Restoring the Fleet: Naval Procurement and the National Shipbuilding Strategy Contents

3Type 26 Global Combat Ship


26.The 2005 Defence Industrial Strategy announced a Future Surface Combatant (FSC) study to consider how the capabilities provided by the Type 22 and Type 23 frigates could be met in the future.32 At present, there are thirteen Type 23 frigates. Eight of the frigates are specialist anti-submarine frigates designed to protect the UK’s nuclear deterrent submarine fleet and the future aircraft carrier and amphibious task forces. The remaining five are general purpose frigates.33 The older Type 23 frigates are now nearing the end of their service life with the first of class, HMS Argyll, due to come out of service in 2023.34

27.SDSR 2010 stated that the Type 23 class would be replaced with the new Type 26 class on a one-for-one basis.35 SDSR 2015 modified that commitment with the announcement that the thirteen Type 23 frigates would be replaced by eight Type 26 frigates in an anti-submarine role and at least five frigates from a new class of General Purpose Frigate (GPFF),36 provisionally designated as the Type 31.

The Type 26 Programme

28.The National Audit Office’s (NAO) Major Projects Report 2015 and the Equipment Plan 2015 to 2025,37 provided a detailed assessment of the Type 26 programme and a timeline for the design and delivery programme.38 The Concept Phase for the Type 26 was completed with Initial Gate approval given by the MoD on 18 March 2010.39 Originally, the Assessment Phase was due to be completed in December 2013. As the NAO noted, the deadline for the Assessment Phase was extended on a number of occasions in order that the design be “further matured ahead of the main investment decision”.40 The Assessment Phase was finally signed off on 31 March 2015.41

29.Approval was then given to proceed to the Demonstration Phase, which would cover the period 1 April 2015 to 31 March 2016.42 The expectation was that the manufacturing stage would follow shortly afterwards and in April 2016, Defense News reported that the original target was to start later that year.43 However, on 22 March 2016, Philip Dunne MP, the then Minister for Defence Procurement, announced that the Demonstration Phase would be extended to June 2017 in order to:

Mature further the detailed ship design, ahead of the start of manufacture, including investing in Shore Testing Facilities, and extend our investment in the wider supply chain in parallel with the re-baselining work which is continuing.44

30.The Type 26 programme has seen a significant extension to its timetable with a thirteen month extension to the Assessment phase followed by an additional fifteen months to the Demonstration phase.

31.When he gave oral evidence to us, John Hudson, Managing Director of BAES Maritime, stated that, despite the significant extensions to the Type 26 programme, further work was still necessary before it could reach the threshold for production. He confirmed that the design of the ship was progressing but that a number of aspects of the design had yet to be finalised—for example, the “compartmentalisation of the ship’s internal structure and the manner in which many of the communications systems are completed and integrated”.45 He went on to explain that although these design issues were “on track” it was not yet possible to “fix a price” until there was “absolute clarity” on the final design decision.46

32.In written evidence, the MoD restated that no start date had been fixed for the construction phase and that it would be “determined by the work we are doing with BAE Systems to agree a production schedule that reflects the outcome of the Strategic Defence and Security Review (SDSR)”. It went on to say that this work was “on-going” and would take “a number of months to complete”.47

33.When we questioned Tony Douglas, from Defence Equipment and Support (DE&S), about the start-date he believed that the MoD would be in a position to “bring a definitive set of dates in the relative short term”. However, he was unable to give a precise date because it was “subject to a commercial negotiation”. 48 He continued:

It will take as long as it takes for us to be able to satisfy the Ministry of Defence, the taxpayer and Her Majesty’s Royal Navy that we have landed the performance, through industry, that is necessary to deliver the programme.49

And added that:

The schedule component of this is at the heart of closing out an appropriate deal that maps the requirements of Her Majesty’s Royal Navy, maps into the requirement of the Type 23, optimises value for money, and delivers a build schedule that drives performance with BAE Systems.50

