Written evidence submitted by Professor Trevor Taylor, Professorial fellow, Royal United Services Institute

For decades the UK and the US have felt that their defence acquisition systems are in urgent need of improvement and there have been many studies and recommendations. Acquisition reform should be seen as akin to a soap opera rather than a novel with a clear end.  The lesson to be drawn is not that defence people in government and the private sector are particularly stubborn and dull, but that the development, production and support of appropriate military equipment in a time of rapid technological and political change is inherently very difficult.

The Committee has developed a wide range of questions and issues: this short paper provides information and argument on just four of them, but its author would be happy to respond to the wider agenda with oral testimony.

1. Do we need a new Defence Industrial Strategy?

The response to this surely depends on the overall aspiration for the role of the UK in the world. If it is, as stated in the last Strategic Defence & Security Review, that the UK should be ‘Strong, Influential, Global’[1] , then the answer is yes.  The words of the Frank Kendall, as the US Deputy Secretary of Defense in 2013, are not just relevant to his country:

Industry is part of our force structure. We are dependent on industry to perform and, if we don’t have a healthy industry, we don’t have a healthy force.[2]

2. Does the emerging acquisition system offer value for money?

Here a central problem is that value has no objective sense but is subjective, dynamic (what looks like value today may not tomorrow) and multi-dimensional.  This is easily demonstrated by noting the different policy objectives that are related to defence acquisition.  As well as providing our forces with effective equipment that enhances the prospects of success in future military operations, defence acquisition is expected to:

• make choices based on the best blend of purchase and support costs, the latter being larger, harder to calculate, inherently more uncertain, and stretching far into the future;
• contribute to the national prosperity agenda, not just by enabling British industry to produce equipment with good chances in the export market. Employment and skills and technology development are also pertinent to national well-being, and  there is an argument that the government could bear in mind the net cost of procurements, i.e. how much money will return to the Treasury in the form of tax as a result of procurement choices;[3]
• on occasions, support the UK’s wider foreign relations; and
• underpin the UK’s ability to use its forces as it sees fit (defined as the ‘essence of sovereignty’ in the 2012 National Security Through Technology White Paper). [4]

This last point is significant:  the origin of spares and support services for a major system determines for how long and even whether that platform can be used on an operation. Arguably defence procurement even has a role in supporting the territorial integrity of the United Kingdom, with naval shipbuilding helping to keep Scottish independence at bay.

Overall, therefore, what looks like good value depends on where you sit!

If the question were changed to whether the purchase of equipment is increasingly tending to cost what the Government envisaged at Main Gate, the annual National Audit Office reports indicate that the answer is a qualified yes. This in part reflects:

• a preponderance of mature development projects in the plan;[5]
• an increased readiness to buy items already in production elsewhere, and
• on occasions a choice to use a multiple Main Gate structure not envisaged under the original Smart Procurement Initiative. Thus the Ministry of Defence formally makes commitment to just part of a project and, behold, it comes in on time. [6]

None of these factors requires reference to the changes made to the DE&S structure.

3. The UK Acquisition Reform process

The Gray reforms re-introduced the idea that the procurement body, Defence Equipment & Support, should be at ‘arm’s length’ from its customers in the four commands.  For the purchase of products already available in the market place, this may well make sense, but for projects that require a significant development effort, and for arranging sensible in-service support arrangements, it makes little sense at all.  A military requirement for a development project involves the right balance of the system attributes that the armed forces would like and what industry might be expected to provide at a specified time for a specified amount. The DE&S is supposed to be the main interface between the military and industry, and it is important that it has close and preferably trusted relations with each.  Countries that achieve remarkable things for their size in defence procurement, such as Israel, Sweden and Singapore, see their industry, government and military as on the same team.  In missiles, where the UK has operated the cooperative Team Complex Weapons since 2005, a series of weapons have been delivered on time that work well and to cost.

Implicit in this is the proposition that crude forms of competition, when companies are judged largely on the best offer for the final product they are willing to make, is a poor approach to defence acquisition, since it incentivises firms to be overly optimistic about what they can do, sometimes in a sector that they will have to leave if they do not win. Moreover, when formal competitions are run, they need to be demonstrably fair in legal terms, which means the Assessment Scheme issued to bidders should accurately capture the dimensions of value and their weight for that project. This may be no easy task.

4. Case Studies: AH-64E and P8A

The most prominent feature of procurement since 2010 has, however, not been competition using the world market, but sole source purchases from the United States in the form of Reaper/Protector, Rivet Joint, the F.35B, additional Chinooks, the P.8, and the Apache E model.

In the case of the last two programmes, the specification of requirements appears to have had an important role.

Regarding the P8A I understand that the MoD decided that the system had to be able to operate over the mid-Atlantic, although the prime role for the aircraft was to protect UK submarines in waters adjacent to the UK so that they could leave for and return from patrols securely. The effect of that requirement was to rule out the smaller aircraft being considered by other interested companies.

The Apache Ds in service with the British Army were meant to be in service until 2030 but the Army, I understand, moved the required in-service date to 2040. This was a requirement that the D could not meet because of obsolescence issues. The Army’s confidence in this matter is notable, since an alternative view might be that, even by 2030, other means of generating the Apache’s capabilities should be available.

The Government announced its commitment to P.8A and Apache announcement at Farnborough in July 2016. With Apache, its announced cost was $2.3 billion for 50 aircraft. Something very unusual in defence, i.e. a cost reduction of more than 25%, must have occurred in the previous 11 months.  The US Defense Security Cooperation Agency, on 27 August 2015, announcing the State Department’s approval of a possible sale of 50 ‘remanufactured helicopters’, had estimated the price at $3 billion.[7]

Before deciding on a made-in-the-US option, the Government reportedly sought information from what was Agusta Westland and is now Leonardo on cost estimates for building Apache in the UK.  Since then the pound has fallen significantly as a result of the Brexit vote. ‘Today’, with the pound at $1.23 on 13 October, the price in sterling for the aircraft package has moved from £1.53 billion at the time the latest Equipment Plan was unveiled in the autumn of 2015 to £1.87 billion.

In terms of capability and final cost, although the US Government said that the UK Apaches would be capable of ‘counter-piracy operations’, it is not clear if Boeing will be supplying aircraft for the $2.3 billion that are ‘marinised’ to the standard of the UK D fleet (with fuselage protection, folding blades, fitted flotation bags and electronic compatibility with UK naval vessels).

Also, the US Government and Boeing have agreed to integrate the Brimstone missile on to Apache for the UK fleet, and the trials are reportedly going well, but again there is not yet clarity as to whether this cost is included in the $2.3 billion.

Although the UK has committed firmly to the Apache E, the support arrangements have not been finalised and thus their costs can only be estimated.

5. Final comment

Clearly this paper has addressed only a section of the complex defence acquisition agenda, and has not even touched on the SSRO, where an intriguing issue concerns how it will address single source procurements, including those done on an FMS basis, with external suppliers. However, as noted at the outset, a broader agenda could be addressed in oral session.

16 October 2016