Government response
The Government welcomes the House of Commons Defence
Committee's inquiry into Defence Acquisition and the Conclusions
and Recommendations set out in the Committee's report, as published
on 5 February 2013. We are pleased that the Committee has acknowledged
our progress to date in a number of key areas including delivery
of a balanced defence budget; implementation of Lord Levene's
defence reform proposals; work to support Small and Medium-Sized
Enterprises (SMEs); establishment of the Major Projects Review
Board and related work on project performance, costing and forecasting;
and commitment to encouraging defence exports. Publication of
a detailed summary of our 10-year Equipment Plan in January this
year, supported by the National Audit Office (NAO), represents
another major step forward in our approach to defence acquisition.
We also understand that the Committee has a close
and enduring interest in a number of key areas covered by their
inquiry, including our commitment to maintain a balanced defence
budget and reform of Defence Equipment & Support, through
the Matriel Strategy. We will, of course, keep the Committee informed
of further developments in these areas.
Our formal response to the conclusions and recommendations
in the report is set out below. Where appropriate, we have grouped
together related conclusions and recommendations to respond with
a single coherent narrative. The Committee's findings are highlighted
in bold, with the Government's response in plain text. For ease
of reference, paragraph numbering follows that in the 'Conclusions
and Recommendations' section of the Committee's report.
1. The decision in 2010 to change to the carrier
variant of the Joint Strike Fighter was the largest single procurement
decision in the SDSR. It is clear that the decision was rushed
and based upon incomplete and inaccurate policy development. It
was taken without the MoD understanding how the change could be
implemented. Perhaps the primary example of how little the MoD
understood about this decision is the fact that it was supposed
to improve interoperability. This turned out to be incorrect.
This decision ultimately led to increased costs to the carrier
strike programme and a delay in the in-service date of the carrier.
It could also be argued that it provided a rationale for the early
decommissioning of the Harrier. We urge the MoD to learn the lessons
of this closed, rushed and flawed decision of 2010. (Paragraph
15)
The Government notes the Committee's concern about
the decision, as part of the 2010 Strategic Defence and Security
Review (SDSR), to purchase the F-35C Carrier Variant (CV) of the
Joint Strike Fighter (JSF) and to operate it from a ship fitted
with catapults and arrestor gear, instead of the F-35B Short Take-Off
Vertical Landing (STOVL) aircraft. The policy decision taken in
the 2010 SDSR to purchase the CV JSF was right, based on the information
available at the time. However, as the programme matured so did
the information available. As the Committee would expect for such
a complex and high-value project, the strategic decision taken
in the SDSR was followed by the commissioning of a detailed programme
of work to look at all aspects of the proposed solution, the Conversion
Development Phase (CDP), including the technical and financial
risks involved in fitting catapults and arrestor gear to the carriers.
During the 18 month CDP study a number of the underlying
facts on which the CV decision was based changed. As the conversion
programme matured and more detailed analysis was conducted by
suppliers, it became clear that an operational carrier strike
capability, using the catapults and arrestor gear system, could
not be delivered until late 2023 at the earliest, considerably
later than the date envisaged at the time of the SDSR of "around
2020".
The conversion was hugely complex and challenging
and, as the scale of the complexity became clearer through discussion
with the US, it was apparent that the original schedule would
extend, in turn leading to increased cost. In total 480 compartments
would be affected (from an initial estimate of 80). Furthermore,
we could not use exactly the same equipment configurations as
the US (4 catapult system) because of the smaller size of our
carrier; we needed a UK specific system, using the same component
parts as the US, but in a different configuration (e.g. fewer
catapults and different power conversion software).
The estimated cost of fitting the catapults and arrestor
gear equipment to HMS Prince of Wales more than doubled to around
£2 billion, with no guarantee that it would not rise further.
This cost growth would have had an unacceptable impact on the
rest of the Equipment Plan, distorting the equipment budget. It
would also have extended the time period when our Armed Forces
would be without a carrier strike capability by at least 3 years.
Further work with our allies on the best approach
to collaborative operations has satisfied the Ministry of Defence
(MOD) that multinational maritime task groups with co-ordinated
scheduling of maintenance and re-fit periods, and an emphasis
on carrier availability, rather than cross-deck operations, is
the more appropriate route to optimising our alliance operational
capabilities.
When the facts changed, the responsible thing for
the Government to do, however inconvenient, was to re-examine
the decision that had already been made. The MOD is involved in
hugely complex acquisition projects---unlike anything carried
out elsewhere in Government. It is essential that MOD continuously
reviews its decisions and is prepared to change them as and when
appropriate. The decision to reverse the choice of F35C over F35B
is an example of the Department's new found commitment to openness
in the management of the Equipment Programme and willingness to
make difficult decisions that are in Defence's best interests.
The Government's decision to withdraw the Harrier
Force was not taken lightly, and was an example of the very difficult
choices that had to be made to bring the Defence budget back into
balance. The withdrawal of an aircraft type delivers greater savings
than partial reductions, owing to the fixed costs associated with
supporting an aircraft platform. Although the Government recognised
that the Harrier was a flexible and capable aircraft that had
served the nation well, it was determined that we should sustain
the Tornado fleet since it was able to provide continuous support
to operations in Afghanistan and concurrent operations, such as
in Libya, and deliver critical weapons capability unavailable
on other platforms. This followed the decision taken in 2009 to
reduce the Harrier fleet to 32 aircraft, which meant it was impossible
to sustain operations in Afghanistan, and maintain an adequate
contingent capability for the unexpected, with just the Harrier.
The Government accepted that this decision would create a gap
in carrier strike capability until the end of the decade.
2. We note that the problems leading to the overheating
of the defence budget have been identified and the expressed willingness
of the parties to address them. We shall be monitoring progress
on this. (Paragraph 21)
The Committee's desire to monitor progress on the
maintenance of a balanced budget is noted, and the MOD will assist
as appropriate.
3. We sympathise with the impatience of the defence
industries in the face of the slow timescale for producing promised
information and urge the MoD to accelerate the publication of
further material to flesh out the bones of the White Paper. The
Equipment Plan should be published as a matter of urgency without
awaiting any NAO input or commentary. (Paragraph 28)
The MOD Equipment Plan was published on 31 January
2013, and was accompanied by a NAO report. It was appropriate
to wait for the accompanying NAO report to increase public and
industry confidence in the deliverability of the Plan.
