Written evidence submitted by Babcock International (DIS0029)

BABCOCK INTERNATIONAL GROUP SUBMISSION TO HOUSE OF COMMONS SCOTTISH AFFAIRS SELECT COMMITTEE SHIPBUILDING IN SCOTLAND INQUIRY

Introduction:

Babcock is a FTSE listed international defence and security company, headquartered in London with over 4000 colleagues working in Scotland. Babcock is the second largest supplier to the UK Ministry of Defence, and our Marine business is currently building the Royal Navy’s next generation Type 31 frigate at its Rosyth facility, having recently exported the Arrowhead 140 export variant to Poland and Indonesia.

Summary:

Responses to Questions

Q1. What impacts are the Government’s Shipbuilding Strategy and National Shipbuilding Office having on the shipbuilding industry in Scotland?

  1. The publishing of the Government’s refreshed National Shipbuilding Strategy (NSBS) and the standing up of the National Shipbuilding Office (NSO) signify a clear intent to take a longer-term perspective and encourage the revitalisation of the UK’s shipbuilding industry. While nascent, both the NSBS and NSO are already having a positive impact on industry and have the potential for greater impact across the whole of the UK and in Scotland specifically.
  2. The original NSBS helped to catalyse new investment in shipbuilding in Rosyth and more widely in Scotland. It also helped to reinvigorate the relationship between HM Government and the shipbuilding industry – a relationship which is essential to the success of any country with naval ambitions like the UK. The Refreshed NSBS cements the strategic national benefits of an appropriate and stable policy environment.
  3. Since the creation of the NSO in late 2021, the relationship between Government and industry has continued to develop with more discussions, cohesion and opportunities for growth. The NSO is helping to identify future projects that may be built in Scotland and supporting the case for investment by industry. It is also identifying issues and opportunities for both the Government and industry so they can work together to make long term improvements and acting as a more cohesive conduit for discussions across Government.
  4. It is positive to see growing collaboration with industry through the NSO, and hope this continues to be deepened and developed. Babcock recognises there is also a need for industry leadership to drive the NSBS and takes an active and leading role in the sector including the through the Shipbuilding Enterprise for Growth (SEG), MarRI-UK, the Society of Maritime Industries and the Scottish Maritime Cluster.
  5. Babcock looks forward to engaging with the UK Shipbuilding Skills Taskforce once its membership is finalised and it stands up to ensure the shipbuilders and the supply chain can access the skills needed. As an organisation, Babcock welcomes the drive to forge much stronger links between the education sector (both further and higher) and the shipbuilding sector. The proposed National Skills Academy (Maritime) should be developed in conjunction with industry and given resources to enable HE & FE organisations to further develop existing courses in support of the sector.
  6. The potential of industrial-academic collaboration is considerable, for instance Babcock have utilised our strong links with Strathclyde University, the University of Edinburgh, Fife College, Fife Council, Scottish Enterprise and Skills Development Scotland to develop the Arrol Gibb Innovation Campus – a global centre of excellence aiming to transform large-scale manufacturing through innovation and skills development.
  7. Successful execution of the aims of the NSBS and the commitment to increasing UK investment in R&D to 2.4% of GDP by 2027 will require Government to place a higher priority on maritime innovation. A meaningful increase would undoubtedly see the sector grow. Babcock led the development of, and are a key partner in, Maritime Research & Innovation UK (MarRI-UK), drawing together the industrial and academic interests and proposed a range of potential innovation projects to Government, spanning clean maritime, high-tech and ship building productivity and it offers a pre-existing, proven and successful body through which such an increase could be made.

Q2. How many and what types of Royal Navy ships will likely be built in Scotland in the years ahead? Will the sector grow?

