Speech

The strategic challenges of defence acquisition

This speech was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Speech by Peter Luff Minister for Defence Equipment, Support and Technology.

Introduction

Good morning ladies and gentlemen.

Last week the Defence Secretary spoke about PR12 marking a new chapter in the long history of defence.

He’s absolutely right. Balancing the budget is a key part of transforming defence and making sure we have a ‘Defence equipment programme’ based on firm foundations.

I’m well aware there may be some here who may be sceptical that this vast programme of change, the root and branch reform of something as large and complex as defence, will succeed. Or indeed actually happen at all.

Why should it work this time?

Well, there are four reasons.

The first of these is the economic imperative, and a series of events which have led us to this moment. In the foreword to the SDSR the Prime Minister said that bringing the defence budget back to balance is a vital part of how we tackle the national deficit.

And if you aren’t convinced by that, just think for a moment about the implications of the gathering storm over the Eurozone.

The second is political will, a determination and commitment which comes from the very top.

Third, this is a process which is gathering momentum on a daily basis. The winds of change are blowing across defence and across the armed forces.

And fourth, there is a growing recognition that everyone has a part to play in this process. And a universal wish, in fact, a real drive, to succeed and see MOD taken off ‘special measures’

I now see a general recognition that there is no turning back. Top down meets bottom up.

No return to the so called good old days with MOD merrily pushing out fantasy budgets, whipping out a blank cheque book and starting ill-tested projects.

Projects which hadn’t a hope of seeing the light of day because, actually, there was no funding in place to ever pay for them.

A few deluded dissidents, including in industry, seem to yearn for the best forgotten past, but must understand that there will be a heavy price to pay if we don’t grasp this opportunity.

A failure to act now would mean a toxic legacy for the future. And would threaten both the security and prosperity of our nation.

And it’s a burden which would be shared by future generations of servicemen and women who won’t have the best high tech cutting edge capabilities and solutions. Because we just couldn’t, or wouldn’t, get our act together.

Indulge me for a moment here in one of my other passions. And let me cite the words of one man who puts this a lot better than I ever could.

Shakespeare’s Julius Caesar is one of my favourite plays. It encapsulates so much about life’s dilemmas, conflict and the human condition. About politics, and indeed war. Albeit a civil one.

In Act 4 Brutus and Cassius are discussing the final phase of their civil war with the forces of Octavian and Marcus Antonius.

Cassius says they should group their forces and take advantage of the secure location to catch their breath. Brutus urges that no, they must act immediately while they have the advantage.

Brutus says:

There is a tide in the affairs of men. Which, taken at the flood, leads on to fortune; Omitted, all the voyage of their life Is bound in shallows and in miseries. On such a full sea are we now afloat, And we must take the current when it serves, Or lose our ventures.

Circumstances have created just such a tide and all of us are now afloat on a full sea. But unlike Brutus we will succeed.

White paper, PR12, Defence transformation, materiel strategy and equipment plan

But if we are to ensure success, more needs to be done. We have the advantage, but we need to do more to maintain it.

Two of the building blocks are in place.

One. The white paper ‘National security through technology’ has set out our principles on an open approach to procurement.

This means buying off the shelf where possible, a commitment to opening up more business to SMEs, building in exportability at an early stage. And strong support for exports, as well as a floor in the MOD’s annual science and technology budget.

Two. PR12 means we can now plan for the future with a certainty that we just couldn’t before as we continued to wrestle with a huge deficit and legacy of overspend.

As you are aware, our announcement last week guaranteed the delivery of a number of projects for the navy, army and RAF.

I’m delighted also be able to confirm the establishment of an armoured vehicle pipeline, which provides significant funding for the warrior upgrade, challenger life extension, a utility vehicle and the Scout programme which is now well into its demonstration phase.

This pipeline approach enables us to keep a firm control of costs, numbers, performance and sequencing in order to remain within the allocated profile. The army, as the end user, will be intimately involved in this process.

In the case of the Scout, a world class family of reconnaissance vehicles to which we are now committed, we will first need to reset the programme in order to remain within the pipeline profile. We will then drive hard to a ‘Main Gate 2’, when we will finalise production numbers.

That leaves the final three building blocks of success. ‘Defence transformation’, The ‘Materiel strategy’ and the publication of the ‘Equipment plan’.

Lord Levene’s Defence Reform recommended devolving most capability planning and resourcing to front line commands (FLCs) and in turn a smaller, more strategic and stronger Head Office.