4. We believe that the absence of a defence industrial
strategy which supports appropriate national sovereignty puts
the UK at a disadvantage against competitor countries. Furthermore,
we do not understand how we can have confidence in a national
security strategy which does not show a clear grasp of what is
needed for the defence of the United Kingdom, and how this can
be ensured. We recommend that the Government reconsider the wisdom
of not having a defence industrial strategy. (Paragraph 41)
The Government rejects the Committee's conclusion
that the UK lacks a defence industrial strategy. The National
Security through Technology White Paper, published in February
2012, replaced the Defence Industrial Strategy (DIS) 2005 and
Defence Technology Strategy 2006, and sets out our approach to
purchasing equipment, support and technology for the UK Armed
Forces.
Nor do we agree that the White Paper's approach puts
the UK at a disadvantage against competitor countries. As the
White Paper makes clear, we will work to enable UK-based industry
to be sufficiently competitive to provide best value for money
in meeting our defence and security needs and to export successfully,
but also to protect our technology advantage where this is essential
for national security.
The National Security Strategy sets out the national
security 'ends' for the UK; the 2010 SDSR outlines the 'means'
we require to deliver them and the White Paper articulates the
'ways' in which we will acquire them. There is therefore a clear
link between what is needed for the Defence of the UK and how
this is delivered.
5. The White Paper accepts that there are some
capabilities possessed by defence suppliers that are critical
to our national sovereignty and must be protected on-shore. We
expect the MoD to be clear about the capabilities that fall into
this category and to have a clear sustainability plan developed
with UK industry. (Paragraph 45)
The Government agrees about the importance of identifying
those capabilities which underpin our freedom of action and operational
advantages. In National Security through Technology, we
commit to protecting these capabilities and describe the four
broad cases in which an exception to our commitment to the principle
of open procurement is most likely to apply:
- Where a capability is by its
nature fundamental to our freedom of action as a nation - the
leading example is secure information and communications transfer
at a national level.
- Where the fulfilment of our requirement, or the
operation of the resulting capability, is heavily dependent upon
a supplier having access to highly classified intelligence information
or technologies. The weapons and propulsion systems for the UK's
nuclear deterrent are the leading example of this.
- Where operational circumstances mandate changes
to an in-service capability that can only be met by having an
assured ability to respond—particularly in terms of technical
expertise and knowledge—at the highest levels of speed and
agility. Electronic warfare and associated defensive aids, or
responding to cyber security threats would be examples.
- Where the nature of the UK's potential operational
advantage when using a particular capability means we need the
highest confidence in one or more aspects of its performance.
For this, we need to be an intelligent customer across a number
of dimensions. Aspects of complex weapons are an example.
This approach forms part of the MOD's capability
management guidance and acquisition operating framework.
We consider it more sensible to describe the principles
of our approach than to produce a list of capabilities that we
will protect, given that this is a dynamic environment: requirements
change; resource constraints vary; threats and technologies emerge
and dissipate; opportunities to work with allies develop; there
is rapid technological innovation; and changes occur in the supply
chain with an increasingly global distribution of manufacturing.
Our intent in National Security through Technology
is to be as precise as is practicable in defining our operational
advantage and freedom of action requirements, early in the acquisition
process. This enables us to maximise the value for money for defence
which can be derived from open procurement while allowing us to
focus scarce resources on protecting those aspects of capability
which really are essential to national security. How we choose
to protect these capabilities will always involve a balance of
risk and innovative thinking about the most cost effective approach
to maintaining those elements (for instance, working with Allies,
sharing military capabilities, and entering arrangements to ensure
appropriate levels of technology sharing and security of supply).
These judgements are concerned not only with 'where'
a particular capability is built, but also about 'how' it is used
and what level of knowledge is required to meet our operational
advantage and freedom of action requirements.
6. We recommend that the MoD work with industry
and other Government Departments to ensure that where it is appropriate
to use open standards these should be consistent, widely publicised
and promoted as a matter of course. (Paragraph 53)
The Government is committed to the use of open standards
where these are available and appropriate to the application.
The National Security Through Technology White Paper commits
MOD to greater use of open architectures in our capability development.
This will allow the MOD to maximise the use of open competition
and create more scope for in service upgrades and ease interoperability
with new capabilities. This is reinforced by the MOD policy (JSP
906 'Design Principles for the Acquisition of Capability') that
requires solutions to 'be designed with open standards in a manner
that is not detrimental to security, innovation and operational
superiority'. The 2013 Defence Strategic Direction requires these
principles to be promoted in order to 'maximise agility and effective
management of dependencies'. An MOD team is tasked with further
developing and embedding the use of open standards as part of
the Systems of Systems Approach (SOSA).
Where open standards are applied, the MOD has a preference
for international, commercial standards for the reasons cited
by 'Intellect' in the Committee's report. There are numerous examples
of this approach, such as the specification of Internet Protocol
for MOD Information Systems. Where international and commercial
open standards are not available, the MOD has developed bespoke
standards such as the Generic Vehicle Architecture Defence Standard
23-09, which is an application of SOSA. In developing such standards,
the approach taken is to encourage industry to develop and use
the standard and to work with NATO and other nations to seek broader
adoption.
7. We recommend that the Department reviews and
benchmarks itself against the US 'Fast, Inexpensive, Simple and
Tiny' initiative. (Paragraph 58)
The potential for de-risking high-technology complex
MOD projects through 'incremental / evolutionary / spiral acquisition'
was highlighted in the 2009 Gray Report. MOD policy (JSP 906 'Design
Principles for the Acquisition of Capability') is for solutions
'of modular design … responsive to changes in acquisition
and operations' and that 'where possible, solutions will be Off
the Shelf (OTS)'. There are examples, such as the Land Open Systems
Architecture, in which open systems are required in order to achieve
evolutionary, modular acquisition and agility. However, these
principles are not universally applicable in the MOD, particularly
in large programmes.
The MOD has undertaken to use a SOSA for capability
acquisition, based on the application of JSP 906 principles. The
promotion of this approach is required by Defence Strategic Direction
2013 and is being set as a foundation of capability acquisition
and management through Defence Transformation. Broad application
of these principles will lead to greater use of modularity, re-use
of proven solutions (including OTS) and evolutionary acquisition.
The MOD SOSA team is exploring the "Fast, Inexpensive,
Simple and Tiny" (FIST) initiative with the US Department
of Defence. If appropriate, we will formally review and benchmark
MOD acquisition against FIST during the 2013/2014 financial year.
8. While we commend the Government's commitment
to encouraging defence exports it is clear that the playing field
is not level. We recommend that the Government keep under review
the reciprocation by other countries of the UK's commitment to
open procurement. If it transpires that others are not prepared
to give to UK industry the opportunities the UK gives to theirs,
it might become necessary for the Government to reduce its open
procurement. (Paragraph 68)
While the Government continues to make the case for
more open markets generally, our policy on open global competition
is driven essentially by our requirement to ensure our armed forces
have the best war-fighting capability delivered at greatest value
for money. Similarly, we consider this the best way of ensuring
our defence industry is best placed to compete globally. That
said, the UK is committed to working continually with our European
and US allies in particular to consider ways in which we can cooperate
to facilitate more open procurement.
