Memorandum submitted by the Ministry of Defence

 

  1.                The House of Commons Defence Select Committee launched an inquiry into Defence Acquisition and Procurement on 19 September 2016.  This Memorandum from the Ministry of Defence is intended to support that inquiry and responds to the specific questions set out by the Committee in its terms of reference.  It includes case studies on the procurement of AH-64E Apache Helicopters (the Apache Capability Sustainment Programme), P-8A maritime patrol aircraft and Typhoon Tranche 3.

 

Q1.              How well is defence acquisition reform – a major Departmental initiative – working?

 

  1.                The 2010 SDSR declared an intention to bring the Equipment Plan back into balance. In May 2012, the then Secretary of State for Defence Philip Hammond announced a balanced Defence budget. There was, however, recognition that the Acquisition System needed to be changed to ensure that the Equipment Plan would remain stable and that the poor behaviour that drove the previous problems could be addressed.

 

  1.                The main features of the new system are:

 

-         Delegating to the Service Chiefs and DG Nuclear the resources and decision rights to shape, own and be held accountable for the military equipment capability that our Armed Forces require.  Effort and activity continues to grow the capacity of their staff to carry out these responsibilities.

-         A more disciplined interface has been put in place between the Military Customer and Delivery Agents, Defence Equipment and Support (DE&S) and Information Systems and Services (ISS).  This interface has put in controls to reduce the changing of military requirements which drove cost and delay into historic programmes. It has also given the Services a new understanding and visibility of their equipment and support programmes along with the levers to prioritise the maintenance and development of their capability. The new relationship is still evolving but has come a long distance in a short period of time.

-         Improve DE&S’ capability to deliver projects to cost and time.  DE&S became an arm’s length body in April 2014 with a separate governance structure and management freedoms.  It is transforming into a world-class acquisition and support organisation, which is better able to support the Armed Forces and deliver improved value for money on an enduring basis.  DE&S is on track to achieve ‘Match Fit’ status in April 2017.   

 

  1.                These changes have delivered a step change in performance.  Crucially, we have focussed on keeping an affordable Equipment Plan since 2012 at the same time as improving our delivery performance.  Successive reports by the National Audit Office (NAO) have demonstrated the improvements we have made.  The last ‘Major Projects Report and Equipment Plan 2015 to 2025’, published by the NAO in October 2015, said that “the Equipment Plan looks more stable than last year, and there are indications that it will remain affordable for the rest of the Parliament if this stability is maintained”.  It further commented that “the spending watchdog’s review of the forecast cost of 13 major projects shows that in aggregate, the cost and performance of these projects have remained stable during 2014-15”.  In recognising the continued progress we have made, the NAO chose to move away from conducting a full external Major Projects Report; this will be replaced by project costs and performance data validated independently by MOD’s Cost Assurance and Analysis Service.  Moving forward, we will include a project performance summary within the equipment plan summary published annually.

 

  1.                In his 4th Annual Report in November 2015, Lord Levene commented on this positive trajectory noting that “All the FLCs (Front Line Commands) … are embarked on a journey to develop the skills and expertise required.  In respect of their role as intelligent customer of DE&S, the building blocks are in place”. Command Acquisition and Support Plans represent a signed agreement between the DE&S and all the Front Line Commands for what will be delivered, to what cost and time.  An internal audit in 2015 has so far provided “substantial assurance” that the relationships between the military customers and DE&S are working. 

 

  1.                Even where the new Acquisition System has seemingly faced major challenges, we have had a far greater understanding of the problems we are facing so that we can (and indeed are forced) to take management action to manage risks and tackle issues of affordability. 

 

  1.                This is just the start of a journey. We are not being complacent.  In his 4th Annual Report, Lord Levene also commented that the Department had further to go on the provision of timely and accurate management information. He noted as well the challenge of pulling the behavioural changes through. 

 

  1.                We readily accept that we need to get better in many respects while ensuring that all elements of the Acquisition System pull through to full maturity, recognising that change will proceed at different speeds in different places.  We have more to do to ensure that processes are simplified and that there is sufficient clarity about accountability, authority and responsibility.  We also have further to go in changing instilled attitudes and behaviours.  It is about keeping the wider system under review and constantly testing, adjusting and improving so that we have an Acquisition System that continues to maintain the affordability of the Equipment Plan whilst delivering on time the battle winning equipment to keep our Servicemen and women safe.

 

Q2.              What issues, risks and uncertainties exist within the Equipment Plan?