Less of the long screwdriver from Head Office, and a lot more giving the FLCs a real opportunity to control their own destinies.

A significant change like this won’t happen overnight. We expect to roll out these changes gradually with an initial operating capability for this model in place for the 2013/14 financial year.

As we embed this new approach I’d ask industry to work closely with the front line commands during this crucial transition process.

The principles of the white paper will also apply to front line commands.

For instance they must ask themselves:

  • what are the capabilities where we require operational advantage and freedom of action?
  • what steps should we take to protect these elements?
  • how do we embed open systems and exportability into our procurement processes; and
  • how do we make sure SMEs get access to defence opportunities at an early stage?

I am under no illusion that this represents a considerable challenge for the FLCs, not least to ensure they have the right skills in place as they take on this new responsibility, and accountability.

We have heard just now from Chris Deverell about ongoing work on the ‘Materiel strategy’, the fourth component of success.

Those of you here from industry will be aware that we intend to be a more demanding customer, improving skills and processes at Abbeywood will ensure we are able to deliver on that.

And 2012 will see us announce our 10 year ‘Equipment plan’ after careful scrutiny from the NAO, all funded and accounted for, not just in terms of acquisition but also support costs.

This fifth component of success will give industry the transparency which they quite understandably, have been pressing for.

I know that comparisons are still being made with the Defence Industrial Strategy of 2005, and its much heralded announcement at the time of a 10 year equipment plan.

As we know this plan never materialised, for the simple fact that, like the Strategy itself, there was no funding plan behind it.

However, we are now in very different place.

We have a balanced budget and a core equipment programme of £152 billion over 10 years, against a total planned spend of almost £160 billion. That £152 billion includes, for the first time, a centrally held contingency of over £4 billion.

The programme also includes an additional £8 billion of funding over the next ten years which is unallocated. This means that the budget will have guaranteed headroom which can be allocated to projects as military priorities change.

This will open up opportunities to suppliers who are agile, and able to respond with mature products and services as these new opportunities arise.

We think, by the way, that we know what we are likely to spend this headroom on. But, it wouldn’t surprise me if we look back in ten years time and discover that changing priorities and technologies had led to very different outcomes.

So all set to go. Or are we? What are the factors which might hold us back?

We all know there are a lot of institutional, governmental and political challenges.

And there is one main challenge relevant to this audience as far as I am concerned and that is a failure by industry to recognise, and possibly seize, the opportunities coming your way.

UK/France

Take UK/France collaboration.

The portfolio of Franco-British programmes sets out to deliver a wide range of capabilities. There’s now real momentum behind this relationship. To some extent we are drawing on each others strengths. And aiming to avoid duplicating capabilities where we don’t need to.

The 10 year strategic plan for the British and French Complex Weapons Industries encapsulates this.

There are real benefits here from our common position on this sector when it comes to budgets, as well as similar military and industry requirements.

As one of the two most capable military powers in Europe, we will look to strengthening our ties with the new French administration to address common security challenges facing both countries.

It is a relationship which has developed around a change of administration here in the UK. And it is a relationship which will continue to deepen after the recent change in France.

As with all changes there are risks and opportunities that we will need to address.

We will do our bit, but we do need industry to engage.

The UK/France Critical Technologies Study is a case in point where we need you to present a consolidated view.

As the white paper makes clear, we need to focus investment on the ‘critical outcomes’ of what science and technology should achieve, rather than a list of ‘critical technologies’.

There needs to be a methodology to do this so we can identify, assess and prioritise as criticalities emerge - and we need industry to contribute to this work.

From what I’ve seen - and it’s certainly become very clear in the UK/France High Level Working Group which I co-chair, is that French companies are being very proactive when it comes to getting involved in UK/France equipment collaboration.

Collaboration is an important principle of the white paper because it’s essentially about mutual benefit. There are just as many opportunities for our own industrial base. But you really do have to seize the initiative on this.

I know many of you think that our industrial policy is radically different from that of France. Well, perhaps it is. But I believe that collaboration will only evolve if it can be seen to bring benefits to both parties.

So I need your views and ideas on potential opportunities that you see would benefit UK plc.

Industrial offset and SMEs

And talking about opportunities, I want to say a word here about the issue of offset, and how it impacts on British industry.

It’s an issue that’s been raised with me on a number of occasions recently.

Offset is a significant challenge to UK exporters, particularly SMEs.

And while there is limited scope for government to provide practical help, we will do what we can and work with industry to try and identify measures which help to ease the offset burden.