European Union Engagement
In the EU we continue to support efforts to open
up the defence market to more competition including through proper
implementation of the Defence and Security Procurement Directive
(Directive 2009/81/EC). We would expect this in time to eliminate
economically driven "buy national" policies in the defence
market, while respecting Member States' right to maintain certain
strategic industrial capabilities for reasons of national security.
If a UK supplier believed it was discriminated against
in a procurement procedure it has the right to mount a legal challenge
against the procurement decision. Directive 2009/81/EC provides
a number of remedies that could, for example, result in the procurement
being stopped and opened up to fair competition. An aggrieved
supplier also has the option of complaining to the European Commission,
which we would expect to investigate any such complaint.
UK/US Engagement
In the case of the US, while the issues are somewhat
different, not least through our privileged access to US technology
which benefits our Armed Forces and industry, we continue to promote
UK industry's access to the US market, including through the recently
adopted UK/US Defence Trade Cooperation Treaty. This Treaty removes
the need for US International Traffic in Arms Regulations (ITAR)
export licenses for certain technologies (that are not listed
as exempt) destined for a US or UK government end-use that is
within the scope of the Treaty (combined operations, cooperative
programmes or defined Government projects). As a result, the Treaty
generates potential opportunities for those members of UK Industry
that are part of the Treaty's Approved Community to solicit for
US Department of Defence contracts that have been declared as
within scope of the Treaty.
9. The overriding reason for the purchase of any
item of defence equipment must be its quality and the requirements
of the Armed Forces. We consider nonetheless that the Government
should take into account in buying equipment the enhanced opportunities
for export of equipment in use by UK armed forces. Defence equipment
sales carried out within all the constraints of national and international
law bring with them significant benefits to the UK in terms of
employment opportunities, economies of scale and enhancement of
influence. (Paragraph 69)
The Government welcomes the Committee's acknowledgement
that the principal reason for buying any kind of defence equipment
has to be its quality and the requirements of the Armed Forces.
That said, the Government values highly the important role of
defence and security exports in strengthening the UK economy and
is clear in its commitment to promoting them overseas. The MOD
strongly supports exportability, including by creating opportunities
for export potential to be built early into its own equipment
and support requirements. The advantages of responsible defence
exports are laid out clearly in the National Security Through
Technology White Paper published in February 2012, which states
that exports can:
- be in the national interest;
- enhance bilateral relationships;
- build capability amongst friends and allies;
- increase their capacity to contribute to regional
and international security;
- reduce the cost of programmes to defence; and
- increase the long-term viability of our suppliers[1].
However, procurement in the defence and security
areas is fundamentally different from other forms of procurement,
so we will also take action to protect the UK's operational advantages
and freedom of action, but only where this is essential for our
national security.
10. Defence Equipment and Support should be directed
to take account of tax revenues when conducting investment appraisals
and this should form part of a rounded government decision-making
process. (Paragraph 70)
The Government does not agree. The interdependencies
in a large, open economy like that of the UK are far too complex
for our best interests to be served by such a narrow focus. Moreover,
there is the possibility that such direction could be open to
legal challenge, on grounds of discrimination, by EU or other
foreign-registered suppliers. The MOD's primary aim, and for which
it is financed, is to provide our Armed Forces with the best capabilities
we can afford, and in doing so, to obtain the best possible value-for-money.
Given our focus is to deliver defence capabilities as efficiently
as possible we do not consider the tax revenues the exchequer
receives within our investment appraisal process. Nonetheless,
the MOD spends a significant amount of resources with UK industry,
in the region of £20 billion per annum, sustaining many highly
skilled jobs, and thus supporting the generation of significant
revenue for the UK exchequer.
11. We believe that the UK strategy for defence
acquisition should be based on a coherent level of commitment
to a requirement for an ability to act nationally, to an understanding
of where a level of mutual interdependence or partnership is acceptable,
and where the risks of dependence on the US are acceptable to
our national interest. A government with the ambition for the
UK to retain its status as a major international power enjoying
considerable operational sovereignty should address these issues
in that order. (Paragraph 77)
The 2010 SDSR recognised that we need a balanced
and adaptable Armed Forces in order to meet the broad range of
risks and threats we may face in the future at home and abroad.
It also recognised that, internationally, the UK rarely acts alone
and that alliances and partnerships would remain a fundamental
part of our approach to defence and security. However, there are
a few scenarios in which the UK might need to act alone or with
a more limited number of allies and partners. This judgement was
reflected in the decisions that the SDSR made about the capabilities
that Future Force 2020 would require. The Committee is therefore
right both to stress the importance of the UK retaining the ability
to act nationally when required, and to highlight the benefits
that interdependence and partnerships can bring when interests
are aligned.
These principles are embedded within the National
Security Through Technology White Paper, which sets out our
approach to fulfilling the UK's defence and security requirements,
and the circumstances where we will protect independent UK capabilities.
Judgements about what constitutes operational advantage and freedom
of action will, by definition, need to take into account the level
to which the UK needs to be able to act nationally, or where dependence
upon others, including the US, may be acceptable.
12. We recommend that when entering into contracts,
the MoD pays due regard to the need to effectively understand
and manage risks originating with private sector partners and
in the supply chain, especially the practicality of the placement
of civilians, and in particular civilians who are non-UK nationals,
into harm's way. (Paragraph 85)
The Government takes its responsibilities towards
contractors' employees very seriously, whether they are engaged
on routine duties or within an operational environment. It is
also recognised that the use of contractor support is an enduring
element of today's operations and a key element of the National
Security Through Technology White Paper; indeed there are
just under 6,000 contractors in Afghanistan directly supporting
UK Armed Forces. Policy and procedures for Contractor Support
to Operations (CSO) is contained in Joint Service Publication
(JSP) 567 that also incorporates Sponsored Reserves and Private
Security Companies. The JSP seeks to provide common guidance to
Contract Sponsors considering the use of CSO.
Considerable further detail is contained in Defence
Standard 05-129 (Contractors on Deployed Operations—CONDO)
which covers operational processes and Defence Condition 697 which
provides detailed contractual guidance. A detailed examination
of CSO was carried out in March 2010 and enhancements have been
made in terms of governance, compliance and assurance. This work
was overseen by the CSO sub-group of the Defence Suppliers Forum.
CSO policy is under constant review in order to best meet the
needs of the community and further, iterative changes to the CSO
system can be expected.
