DES0035

Written evidence submitted by BAE Systems

 

Introduction

 

At BAE Systems, our purpose is to serve, supply and protect those who serve and protect us.

 

We help our customers to stay one step ahead when protecting people and national security, critical infrastructure and vital information. We provide some of the world’s most advanced, technology-led defence, aerospace and security solutions and employ a skilled workforce of 93,100 people in around 40 countries.

 

From state of the art cyber threat detection to flight control systems that enable pilots to make better decisions, we never stop innovating to ensure that our customers maintain their advantage. This is a long-term commitment involving significant investments in skills.

 

In addition to supporting national security, our sector delivers significant economic value, enabling growth in economies and local communities through investment in R&D, employment and national supply chains.

 

We also work closely with local partners to support economic development through the transfer of knowledge, skills and technology. In 2020, we contributed £10.1 billion to UK GDP and invested £100 million in UK technologies and an additional £93 million in skills and education[1]. We employ 39,600 people in the UK across 50 sites.  More than 40% of our UK workforce comes from Britain’s most deprived local authorities and in 2020, we spent nearly £700m on supply chain purchases in these areas.

 

As the UK’s largest defence prime, BAE Systems has engaged with DE&S in a number of different ways, and across all of our businesses – Air, Maritime, Land, Digital and Space.

 

This submission from BAE Systems is in response to the House of Commons Defence Select Committee’s Sub-Committee inquiry into Defence Equipment and Support (DE&S).

 

  1. What are the strengths and failings of DE&S’ current approach to defence procurement? Does it deliver value for money to the taxpayer?

 

1.1.  Strength: Delivering requirements on-time and budget

 

 

 

1.2.  Strength: Delivers at a speed-of-relevance Urgent Operational Requirements

 

 

1.3.  Strength: Manages a professional procurement process

 

 

1.4.  Challenge: Operates with programme-centric silos

 

 

 

 

1.5.  Challenge: Inconsistent translation of policy and strategy into the industrial base

 

 

 

1.6.  Challenge: Challenges in taking a long-term strategic approach because of Annularity

 

 

 

1.7.  Challenge: Championing exports as a benefit creator for UK Defence

 

 

1.8.  Challenge: Champion the delivery of Social Value

 

 

 

  1. What lessons can be learned from the UK’s recent history of defence procurement?

 

2.1.  The procurement system as currently exists is complex – and although large primes such as BAE Systems are able to navigate these complexities, they can be more challenging to SMEs, and those from outside the defence sector.

 

2.2.  The introduction of social value to defence procurement was a welcome recognition of the need to consider wider factors beyond upfront price when procuring defence products and services. This is most effective when applied consistently, objectively and transparently.

 

2.3.  An effective social value framework also requires mechanisms to validate social value claims, possibly against historical performance and then to allow an enforcement mechanism to hold suppliers to account.

 

2.4.  The lesson taken from the submarine enterprise is one which is now well understood and recognised - the importance of long-term planning, clarity of demand from the end customer, shared vision and a collaborative and open culture; this approach is not wholly well replicated elsewhere.

 

2.5.  Whilst it is useful for Government to develop industrial strategies, and then sector strategies, these are most effective when they are developed in partnership, with input from industry to inform Government’s thinking on implementation and impact.

 

2.6.  The development of long-term strategies also ensures that businesses can invest in the key tenets that sustain them – for example, capital investment into sites, large-scale infrastructure investment, skills for the workforce and the people to sustain the workforce.

 

2.7.  There are instances however where sectoral strategies, having been established, are not consistently applied through acquisition. It is useful here to compare two recent examples, both of which have had (and will continue to have) an impact on BAE Systems.

 

2.8.  The first is the UK’s Combat Air Sector Strategy – following its launch in 2018, and with a clear ambition to sustain the sovereign capability for the UK’s combat air sector, both Government and industry have come together to plan the delivery of the next generation air dominance capability for the UK, in the form of the Team Tempest partnership. Team Tempest is formed of BAE Systems, Rolls-Royce, MBDA, Leonardo UK, and Fin Mil Cap from within the MoD. This partnership has been developed as a joint commitment from the Ministry of Defence and industry, with a structured and transparent funding system in place, and has allowed the shared development of programme goals. It has also provided industry with the confidence to invest for the long-term.

 

2.9.  The second example is the National Shipbuilding Strategy Refresh – published in 2022, this document describes a thirty-year pipeline of shipbuilding for the UK. The strategy recognises the benefits of a strong pipeline for the sector across the whole of the enterprise, but this stands at odds with a default to an international competitive environment, with decisions based primarily on upfront cost, rather than taking into account wider value for money considerations, which would recognise indirect benefits, including social and economic value to the UK.

 

  1. What can the UK learn about defence procurement from international comparators? Which countries have a particularly strong model and track record and what can the UK learn from them?

 

3.1.  France has strong linkages between the Direction générale de l’armement (DGA, the procurement agency), its domestic defence industry and the various Chiefs of Staff.  The speed and flexibility with which the French are able to adapt their military program law (MPL) is admirable, with clear priorities and acquisition frameworks quickly put in place. As a result of the Ukraine conflict, they have refocused their MPL and included clear guidance on simplicity, streamlining the acquisition process, ensuring domestic sovereignty of supply chain and a long-term perspectives

 

3.2.  In countries like Australia and the Kingdom of Saudi Arabia, a political impetus to protect national industries and encourage them to flourish means there is a long-term vision and less tendency to default to competition when the national interest requires otherwise. In Australia for example, there is a clear maritime strategy and the country has heavily invested in facilities and skills to ensure that defined industrial sites will have world-class capabilities for the next 30 years.

 

3.3.  Linked to this is a greater tendency within some markets, including France, and increasingly across the EU, where international competition would not be considered if it were to erode national capabilities and interests.

 

3.4.  With regard to exports – France is a good example of where the government maintains a close watch on exports, and where their procurement agencies work with industry on international competitions, to maximise domestic content and overall success. Germany, too, will procure domestically in order to support export ambitions – for example, it has procured the same submarines as Norway, in order to give its industry a legitimate competitive advantage when winning the competition to supply the Norwegians.

 

3.5.  The US Foreign Military Sales (FMS) system has particular international appeal in the exports domain for its relative ease of use and certainty of outcome on pricing and timeframe. It is a well-understood methodology, with a strong brand, that delivers a clear government-to-government framework. FMS does lack flexibility, particularly on Intellectual Property and offset.

 

3.6.  Another differentiator in the US is the close relationship between DARPA and the Department of Defense. Together they have developed a powerful innovation ecosystem with co-funded Research and Development, a higher tolerance of failure, and a willingness to invest earlier, and without recourse to competition.

 

  1. Does DE&S have the right set of skills and incentives to succeed in its tasks?

 

4.1.  DE&S has sufficiently qualified commercial and legal functions, but the role of DE&S also includes support for Government-to-Government contracting mechanisms. As demand for these arrangements is likely to increase, DE&S should consider if it has the right quantity and quality of resource available to meet demand.

 

4.2.  By the very nature of military postings, there seems to be a high churn of individuals who are posted to DE&S, and as a result may lack the depth of experience on large or complex programmes, in contrast to industry where professional specialisms are more common.

 

 

28th April 2023


[1] https://www.baesystems.com/en-media/uploadFile/20211221140800/1573670986028.pdf