Speech by Philip Dunne, Minister for Defence Equipment, Support and Technology.
Thank you for giving me this opportunity to speak to you today.
NDI members make a very important contribution to Britain’s defence sector and our military capability, so I am delighted to be here in Manchester, which is an apt setting for the theme of this conference: ‘Collaborating for growth’.
The MOD currently has over 120 direct contracts with businesses in the Manchester area: doing everything from managing facilities and support at MOD sites, to the supply of physiotherapy and rehabilitation equipment for injured service personnel, to the provision of specialist batteries for nuclear powered submarines.
And many other Mancunian companies contribute at different levels of the supply chain as well.
Manchester can be proud of the support that its companies currently give our armed forces.
But the city’s history can also teach us something about growth.
It was, after all, a cradle of the industrial revolution, the greatest period of economic growth that this country has ever known…
…Economic growth that was driven by investment, enabled by increased efficiencies and new technologies, and fuelled by exports.
These themes still resonate today, I know you have been discussing them this morning in your breakout sessions, and they are central to this government’s efforts to encourage a strong and viable defence sector.
A vibrant UK defence industry, manufacturing, servicing and exporting, is a vital part of our strategy of rebalancing our economy so it can return to sustainable growth.
But the defence sector is different to other sectors of our economy.
It is about more than jobs and profit, as important as these are.
It is also an integral part of our national security.
Britain’s world leading defence industry provides our armed forces with its operational advantage and maintains our freedom of action.
And at the heart of its contribution to defence of the realm are companies like yours and people like you.
The existence of a strong and diverse supply chain and the vital role SMEs (small and medium-sized enterprises) play in nurturing science and engineering skills, combine in providing innovation increasingly relevant to the UK’s defence needs of the 21st century.
NDI’s SME members are currently providing important technology, equipment, and services to the Ministry of Defence.
Companies such as ‘TRaC Global’, supporting us with electromagnetic compatibility testing; ‘Hale Hamilton’, producing high-pressure valves and hydraulic systems for ships, submarines, aircraft and artillery systems; and ‘Oldbury UK’, which I recently visited near my constituency, which provides jacks for aircraft, to name check a few, and with apologies to the rest of you.
Innovation in new equipment and the success and availability of in-service equipment depend on firms like yours represented in this room.
I hope you will be pleased to learn that I am a fast becoming a strident champion of SMEs working in the defence sector.
To an extent this advocacy stems from my own previous experience, where I learnt to understand some of the challenges you face.
In 1988, long before I became an MP, I started a business in the spare room of my flat with a friend.
That business was ‘Ottakar’s’.
Some of you may have bought a book from one of our bookshops.
I helped to develop this from a concept to a large nationwide chain, with over 140 stores and more than 2,500 employees, before selling to Waterstone’s in 2006.
So I know what it is like to be an entrepreneur; to shoulder risk; to put your house on the line; to have people rely on you for their livelihood; and to complete a VAT return in the middle of the night.
And I appreciate that companies like yours make a vital contribution to the wider economy at large, as well as to the communities in which you operate.
In my own constituency, for example, ‘Grainger & Worrall’, which makes engine casings for high performance cars and Formula 1, also makes components used in army vehicles.
It is a medium-sized employer in a national context. But it is the largest employer within its community and its fortunes affect the wellbeing of hundreds of local people.
SMEs employ over 13 million people across the UK.
This government understands that companies like yours are vital to our economy and vital to our security.
That is why I want to focus today on what we in the Ministry of Defence are doing to help you develop your business.
The implementation of the ‘National Infrastructure Plan’ continues to develop the infrastructure that all businesses rely on.
The Ministry of Defence will be playing its part by developing our own infrastructure in major bases to accommodate army units returning from Germany, which the Defence Secretary has announced today.
Much effort across government is targeted on supporting SMEs in general.
The government has worked hard to develop access to finance policies following the sharp contraction in funding sources after the financial crash.
For example, the ‘Seed Enterprise Investment Scheme’ provides up to 50% tax relief for individuals who invest in new start up businesses.
The ‘Funding for Lending Scheme’ reduces the cost and increases the availability of finances to UK businesses, especially SMEs.
And this government has set itself the target of placing 25% of its own procurement spend with SMEs by the end of this Parliament, a challenge for defence to do so directly given the pattern of our procurement.
But we are also doing a lot of work specifically within defence to support SMEs.
Last year approximately 40% of new contracts were placed with SME, worth over £1 billion.
We are making ourselves easier to do business with: cutting down on bureaucracy, facilitating cash flow and increasing transparency.
