Defence Secretary promises to fight for budget
On Wednesday, the defence secretary Penny Mordaunt made her first major speech since her appointment to the role earlier this month. Speaking as RUSI’s Sea Power Conference 2019, she outlined a vision of continuation on the themes of Gavin Williamson’s tenure, cultivating an ‘environment where defence gets the critical investment it needs’ and plays a ‘much greater role in the whole of government’s prosperity agenda.’ Her not-unfamiliar challenge to industry was to match that ambition, improving the relationship between industry and government and becoming more sustainable, in her words ‘to do more to deliver value for money.’ In particular, the Secretary of State focused on the need to stick to project budgets, innovate in manufacture, to up competitiveness and to build in exportability. Though set in the context of shipbuilding, the themes were applicable across domains.
Ms Mordaunt acknowledged that she faced a battle with the Chancellor to convince him that the defence budget was the right place for focus investment, saying ‘…I can’t tell you that The Treasury will agree with all of my message…what I can promise though, it that The Treasury will hear the message. This was a theme also picked up by Foreign Secretary, Jeremy Hunt this week in what was widely seen as an opening salvo in an upcoming Conservative leadership bid, suggesting that strengthening defence investment will play well with the party membership.
The All Party Parliamentary Group for Shipbuilding launches report on National Shipbuilding Strategy
The All Party Parliamentary Group this week released its report on the National Shipbuilding Strategy, emphasising that the degradation of skills must be addressed to ensure that the UK retains its sovereign capability to produce complex warships and the Royal Navy’s subsequent ability to project naval power. Warning that the industry is already facing significant redundancies as the aircraft carrier programme runs down, the subsequent loss of leading-edge skills cannot be quickly regained. As a result, the report recommends that UK shipyards receive the Fleet Solid Support Ship Contract in order to ‘retain the skills needed to construct, refit and upgrade complex warships in the future.’ This runs counter to MOD’s own policy that only warships – essentially comprising carriers, destroyers and frigates – qualify for an exclusively domestic competition.
The report also advises government to put combat systems and armaments at the heart of the strategy, recognising that critical naval capabilities that must be retained on-shore are vested in more than just shipbuilding. In particular, the report warns that the procurement strategy for the Type 31e seems to “overly focus on UK-based hull fabrication,’ rather than those systems which ultimately drive capability.
Former CDS takes aim at ‘expensive’ aircraft carriers
Lord Houghton of Richmond, who served as Chief of the Defence Staff between 2013 and 2016, told the House of Commons National Security Committee this week that the purchase of the Queen Elizabeth carriers for the Royal Navy was a ‘bad idea’ and the MoD would ‘rue the day’ they were bought. Providing evidence on the financial management of the MOD budget and the reasons why MOD again finds itself challenged to deliver the equipment programme set out in the 2015 SDSR, Lord Houghton said that the £6Bn had been ‘affordable only to the detriment of the surface fleet.’ Spending on equipment such as the carriers, the F-35 programme and the nuclear deterrent ‘massively unbalances the amount of money to spend on capabilities in more active need of use.’
EU rejects US bid to access internal defence funding
In what might be seen as a warning to UK industry as it looks to build a new relationship with European partners following Brexit, EU officials this week rejected a US bid for automatic access to the EU programmes and budgets, arguing the money has been allocated only for military capabilities among member countries. Officials in Washington have been lobbying hard to ensure that US manufacturers will be able to gain access to the planned €13 billion European Defence Fund and the programs envisaged under the Permanent Structured Cooperation (PESCO). The EU is expected to announce a new batch of PESCO proposals in the near future, adding to the 34 established on launch in 2017, targeted at consolidating capabilities across all domains currently dispersed at national level. However, the International Institute for Strategic Studies warned this week that the initiative is at risk of failure unless member countries tighten the reins on how the projects are managed, calling for reforms to the framework, saying that efforts ‘seem to face common challenges related to stakeholder coordination, funding, and importantly, an understanding of what the projects are actually meant to achieve…[which] raise the real possibility that PESCO may become yet another missed opportunity on the long road to more integrated European defense cooperation.’
SINGLE SOURCE PROCUREMENT: Asked which defence contracts were granted exemption from the single source regulation regime in (a) 2015-16, (b) 2016-17 and (c) 2017-18; and what was the value of each of those contracts, Defence Procurement Minister, Stuart Andrew replied that “All exemptions from the Single Source Contract Regulations have to be personally authorised by the Secretary of State, who only does so under exceptional circumstances. Between April 2015 and March 2018, fewer than 10 contracts were exempted, valued at less than 1% of the 19.4 billion worth of single source defence contracts brought under the regime during that period. These were exempted from the regulations on a variety of grounds, including when value for money assurance could be achieved through, for example, purchasing commercially priced items. Details of individual contracts and the numbers exempted in each year have not been provided because disclosure would, or would be likely to, prejudice the commercial interests of the companies involved or the Ministry of Defence.”
TYPE 31e FRIGATE PROGRAMME: Asked what assessment has been made of the effectiveness of the export strategy for the Type 31 frigate following increases to the construction costs, and whether it is remains MOD policy (a) that the price for a Type 31e frigate is capped at £250 million and (b) to order five Type 31e frigates, Mr Andrew replied that “We still want all five Type 31e Frigates at an average production price of £250 million per ship. We are confident that it will be competitively priced in the global export market.” Mr Andrew also confirmed that “It remains our intention to award a single Design and Build contract for five Type 31e Frigates by the end of 2019.”
DREADNOUGHT SUBMARINE PROGRAMME: asked for an estimate of the cost to the public purse of potential late changes to the Dreadnought submarine design, Mr Andrew replied that “The design and build of the Dreadnought class submarines continues. The programme remains on track to enter service in the early 2030s, it remains within its budget. The build phase for the entire class will take approximately 20 years. The Dreadnought programme will ensure the United Kingdom has a credible, independent and capable nuclear deterrent out to the 2060s.”
SUBMARINE PROGRAMME DELAYS: Asked what assessment has been made of the effect of delays to the Astute submarine programme on the delivery of the Dreadnought programme, and steps MOD is taking to tackle delays to the Vanguard submarine maintenance schedule, Mr Andrew answered that “The Dreadnought submarine programme remains within budget and on track to deliver the first boat in the early 2030s.” and that the “MOD is committed to working closely with Babcock to safely deliver submarine support work, including our major planned maintenance projects. With Babcock, we are employing robust programme management techniques to deliver the HMS VANGUARD planned period of deep maintenance and refuel work. I am withholding the estimated cost as its disclosure would prejudice commercial interests.”
SPECIALISED MILITARY CABLING: Asked to identify UK domestic manufacturers of specialised military cabling that meet MOD standards, Mr Andrew replied that “Most of our cabling requirements are likely to be sourced by our prime contractors and there is therefore no need for the Ministry of Defence (MOD) to hold a list of potential suppliers. When a requirement for cabling is identified the MOD will procure, wherever possible, through open competition, assessing the tenders to ensure they meet the standards required before awarding any contract. We remain satisfied that our supplier base can continue to manufacture the cables needed for our current defence programmes.”
Join NDI at the East Midlands Conference Centre in Nottingham on 26th June for our second Meet the Buyer event of 2019. Focusing on buyers and opportunities in the maritime domain, this event will be a great opportunity to meet, connect with and present to decision makers across the defence industry working on Army programmes. Buyers confirmed so far include both BAE Systems and Rolls Royce. In the evening we will be holding our Annual Black Tie dinner to celebrate the achievements of our members over the past 12 months. Book here to secure your place today!