 

  1.                The previous Secretary of State announced in May 2012 that we had a balanced, affordable and fully funded core Equipment Plan.  We have maintained a stable and realistic programme of work and continue to focus on ensuring the stability of the Equipment Plan, which is fundamental to our approach going forward. There will always be issues, risks and uncertainties but the new Acquisition System aims to identify them and tackle them head on.

 

  1.            We assess that the main current risks and uncertainties we face are:

 

-         The scale of our efficiency programme and delivery of the enhancements set out in SDSR 2015.  During the 2015 Spending Review, we agreed to an efficiency programme with HM Treasury to deliver approximately £5.8bn of efficiencies from the core equipment programme over the next decade.  These efficiency savings will be re-invested into the Equipment Plan to fund, in part, the SDSR 2015 commitments. The delivery of these efficiencies is of the highest priority. A robust governance process has been put in place to ensure that delivery is carefully and accurately monitored; that delivery risks are identified early; and that appropriate actions are taken to ensure their overall successful delivery. 

-         Cost growth.  This pressure will always remain a fact of life for complex, technologically demanding projects.  But the new system is much better geared to mitigate these risks.  We have a centrally held contingency of over £5bn to manage financial risk in the ten year Equipment Plan.  Further to this, there is £11bn of specific risk provision within the individual project costings that make up the core Equipment Plan.  This represents over £16bn set aside to manage financial risk (over 9% of the core programme). 

-          We know that adverse movements in Foreign currency exchange rates (FOREX) are a risk – they always have been – and that is why we operate a FOREX purchasing programme.  To address the risk of short term variations in FOREX, we forward purchase foreign currency at agreed prices over the first three years of the planning period using services provided by the Bank of England and HM Treasury.  This approach provides us with a degree of price stability that is currently mitigating the effect of the Sterling rate on our costs, and will continue to do so over the next three years.  We continue to monitor this risk closely at corporate level, advising the Defence Board as necessary.

 

  1.            DE&S is actively improving its ability to manage risks.  For example, as part of its Transformation programme, DE&S is establishing a process and controls framework.  It has also created a new professional function of Project Controls which should build an improved capability in the disciplines of Risk Management, Schedule Management, Cost Estimating and Cost Controls.

 

  1.            This is but part of the MOD’s new focus on risk management and its determination – from the Defence Board down – to be aware and active in recognising, acting on and carefully tolerating risks in the Equipment Plan so that there can be no return to the previous issues suffered.  There is always more we can do to ensure sufficient focus on managing capability requirements within a set cost envelope.  This will require a concerted change in attitudes and behaviour.

 

Q3.              Do we need a new Defence Industrial Strategy?

 

  1.            The Ministry of Defence is one of the largest customers of defence products and services in the world.  We will always strive to get the best value for money for the taxpayer. And we will do so in a way that strengthens our economy and bolsters the long-term prosperity of people across the country. We continue to develop our approach to working with industry and across Government to help the UK’s defence and security industries grow and compete.
     
  2.            The 2012 ‘White Paper National Security Through Technology’[1], sets out our high level policy on how we procure technology, equipment and support for the UK’s defence and security needs. The Government remains committed to this approach.

 

  1.            The SDSR 2015 built on these principles to create a new National Security Objective to “Promote our Prosperity”. This includes commitments to:

 

-          Refresh our Industrial Policy.

-          Make support for exports a core task for the Department.

-          Improve the export potential of new equipment.

-          Publish a new National Shipbuilding Strategy.

-          Launch a defence innovation initiative.

-          Create a new senior official post with responsibility for Prosperity.

 

  1.            We are also taking action to make it easier for Small and Medium-Sized Enterprises (SMEs) and non-traditional suppliers to bid for defence and security contracts.  In our Single Department Plan published in February 2016, we set out our commitment to a target of 25% of our total procurement spend (direct and indirect) with SMEs.

 

  1.            In August, the Government announced the formation of a new Economy and Industrial Strategy Cabinet Committee, chaired by the Prime Minister.  The Secretary of State for Defence sits on this committee, and we are contributing directly to its work on driving forward a new UK industrial strategy.

 

  1.            We have asked Sir John Parker to lead independent work on a National Ship Building Strategy.  This is due to report to Ministers later this year and we will then reflect on any observations and recommendations Sir John may make.  As set out in SDSR 2015, we are also working with industry to confirm and implement the organisational, managerial and contractual changes needed to deliver the Successor programme.

 

Q4.              Post Levene, can the front line commands meet their obligations for resource management and requirements setting?