So we have, for example: scrapped pre-qualification questionnaires for contracts below £100,000; rolled out simplified, streamlined contract templates for lower value procurements; expanded utilisation of our e-procurement system to speed up invoicing and billing; added SME awareness to acquisition training; and facilitated interim payments.
We now require all contractors to pay their sub-contractors within 30 days from receipt of an invoice.
And we have recently published our £160 billion equipment plan, the first ten year forward looking funded equipment plan ever published by the Ministry of Defence. This demonstrates our commitment to transparency and giving you, our suppliers, more information about our major priorities.
Between January and December 2012 we published 374 Possible Future Purchase notices for a combined estimated value of over £5.5 billion.
We have created a specific SME forum that meets three times a year, which I chair with our MOD SME champion, the Defence Commercial Director Les Mosco.
It brings together SMEs, Trade Associations, including NDI and senior MOD officials to discuss the issues specifically affecting SMEs in the defence sector.
So I hope you can see that we listen to, and respond to, your concerns.
As we used to say when I was in the whips office, but now in the MOD I really mean: we are here to help, not to hinder.
Science and technology funding
With this in mind, I want to explain what we are doing to support innovation.
The journey starts through MOD funding for science and technology research.
This research is an investment in future capabilities of our armed forces.
It is essential in maintaining their operational advantage.
For this reason in our white paper published a year ago we protected our annual investment in science and technology at a minimum of 1.2% of the defence budget, over £400 million a year, part of a much larger research and development spend.
I believe this investment can play a valuable role in catalysing private sector innovation.
Around 60% of our science and technology budget is spent outside of government, some of which goes to SMEs, either directly or indirectly, acknowledging the contribution you make to the economy and in particular to innovation.
For example, 43% of the contracts awarded by our Centre for Defence Enterprise have gone to SMEs.
To assist you in accessing science and technology funding, over the next few days we will be sharing details of the coming Defence Science and Technology Programme for the next financial year.
This is the first time we have provided this much information so early for the coming financial year.
It will shed light on the areas of work approved by the MOD’s Research and Development Board, highlighting what percentage is likely to be carried out by external sources and who the leading primes are on some of the larger existing contracts.
We will also be adding more information to the Dstl website over the next few weeks about upcoming events, such as the supplier event being held by our programme office in Oxford in June, and sessions run by the Centre for Defence Enterprise.
These events are designed to help SMEs learn about how you might fit in with our research plans.
All of this published information will hopefully give you a better chance to shape your own planning and identify opportunities to access this funding stream.
The research covers a broad range of applications, from areas such as medical sciences, directed energy weapons or processes related to logistics chains; whatever your focus, we are interested in your ideas…
…Because we believe we are getting excellent value for money from those SMEs that draw on our science and technology funding.
Companies like ‘AIR Precision Engineering’, a micro-SME based in Wales, who have developed a one-arm drive wheelchair suitable for use by multiple-amputee soldiers.
This project resulted from a CDE competition last year to develop innovative devices to assist rehabilitation of severely injured personnel.
AIR Precision Engineering rapidly and cost-effectively delivered a prototype that has undergone initial tests at the Defence Medical Rehabilitation Centre at Headley Court.
A wheelchair is already now in operation by a triple amputee.
SMEs funded from our science and technology budget retain the intellectual property rights for the technology they develop.
And we encourage them to think about other commercial applications where appropriate.
We are keen to get companies like yours into our supply chain either directly or through our prime contractors, so our armed forces benefit from the cutting edge technology you develop.
This objective is behind the CDE marketplace concept launched last December.
I opened this event, which gave 11 SMEs and 2 universities, who had all successfully completed CDE funded projects, the chance to exhibit and pitch in a managed environment to around 20 of the largest defence suppliers.
Although a little soon to report concrete success, initial feedback has been extremely positive.
Nine of the companies involved have confirmed follow-up meetings with large defence suppliers and four already expect to have follow on work or products as a result of the event.
I can now confirm that there will be further marketplaces, incorporating all of this excellent feedback, starting later this year.
Helping you to secure opportunities within our own domestic market is part of our aim, but we recognise that one of the most effective ways that government can help you grow is by working with you to boost responsible defence exports.
I want to focus now on what we are doing to work together on export prospects, which can offer many mutual benefits.
Working together on exports provides many mutual benefits.
Defence exports can reduce the costs of equipment programmes for UK forces.
Export customers can help to spread the costs of development programmes or the fixed assets needed for long term support, and allow government to recoup some of its investment through the use of levies.
A well regulated trade in these products and services also helps the government to underpin strategic relationships and enhances the security capacity of our allies.
In this way, exports can form an essential element of our defence engagement initiatives.
