Written evidence submitted by techUK

Defence industrial policy: procurement and prosperity

About techUK

Given the broad scope of the questions asked by the Committee, techUK is submitting a thematic response to the Committee’s inquiry. Our response, which has been developed in consultation with the techUK membership, is centred around the Committee’s first question on the effectiveness of the current Defence Industrial Policy, and whether there is a need for a new Defence Industrial Strategy (DIS). Covering four key themes, techUK’s response highlights the areas in which any updated or new strategy should consider and puts forward a series of recommendations for each based on evidence from our member companies. Paragraphs have been numbered for easier reference should the Committee wish to discuss any part of the response. techUK would welcome further engagement on any of the points raised in this submission.

Introduction & Context

1. The Ministry of Defence (MOD) last refreshed its Defence Industrial Policy (DIPR) in 2017, where it sought to build on 2015’s National Security Strategy (NSS) and Strategic Defence Review (SDSR), which in turn built on the National Security through Technology White Paper of 2012. Since then, the uncertainties surrounding the UK’s withdrawal from the European Union, an increasingly assertive Russia and the proliferation of ever more sophisticated cyber threats have all made the challenge of underwriting the UK’s national security more complex. At the same time, the financial pressures faced by the Defence sector have not eased, and both the MOD and its suppliers in industry will have to work closely over the coming years to address the challenges Defence faces. Against this backdrop, the digital revolution has continued apace, with disruptive technologies such as digital twins, robotic process automation (RPA) and artificial intelligence (AI) playing an ever-increasing role in the ongoing digital transformation of both the private and public sector. Against this backdrop of uncertainty and rapid technological change, techUK would argue that the acquisition and exploitation of emerging and disruptive technology in the Defence sector is an essential pillar of any Defence policy or strategy, and is fundamental in ensuring that the UK stays ahead of, or at least maintain parity with, asymmetric, peer or near-peer adversaries.

2. In 2017, techUK welcomed the publication of the DIPR, which provided a series of policy commitments to encourage competition and drive opportunities for both existing and new entrants to the Defence market. Indeed, greater competition and agile procurement policy suits the fast-paced nature of the digital and technology industry. However, as techUK commented at the time, ‘it is the deployment of these policies that will be of pivotal importance’[1] for our members. In the two years since its publication, techUK believes that progress against the commitments outlined in the DIPR has not yet resulted in significant changes which make doing business in Defence easier for our members. As such, techUK will argue in this submission that there is merit in producing a new DIS. However, techUK firmly believes that any new strategy must demonstrate how its policy commitments will be implemented, by coupling such commitments with a clear timeline of delivery and easily identifiable metrics of success. Alongside this, any new strategy will need to show how senior decision makers in government will ensure their policy commitments will have buy-in across the MOD and other government departments at all levels of seniority, without which inertia will undoubtably block progress. 

As previously stated in our executive summary, techUK’s response to this inquiry is thematic, centred on the first question around the effectiveness of the current DIPR, and whether there is a need for a new DIS. Our response covers four areas which reflect the views and thoughts of our member companies. techUK believes these areas should fundamentally inform any decisions that underpin any new DIS:

1.                                Accessing new technologies and broadening the supplier base:

1.1             Previous and extant Defence policies, including the 2017 DIPR and 2018’s Modernising Defence Programme (MDP), have shown that the MOD is focused on technology innovation, as opposed to technology invention. Looking specifically at the former, this means exploiting emerging or disruptive technologies that are already in use within other industries and sectors.

1.2             In practice, the adoption of proven technologies can help Defence significantly improve its capabilities in a number of areas, including but not limited to platform and equipment performance, information management and decision support, process automation and productivity aids, and cyber protection across the supply chain. The capabilities and technologies that can deliver benefits to these areas exist within the techUK membership, but in many cases are being exploited more effectively in other sectors, as the Defence market is perceived to be too complex and difficult to penetrate.

1.3             techUK has identified several issues in Defence which currently inhibit the sector’s ability to access mature technologies which deliver benefit elsewhere and deter non-traditional suppliers from investing in the market. These are summarised as follows:

1. Whilst current MOD innovation organisations (e.g. DASA, JHub) have helped to identify and engage non-traditional suppliers, they have focused on technology assessment and evaluation rather than business exploitation. As such they have not delivered an enduring route to market and growth for both SMEs and non-traditional suppliers wishing to supply into the major Defence programmes in the UK.
2. The lack of a single delivery framework for mature technologies between the MOD, Primes and SMEs is inhibiting technology growth and innovation across Defence, and the length and complexity, or perceived complexity, of commercial processes make entering the Defence market unappealing, or at least less appealing, to non-traditional suppliers of all sizes.
3. Pressures on incumbent Prime contractors to both reduce costs and accept lower profit margins, combined with impact of single source contract regulations, have disincentivised Primes from investing in higher risk technology developments with non-traditional suppliers.