  1. Babcock is currently building the Royal Navy’s next generation Type 31 frigate at our facility in Rosyth. Five Type 31 frigates will be built, on which the steel was cut for the first vessel, HMS Venturer in September 2021 with the first vessel to be delivered to the Authority in 2025. To deliver all five ships by 2028, parallel build activity has been enabled through the programme investment and supplier contracting methodology. Babcock has also invested considerably (over £70m) in our digital facility enabling all five frigates to be manufactured in a similar way to a modern car plant assembly line, albeit on a considerably larger scale.
  2. The Type 31 contract will see the delivery of five Inspiration Class Frigates in record time and to an agreed price that will set the benchmark for global best practice. To date, over 95% of contracts are placed, and 75% of those contracts (by value) are with UK based suppliers. Around 500 skilled people are already working directly on the programme which will increase to around 1,250 people at its peak with a further 1,250 employed in the supply chain. Babcock will also deliver 150 new technical apprenticeships as part of this programme, which will help to support the next generation of engineers, naval architects, and project managers.
  3. Whilst Type 32 could be a separate requirement it could also be based on Type 31, building not only on the ships capability and utilising the capital investment in infrastructure and in the retention of skills and the continued recruitment of apprentices and graduates into the sector.
  4. Babcock’s Rosyth Facility has the capability and capacity to deliver additional future platforms as a result of the investment already made as well as the potential for further growth. To date, Babcock has invested over £70m at Rosyth to create a digital facility that is the most technologically advanced shipyard in the country. In addition to Type 31, Type 32 and the build of the National Flagship, Rosyth has the capacity to deliver the three Fleet Solid Support Ships (for the Royal Fleet Auxiliary) as part of Team UK which will see a significant amount of work undertaken in Scotland (Rosyth and Govan) with all Team UK build work undertaken in the UK in a distributed build model similar to that of the Aircraft Carrier Alliance enabling levelling up across the UK.
  5. Uniquely, Rosyth also has significant scope for further growth (c.50 acres of land remain that could be utilised). However, if Rosyth were to grow, accessing and maintaining the right skills would be the critical challenge requiring increased coordination with colleges and promotion of careers in the sector at Universities, especially Strathclyde and Edinburgh.
  6. A further enabler of growth will be export. Babcock has already secured a two export contracts for Arrowhead 140 (Type 31 export variant) design licences to Indonesia and Poland. These and future exports will continue to support Babcock, but also to suppliers more widely, by offering export opportunities access, support and consultation on utilising the incumbent supply chain.

Q3. How does the procurement approach for each class of Royal Navy ship being determined on a case-by-case basis (including whether or not there should be international competition) affect Scottish shipbuilding?

  1. The Defence Security Industrial Strategy (DSIS) announced the policy of a move away from foreign competition as default and of considering competitions on a case-by-case basis. This is welcome and will support UK industry to grow and invest as it enables better planning and development of resources and skill retention. However, other than a reference to considering new approaches to procurement (p.32) the refreshed NSBS does not make clear how the new competition policy will be applied to shipbuilding competitions.
  2. Positive lessons can be taken from international shipyards and turned into better UK solutions, without the need to undertake open competition as key shipbuilding technologies are now commoditised. Indeed, Babcock partnered with Danish consultancy OMT to exploit the inherent capability that has now been incorporated into the Babcock designed Type 31.
  3. Productivity in international yards can appear different to that of UK yards, but this is generally related to scale of through-put, limits on change and strong relationships with national government – many being state sponsored. As the Type 31 programme is demonstrating – a clear run of vessels on a fixed/firm contract underpinned by strong relations with government – this is also possible here: To date Type 31 is on schedule and on cost, despite the programme running through the pandemic.
  4. Type 31 is also market disrupting in its price point; however, other Scottish shipbuilding programmes have also been highly cost effective. For example, on a pound per tonne basis, the Scottish built Aircraft Carriers, HMS Queen Elizabeth and HMS Prince of Wales, are c.50% cheaper than anything else that has been comparably built in the world, showing what is possible when industry and government collaborate.
  5. The NSBS refresh also makes a clear 30-year projection in the Shipbuilding Pipeline, however, lacks the publication of associated budgets and respective procurement strategies which would be extremely beneficial for industry. This would enable long term planning for vessel build, focussing of investment and the continuation of high value jobs and apprenticeships.
  6. Longevity and certainty of pipeline will also incentivise further significant investments in modern ship design and building together with the supply of equipment and digital manufacturing facilities both among the major UK primes, but also through their supply chains, including SMEs. Certainty would enable investment in new skills and innovation to ensure that the UK shipbuilding sector not only maintains world class status in the immediate period but sustains it over a long period. Support for modern apprenticeships and graduate programmes will allow shipyards to develop and stimulate the manufacturing market beyond shipbuilding. For instance, Babcock has recruited over 50 graduates and apprentices at Rosyth in the last 12 months, taking the total to over 100 on site at present. Babcock also sponsors courses in Scottish universities for post graduate studies – providing jobs in secondary and tertiary parts of the wider supply chain.
  7. Babcock is pleased to see the commitment in the NSBS of an increased share of Social Value (20%) in future procurement to manage the Government pipeline and ensures procurement choices align with strategic policy. It is yet to be seen how it will allocate value across unit production cost, through life cost and public benefits; and how it will assess total value to the taxpayer when considering bids from state sponsored international yards.
  8. Industry has shared evidence with MOD that design and build in Scotland offers solid returns to HM Treasury, circa five times greater than from an international build. Whilst discretion rests with the procurement authorities, HM Treasury should consider the criteria being used to ensure it focusses on long term UK social value via UK build (including Scottish content). This would likely come with expectations of value auditability to re-assure taxpayers of long-term positive outcomes which is absolutely possible by baselining individual processes against international benchmarks.

Q4. To what extent does Scotland benefit from exporting military ships (or parts of them) and/or their design licences? How can these opportunities be maximised?