The recent announcement of the sale of 12 Typhoons and 8 Hawk trainer aircraft to the Kingdom of Oman is a good example, cementing our already close defence ties with this important Gulf ally, facilitating closer interoperability, generating some £2.5 billion of defence exports over the next few years and supporting British jobs.
The Typhoon programme alone supports thousands of jobs in this country, across ‘BAE Systems’, ‘Rolls-Royce’, ‘Selex-ES’ and, crucially, their supply chains.
In 2011 the UK exported £8 billion of defence and security goods and services.
Defence exports made up £5.4 billion of that figure, with security exports, which increased by £600 million, making up the rest.
Figures for 2012 will be available soon, and I expect these to have risen.
We understand the significance of defence and security exports and we want to help you maximise your access to overseas markets.
One of the simplest things I believe we can do as Ministers, to help British companies succeed in the global exports market, is to support British defence products and services in person.
This is why, wearing my defence exports hat, I am already leading regular delegations to overseas exhibitions and defence trade shows.
Later this month I will be visiting the ‘Langkawi International Maritime and Aerospace exhibition’ in Malaysia, where 100 UK companies were exhibiting out of 1,100 companies in total.
With nearly 10% of exhibitors, this was the clearest demonstration yet, that under this Government, defence exports are firmly back on the agenda.
Last month I was in Bangalore for ‘AeroIndia’ and at IDEX and NAVDEX in Abu Dhabi.
Earlier this year the Secretary of State, Philip Hammond, was in Australia and Indonesia, and my colleague, Dr Andrew Murrison, Minister for International Security Strategy, will be visiting Brazil next month.
You will notice a pattern in the geography of these visits.
They are mostly focussed on emerging markets.
We recognise that most defence budgets in the west are under pressure and we want to support you in penetrating markets where there is growth, such as the Middle East, Far East and South America.
Promoting defence exports is a core part of the MOD’s commitment to the government’s growth agenda.
But it is also a whole government activity.
I have seen first hand the outstanding job DSO does in helping British defence companies reach overseas markets.
And they are not just supporting primes, they are very keen to ensure SMEs have access to space at these exhibitions, and prominent space too, not just hidden in the corner.
The MOD is also committed to supporting the Defence Growth Partnership work led by BIS (Department for Business Innovation & Skills), which builds on the successful model of joint government and industry engagement already established for the Aerospace sector.
And we work very closely with the Home Office to ensure that we are synchronised when it comes to defence and security exports, particularly in the IT and cyber domain.
Many customer countries see the defence and security market as a continuous whole, so this government must do the same.
We appreciate that defence products are not like other products.
Export success can depend on more than just the hardware on offer.
In many of the areas you are focussed on, British companies are producing world leading equipment, used by our armed forces, which can be the crucial differentiator in securing successful exports to other countries.
We will increasingly focus our engagement with prospective partner and customer nations in a way that helps you demonstrate to them the value of long term equipment support.
It is already very clear to me that use of equipment by our armed forces is the best possible endorsement to help secure sales to allies and partner nations.
So we are keen to help, by providing capacity, wherever possible, for demonstrating or training alongside UK forces and not just the equipment itself, but also its efficiency and reliability, to demonstrate the importance of through life support to sustain and maintain high availability.
And we will be active in managing the responsible transfer of technology.
But I also recognise and applaud the foresight and agility of all those companies intent on succeeding in the international marketplace without being reliant on the MOD as a primary customer.
The UK’s future competitiveness and economic success will derive from the widest possible base of technological innovation and manufacturing skills.
That said, we will of course continue to be a significant customer and are committed to work with UK Industry to foster the concept of exportability and embed it as behaviour to be incorporated wherever possible, in our design and acquisition processes.
Last week I chaired a workshop with 20 senior MOD officials and representatives of 20 of our leading Prime contractors to discuss what we can do in partnership to improve our procedures to encourage exportability in our acquisition cycle.
We are committed within the MOD to think in terms of exportability when setting requirements, so that longer term benefits can accrue to our armed forces, including extended supply runs, larger spares pools and greater inter-operability of common equipment with our allies.
We can all benefit from this.
So finally, whether it is encouraging exports or expanding our own supply chains, I am keen to engage with NDI and your members.
I want our work to complement the efforts of NDI.
We are both trying to achieve the same things: bringing primes and SMEs together, promoting business excellence and generating growth that benefits everyone.
I understand that it is a tough environment out there at the moment. US sequestration makes this starker still.
So it is all the more important that we work together collaboratively.
I hope that I have highlighted the work the Ministry of Defence is doing to help NDI members, and convinced you that I am personally committed to this work.
I am keen to use the remainder of this session to hear your thoughts and ideas, and to respond to your concerns.
So in this spirit I am keen to engage in answering any questions you may have.