34.On Friday 4 November 2016, the MoD finally announced that the Construction Phase of the Type 26 programme would start in the summer of 2017. However, that announcement came with several major caveats. Detailed contract negotiations have yet to be concluded, and the ship’s design has yet to be finalised. Construction can start only when these matters have been resolved. The MoD also confirmed that construction of two Offshore Patrol Vessels would start shortly and that those vessels would be delivered in 2019 “before the start of the Type 26 programme gets fully under way”. Unfortunately, no information was provided on the pace of construction or the delivery schedule for the eight frigates.51 At Defence Questions in the House on Monday 7 November, the Chair of the Committee asked the Secretary of State whether the first Type 26 would be ready to enter service in 2023, at the same time as the first of the Type 23 frigates was due to leave service. Unfortunately, the Secretary of State’s response was uninformative:

Yes, I can confirm that it is our intention to replace the anti-submarine frigates within the Type 23 force with eight new Type 26 anti-submarine frigates.52

35.The MoD’s announcement that the construction phase of the Type 26 will start in the summer of 2017 belatedly represents a step forward, but it raises as many questions as it attempts to answer. We are concerned at an apparent degree of complacency and lack of urgency on the part of the MoD and DE&S. The start date remains contingent on a successful conclusion to the negotiations between the MoD and BAES on both the design and the contract. Furthermore, even with a 2017 start date, the Type 26 programme will not be “fully underway” until 2019. If we are to have confidence that the Type 26 programme is back on track, the MoD must provide us with a detailed assessment of those design and contract issues which remain outstanding, the build programme for the Type 26 and the rate of output of the ships.

Financial constraints

36.A number of our witnesses were not convinced that the iterative nature of the design process was the cause of the extension of the programme. Rather, they argued, financial constraints lay at the heart of the delay. Peter Roberts from RUSI questioned the need for such a lengthy design process. In his opinion the Type 26 would not be a “gold-plated, fantastic, world-beating, cutting-edge unit” and that “a lot of the equipment” on the Type 26 would be transferred directly from the existing fleet of Type 23s:

This is not a bunch of new kit that is arriving, it is a new hull that will take these systems. We don’t have a new or massive increase in capability. We need to understand that this is simply a like-for-like replacement for the current one we’ve got, in order effectively to reduce the risk of hull degradation that we have got from current platforms that are way over their service limit.53

37.Lord West, First Sea Lord between 2002 and 2006, went further:

The reality is there is not enough money in the MoD this year and next year. We have run out of money, effectively. Therefore, they have pushed this programme to the right.54

Peter Roberts agreed. He asserted that there was a £750 million shortfall in the funding for the programme in the current year which would have “a significant impact and may require capability trade-offs” which could require a further three years to complete.55

38.Duncan McPhee, also said that meetings between the trade unions and BAES had pointed towards financial constraints being at the heart of the delay to the manufacturing stage of the programme.56 While John Hudson from BAES did not offer much in the way of detail, the following exchange between the Chair of the Committee and Mr Hudson also hinted at financial constraints being a relevant factor:

Q47 Chair: We are in the position, then, that unless the Ministry of Defence comes up with more money we are going to see a big slowdown in this programme, aren’t we?

John Hudson: In terms of frigate numbers, that is a case of mathematics.57

39.When presented with the assertion that there was a £750 million shortfall in the budget, Tony Douglas, DE&S, was equivocal in his response:

If there is a number—you asserted [£750 million], but if there is one—first principles tell us all that there are only two ways of resolving that: we either invest more on behalf of the taxpayer or we negotiate it out through performance, or a combination.58

Harriett Baldwin MP stated that she did not recognise this concern and said that the MoD was “pleased with the overall budget allocation” delivered through SDSR 2015.59

40.However, Admiral Sir Philip Jones, First Sea Lord and Chief of the Naval Staff, acknowledged that financial considerations were matters which had yet to be resolved. He said that the MoD was “still working through [its] annual budget cycle in order to set the SDSR assumptions into hard budgeting fact” and that the MoD was yet to be in a position to confirm “definitive annual budget cycle figures for a number of the SDSR programmes”.60

41.In our Report on defence expenditure, Shifting the goalposts? Defence expenditure and the 2% pledge, we set out our concerns that spending 2% of GDP on defence may not be enough to fund the MoD’s procurement plans and came to the following conclusion:

The MoD must provide evidence that, should a disparity arise between procurement aspirations and affordability within the threshold expenditure of 2% of GDP, finances will be available to mitigate this which will not be removed from another part of the budget to which they have already been committed.61

42.The SDSR was announced alongside an increased Defence Equipment Budget, which the Government asserted would provide sufficient funding for the programmes contained within it. We are deeply disappointed that, only 12 months later, a key programme for the modernisation of the Royal Navy appears to be under severe financial pressure. If the SDSR is to be more than a collection of aspirations, it has to be fully funded. As we warned in our Report on the Government’s commitment to spend barely 2% of GDP on defence, the current funding settlement may not be enough.