1.4              techUK believes that a new DIS should consider the following recommendations:

1.      Joint MOD-industry innovation hubs: To bridge the current gap between technology assessment and business exploitation, techUK recommends that a new DIS should examine the benefits of establishing joint MOD-Industry Innovation Hubs (Centres of Excellence), to bring together the appropriate enterprise skills, investment and governance model which can manage both the risks and rewards associated with the exploitation of new technology.
2.        Defence application store/platform: A new DIS should consider setting up a fast-track MOD IT Innovation Platform / Application Store at OFFICIAL or lower, in which new applications created by SMEs and other non-traditional suppliers can be beta tested by Defence users. This would allow both the MOD and industry to exploit agile software development and would enable SMEs and non-traditional suppliers to share applications developed for commercial use with real MOD users to test and assess their applicability and benefits for Defence.
3.        Advanced research hubs: For low TRL initiatives, a new DIS could look to establish Advanced Research Hubs, using business domain governance boards for Land, Sea, Air, Space, Strategic Command and Cyber. This would enable academia, the Front-Line Commands (FLCs) and systems integrators to co-invest in new technologies which have high gain and UK plc growth potential.

2.                                A specific focus on the creation of cross-cutting technology strategies:

2.1              In recent years, there has been a focus within the Defence sector on the creation of platform-centric sub-strategies, with key examples being 2017’s National Shipbuilding Strategy and 2018’s Combat Air Strategy. These ‘deep-dives’ into key UK Defence platforms have undoubtably been useful in supporting the future prosperity of specific sub-sectors, and techUK recognises the value of producing individual sub-sector strategies. However, techUK members have noted that there is a clear gap at present in the land environment, which currently does not enjoy the support and investment from industry and the MOD that comes with a dedicated strategy. 

2.2              The impacts of technology are pervasive and wide-ranging, effecting all aspects of Defence, from military capabilities in frontline operations to internal business functions. As such, by working with industry to understand and champion the future benefits of cross-cutting technologies such as autonomous systems or sensors, the UK Defence sector will be able to demonstrate that investment in key technologies will deliver benefit not only to future capabilities but will also contribute to the wider prosperity agenda. Such strategies would also have the benefit of being competition and FLC agnostic, ensuring that all of the Commands and a wider selection of industry can play into them.

2.3             techUK therefore recommends that a new DIS should consider:

1. Technology-centric sub-strategies: Supporting technology-specific sub-strategies for the Defence sector, centred around cross-cutting technologies which offer a wider benefit than platform-centric sub-strategies. These strategies should focus on technologies identified by the MOD in consultation with industry and should demonstrate how investment in a particular technology will benefit both the domestic and international Defence market, as well as how it can contribute to the wider prosperity agenda. As mentioned in paragraph 1.2, a wide variety of technological capabilities, products and services exist within the techUK membership, and our members would be pleased to work with the MOD to identify appropriate technologies to be taken forward under a dedicated sub-strategy.

3.                                Ensuring that the commercial operating environment is fit for purpose:

3.1              About 80 techUK member companies deliver a variety of technology products and services to the MOD, primarily through Strategic Command’s Information Systems & Services (ISS) organisation, but also directly to the FLCs and to other MOD agencies. techUK members, ranging from major Prime suppliers to SMEs, hold a long-standing concern that they experience too much inconsistency between supplier engagement and commercial decision making, versus the political rhetoric to improve access to MOD business and the benefits of being a MOD supplier or partner. 

3.2              techUK believes that more thought needs to be given as to what needs to be mandated by the MOD when launching new procurements, as well as how mandates are then policed and enforced. There should be reasonable allocation of commercial risk between the MOD, Primes and any sub-contractors, and the reliance on publishing sub-contracting opportunities through Contracts Finder has not delivered benefits for techUK’s SME members. techUK believes that increased early market engagement will help, particularly if potential sub-contractors are invited to engage with the MOD alongside Prime contractors. This may create supply chains that are capable of delivering better outcomes and better value. techUK believes that the MOD should look to learn from best practice elsewhere in the market, with the Crown Commercial Service seen as a good example of this.

3.3              With the MOD currently examining how to take forward the recommendations made in its recent acquisition review, techUK members are eager to see the department recognise the unique challenges faced by companies who deliver ICT services across Defence, which are often different from the companies providing platforms and equipment. Digitisation, AI, cyber, automation, data and information exploitation are all technologies which do already, and increasingly will, provide efficiency and capability benefits in MOD’s business activities and in military capability, as well as cost savings and efficiency.