 

  1.            The Levene Reforms have been the greatest transformation to the management of Defence in a generation. They have placed in the hands of the Service chiefs the responsibility for delivering the Armed Forces we need to meet our military threats, along with the money and the majority of the levers they need to generate military capability.  This is a huge step forward.  It is the end user who decides how money is best spent and sets the requirements for the military equipment and support they want. It is however a huge responsibility which has required the development of a larger cadre of skilled people in each Front Line Command to carry out these functions.

 

  1.            Since the changes in these responsibilities, we have regularly reviewed how the new arrangements are operating. These reviews have been increasingly positive:

 

-          The Front Line Commands are gaining a greater understanding of the complexities of their individual equipment and support projects and portfolios.

-          Experience in 2015/16 has shown that the Front Line Commands are getting better at forecasting what they are going to spend throughout the year and assessing financial risk.

-          We regularly review the quality of the evidence on which decisions have been made and have some evidence that decision making in the Front Line Commands, including on equipment, has improved.

-          The Front Line Commands are investing in the development of a cadre of requirements professionals. The Deputy Chief of the Defence Staff for Military Capability (DCDS MilCap) is Head of Profession for Requirements Managers with key training courses being delivered by the Defence Academy.  Guidance is being updated to set out how to manage requirements.

-          Each Front Line Command has set up a Requirements Oversight Committee to promote coherence and consistency of key user requirements before putting the business case forward for approval.  This is capped by the Joint Requirements Oversight Committee (JROC), chaired by the Vice Chief of Defence Staff (VCDS), which seeks to improve the ability of our Investment Appraisal Committee to understand and approve requirements for major programmes, provide assurance that the requirements setting process has been rigorous, and enhance oversight of those requirements which cross boundaries between the Front Line Commands as part of the Defence Capability Coherence function.  The JROC also ensures that requirements do not create excessive technical risk, cost and time in projects.

-          The Front Line Commands are also developing stronger relationships with DE&S.  A Defence Internal Audit (DIA) review of the key interfaces between the Front Line Commands and DE&S has awarded substantial assurance.

 

  1.            As reflected below, this is the start of a journey of developing a long term, sustainable cadre of experienced and qualified people to carry out these functions.   Many are just starting on the career paths to give them these skills.  We continue to focus on ensuring that posts are, and remain, filled with suitably qualified and experienced staff – both military and civilian.  But in the meantime, the capacity and capability of Front Line Command staff to act as an intelligent customer grows.  We are investing time, effort and money into this important strand of acquisition reform.

 

Q5.              How are acquisition competencies being developed and assured?

 

  1.            We do not currently have a pan-MOD acquisition profession (or equivalent) that provides an agreed definition and boundary of who is part of acquisition, and the key skills and experience and career pathways they require.  Instead we consider acquisition as an ‘umbrella’ covering multiple roles and activities rather than a single career path.  This means there is a set of functions which contribute to the ‘business’ of acquisition including finance, commercial, requirements management and Portfolio, Programme and Project Management (P3M).

 

  1.            In April 2013, the Civil Service Capabilities Plan was launched.  It identifies the skills needed in the Civil Service for the future and the development of structures and processes to enable those skills to be used to best effect.  The Capabilities Plan identified four priority areas: leading and managing change; commercial skills and behaviour; delivering successful projects and programmes; and redesigning services and delivering them digitally.  All capabilities needed for acquisition.  We also identified four skills areas that the MOD needed to further develop in its workforce, reflecting our own priorities for Defence Transformation.  Set out in the MOD Business & Management Skills Strategy, these included Finance, Science & Engineering and Information.  By focussing on these priority areas, we are developing the flexible, skilled workforce we need to deliver Defence outputs.

 

  1.            The Annual Capability Assessment (previously Annual Skills Review) is a cross government skills audit introduced to assess the level of capability across the Civil Service.  Our last MOD Assessment was completed in December 2015 covering both the four Capability Plan priorities and our own priority professions.  Overall this showed some improvement over the last 12 months with the capability gap closing slightly in some areas, particularly at awareness and working level.  But we continue to have a number of risks around recruitment and retention of key staff at practitioner and expert level in commercial, project delivery and digital skills, as well as critical skills gaps in Science and Engineering. The results of this Assessment are used to inform the annual refresh of the Civil Service Capabilities Plan and to help Civil Service Learning define their learning offer.

 

  1.            Our initiatives to improve acquisition competence and capability are wide ranging.  We have established a Head of Profession for Portfolio, Programme and Project Management (P3M).  The role is developing P3M capability in the MOD and providing opportunities for effective learning and development.  We use the Association for Project Management’s (APM) competence framework for P3M, comprising 27 competences which allow its P3M community to self-assess their application and knowledge of P3M.