43.In its response to our Report, we will expect the Government to provide a clear timeline—with costings at each stage—for the Type 26 programme. In doing so we will also expect to receive clear statements that the necessary funds are available in this financial year and for subsequent financial years alongside details on the amounts spent on the programme as it progresses. Above all, we seek an absolute assurance that short-term financial limitations are not storing up for the future, large cost consequences caused by otherwise avoidable delays in the Type 26 construction programme.

Costs of further delay

44.It is clear to us that the MoD should, as a matter of course, negotiate the best deal for the taxpayer. However, it should also keep in mind that extending the life of programmes in order to extract further value for money is not a cost-free exercise. In oral evidence, Lord West told us that previous experience of extensions of programmes and resultant delays led to programmes “costing more money”.62 As an example, he highlighted the delays to the production of the Astute class submarines, which, he argued cost the MoD “just under three-quarters of a billion more than it would have cost us if we had ordered them [on time]”.63

45.In response to this concern, John Hudson acknowledged that costs could increase but said that this was a matter for discussion between BAES and the MoD. That said, he was unable to provide any detail on size of any increase:

We do not know what the programme is going to be, and therefore I do not have a figure that could advise you of what the increase will be.64

That said, he noted the views of Lord West and acknowledged that there was a “theme” there.65

46.Admiral Jones also noted the potential for it to increase costs and that managing cost was at the heart of negotiations over the scheduling of the Type 26:

That is precisely the trade-off of capability, costs and time that is happening as part of the strategy. Of course, as part of that strategy not only the Type 26 but the general purpose frigate will play into that mathematical equation over frigates and destroyers.66

47.The MoD’s announcement of a summer 2017 start date for the Construction Phase for the Type 26 relies on a successful conclusion to negotiations on both the contract and the design of the ship. Should these not be concluded in time for construction to start in summer 2017, further delays will occur, inevitably increasing the overall cost of the Type 26 programme. Such additional costs would result in increased pressure on a Royal Navy budget which is already being squeezed. Furthermore, the pace of construction phase must not be dictated by the financial constraints of the MoD. The use of artificial delays to the programme as a way of managing an over-stretched budget would serve only to increase costs and to undermine further the UK’s already severely depleted surface fleet.

48.We do not underestimate the importance of value for money to the taxpayer. However, this should not be to the detriment of the capabilities needed by the Royal Navy. With the surface fleet already smaller than ever before, the priority must be to deliver the Type 26 programme in an expeditious manner. Slowing the pace of the programme just to squeeze out a marginally better deal will not deliver a much-needed capability, and will serve only to increase costs further down the line, especially if the promised infrastructure investment is not forthcoming.

49.There is a history of poor value for money caused by moving start dates being moved to the right and repeated delays in commencing construction. The MoD does not seem to learn from past mistakes and mismanagement of budgets through built-in delays.

Transfer of equipment

50.As Peter Roberts pointed out to us, much of the equipment to be installed on the Type 26 frigates will come directly from the Type 23s. The efficient transfer of that equipment from ship to ship is therefore a key component of the Type 26 programme—not least because the Type 26s will be built on the Clyde, whereas work on the Type 23s is carried out at Devonport.67 We were therefore concerned that this would add an additional logistical complication to the programme. Admiral Jones, explained that plans had been put in place to ensure an efficient transfer of equipment. He told us that to avoid any reduction in the complement of the surface fleet, new equipment had been procured for the first of the Type 26s. The new equipment would provide “a residue of decommissioned Type 23s’ equipment”, which would be recycled, and delivered into the Type 26 construction programme”.68 As a result, there should be no gaps in capability during the one-for-one replacement of the Type 23s. Admiral Jones also was confident that this approach would deliver “much more resilience” into the programme and allow for the transfer of tested equipment which would bring into service the Type 26s “much faster than we’ve seen before”.69

51.The procurement of new equipment for the first Type 26 frigates has the potential to smooth the transfer of existing Type 23 equipment to the later Type 26 frigates. In its response, we recommend that the MoD provide further detail on the progress it has made on the manufacture and purchase of that equipment and the expected date of its completion.