The reverse of this was, as some of you will be aware, our Industrial participation policy which we comprehensively reviewed last year.

This was done in the lead up to the publication of the White Paper in February, and was undertaken in liaison with industry members from the UK Offset Strategy Group.

The review factored in the changes that have been going on in the global offset market place in recent years.

The outcome of the review has resulted in a new Defence and security industrial engagement policy which remains compatible with our obligations under EU law.

Basically, this encourages our overseas based suppliers to continue investing in the UK’s defence and security sectors, and to extend opportunities for UK companies to become part of their supply chain.

It also means we will encourage our overseas based suppliers to engage with SMEs in these activities, as they did through our industrial participation policy. And the evidence so far is that they are more than willing to do so.

Companies such as Boeing are engaging with hundreds of UK suppliers where SMEs are found at every level of the supply chain.

Boeing has over 350 UK suppliers providing parts, services and technology to platforms such as the Chinook and 787.

Supply chain and SMEs

I think you’re all pretty aware by now that I’m a determined champion of SMEs.

These are definitely the innovators of the defence supply chain, and the life blood of any successful industry.

Opening up more opportunities for them is one of the deliverables of the white paper. And a key challenge.

I’m very heartened by the way some of the primes are engaging with these smaller businesses in such a creative way.

Last year I visited General Dynamic in Wales where they have a dedicated technical facility known as The Edge, which searches out new ideas from across the supply chain and academia.

And just a couple of weeks ago I attended a ‘Meet the Technologist’ event at UKTI, a kind of speed dating event organised by Lockheed Martin who flew over some of their leading experts from the States to hook up with SMEs back here.

It’s rather telling that it’s primes from overseas who seem to be energised when it comes to exploiting this innovation.

I wonder, is there any reason why our domestic primes don’t seem to be showing the same leadership and commitment? Perhaps they are, and they’re just not telling me about it.

The fact is, and this is my challenge to you, that one of the ways I’ll be evaluating companies will be on the quality of their engagement with the SME supply chain, because to me that flag ups innovation and value for money.

What I find very interesting about many of these smaller companies is the way SMEs are increasingly establishing themselves by selling to the export market and then marketing themselves back here.

They’re hungry, they’re aggressive and they’re not afraid to get out there and pitch for the business. It’s the key to success and I relish their enthusaism.

I’ve talked today about a new chapter for Defence. And about the challenges for industry in this new era.

A new era in which Defence is a tougher and more pragmatic customer.

And also a time when Defence will have to be a more informed and intelligent customer. And we’ve just been hearing about the changes needed to take forward the Materiel Strategy.

Total support force

You’ll be hearing a lot more today about the nature of this challenge. And it will be very interesting to get the perspective of the Front line commands themselves.

Of course transformation and changing the way we do things also brings other opportunities for industry. And there’s one in particular that will now demand greater attention.

Total Support Force (TSF) with contractors having a crucial role to play as part of a fully integrated force structure.

We’re very keen that they’re involved at the earliest opportunity in Op Herrick drawdown and other capability regeneration plans.

The MOD, in close liaison with Industry, has continued to build upon the success of contractor support to operations. In fact, there are currently over 5,000 contractors directly supporting operations in Afghanistan.

It’s very encouraging that Industry is taking an active and positive role in the development of the Total Support Force.

The services, together with other areas of defence, have been working to identify a number of identified a number of potential Total Support Force initiatives.

And they’re engaging with industry, directly, and through ADS, in the work to decide what will be brought to market and how.

Areas under consideration include equipment support activities currently largely delivered by the REME, as well as some new ideas on airfield support activities, possibly allied to Project Future Brize.

Conclusion

It’s no secret that balancing the books has not been easy. It has, quite rightly, been a forensic process and it has taken some time. It’s taken the SDSR, two planning rounds, a three month exercise and then some.

So, although I enjoyed the comment, the Daily Telegraph wasn’t quite right when it said that we had fed the 5,000, cleared the Agean stable and solved the Schleswig-Holstein question all in a single day; it has actually taken 2 years.

We had to get defence back onto a firm footing so that we could look to the future and get on with the job. And there is more work to do to ensure the footing is really secure.

We must also remember that the job of delivering military success on operations, which is , after all what Defence is all about. And which remains our number one priority.

But the money, and how we use it, matters. As Chris Deverell’s presentation makes clear, only by looking after the bottom line can we make sure we’re achieving our real objective of looking after the front line.