 

  1.            We have established the Commercial Professionalism Programme (CPP) to implement an enduring MOD Commercial development programme.  It delivers coherent education and training, recognised qualifications and supporting processes for commercial personnel to broaden and raise their professional abilities and standards throughout their career.  A pan-MOD Commercial Skills and Competency Framework has also been launched covering Pre-Sourcing, Sourcing and Contract Management. It is aligned to the global competence standards, against which commercial staff will be assessed.

 

  1.            A skilled and capable finance function is critical to delivering Defence priorities.  Our Finance Skills and Talent Management Strategy was published in June this year and outlines the skills, resources, talent and management information required to build, and then maintain, a flexible and talented workforce who are capable of managing the many challenges for Defence finance.

 

  1.            The Defence Academy is our in house training provider and we are building on their existing provision.  A pan-Command Capability/Acquisition Practitioner Pathway will support the development of a sustainable pipeline of acquisition practitioners using a pan-Defence approach and common standard.  We anticipate the Pathway will be in place by 1 April 2017.

 

  1.            As part of its Transformation Programme, DE&S launched its new People Strategy in March 2016.  Using the management freedoms that are an integral part of its status as a Bespoke Trading Entity, DE&S is embedding a new approach to attract, develop, deploy and retain highly skilled people to deliver complex acquisition and support programmes.  This is underpinned by the new competency framework, the ‘DE&S Professional’, based on the specialist functional skills required by the organisation to deliver acquisition and through-life support.  The competency framework is part of DE&S’ annual performance reporting process for its staff.

 

  1.            Finally the cross-Command Functional Knowledge, Skills and Experience Framework is being introduced through the New Employment Model Officers’ Talent Management project. This will allow Defence to define priority specialist skills and to identify and track military officers who gain expertise in those skills.

 

  1.            Having and retaining a sustainable cadre of professional to run the new Acquisition System will be critical to its long term success. This is but the start of the journey. As reflected above, we need to do more to ensure that we have suitably skilled people to fill the critical posts.  It is a long term task with many dimensions but a continuing top priority for the senior management of the Acquisition System.

 

Q6.              Does the emerging acquisition system offer value for money?

 

  1.            A system which maintains a stable and affordable Equipment Plan is self evidently better value for money than its predecessor.  There are increasing indications that we are seeing better value for money.

 

  1.            DE&S performance has improved in the last three years.  The last Major Projects Report published in October 2015 showed a significant cost reduction in forecast costs (-£247M) and high level of meeting customer requirements (99%). 

 

  1.            The cost of running DE&S has already got smaller at the same time as its programme of work has grown larger – its total operating costs reduced from £1.14Bn in 2014/15 to £1.12Bn in 2015/16, while expenditure on the programme of work increased from £12.93Bn to £13.02Bn.  This represents an improvement in the ratio of programme of work to operating costs.  We expect this trend to continue, and potentially improve, as DE&S is forecast to further reduce its operating costs to £1.0Bn in 2018/19 concurrently with an increase in its programme of work coming out of SDSR 2015.  This represents us becoming more efficient at delivering a larger and more complex programme of work to meet the needs of our Armed Forces.

 

  1.            In the longer term, we expect to see value for money being delivered as a result of decisions taken in individual projects, which can take years to realise.  As our business is often long term and complex, we expect therefore to see improvements over successive years.

 

Q7.              What are the implications of leaving the EU for the viability of the UK-based defence industry?

 

  1.            The decision to leave the EU does not change our commitment to European and wider security priorities.  The UK is stepping forwards in the world, not backwards.  Our security and prosperity is inextricably linked to Europe and we are clear that, with NATO as the cornerstone of our defence, we have an enduring role to play in European and international security.  This is underpinned by our commitment to meet both NATO targets of 2% of GDP spent on defence and at least 20% of the defence budget spent on capabilities.  We will invest £178 billion in equipment and support over the next decade.

 

  1.            At the Warsaw Summit in July, the UK announced it would lead one of four Framework Battalions as part of NATO’s Enhanced Forward Presence and we confirmed an uplift of10% in UK personnel deployed in Afghanistan.  These commitments remain unchanged by the UK voting to leave the EU as does the decision to build the Successor class of submarines to retain our continuous at sea deterrent.

 

  1.            We must support a prosperous and vibrant defence industry so that our Armed Forces can get the battle-winning capability they need and we can play our part in the Government’s overall Prosperity agenda.  Defence industry needs to be more competitive to deliver value for money for the taxpayer and to win orders in third countries as well as within the EU.  It is important that we work together to achieve the best results throughout and beyond the process of our withdrawal from the EU. 