Extending the service life of the Type 23 frigates

52.The importance of getting a start date for the manufacturing stage for the Type 26 is underscored by the fact that the first out-of-service date for a Type 23 frigate is 2023. In June 2016, Philip Dunne MP, the then Minister for Defence Procurement, confirmed in a reply to Written Parliamentary Question that there were “currently no plans to extend further the out of service dates for the Type 23 frigates”.70 Therefore, if the transition from the Type 23 to the Type 26 is to be delivered without any reduction in numbers or capability, the MoD has to ensure that the first Type 26 is delivered in or before 2023.

53. Admiral Jones was alive to this risk and acknowledged that there was little room for manoeuvre in the timetable. He said that while it was “not impossible”,71 to extend further the out-of-service date of the Type 23s beyond the mid-2020s, it would require “a significant investment” for which there was “no money in the programme”.72 John Hudson from BAES agreed that an extension was possible but any decision to do so would require a “cost-benefit trade-off” which was “a matter for the MoD to determine”.73

54.However, in its Report, Major Projects Report 2015 and the Equipment Plan 2015 to 2025, the NAO poured cold water on the viability of any further extension to the life of the Type 23 fleet. It stated that there was “no scope” to extend the service life of the Type 23s without “extensive, currently unaffordable modifications”.74 Furthermore, the NAO asserted that such an extension would reduce the reliability of the Type 23 with the effect of reducing “endurance and warfighting utility”.75

55.The MoD has now signalled that the construction phase of the Type 26 will commence in the summer of 2017. However, that remains subject to “detailed contract negotiations” and further design decisions. The announcement provides no new information on the build schedule for the first Type 26, nor the nature of the production ‘drumbeat’ to follow. Given the apparent impracticality of extending the service life of the Type 23s, the importance of the Type 26 build schedule cannot be overstated: the replacement of the former by the latter must remain fully synchronised.

56.As we mention earlier in this Report, the National Shipbuilding Strategy will consider “the potential to build a new complex warship every two years”. This is highly relevant to the Type 26 programme given the out of service dates for the Type 23 class:76

Type 23 Frigates

Out of Service Date

HMS Argyll


HMS Lancaster


HMS Iron Duke


HMS Monmouth


HMS Montrose


HMS Westminster


HMS Northumberland


HMS Richmond


HMS Somerset


HMS Sutherland


HMS Kent


HMS Portland


HMS St Albans


57.The delivery of the Type 26s to the Royal Navy has to be coordinated with the out of service dates of the Type 23s. The first Type 23 will come out of service in 2023 and the rest of class will follow on an annual basis. This means that one new Type 26 will have to enter service every year from 2023 onwards, if even the current total of 19 frigates and destroyers is to be maintained. Delivering the Type 26 class (and subsequently the GPFF) to match that timetable will be challenging. Extending the life of some of the Type 23s to accommodate the construction schedule of the Type 26 is not a cost-effective option and would risk diverting the funds available to the Royal Navy away from the Type 26 programme (or other programmes, such as the GPFF and the Carrier programme). The alternative—to decommission Type 23s before they are replaced—would represent a dangerous downgrading of the capabilities of the Royal Navy. Furthermore, it would signify a failure of the Government to honour its promise to maintain a surface fleet of even 19 frigates and destroyers—a figure which, we believe, is already woefully low.

