On a visit to Rolls-Royce this week, the Defence Secretary, Gavin Williamson responded to the Russian nerve-agent attack in Salisbury by announcing a £48m investment in a new chemical weapons defence centre at the at Defence Science Technology Laboratory in Porton Down. Though the detail of the investment is yet to be announced, Mr Williamson linked the growing threat from Russia directly to the Modernising Defence Programme (MDP) currently underway in MOD, stating said that this ‘… will make sure our country can respond to the changing nature of warfare and the new threats we face to British interests.’ MOD Ministers and Senior military officials have been citing the rising threat from Russia as evidence to warrant a rise in the defence budget as part of the MDP. It remains to be seen whether the outcome of the Salisbury attack might alter the dynamics of the debate with the Chancellor, Philip Hammond, who is under growing pressure to find savings elsewhere to fund a budget uplift. An increasing number of Parliamentarians are arguing the case that the UK can ill afford a reduction in defence capability in order that MOD can balance its books. The department is currently rumoured to be overcommitted by as much as £21 billion over the next ten years. Interviewed by the BBC this week, Rear Admiral Alex Burton former commander of the UK's Maritime Forces added his voice to concerns about the UK’s ability to win the war of the future if more spending is not announced. He said that ‘if you do not spend more on defence than we currently are as a percentage of GDP, then we put at risk the fact that we are currently a credible military power, and from that we put at risk our position on the global stage.’
UK signs Memorandum of Intent with Saudi Arabia on Typhoon
As anticipated in last week’s Defence Insights, the visit to the UK of Crown Prince Mohammed bin Salman concluded on 9th March with an announcement that a memorandum of intent had been signed between the governments of the UK and Saudi Arabia for the supply of an additional 48 Typhoon jets to the Royal Saudi Air Force from BAE Systems. Though the preliminary agreement does not in itself constitute any contractual agreement, it is seen as a significant step forward in the long-running negotiations between the two nations to conclude the deal. Following the announcement, Mr Williamson said that the conclusion of a contract would be a ‘…boost [for] British industry and jobs’. Coming hot on the heels of his announcement of a Combat Air Strategy, a review intended to map out the RAF’s military and industrial requirements in the sector beyond Typhoon, this will be welcome news. Charles Woodburn, CEO of BAE Systems, said that his company is ‘…committed to supporting the Kingdom as it modernizes the Saudi Armed Forces and develops key industrial capabilities critical to the delivery of Vision 2030’.
Single source baseline profit rate reduced for third successive year
On 15 March, MOD announced that it had accepted the Single Source Regulations Office (SSRO) recommendation to reduce baseline profit rates for single source contracts for the third successive year. Applicable from 1 April, the rate has been cut from 7.46% to 6.81%. The SSRO was set up by government in 2014 to provide scrutiny of defence contracts awarded without competition. Approximately half of MOD’s equipment spend is realised through single source contracting, reflecting the complexity and nature of many of its largest procurement programmes. Independent of both MOD and industry, one of the SSRO’s principle tasks is to recommend the baseline profit rate at which contracts can be agreed. The figure can be adjusted by negotiation on the basis of factors such as risk, performance incentives, and capital servicing rates unique to each contract. MOD argue that the downward drive on profit margins supports an efficient and economical defence budget, and that the money saved is reinvested in defence. Nevertheless, industry will be rightly concerned by this news, arguing that the profit rate does not bear semblance with international comparators and the competitive market. This does little to incentivise efficiency, performance and the transfer of risk – all policy objectives of the MOD - and ultimately risks suppliers turning away from the sector.
Airbus warns over GKN takeover bid
Airbus has warned that new business with GKN would be under threat if the hostile takeover bid for the company from Melrose proves successful. Airbus, who source wing components and other key aircraft parts from GKN, is the company’s biggest customer. Tom Williams, Airbus's chief operating officer at its commercial aircraft division, said that ‘the nature of our industry is one that requires a commitment to long-term investment and strategic vision. The industry does not lend itself to shorter term financial investment which naturally reduces R&D budgets and limits vital innovation. It would be practically impossible for us to give any new work to GKN under such ownership model when we don't know who will be the long-term investor.’