The Government acknowledges that it is not always
possible to transfer to industry the risk of overall project success.
This is particularly true in projects where there is a high degree
of risk, complexity and/or financial exposure, including those
contributing to the success of deployed operations. The MOD already
provides a range of indemnities to industry (e.g. war, nuclear,
aircraft flight and taxiing trials, shipbuilding) where it has
been determined that it is either not practical, or value for
money, for industry to bear the financial consequences of specified
risks impacting.
However, transferring to industry those project and
financial risks over which it has control contributes to project
success by incentivising the contractor to play an active part
in assessing and mitigating those risks. In all cases, the allocation
of risks and financial liabilities are set out and agreed with
industry in the contract. This ensures that contractors have the
opportunity to understand and accept those risks and to price
and manage them appropriately.
The MOD continues to work together with industry,
both directly with suppliers and through the major Trade Associations,
to better understand the risks associated with CSO and how they
might best be apportioned and mitigated to deliver operational
success.
Prior to developing a contract requirement which
may require CSO, the MOD carries out a risk assessment and investment
appraisal to determine the type of Contractor support appropriate
to the task. Where this indicates the task can be delivered by
civilian CONDO, the MOD maintains a contingency plan which can
be implemented should the risk/threat situation change and civilian
support becomes unsustainable. The contractor retains a duty of
care to its employees and is responsible for conducting and maintaining
its own in-theatre risk assessment which is supported by MOD information
wherever possible. Because the MOD maintains its own contingency
plans, where an adverse risk assessment provides sufficient justification
for the contractor to decline or withdraw from a task, MOD permits
them to do so without contractual sanctions. Operational experience
to date has shown how resilient contractors are, and MOD has not
experienced a contractor declining or withdrawing from a task.
Where an operational environment is assessed to be
higher risk or the contracted service is critical to operational
success and needs a level of certainty greater than civilian contractor
support can provide, the MOD will contract for Sponsored Reserves.
Under the Reserve Forces Act, Sponsored Reserves are contractor
employees who have a legal obligation to train, respond to call-out,
don military uniform and activate. Once activated, they come under
military command and control, rather than that of their civilian
employer, and must obey orders to deliver operational objectives,
even if this puts them into harm's way. The MOD provides Sponsored
Reserves with the training necessary for them to effectively carry
out the military aspects of the contracted task.
13. We recommend, therefore, that the MoD, industry
and the Treasury develop collaborative behaviours and methodologies
for delineating the competitive and collaborative phases of defence
acquisition. This should overtly identify and manage risks where
they arise and as they are identified so that less emphasis is
placed on the, sometimes flawed, concept of risk transfer. We
also note that the movement of personnel, especially at the senior
level, can be effective for defence, but recommend the promotion
of a culture of overt openness, visibility and transparency so
that public confidence in defence leaders does not wane. (Paragraph
94)
The Government agrees that it is important to build
collaborative behaviours and methodologies, especially to achieve
effective risk management, and it recognises that collaborative
working with our industry partners delivers wider joint benefits.
The Department's commitment was demonstrated by its engagement
in 2010, alongside industry partners, in the design and establishment
of a British Standard 11000 that encourages and builds high performing
collaborative business relationships. These best practice BS11000
principles are being used by the MOD to improve partnering relationships
with industry by sharing knowledge, skills and resources to deliver
improved performance.
The MOD requires all large projects to fully consider
partnering as a procurement option. If partnering is decided upon,
then the MOD requests and evaluates evidence relating to the bidders'
partnering approach to ensure that the MOD can work effectively
with the selected partner. During this procurement process the
MOD identifies, evaluates and selects partners based on key criteria,
that includes their approach to joint risk management and corporate
attitude to collaboration.
As the relationship matures all parties establish,
document and manage a joint risk management approach, creating
an environment where risk is managed effectively to achieve the
joint objectives of the organisations involved. This will include
transferring to industry those project and financial risks where
industry is best positioned to manage them. In all cases, the
allocation of risks and financial liabilities is set out and agreed
with the supplier in the contract. This ensures that suppliers
have the opportunity to fully understand the risks involved, so
they are better able to price and manage them.
The Department's collaboration successes using BS11000
include:
- MOD Logistic Network Enabled
Capability and BOEING UK (BDUK) joint BS11000 accreditation. An
11-year contract between the MOD and BDUK, which will sustain,
integrate and develop the MOD's Logistic Information Services.
- The Defence Information Services Team Architecture
Design Authority and Microsoft which have also achieved accreditation
to the standard. This supports the management of the long term
relationship and contract with Microsoft to provide lifecycle
support for Microsoft products deployed by the MOD.
The work of the MOD in supporting partnering and
collaboration has been commended by industry, including Microsoft
and Boeing, and by the Institute of Collaborative Working.
The Government agrees that it is in the public interest
that those with experience in government should be able to move
into business or other areas of public life. It is equally important
that in the taking up of an appointment, the process is transparent
and there is no cause for suspicion of impropriety. That is the
purpose of the Business Appointments Rules issued by the Cabinet
Office. These were revised and reissued in February 2011.
All Crown Servants, including Service staff and Civil
Servants, are subject to the Business Appointments Rules. The
Rules apply to all appointments within two years of leaving
office or Crown service. For more junior appointments, these are
administered within the MOD. For the most senior levels, the independent
Advisory Committee on Business Appointments advises on applications.
The Committee also advises on applications made by former Ministers
and Special Advisers, at all levels.
In advising on an application, the MOD or the Committee
considers the public interest in light of the Government's Rules
and the law on restraint of trade. A range of specific conditions
may be applied in relation to any appointment.
For the more senior appointments, once the individual
has taken up the appointment, the Committee makes public the advice
and any conditions imposed by publishing details on its website.
14. We recommend that the MoD include in its annual
report and Accounts information about the number and value of
contracts awarded to SMEs, by both the DE&S and prime contractors.
(Paragraph 97)
It is not currently feasible for the MOD to produce
figures for either direct or indirect spend with Small and Medium-Sized
Enterprises to a level of reliability appropriate for the Annual
Report and Accounts. We will contribute information that is available
to cross-Government reporting.
15. We were told that the requirement to bear
unlimited liability is a disincentive to SMEs to bid for Government
contracts. We expect to be told in the response to this Report
what action has been taken to ease this burden on business. (Paragraph
103)
Liability for actual loss due to breach of contract
exists in law unless modified or limited by the specific terms
of the contract. In MOD business, we do not have a general requirement
for suppliers to bear unlimited liability but instead a requirement
for any limit to liability to be justified on value for money
grounds. The MOD can, and already does, agree limits of liability
in cases where justified.
