UK Defence Industrial Policy: Progress at a Snail's Pace

In mid-October 2002, the UK's Ministry of Defence published one of the most important documents ever to emerge from that Department – the first written defence industrial policy for longer than most people could remember. In a scant 28 pages, it stated that the UK would have an industrial policy pertaining to procurement of defence equipment, and that from the time of the publication onwards it would be transparent and up-front in any purchase. But by the October 2004 RUSI conference on procurement and defence industrial policy it was worryingly evident was that in the preceding two years precious little – if anything at all – had progressed policy-wise.

Maturation or Stagnation?

An advertising slogan relating to a certain Dutch beer says that good things shouldn't be rushed. Well, that may be true for lager but is the same true for policies – policies that might have their hands forced by time-critical events? Is there not a yawning gulf between a bureaucratic system that takes many months or even years to reach conclusions and a business system that must make decisions in short numbers of weeks, perhaps even days?

This appears to be the problem inherent in the implementation of a British defence industrial policy: industrialists need to make investment decisions in the very short term, yet civil servants are used to taking far longer times to reach conclusions. It is not difficult to show that the bureaucracy is stifling the business side of the equation, and that under the accounting rules that the MoD now has to adhere to this costs money.

Partnership

The biggest problem with implementing an industrial policy is that it requires a massive sea change in attitudes (see below). The key is to recognise that relationships between industry and the Procurement Agency have to change – it is imperative that they do – from an adversarial basis to a cooperative, partnership-based relationship. But with competition still as the mantra, at practically every level within the MoD/DPA, and also in the Treasury and Cabinet Office, the starting position is always to look to screw industry.

And, funnily enough, industry resultantly tends to accept that what is sauce for the goose is sauce for the gander, and thus does its best to screw MoD. Hurrah! As VT Group CEO, Paul Lester told the conference with regard to the source of many of the UK's present procurement woes, he referred to a former Chief of Defence Procurement Peter (now Lord) Levene: "He's got a lot to answer for – he got us into this mess."

This was basically because the system of competitive tendering is now the one that primarily created – was at the root of – procurement cock-ups such as Nimrod and Astute, among others. But the old phrases from the Levene era – "cosy relationships" – still permeate the debate, holding back the progress of partnership. Yet it is precisely such cosy relationships that are at the heart of the US procurement system and are the fundamental core of the Swedish system, which gives the latter the flexibility and responsiveness that makes it a pleasure to observe.

"It's all very Complex and very Difficult"

This is the prime explanation – excuse? – for why it is taking so long to introduce a full defence industrial policy. Comments from the Deputy Chief of the Defence Staff (Equipment Capability), Lieutenant General Rob Fulton at a recent RUSI conference on defence procurement demonstrate this well: "There is no model for us to follow…" and "If it [bedding in an industrial policy] was easy, then someone would have come up with an answer …"

The remarks were intended for broad interpretation – but as the conference was about defence industrial policy, there was inevitable stress on that aspect. Frequently during that conference, reference was made to the problems of culture change and how there is still major difficulty getting people involved with procurement to change the way they work, or to change perceptions of the order of things. And there was little sign, from the MoD side at least, of any hope of immediate change on this front.

One industrialist gave his view of how reforms may be accelerated: "You have to persuade 80 per cent to come along with you – and then sack the other 20 per cent …" But is the excuse that change is difficult really defensible? During a recent Defence Analysis visit to Sweden the Swedish Defence Minister, Leni Bjφrklund, explained how that nation had managed to drastically alter the direction that defence spending is going.

Firstly, the government is ensuring that large procurement items – aircraft, major armoured vehicle programmes and so forth – are halted unless they add to major future capabilities. Then, there was agreement with industry to nip off old programmes of lesser relevance that are still in production – but to make certain that industrial investment is not wasted. This meant that any profits "lost" in the near term are guaranteed in the longer term.

And then came agreement on the "saving" of funds from cancelled procurements, and the funnelling of the money into the R&D needed for future, advanced capabilities. The outcome was that a plan to halt the procurement supertanker and to turn it around within three years was agreed between the military end users, the procurement agency, and Swedish industry.

The time to taken achieve this? Less than four months. So much for General Fulton's comments that there are no models for the UK to emulate. In the light of the Swedish experience, then why on earth not?