MOD to launch Defence People Innovation Challenge
The MOD has announced that the Defence People Innovation Challenge will be launched on 27 March at a Defence and Security Accelerator launch event in London. Potential suppliers are invited to attend the event and submit ideas which are focused on the five sub-challenges; Recruitment, Skills and Training, Retention, Motivation and Rehabilitation. Intended to pull through innovative thinking from the private sector to help both address challenges in defence, up to £3 million is available in the first year with further funding available in future years. If you think you have a technology in development that might support this, or to find out more, you can register for the event here. MOD used the opportunity of the announcement to highlight some the successes from the Defence and Security Accelerator in its first year of operation, including an acoustic yarn to guard against hearing loss for troops, which has been developed by researchers at Nottingham Trent University, and a new technique for treating injured limbs that could reduce amputations after battlefield injuries, which has been developed by researchers at the University of Strathclyde.
DEFENCE REVIEW: Asked what plans he has to implement a defence review before 2020, and whether he had discussed this the Prime Minister and the Chancellor, Mr Williamson, replied that ‘The Ministry of Defence continues to implement the Strategic Defence and Security Review 2015. The work conducted through the National Security Capability Review and now, the Modernising Defence Programme will build on this. There are currently no plans to conduct a Defence Review before the next Strategic Defence and Security Review.’ Mr Williamson was also asked whether the Modernising Defence Programme is planned to include new risk assessments separate to the National Security Risk Assessment, replying that it ‘will be informed by the current global security situation and threat context, building on the National Security Risk Assessment 2015 and the work conducted across Government for the National Security Capability Review.’
US STEEL TARIFFS: Asked what assessment he has made of the potential effect of the proposed US steel tariffs on the UK defence industry, and what discussions he had had on this issue with his US counterpart, Defence Procurement Minister, Guto Bebb replied that ‘The US and UK draw significant mutual security and economic benefit from our close defence industrial co-operation. The Government has been clear that tariffs are not the right way to address the global problem of overcapacity in the steel industry, which requires a multilateral solution. We are talking to defence suppliers and trade associations about potential impacts, and the Government will work with EU partners to consider the scope for exemptions.’ He went on to say that ‘We are deeply disappointed by the announcement of US measures against steel and aluminium exports. Ministers have raised their concerns with the US bilaterally and through the EU. The Department maintains close and regular dialogue with the US Department of Defense on a wide range of defence and security matters. Including the potential impact of steel tariffs on our co-operation, from which the US and UK gain mutual security and economic benefit.’
SINGLE SOURCE VALUE FOR MONEY: Asked what steps MOD is taking to ensure that equipment purchased via the Organisation for Joint Armament Cooperation or single source procurement provides value for money, Mr Bebb replied that the MOD approach to acquisition is ‘to carefully assess the choices available to achieve best value for money while meeting the needs of the UK Armed Forces. This is sometimes achieved through competition, sometimes through single source arrangements, and sometimes through collaboration, which itself may involve elements of competition. International organisations such as the Organisation for Joint Armament Cooperation (OCCAR) will establish value for money in a similar way to the UK MOD. This can include establishing prices via competitions. They will also have similar provisions in place to those under the UK's Single Source Contract Regulations (SSCR), which includes detailed visibility of the breakdown of costs. The MOD seeks to ensure value for money in single source procurement through the provisions of the Defence Reform Act 2014 and the associated SSCR. Parliament enacted this legislation specifically to address some of the difficulties the MOD had previously faced in assuring value for money when undertaking single source procurement. This approach has already significantly strengthened the MOD's ability to secure value for money through single source procurement.’
RADAR DEVELOPMENT: Asked whether there is a requirement for a sovereign capability in radar development and production and whether has been any investment in upgrading the T-45 destroyer’s Sampson radar, MOD Minister for the House of Lords, Earl Howe said that ‘the recently published Industrial Policy refresh explained that we would seek to protect the UK's long term operational advantage and freedom of action, where essential for national security. For reasons of national security, it would not be appropriate to publicly identify what we believe our key sovereign capabilities are’. On investment in Sampson, he said that ‘there has been some initial investment in support of investigating the potential for anti-ship Ballistic Missile Defence enhancements to the Type 45 capability. These investigations are ongoing and include assessments of the Sampson Multi-Function Radar. No decisions have yet been made.’
BOEING: Asked how many contracts MOD has awarded to Boeing since 27 September 2017, and what plans are in place to agree new contracts with the company, Mr Bebb replied that ‘Current records indicate that the Ministry of Defence has awarded one contract to Boeing since 27 September 2017’ he went on to say that ‘The Ministry of Defence has significant business with Boeing, a large proportion of which is conducted through the Foreign Military Sales process with the US Government rather than direct contracting with the company. This includes the acquisition of the new P-8A Poseidon maritime patrol aircraft, AH-64 Apache helicopters and the recently announced £260 million support arrangement for the C-17 heavy lift aircraft. We cannot comment on what future requirements may be, or on any potential contractors.