Neither the Sale of Goods Act, nor the Supply of
Goods and Services Act, set a limit on a supplier's liability
should they breach a contract. However, the fact that a contract
does not set a limit on a supplier's liability does not mean that
the quantum of his liability is unlimited. In the event that a
supplier breaches a contact then the other party to the contract
is entitled to claim damages, and if the breach is material to
treat the contract as repudiated. The awarding of damages is not
designed to punish the party in breach, but to compensate the
injured party for his actual loss (which he has a duty to mitigate).
The calculation of damages can be complex and very much dependant
on the details of the specific case. However, there are two fundamental
principles; the losses suffered by the victim must be caused by
the defendant and not be too remote. In practice, therefore, damages
are likely to be limited to those losses reasonably foreseeable
by the defendant.
Except for certain circumstances (e.g. excluding
or limiting liability for death or personal injury resulting from
negligence) parties to a contract are allowed in law to seek to
limit their liability under the contract. However, to prevent
a limit potentially being struck out in court under the Unfair
Contract Terms Act, the party seeking to limit their liability
under a contract must demonstrate that it is reasonable to do
so. Two key elements of demonstrating whether a limit is reasonable
are; the resources available to the party for the purpose of meeting
the liability should it arise, and the ability of the party to
cover itself by insurance.
The MOD has engaged with a number of defence companies
on this matter (including several Trade Associations representing
SMEs on 26 June 2012). The MOD has used these events as an opportunity
to explain the approvals process that HM Treasury require the
MOD to follow before accepting a limitation to a supplier's liability
that would result in a potential contingent liability to the Crown
in excess of £250,000. These events have, without exception,
been welcomed and well received by industry. The MOD policy and
guidance in this area has undergone a major review and revision
to make it easier to understand (for both MOD and industry) and
this was issued on 1 April 2013. A series of briefing events and
new training for MOD staff is being introduced. Briefing events
will also be made available for all defence suppliers.
16. We expect to learn in the response to this
Report what the MoD is doing to encourage prime contractors to
speed up the process of engaging with SMEs as potential suppliers.
(Paragraph 105)
17. The emphasis placed on SMEs by the White Paper
is welcome in principle, but more needs to be done in detail.
It should not be to the detriment of larger concerns: both have
a role to play, both singly and in combination. We look forward
to learning what has been done to address the specific difficulties
faced by SMEs. (Paragraph 106)
The Government agrees with the Committee that, since
a large proportion, by spend, of its contracting is necessarily
done with prime contractors who are not SMEs, its pursuit of the
aspiration to increase the value of work throughout the supply
chain going to SMEs must involve prime contractors.
This activity has to strike a careful balance with
the principle of non-interference in the business procedures of
our major suppliers and maintaining our prime goal of achieving
best value for money in all of our commercial transactions. It
would be illegal to discriminate positively in public procurement
in favour of a particular market sector. Our intention is to understand
better the current supply chain; to encourage regular refreshing
of the participants in that supply chain; and to remind our suppliers
of the benefits of optimising SME involvement.
We do not have any record of concerns having previously
been raised with MOD about the length of time it takes for prime
contractors to accept SMEs as accredited suppliers. We will engage
with industry through the SME sub-group of the MOD Defence Suppliers
Forum to understand the extent of any problem and what MOD can
do to assist in resolving it.
Regarding activities to address specific challenges
faced by SMEs, initiatives already adopted by the MOD include:
- reducing by 75% (to £10,000)
the threshold for advertising defence contract opportunities free
of charge to the market;
- using Central Government's new common core Pre-Qualification
Questionnaire (PQQ), and minimising the use of PQQs for the low
value requirements;
- revising internal guidance to ensure that SMEs
are not rejected at pre-qualification on the basis of rigid turnover-to-contract
value ratios without proper assessment of companies' actual capacity
and potential;
- creating a dedicated SME group in the new Defence
Suppliers Forum, chaired at Ministerial level, to provide a better
'voice' for small suppliers. It meets quarterly with participation
from trade associations (such as ADS, NDI and FSB) as well as
SMEs;
- appointing an MOD SME Champion—the Defence
Commercial Director;
- through stronger interaction between the MOD
Centre for Defence Enterprise (CDE) and the Small Business Research
Initiative, targeting SMEs in supporting our priority requirements
in innovative technologies;
- using electronic procurement tools to roll out
simplified, streamlined contract templates for lower value procurements,
reducing the volume of paperwork and improving consistency;
- expanding utilisation of our e-procurement system
to speed-up invoicing and billing, which will particularly benefit
SMEs, for which we recognise cash flow is critical;
- other measures to help improve cash flow, including
prompt payment and greater use of instalment payments;
- adding 'SME awareness' as a new topic within
the MOD's key procurement training programmes for senior acquisition
decision-makers in project teams, including giving SMEs or their
representative bodies the opportunity to present on the issues
they face and counter any misconceptions about SMEs; and
- developing new contract requirements for contractors
to provide the MOD with more information about their supply-chain
covering, for example, details of all sub-contractors (and whether
they are an SME) and the value of work to be placed with each
sub-contractor;
These measures will also benefit larger companies
with staff numbers or turnover/asset levels above the SME definition.
18. It is important that spending by the MoD on
defence Science and Technology is increased. The reduction in
this spending in recent years (even though it has now been halted),
together with the emphasis on off-the-shelf procurement and open
competition, offers a serious threat to the technical skills base,
specifically though not exclusively to the defence skills base,
within the United Kingdom. This in turn threatens the defence
body of knowledge and may come to threaten the UK's ability to
defend itself. (Paragraph 111)
The Government welcomes the importance the Committee
attaches to continued investment in Science and Technology and
the need for the Department to have access to advice to ensure
it remains an intelligent customer. These are key points within
the National Security through Technology White Paper, where
the prioritisation of science and technology within the defence
budget is recognised despite the difficult financial position.
The continued expansion of our Science and Technology
engagements with other technical sectors through the Centre for
Defence Enterprise and strategic arrangements with the Technology
Strategy Board and Research Councils UK, provides efficient access
to innovation from the UK supply base, and opens exploitation
routes for these new suppliers into the defence sector.
19. We do not regard the Minister's suggestion
that additional science and technology spending could be funded
from the departmental unallocated provision as likely to be fulfilled,
given the number of conflicting demands on this resource. There
are two distinct but separate purposes to a Government funding
research and development. Firstly, to provide our Armed Forces
with the most up to date equipment, and secondly, to support indigenous
military industrial capability. We believe that the UK Government
should therefore commit to a target of 2% of MoD budget being
spent on UK based R&D. (Paragraph 114)
In spite of budgetary constraints, the Government
has committed to sustain investment in defence science and technology
at a minimum of 1.2% of the defence budget. This investment is
to access and deliver cutting edge technology into our future
systems and equipment to provide operational advantage. We will
focus this investment to achieve critical outcomes.