Procurement Balance

The Director of the Equipment Plan, Commodore Alan Richards, Noted several military sayings with regard to his job: "We need to be more proactive, and less reactive on time, performance and cost …" although "No plan survives contact with the enemy." Perhaps the point here is that although no plan might survive first contact, the possession of a plan at least allows the commander to vary it to fit the new conditions that conflict might impose. Possession of no plan whatsoever provides no flexibility when tough choices have to be made. And as commented elsewhere, there is a definite feeling that for UK procurement, with a lack of real leadership there is no plan.

Commodore Richards also outlined the general shape of the procurement budget:

• The Equipment Plan has over 700 P9 (Project) lines, covering ten years.

• The total value of the EP is some £70-billion over a decade, split evenly.

• 80 per cent is in capital, cash costs, the remainder in RAB costs.

• The split between the longer term EP, and the Short Term Plan is 75-25. Although of late, this has tipped even further in the EP's "favour".

• The top 20 programmes by cost account for a minimum of 65 per cent of the total EP/STP.

And without wishing to drop the Commodore in any ordure, herewith his comments on the impact of programme delays to the top projects:

"These major profile shifts … have major effects on programmes as a whole."

Now, either the Commodore is dreadfully off message, or the drafters of MoD's response to the House of Commons Defence Committee (pp1-2), were exceedingly economical with the truth (see elsewhere in this edition)!

Very often, in answer to some of Defence Analysis's more barbed criticisms, people say, "It's easy to criticise and less easy to create things". OK, then in the interests of such a statement, herewith what Defence Analysis believes are some easy, no-brainer industrial policy concepts and plans. All of these could be introduced very easily – if there was leadership within the system.

Written Industrial Policy Statements

Let us start with just one field – that of Guided Weapons (GW). MBDA Chief Operating Officer, Guy Griffiths, in addressing the conference was cautiously optimistic that progress is being made and that within another two or so years – a full four years after the publication of the industrial policy document – there would be a written statement on GW policy. Nice of him to be so optimistic, but still why so long? Defence Analysis's view is that with regard to programmes and capabilities there are some likely quick wins for policy in the GW sector:

• There is little room for procurement manoeuvre over the next 3-5 years – Storm Shadow, Brimstone, Precision Guided Bomb, PAAMS, and some GBAD work eats up most of the possible cash.

• It will only be in the medium to long-term window that options open up – over five years.

• R&D targets could be set quite easily: upgrades to PAAMS for ATBM and future target engagement; dual seekerheads for air-to-air, air-to-ground and surface-tosurface weapons; smart, small warheads; datalinks, single channel and duplex, initially around Storm Shadow, then with options for guided bombs.

• Procurement options for the long term would seem to be: Enhanced PAAMS; Lightweight PAAMS for smaller ships, land battery options and export; Storm Shadow enhancements; Meteor BVRAAM; Future Family of Guided Weapons to replace Swingfire, Sea Skua, Sea Eagle, Harpoon and early model Hellfire.

Much is based on pure commonsense, backed up by the selection of choices. Oh, and all supported by decisiveness, a quality so lacking in procurement today. Guiding principles for other areas – say land systems, naval systems and so on – would be just as easy to draw up and then quickly agreed between industry and MoD.

Industrial Policy at The Front

Several speakers at the RUSI conference suggested that space should be given on bids for "other factors" – the less easily assessed subjects such as industrial policy matters, as well as jobs and similar issues. The suggestion was that if each bid was judged out of 100 marks, then – perhaps – 10-15 could be set aside for these other factors. Not a bad start, but let Defence Analysis take this a stage further.

In initial Requests For Proposals and then Invitations To Tender, why not state – up-front – what industrial policy factors will impact on the bid? For instance, in a well-known case, for programmes such as CV(F) or the Future Surface Combatant, why not state as the first line of any document that the ships will be built in the UK? Apparently, there is a similar statement – though buried – about FRES, that the vehicles will be UK built But why not make it abundantly clear by placing such statements where all can see them?

• Operational Experience and Armoured Vehicles
• Italian Defence Budget
• Spanish 2005 Defence Budget
• UK Government Response to House of Commons Defence Committee Report
• UK MoD Response to Parliament Defence Report
• UK Defence Industrial Policy Issues
• UK MoD 2003 Accounts
• French 2005 Defence Budget
• Royal Navy Future Carrier Prime Contractor
• Royal Navy Future Carrier Programme
• British Army FRES Programme
• Contractor Performance in The UK
• British Army Bowman Programme
• DEFENCE INDUSTRY NEWS
• DEFENCE DIVERSITY

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