  1. The export of Arrowhead 140 (export variant based on Type 31) is testament to the Scottish domestic shipbuilding capability and its value for money. The impact of HM Government buying British helps secure the future of high-skilled Scottish jobs in yards around the country and sends a clear signal to potential export markets that the Royal Navy has confidence in the shipbuilder who make that platform, but the opposite is also true.
  2. Arrowhead 140’s qualities of proven hull form, adaptability and incremental capability enhancement potential, combined with a market-disrupting price point, is generating significant interest in export markets. Babcock is currently pursuing three active opportunities concurrently for Arrowhead 140 design licences with engineering and shipbuilding support services. Several other countries have expressed interest in the platform, for indigenous build, UK build or a combination.
  3. Increased exports of the same platform would see costs stabilise if not decrease in real terms, enabling additional value for money being available to the taxpayer if Type 32 were built in Scotland. With regard to the total cost of ownership and through life costs of the vessels in service, there will also be benefits from exports derived through economies of scale in the supply chain, and indeed much of the supply chain for Type 31 comes from the UK and will have a direct benefit for those SME associated with the Type 31 build. Over 50% of the systems and equipment in the Arrowhead 140 baseline design for the Inspiration Class is sourced from the UK maritime supply chain. With some, often positive, fluctuations due to adaptation, the Scottish supply chain will always benefit significantly from Arrowhead 140 exports.
  4. Exports will reduce the non-recurring engineering expenditure for future capability insertions into the UK Inspiration Class ships significantly by leveraging design work to adapt the baseline platform to meet the capability requirements of export customers. Additionally, export vessels built in Rosyth will contribute to the productivity of the Rosyth yard, spread overhead costs and generate the potential for increased value for money in the building of the future Arrowhead 140 variants, including Type 32, in Rosyth.
  5. The export of Arrowhead 140 will also provide tangible experience which the MOD can use to inform and leverage the adaptability of the design to de-risk the Royal Navy’s Type 32 requirement. As a key reason the platform was selected for the Type 31 programme was its inherent adaptability, the opportunity arises to procure an adapted version of the Arrowhead 140 design for the Type 32 requirement, but with additional emphasis on exploiting that adaptability and allowing autonomous operations to be conducted. This would save considerable time, cost and risk in the Type 32 programme and make further productive use of the infrastructure and investment made for the Type 31 programme; and of course, like Type 31 – Type 32 could be exported too bringing additional benefits to Scotland that mirror those now being delivered from Type 31.  
  6. Alongside Arrowhead 140 design licence proposals there is a strong demand for additional Scottish design engineering and support services through the direct provision of those services or through revenue generating technology transfer. There are also opportunities arising for Babcock and other specialist UK companies to be part of shipyard modernisation and optimisation programmes, training programmes and through life support solutions. The licensing of the Arrowhead 140 design and the delivery of Babcock’s Arrow Yard product (an export of Babcock’s digital facility) to enable indigenous build also generates profitable UK revenue.
  7. Scottish value-adding revenue opportunities span the whole product lifecycle from readying and modernising national infrastructure, design licensing, engineering support, initiating and developing shipbuilding strategy and delivery, enabling workforce training & upskilling and post-delivery through-life support solutions including providing support to other navies from Scotland. 
  8. In addition to the monetary value for Babcock and wider industry, there is also considerable social value added by export sales. The jobs associated with either design or complex equipment provision – as required in export sales – are highly skilled or professional, and each export sale helps safeguard them. The value of these roles are well above the median for Scotland, with Babcock employees a key part of the workforce which Maritime UK has shown creates economic productivity 42% higher than the average UK worker.
  9. Support for investment in Scottish infrastructure is required with a baseload of work that allows industry to move to an export position in both design and build of naval vessels and international technology transfer as has already been shown with AH140. To sustain a consistent workload ship support plans (maintenance, repair, overhaul, dockings etc.), and factor this into design & build decisions, which would add further incentives for investment and avoid fluctuating boom and bust orders.

Q5. What more could the UK Government do to maintain and foster military shipbuilding in Scotland?

  1. A long-term perspective is needed for all of Government’s policy decisions on naval platform expenditure, including fiscal planning that accounts for the time taken to develop and build up the specialist skills and pay back the considerable capital investments required to build ships. The strategic case for each shipbuilding project should be set in this context as shipbuilding cannot be seen in the same context as other manufacturing sectors.
  2. For instance, much less commitment can be made by businesses on a three-year individual ship project with no prototyping, a short production run (e.g. five ships in class) and limited repeatability (assuming 10 or 20 years between “Main Gate” decisions for similar classes of ship) as effectively the first ship in class acts as a prototype, after which the processes can be honed. However, unlike other manufacturing sectors, where numerous prototypes are scrapped during development, in naval shipbuilding the prototype has to be able to sail and if required, operate in a combat environment.
  3. Decisions by industry to compete or cooperate are largely driven by Government’s procurement strategies, therefore it is important that Government provides certainty and continuity via a long-term approach to shipbuilding policy. This allows businesses to maintain the strong balance sheet required to take on the considerable cost and risk associated with shipbuilding procurements.

 

May 2022

7