The commitment to sustain investment in science and
technology at a minimum of 1.2% of the Defence Budget follows
extensive work at the time of the Strategic Defence and Security
Review and in development of National Security Through Technology.
This sets out our priorities for science and technology and recognises
that we risk losing important operational advantage and freedom
of action in the future unless we invest in the right technologies
now. The publication of the 10-year Equipment Plan, and a balanced
defence budget, will enable industry to plan future investment
with greater confidence.
20. We recommend also that, when the Government
publishes its defence and security themes, it should provide sufficient
guidance to industry to enable it to focus its research spending.
(Paragraph 115)
The focus of defence and security investment in science
and technology is clearly stated in National Security Through
Technology to achieve six critical outcomes. Detail of both
the balance of science and technology investment across these
outcomes and the work-specific research required have been published,
and discussed with potential suppliers at a national conference.
The MOD's future equipment programme has been published
in the Equipment Plan enabling UK-based industry to focus its
investment in technology and development work.
21. We recognise that there is a need for flexibility
with defence capital expenditure and we look forward to receiving
information on the results of the dialogue between MinDEST and
the Treasury. (Paragraph 116)
The dialogue between the MOD and HM Treasury led
to the budget exchange facility granted by HM Treasury in the
2012/13 financial year, which we welcome.
22. We accept that the decision on the future
of DE&S, while urgent, is too important to be rushed. It is
clear that a GoCo is not universally accepted as the best way
forward, and that there are particular concerns about how the
MoD's overall responsibility for acquisition could be maintained
within a GoCo. In particular, we believe problems might arise
if a non-UK company were given responsibility for UK defence acquisition.
We further believe it is vital that consultations are satisfactorily
concluded with allies, to ensure that there is no adverse impact
on co-operation, before any proposals are implemented. We expect
to be given more detail about the GoCo proposals once the further
inquiries requested by the Secretary of State have been concluded
and before any decision is taken. Much of this will depend on
the detail of what is proposed—and on the other possibilities
of dealing with the constraints currently experienced by DE&S.
(Paragraph 133)
The Government welcomes the Committee's agreement
that the current constraints on Defence Equipment & Support
(DE&S) are hampering its ability to operate effectively. We
concur, and are moving forward as quickly as possible to find
a better solution that will ensure the best possible result for
the Armed Forces, the MOD, and the taxpayer. As we announced on
25 April 2013, the Matériel Strategy programme has now
moved forward into the assessment phase, which we expect to last
about a year. This will compare two options; a GOCO and public
sector comparator, known as 'DE&S+'. This will allow us to
make a true comparison between the two options and make a final
decision about the future of DE&S, which is expected in summer
2014.
The imperative for making changes to DE&S is
to deliver best value equipment, service and support to the Armed
Services when it is needed; this objective has not changed. Under
a GOCO model, the MOD would, in any case, remain responsible (as
now) for deciding what should be bought and when. The GOCO would
manage the delivery of defence equipment procurement, support
and logistics. This would involve the provision of accurate information
to MOD to enable the MOD to construct a robust and affordable
Equipment Plan. The Secretary of State for Defence would continue
to be accountable to Parliament for DE&S business under any
GOCO arrangement, with the Permanent Under Secretary acting as
the Accounting Officer for the associated expenditure. The accountabilities,
limits of responsibility and associated governance of the GOCO
would be defined in the contract.
Any company engaged in the management of DE&S
would have to demonstrate to the satisfaction of the MOD that
it is free from conflicts of interest. The policy on conflicts
of interest, which is being developed in advance of any commercial
process, includes consideration of national security issues.
As the Committee would expect, we are working closely
with our international partners to assess any impact of potential
changes and will continue to do so.
We will, of course, also continue to keep the Committee
and Parliament updated on progress as the Matériel Strategy
programme develops through the assessment phase.
23. We recommend that, in order to recruit and
retain particular staff with the requisite skills and experience,
the MoD urgently develop and bring forward proposals for making
the terms and conditions of civil servants and uniformed staff
at DE&S more flexible pending the full implementation of the
Defence Matériel Strategy. (Paragraph 136)
The Government agrees that it is important to recruit
and retain staff with requisite skills and experience. As the
Committee's report notes, the MOD may not simply re-engage Service
staff who complete their careers in the Armed Forces as Civil
Servants. The fundamental reason for this is the long-standing
principle, now enshrined in the Constitutional Reform and Governance
Act 2010, that entry to the Civil Service must be through fair
and open competition, except in circumstances where the Civil
Service Commissioners decide to authorise exceptions in the interests
of the Civil Service.
In many cases, the skills of former Service staff
may often be of high value to DE&S, and competition with other
employers for those skills significant. The MOD is taking action
on two fronts to improve its ability to retain former Service
staff whose skills it needs. First, DE&S is managing a coordinated
recruitment campaign so that recruitment needs are foreseen and
planned ahead, enabling competitions to be held in good time to
minimise the chances of delay. Secondly, the MOD has sought agreement
from the Civil Service Commissioners for a limited exception from
the requirement for fair and open competition to enable a defined
number of former Service staff with the most important specialist
skills to join the MOD through an internal rather than a full
open competition. The Commissioners have not agreed to make such
an exception, but are working with the MOD to identify a number
of routes through which former military staff with key skills
may transfer without competition within existing principles, including
cases where tasks are transferring from military to civilian staff,
and the use of short-term non-competitive appointments. The case
for a wider exception will continue to be explored as part of
the assessment of options for the future DE&S under the Matériel
Strategy.
24. We realise that the staff reductions required
of DE&S are likely to necessitate either outsourcing or reduced
output or both. We expect to be informed in detail of what has
been decided. Nonetheless, we commend Bernard Gray on his determination
to optimise the new structure and ensure that safety should not
be put at risk. (Paragraph 140)
In order to ensure that safety is not compromised
in managing our staff reductions, we have conducted an intensive
exercise to identify all those positions critical to safety ensuring
that the highest priority is placed on filling them with suitable,
qualified people.
25. We commend the government's plans to bring
together military capability and finance branches as an important
way of shortening and simplifying decision-making. We also commend
the decision to rebuild the MoD's Cost Assurance and Analysis
Service, whose function is to enable the MoD to make better value
for money decisions through life, and we expect the work to continue.
We expect to be updated on progress on these points. (Paragraph
145)
The Government welcomes the Committee's recognition
of the way we are implementing Lord Levene's Defence Reform proposals.
