengthening bilateral relations and helping deliver the UK’s wider national security objectives. Working with another state in these ways is not detrimental to our national sovereignty, provided that we retain the operational advantages and freedom of action that we judge to be essential to our national security.

An example of this is the recent implementation of the US/UK Defence Trade Cooperation Treaty. This will provide for licence free trade of US Defence Articles under certain conditions and will provide an opportunity for UK and US governments and industry to share information and expertise in order to maintain existing and/or develop new capabilities. It also provides opportunities for UK industry, provided they are part of the approved UK community, to solicit for US contracts that have been declared as within scope of the Treaty and removes the need for individual US export licences for certain defence and security exports to the UK.

We will generally favour bilateral collaboration on technology, equipment, and support issues, as we believe this offers the best balance of advantages and disadvantages. We will, however, continue to work multilaterally, for example through NATO or the EU, where this offers a clear benefit to the UK.

April 2012

[1] Defence Reform – An independent report into the structure of the Min istry of Defence dated June 2011.

[2] Review of Acquisition for the Secretary of State for Defence – An independent report by Bernard Gray dated October 2009.

[3] Defence Reform – Blueprint for the Future Department dated December 2011.

[4] The categorisation of an equipment project, including Technology Demonstrator Programmes, is mainly determined by its total expected procurement cost (i.e. the cost of the Concept, Assessment, Demonstration and Manufacture phases), including all non-recoverable VAT, at 50% confidence. Total costs through life, the risks associated with a project, any novel or contentious features or significant policy issues will also be taken into account. Category A projects comprise: Equipment projects/Support/Service provision above £400M; In-service support projects and inventory purchase above £400M; and Estates and IS Enabled business change projects above £100M. All are approved by the MOD Investment Approvals Committee (IAC) and Min ister. Category B projects comprise: Equipment projects from £100M to £400M (IAC approved); Support/Service provision from £200M to £400M (IAC approved); Estates and IS Enabled business change from £50M to £100M (IAC approved); and in-service support and inventory purchase from £200M to £400M (approved by the Chief of Defence Materiel).

[5] DE&S PTG PDI Review ‘Project Foundation Report v1.3 ’ dated 13 Jan uary 2010.

[6] A tool used to record standing project data, which is not expected to change during major phases of the projects lifecycle, and a set of project metrics (grouped into four key project elements of Performance, Personnel, Project Reviews and External Factors) against which teams report current projects status; the data captured is used to provide a quantifiable Red/Amber/Green score for the project.

[7] 13 th June 2011; 28 th September 2011; 6 th December 2011; 4 th April 2012.

[8] (1) Falcon communication system; (2) Watchkeeper surveillance system; (3) Valiant Jetty for ASTUTE Class submarines; (4) Typhoon Future Capability Programme (FCP1) Weapon System upgrades to Tranche 2 and Tranche 3 aircraft; (5) Joust, a specialist tactical command and control capability; (6) CUTLASS, a large Remote Control Vehicle for Explosive Ordnance Disposal; (7) Chinook Julius, a digital glass cockpit and new crewman’s workstation.

[9] Listing as a P roject of Concern does not replace the provisions of the relevant contract; in listing a project, and in being prepared in principle to take a project off the list if its performance improves sufficiently, the D epartment is neither exercising nor waiving its contractual rights.

Prepared 21st May 2012