3.4              techUK has outlined why the MOD still faces issues in the commercial environment as follows:

1. techUK members experience a disconnect between the MOD’s senior leadership, who seek to drive positive change, and the behaviours of staff at the working level tasked with managing new procurements and contracts. Members have reported that delays in proceeding to contract for fully funded procurements are too frequent, therefore increasing the overall cost to the taxpayer. Such instances simply reinforce the perception (outlined in paragraph 1.2) within the technology supplier base that the Defence sector can be too difficult to enter, when compared with other private and public-sector markets.
2. techUK members have reported that commercial staff do not engage with industry sufficiently, particularly at the pre-procurement stage. Details of anticipated or planned IT and digital procurements are too infrequently shared with prospective suppliers. Thus, the MOD is not aware of what technology is available to the FLCs and other users. Prime, Mid-Tier and SME companies have varying levels of access and influence, but all have reported that meaningful industry engagement needs to be improved.

3.5              techUK believes that a new DIS should build on the implementation of the MOD’s acquisition review, by committing to support the following:

1.                    Ensuring ‘tailored acquisition’ is successful: techUK would like to see a new DIS set out criteria which measures the benefits attributed to the tailored acquisition routes set out in the MOD’s acquisition review. Specifically, techUK would like to see the DIS commit the MOD to easily identifiable metrics of success with a clear timeline of delivery. As part of this, a new DIS should also set out how the MOD’s senior leadership will ensure that a positive change in the culture and behaviour of commercial staff is to be implemented, at all levels of seniority and across the Defence enterprise.
2.        Exploiting interoperability: A new DIS should explore what practical measures the MOD can take to move away from, and avoid the procurement of, bespoke, inflexible systems. A new DIS should commit the MOD to procure interoperable systems, products and services, wherever it is possible to do so. This gives Defence the flexibility to bring in new technologies quickly and will also help it increase its spending with SMEs.
3.        Changing attitudes to risk: Building on the commitment in 2017’s DIPR to introduce new contracting mechanisms which reward suppliers for high performance and for taking more risk in developing innovative ways of delivering capability, techUK would like a new DIS to provide more detail and evidence of how this will be implemented. Whether this forms part of the new tailored acquisition routes mentioned above, or is done separately through the MOD’s innovation ecosystem, our members would like to understand what this action will entail.

4.                                Investing in skills and talent to contribute to the prosperity agenda:

4.1              The Defence sector operates in a competitive environment in which there is a ‘war for talent’. Competition from different industrial sectors is particularly acute within the technology and digital sector[2]. Both the MOD and industry still have gaps in skills and expertise which inhibit their ability to work effectively and at pace in order to specify and deliver the right solutions to time, cost and performance.

4.2              techUK has outlined why the Defence sector struggles to acquire the right skills and talent as follows:

1.                    In the technology and digital sector, individuals with specialist expertise and experience are often persuaded to choose a career in the private sector, where earnings and career progression opportunities and variety are more attractive. There is a national shortage of technically competent staff, particularly in STEM subject areas, which is likely to continue.
2.        As recent news stories in the US have shown, alongside the standard competition for skills and talent with other industrial sectors, the Defence sector also has the added complication of employees from large technology companies objecting to work on contracts within the Defence & Security sectors.

4.3              techUK recommends that a new DIS should commit to investing in skills and talent as part of the prosperity agenda, by considering the following:

1.                    A dedicated programme of secondments between the MOD and industry: As part of a new DIS techUK recommends that the MOD should set out how it will design and implement a structured two-way secondment programme with industry (of around 6 months) for its best commercial and technical talent. In doing so those working for the department will gain and bring back a comprehensive understanding of supplier side business, spanning Primes, Mid-Tiers and SME businesses.
2.        Putting ‘Whole Force by Design’ at the heart of procurement: A new DIS should commit the MOD to introducing a ‘Whole Force’ clause in new procurements, enabling the department to incorporate skills and talent when delivering operational military capabilities or business outputs. New procurements would have a Whole Force team composed of MOD and industry, which is capable of providing a much wider talent pool than from either the MOD or industry alone.
3.      Ensuring economic prosperity and export potential are recognised in future contracts: As part of a new DIS, the MOD should consider how regional investment from industry in Defence contributes to its prosperity agenda, through the creation of new skilled jobs and the potential to develop exportable products and services. A new DIS should therefore commit the MOD to recognising the benefits of regional investment and the potential for export opportunities as part of the assessment criteria in future Defence contracts. This was also recommended in the 2018 Dunne report: Growing the contribution of defence to UK prosperity (recommendation 2.12[3]).

9 September 2019