The New Operating Model, including the empowerment of the Commands
and Top Level Budgets, stood up on 1 April 2013. A detailed description
of the operating model, which sets out in detail how it works
to deliver delegated responsibility for the generation of capability
and creates the right structures and business processes to ensure
accountabilities and risk are balanced is published at:
https://www.gov.uk/government/publications/the-new-operating-model-how-defence-works.
26. We commend the MoD on the creation of the
Major Projects Review Board as a review and monitoring mechanism.
(Paragraph 151)
The Government welcomes the Committee's endorsement
of the role of the Major Projects Review Board (MPRB). The MPRB
was established in June 2011 and has met quarterly, reviewing
a number of acquisition projects.
27. 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. (Paragraph
160)
The Government acknowledges the need for an enduring
system for responding to unforeseen and urgent capability requirements
and that further work should be done to establish how the benefits
of the Urgent Operational Requirement (UOR) system, which is an
efficient means of providing an equipment solution to a capability
gap in a short timeframe, may be applied to the main equipment
programme. The MOD has recognised this before and has committed,
through the National Security Through Technology White
Paper, to flexibility and agility in upgrading capability incrementally.
However, as the Committee's report identifies, there
are pros and cons to the UOR system which must taken into consideration.
The UOR system is designed to deliver the speed and flexibility
necessary to respond to particular operational environments and
emerging threats. UORs seek to provide solutions which are 'good
enough, as fast as possible' and we will, where necessary, make
compromises to ensure equipment gets out to an operational theatre
as soon as possible. In practice this means that Time is the key
driver, and that Performance and Cost, in addition to other lines
of development such as training, support and infrastructure, are
traded against the requirement. As a result, UORs tend to deliver
a partial equipment solution quickly, but often at the expense
of wider capability coherence.
The core equipment programme, which is necessarily
more strategic, aims to trade Performance, Time and Cost in a
more balanced way to get the best equipment solution, while meeting
Government expectations regarding value for money and cost effectiveness.
Experience suggests therefore that the UOR process, though faster,
can be a more expensive and less effective way overall to buy
equipment.
28. We note that some progress has been made on
programme and project controls and applaud the Department's emphasis
on costing, forecasting and the use of a broad range of performance
indicators. However, it is unacceptable that major projects such
as the A400M programme have slipped. Whilst it is still early
days, this suggests that the Department's Major Projects Review
Board is not performing especially well. We recommend, therefore,
that Key Performance Indicators and communication protocols are
reviewed to ensure that senior leaders receive early notice of
project difficulties. (Paragraph 168)
The Government welcomes the Committee's recognition
of the progress made on programme and cost controls and its use
of performance indicators. Since 2009 the MOD has used a project
early warning system, known as Sentinel, which is designed to
assist senior management in quantitatively assessing the overall
health of its major projects based on a set of metrics. This has
helped to indicate where the performance of major equipment projects
is of concern and has proved to be an effective mechanism for
driving improved project performance. The MOD continues to further
improve its approach to performance management and will continue
to develop Sentinel to exploit its full potential. The Sentinel
scores for each major project are included and published regularly
in the NAO's Major Projects Report.
The purpose of the MPRB is to review regularly the
MOD's most significant projects and in particular those where
performance against time, cost and key user requirements is at
risk. Its aim is to ensure that projects remain within the performance,
cost and time parameters agreed by the MOD Investment Approvals
Committee and HM Treasury at the major investment decision point.
The MPRB conducts thorough reviews and makes recommendations on
several major projects each quarter. The outcome of its deliberations
are not published, in order to protect commercial confidentialities
and sensitivities and to ensure the continued provision of free
and frank advice to Ministers.
The Government acknowledges the Committee's concern
over the delays to A400M. An explanation of the project history,
progress and reasons for the project delay have been provided
in the Major Projects Report 2012, published by the National Audit
Office:
http://www.nao.org.uk/publications/1213/major_projects_report_2012.aspx
However the Department believes that the Committee's
assertion that the MPRB process is not performing well on the
basis of the slippage in this single project is unjustified. It
should be noted that the delays on A400M emerged during 2009/10
and were reported in the Major Projects Report 2010. The MPRB
was established in June 2011 and as no further problems were identified
at that time on A400M, the MPRB has focused on other projects.
29. We note that there is acknowledged risk of
single-Service stovepiping, with each Service looking only to
its own needs without considering the programmes of the others,
and acknowledge that the MoD is aware of this potential structural
challenge to effective acquisition. We expect to be kept abreast
of organisational mitigation plans to counter this tendency and
would welcome examples of effective corporate intervention. (Paragraph
173)
Specialist military advice on military issues is
deeply embedded in the new Defence Operating Model. The Head Office
and the Command and Top Level Budget Headquarters will continue
to be integrated military and civilian organisations. We have
always recognised that its process, structures and embedding the
required behaviours will need to mature over time. We therefore
expect that we will want to make further adjustments to the model
beyond its launch in April 2013, to reflect experience gained
in operating it and bedding it down. That is likely to include
further refinement of the new finance and military capability
model, further development of the design of the interface with
DE&S, aligned with the outcome of the Matériel Strategy
programme, and longer term changes to the people model to reflect
implementation of the New Employment Model for Service personnel,
and Civil Service Reform for civilian staff. Progress will continue
to be reported as appropriate against the MOD's Business Plan
objectives, in the Annual Report and Accounts, in the Prime Ministers
Annual Report to Parliament on the implementation of the National
Security Strategy and the SDSR, and in Lord Levene's annual reports
to the Secretary of State for Defence on implementation of his
Defence Reform recommendations.
Empowerment of the Commands and Top Level Budgets
under the new Operating Model operates within the wider context
of the Strategy for Defence and Defence Strategic Direction set
centrally by the Defence Board, which ensure that we have one
coherent top-level strategic direction. The Strategy for Defence
sets out how the long-term strategic direction established by
the 2010 SDSR is implemented, outlines what we plan to achieve
and how we intend to deliver that outcome. Defence Strategic Direction,
which is classified, gives greater detail on how all of our objectives
will be achieved. It provides the basis for the annual Defence
Plan, which in turn provides coherent direction for the new Top
Level Budget command plans which underpin the new Defence Operating
Model by defining the Commands' and Top Level Budget organisations'
outputs and activities. A fundamental part of the new Operating
Model is that the Permanent Secretary, supported by the Chief
of the Defence Staff on military outputs, will routinely be holding
the seven Top Level Budget Holders[2]
personally to account for the overall performance of their business
and delivery of the outputs agreed in their Command Plans.
