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The Political and Business Response to the Defence White Paper
House of Commons 13th January 2004.
Speakers: Hon. Nicholas Soames MP, Shadow Defence Spokesman;
- John Weston, CEO Spirent Technology, former CEO BAE Systems.
Nicholas Soames: Began by saying that the Conservative Party accepted the underlying threat assessment as presented in the White Paper and the original Strategic Defence Review. The problem the current Government faced, however, was that the original SDR was never fully funded. The Iraqi experience showed that the Tank is still very much alive and well, for all the government’s rhetoric about new technology.
What was also evident was that numbers count, both in terms of personnel as well as equipment. It was probable that while the White Paper did not presage any direct cuts in numbers, cuts would emerge unannounced in the months ahead. For example it is estimated that up to 5 infantry battalions may be cut as a “peace dividend” arising from the Northern Ireland peace process. Sea Harriers are being retired early. One of the Aircraft Carriers is expected to be sold to India, and the fleet of Challengers reduced to 120.
It is important that British forces are trained and equipped to operate in a high intensity role, and then adapt to peacekeeping, rather than the other way around. There are currently 10,000 Troops in the Basra region. It would be wrong to assume that light forces were the solution to every problem. It is wrong to state that the UK will only ever undertake high intensity operations with the USA. We must not mortgage our future capabilities.
On the equipment side, a pressing question is where funding for future research and development is coming from. There is very little clarity on this and Network Enabled Capability will require considerable sums. It is reported that the MoD is already £1bn overspent on existing projects, and every procurement project is late.
The Defence Manufacturer’s perspective.
[Based on John Weston’s notes]
The Problem
Defence funding is insufficient for needs of Britain’s armed forces. It is not surprising that MoD is not keen to invest part of what is available in domestic defence technology.
Defence Industry- is it important in national defence posture?
- · How would Henry V have fared without the craftsmen who built the English Long Bows?
- · How important were the ordnance depots that provided Marlborough and Wellington with their artillery?
- · How important were the Royal Dockyards, who built the hearts of oak in Nelson’s navy?
- · What would the outcome of the battle of Britain have been, without Supermarine or Hawkers?
But how relevant in the 21st Century?
In the 1980’s we had a defence industry working on the key technologies for the future across the board. US strength in defence spending meant they had a lead in a number of areas but by and large European industry could match it when funded. This is becoming less true today. Britain is in danger of losing our defence industrial capability, but does it matter?
Why is a national defence industry useful?
- · Defence equipment needs updating.
- · We need the ability to modify on the eve of war- particularly EW, weapons etc.
- · We need to understand the technology.
- · Jobs.
- · Exports.
The case against:
- · US spends 8x more than Europe on defence R&D.
- · America is too far ahead technologically, UK can’t keep up.
- · Britain will only fight alongside America, so why not buy American?
If we let the British Defence industry die will we be able to get what we want from the US? Or will they then charge us what they like?
History is not too encouraging
- · Some good examples: Polaris and Trident.
- · Some not so good: Family of Weapons, AMRAAM.
JSF held up as modern example, BAE has 15% of work. True but 30% of BAE is now in the US (Basically an American Enterprise). The deal on JSF was to share in the production of 3,000 a/c, even 10% of this would support as many manufacturing jobs as a domestic run of 300 aircraft. We contributed VSTOL, control and some stealth manufacturing technology. What have we got back in technology sharing?
Precious little. Britain and the US are still arguing about TAAs. As a result the development work-share has had to be sub-contracted back to Lockheed. UK industry may get access to data at a later date but real technology learning is by doing the development work.
Is there an alternative?
European collaboration shares technology, but is it results orientated and can European programmes be run to schedule and budget? Germany has been a particular problem, Typhoon, A400M and Meteor all ran to German approval timetable, adding cost and delay to UK programmes.
Is the British Defence industry worth saving?
What about all the horror headlines?
Management challenge; Eurofighter example-to manage the inter-dependencies between companies and departments had 500 times as many “dependencies” as the Apollo programme run by NASA!