Offshore Patrol Vessels

58.As mentioned earlier in this Report, SDSR 2015 also announced the procurement of a further two Offshore Patrol Vessels (OPVs). One of the ships had been earmarked as a replacement for HMS Clyde (an existing OPV) but the role of the other remains undecided. As Admiral Jones explained, options included adding it to “the mix” of existing OPVs operating in UK waters; deploying it “elsewhere in the world” or tasking it as “a second vessel operating in the South Atlantic”.77

59.Whilst the procurement of additional vessels is to be welcomed, the construction of the OPVs needs to be considered in the context of the timing of the Type 26 programme. John Hudson, BAES, confirmed that the OPVs would have “some impact” on the commencement of the Type 26 programme and that BAES was currently in discussions with the MoD in order to “understand exactly what programme [the MoD] wish to pursue on Type 26”.78 According to Jane’s magazine, the announcement of the additional OPVs was “to fill the gap in workload at BAE Systems’ Clyde shipbuilding facilities” and to “provide continuity of shipbuilding work in the short term”.79

60.The decision to build the OPVs in advance of the Type 26 also has an impact on the workforce. Duncan McPhee, Manual Convenor (Scotstoun), Unite, told us that while he welcomed the work the additional orders would bring, it should not be seen as a replacement for the delays in the Type 26 programme.80 The MoD stated that the contract for the OPVs would be signed “shortly” and that the two vessels will be delivered in 2019, thus “protecting jobs on the Clyde before the start of the Type 26 programme gets fully under way”.81

61.The MoD has announced that construction of the OPVs will start shortly, with delivery of the vessels due in 2019. Whilst this is a welcome development we remain concerned that this programme has the potential to interfere with, and further delay, the construction of the Type 26. In its Response to our Report, we will expect the MoD to set out in detail, how the construction of the OPVs will be managed so as not to impact on the programme for the construction of the Type 26 frigates.

32 Defence Industrial Strategy Cm 6697, December 2005

33 HC Deb, 18 October 2016, col 318WH

34 Jane’s Navy International, 13 July 2016

35 Securing Britain in an Age of Uncertainty: The Strategic Defence and Security Review Cm 7948, October 2010.

36 Strategic Defence and Security Review, para 4.47 Cm 9161 November 2015

37 National Audit Office Major Projects Report 2015 and the Equipment Plan 2015 to 2025 Session 2015–16, HC 488-II

38 Concept, assessment, demonstration, manufacture, in-service, disposal (CADMID)

39 National Audit Office, Major Projects Report 2015 and the Equipment Plan 2015 to 2025 Session 2015–16, HC 488-II

40 National Audit Office, Major Projects Report 2015 and the Equipment Plan 2015 to 2025 Session 2015–16, HC 488-II

41 National Audit Office, Major Projects Report 2015 and the Equipment Plan 2015 to 2025 Session 2015–16, HC 488-II

42 National Audit Office, Major Projects Report 2015 and the Equipment Plan 2015 to 2025 Session 2015–16, HC 488-II

44 HC Deb, 22 March 2016, Col 59WS

45 Q175 [Mr Douglas]

46 Q175 [Mr Douglas]

47 Ministry of Defence (RNT0003)

48 Q142 [Mr Douglas]

49 Q165 [Mr Douglas]

50 Q141 [Mr Douglas]

52 HC deb, 7 November 2017, col 1251

53 Q4 [Mr Roberts]

54 Q20 [Lord West]

55 Q22 [Mr Roberts]

56 Q123 [Mr McPhee]

57 Q47 [Mr Hudson]

58 Q170 [Mr Douglas]

59 Q168 [Harriett Baldwin]

60 Q159 [Admiral Jones]

61 Defence Committee, Second Report of Session 2015–16, Shifting the goalposts? Defence expenditure and the 2% pledge, HC 494.

62 Q20 [Lord West]

63 Q20 [Lord West]

64 Q51 [Mr Hudson]

65 Q52 [Mr Hudson]

66 Q154 [Admiral Jones]

67 Q200 [Admiral Jones]

68 Q199 [Admiral Jones]

69 Q199 [Admiral Jones]

70 HC Deb,27 June 2016, (39922)

71 Q153 [Admiral Jones]

72 Q153 [Admiral Jones]

73 Q104 [Mr Hudson]

74 National Audit Office, Major Projects Report 2015 and the Equipment Plan 2015 to 2025, Session 2015–16, HC 488-II

75 National Audit Office, Major Projects Report 2015 and the Equipment Plan 2015 to 2025, Session 2015–16, HC 488-II

76 HC Deb, 1 March 2016 (28004)

77 Q197 [Admiral Jones]

78 Q37 [Mr Hudson]

79 IHS Jane’s (23 March 2016)

80 Q128 [Mr McPhee]

17 November 2016