30. We commend the MoD's decision that in principle
the terms of the Senior Responsible Owners of projects should
be extended. We hope that this will include uniformed specialists,
even though this may require changes to conventional military
career patterns. We recommend that information on the average
length of these terms be included in the Department's Annual Report.
(Paragraph 175)
The MOD has long recognised the importance of stable
tenure for Senior Responsible Owners (SROs). Since 2005, the MOD's
formal policy and guidance has sought to ensure SROs remain in
post either until the conclusion of a programme or—more
usually given the lengthy timescales of many Defence programmes—until
a distinct phase of the programme has been achieved. For the MOD's
most significant programmes, SRO appointment letters highlight
the expected milestones to be achieved during the post holder's
planned tenure.
In practice, career events such as promotions or
departures tend to interrupt SRO tenure. And extended postings
for SROs can be difficult to sustain when career management policies
more generally are based around regular moves involving shorter
tour lengths, particularly for staff in senior posts. This issue
was highlighted in Lord Levene's report on Defence Reform in 2011,
which recommended that: "The Department should move to
a model where most individuals stay in post for longer and the
most senior civilian and military posts are held, as a rule, for
4 to 5 years."
For MOD civilian staff, it was agreed in June 2012
that the future model would be for Senior Civil Servants to stay
in post for four to five years, with exceptions identified where
relevant. These greater tour lengths are now being implemented
and are taking effect as each new incumbent takes up post.
For military staff, the Levene recommendation is
being taken forward as part of Defence Reform implementation,
under the Joint Assured Model (JAM). This is seeking to align
longer tour lengths with the needs of military career management
and succession planning for the most senior military posts. Whilst
this work continues, progress is being made on a case-by-case
basis, with a number of recent appointments (ranging from OF5
up to 3-star) being made on 4-year terms.
Subject to completion of the JAM work, the expectation
is that in future, MOD SROs should normally remain in post for
four years and that there will be more effective linkage between
SRO tenure and milestones to be achieved whilst in post. In the
short term, a higher than usual turnover is expected as the MOD
implements its new delegated Operating Model, with SROs changing
as a consequence of responsibility for specific capability programmes
moving from the MOD Head Office to the Front Line Commands.
31. It is important that emphasis on management
skills in MoD is not allowed to sideline the contribution of military
specialists, particularly now that the military, and indeed scientific,
membership of the Defence Board has been reduced. (Paragraph 183)
32. We note also that reducing MoD staff, including
DE&S staff while at the same time maintaining and improving
the quality of the work carried out presents an intractable problem.
The danger of a displacement of work from a reduced civilian staff
to a reduced military staff would be unacceptable. Neither is
it clear how the application of FIST and/or a new management construct
for DE&S would provide any early alleviation of these problems.
Particular consideration should therefore be given to both the
pace and shape of civilian staff and military staff reduction,
to avoid these problems and protect critical technical skill-sets.
(Paragraph 184)
The Government recognises that the reduction to our
military and civilian workforce carries risks to the business
of defence, and that we must manage these very carefully. As we
have set out previously to both the Defence and Public Accounts
Committees, the three Services have well established and very
detailed systems for planning for and managing the delivery of
the skills required. We have been working hard to improve our
ability to conduct strategic skills planning for our civilian
workforce across defence. The Commands and Top Level Budget organisations
also review very closely the skills and numbers of people they
will need to deliver their outputs as part of the Annual Budget
Cycle. From April 2013 the new Chief of Defence Personnel will
also be driving forward the development of the Whole Force Concept
to establish the optimal mix of military and civilian personnel
for the future.
33. We recommend that the Department establish
a clear knowledge of which equipment and support solutions are
critical to national security and expect to be informed of the
measures taken to secure supply. (Paragraph 188)
As we explained in our response to Recommendation
5, we consider it more sensible to describe the principles of
our approach to protecting independent equipment and support solutions
for national security reasons, than to produce a list of capabilities
that we will protect, given the dynamic environment in which we
operate. Project teams are required to consider at the start of
the procurement the importance of security of supply, notably
the criticality of being able to use the goods or services without
constraint to meeting our foreign and security commitments.
In support of this, the Defence and Security Procurement
Directive sets out a non-exhaustive list of documents and commitments
(e.g. export licence restrictions, providing additional supplies)
that project teams may ask suppliers to include in tenders to
reduce the risks to security of supply. Specifically, it addresses
the need for a contracting authority to be assured that a supplier
will be able fully to perform the contract in a range of unique
defence circumstances. If the security of supply needs mean
that we have to discriminate on the grounds of nationality or
cannot treat all suppliers in the EU equally, then we have to
apply an exemption such as Article 346 of the Treaty on the Functioning
of the European Union.
In addition to ensuring security of supply is addressed
fully in the commercial contract, there are a number of broader
international agreements that build confidence in securing supply.
These include in particular the UK/US Defence Trade Co-operation
Treaty, the UK-France Defence and Security Co-operation Treaty
and the Letter of Intent Framework Agreement, which is an international
treaty signed by UK, France, Germany, Spain, Italy, and Sweden,
and contains specific provisions covering security of supply.
We also continue to support the European Defence Agency's efforts
to improve confidence in security of supply across the EU, which
should in turn support efforts to develop more cross border competition
in the European defence market.
34. We recommend that when making acquisition
decisions the MoD should explicitly bear in mind the need to preserve
and regenerate the national skills base. (Paragraph 198)
The Government partially agrees with the Committee.
As we explained in our response to Recommendation 10, the MOD's
primary interest is to provide our Armed Forces with the best
capabilities we can afford, to enable them to protect the UK and
to advance our interests, and in doing so, to obtain the best
possible value-for-money. Whilst MOD does not consider wider employment,
industrial or economic factors in its value for money assessments,
we recognise that a skilled UK workforce is essential to delivering
the capabilities we need, and that niche skills in industry are
often critical to maintaining our operational advantage and freedom
of action. Where this is the case—and the specialist skills
associated with submarine design and manufacture are a good example—MOD
acquisition decisions do take into account the extent to which
those skills are available. However, increasingly these judgements
are less concerned with 'where' the skills are based, and much
more around 'how' we can access the skills and know-how in a timely
way to design, develop, evaluate, support, maintain, and upgrade
key systems and sub-systems to meet our operational advantage
and freedom of action requirements.
1 The benefits are articulated in Section 5.2.1 of
the White Paper, page 51. Back
2
The Chiefs of the Naval, General and Air Staffs, the Commander
of the Joint Forces Command, the Chief of Defence Materiel, the
Chief Executive of the Defence Infrastructure Organisation, and
the Director General for Transformation and Corporate Strategy. Back
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