Government complications. Fixed price, cost re-imbursement? American examples, P7 (Maritime Patrol aircraft) & A12 (intruder aircraft). American contracting models.
In January 1988, the Pentagon awarded General Dynamics and McDonnell Douglas a contract worth $4.8 billion for full-scale development, including production of eight prototypes. A12 intended to replace the A6 to provide Navy with a stealthy first day of the war attack aircraft.
“Only three years later on a chilly Saturday in January 1991, Defense Secretary Dick Cheney headed to the Pentagon to meet with a small band of senior officials, including Navy Secretary H. Lawrence Garrett III. The capital was in the throes of Persian Gulf war fever, but this January 5 session focused on another crisis: what to do about the Navy's A-12 aircraft, which was at least $1 billion over budget, 8,000 pounds overweight, and eighteen months behind schedule.” The U.S. canned the programme and was sued for $2.3Bn in damages from the contractors, this was later reversed on appeal. Lawyers have been busy for a decade.
“On January 4, 1989, the Defense Acquisition Board,(DAB) recommended full-scale development of the P7 program. The P 7 was an extensively re-engineered P 3 maritime patrol aircraft. The contract had a target cost of $600 million and a ceiling price of about $750 million. In March 1989, the Navy estimated acquisition of125 P-7A aircraft at about $7.9 billion (escalated dollars). Of this total, development cost was estimated at $915 million (escalated dollars).
In November 1989, Lockheed announced a $300-million cost overrun in its development contract due primarily to schedule and design problems. In the following months, Navy and Lockheed officials held extensive but unsuccessful discussions in an attempt to address the contract issues. By letter dated July 20, 1990, the Navy terminated the P-7A development contract for default, citing Lockheed's inability to make adequate progress toward completion of all contract phases.
The lesson learnt was that transferring risk to contractor doesn’t mean that you are not still at risk. Following these disasters US contracting policy now uses fixed pricing only when technical risk is minimal.
UK fixed price, competition. BAES attitude to competition is the need for fair competition. What has happened: cost plus risk transfer fixed price. The MoD attitude is for competition at any price.
Anything to achieve a competition delivers unpalatable alternatives to ministers at the end of the competition process. Ro-Ro ferries a good example, under European Contracting rules, ferries went to E German yards when UK yards are crying out for work. Even when UK industry wins it can be at prices and conditions which are penal.
MoD attitude is that industrial policy is the DTI’s responsibility, but DTI has no funds to level the playing field. It is worth noting that ONLY the UK operates like this. The US, Germany, France and Italy all have industrial policy as an important Defence Department issue. Taxpayers funds-electoral linkage.
What Needs to be Done
The Government needs to decide what defence technology and industrial capability it needs and can afford. Or accept consequences of losing one of the last two industries in which we are generating world competitive levels of R&D.
Defence Procurement and ministers need to choose what capabilities we are going to maintain and to approach each procurement programme with the technology and industrial considerations integral to the procurement strategy. If procuring something we cannot maintain the local capability for, we should not bankrupt local industry trying the impossible we should use the purchasing power to further the industrial aims that we have. This is not popular in the civil service. Not picking winners has become part of the creed.
The Government needs to decide whether we are going to operate as a client kingdom to the US and be US dependent, or whether we are going to work with the Europeans to maintain a local European technology base. Note the US route implies a loss of sovereignty every bit as large as the EU route.
The Government needs to accept that industry cannot bear high tech programme risk without the rewards to go with it. Incentive contracting for industry to manage risk is possible without the punitive regime we currently employ. The current system is also not good for the MoD.
The Government needs a Strategy
- · Would need stronger commercial acumen and understanding than in MoD today.
- · US answer only if we can secure the security framework we need to share technology, failed so far.
- · Europe only if we can make collaboration, and particularly procurement strategies and decision making timescales line up.
- · Probably some of both but we need to decide what we want.
First Defence 23 02 04.
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