 

  1.            The UK Defence industrial base is important to the UK, and it is also important to our European partners with numerous collaborative research, development and production programmes.  This will continue to be the case when we leave the EU.  For example, production of the Typhoon aircraft is a collaborative undertaking by the UK, Germany, Italy, and Spain.  The A400M Atlas is being delivered by industry through OCCAR[2].  The UK is also a signatory to the Letter of Intent (LoI) treaty, a group of the six largest European Defence Industrial nations (UK, France, Germany, Italy, Spain and Sweden). These groups are not based on EU membership and the UK will remain part of them in future.  It is in the interests of EU Member States that the UK Defence sector is successful and able to trade across boundaries.  European security is under pressure and ensuring that the armed forces of NATO allies and other European partners have the right equipment is as important to the UK as it is to European nations as a whole.

 

  1.            We will continue working with the Department for Exiting the EU and other partners across Government and industry to understand the possible implications of leaving the EU on a range of issues that could affect UK defence industry, including (but not limited to):

 

-          Supply chain.  Defence industries across Europe often rely on others in complex and often integrated supply chains.  Ensuring access and ease of movement of goods and people will be important for the UK, and for our European partners.

-          Skills.  Ensuring our Defence industry has the right skills and experience available to it is essential in researching, designing, and producing the right equipment for our Armed Forces.  We will look to reassure ourselves of the sector’s ability to draw upon this as required.

-          Market Access.  A vibrant and prosperous Defence industrial sector is important to the UK as a whole and the MOD in particular.  Going forward, the defence industry’s access to European and global markets must be protected and we will work closely with DExEU and the Department for International Trade to best achieve this.

-          Research and Development.  Defence has been involved in a number of collaborative research and development projects within the EU.  We will establish our future relationship with such ventures, and define our future requirements and resources.

-          Allies and Partners.  As SDSR 2015 made clear, our allies and partners are fundamental to MOD, and we will take forward work to be international by design.  Our future work with such allies and partners will, of course, include consideration Defence industrial issues.

  1.            There will be other issues to work through, across Government and with our private sector colleagues and we continue to have regular dialogue with our industrial partners.  This process has begun and will be driven forward as part of our overall work on withdrawal from the EU.  But we remain committed to Europe and the defence of the European continent.

 

Q8.              How is the SSRO, and the single-source procurement regime, contributing to UK defence?

 

  1.            Our policy is to pursue competitive procurement whenever practicable. However around £9bn of our annual procurement spend is on single source procurement (i.e. where there is only one available supplier or where we have opted to place contracts with a single supplier due to urgent operational requirements or to protect a strategic capability).  It is expected that the proportion of non-competitive procurement is likely to remain a significant element of defence expenditure for the foreseeable future.

 

  1.            Achieving value for money in single source procurement has long been recognised as hard to achieve due to the absence of competition and the lack of negotiating leverage.  Concerns about our inability to achieve value-for-money in single source procurement led to the Government commissioning an independent study published in 2011 that recommended fundamental changes, including scrapping the existing framework called the Yellow Book.  We subsequently introduced a new framework through Part 2 of the Defence Reform Act (DRA) 2014 known as the Single Source Contract Regulations (SSCRs).  The SSCRs came fully into force in April 2015. 

 

  1.            The new regime has three key features:

 

-          Clear rules on how single source contracts can be priced.

-          Greater transparency, including a suite of mandatory reports, and an obligation on suppliers to demonstrate that costs to the MOD are ‘Appropriate, Attributable to the contract and Reasonable’.

-          Creation of a new arms-length body, the Single Source Regulations Office (SSRO), to issue guidance on application of the regulations, arbitrate between the MOD and suppliers, and make annual recommendations to the Secretary of State for Defence on setting a Baseline Profit Rate. If asked to by either party, the SSRO can make legally-binding decisions on contract price.

 

  1.            The SSCRs cover single source contracts with a value greater than £5m. It excludes four specific categories of contracts, relating to estates, government-to-government projects, international collaborative contracts, and contracts relating to intelligence projects. The framework does not apply retrospectively to contracts signed before coming-into-force. Our policy is that new single source contracts are subject to the new regulations in order to maximise benefits from the reform. The legislation does include a provision for the Secretary of State for Defence to exempt individual contracts, but this is used very sparingly. It is also our policy to press for existing contracts to be placed under the framework when they come up for amendment unless there are clear commercial reasons not to. This can only be done with the agreement of both MOD and the supplier.

 

  1.            As of 5th October 2016, 47 Qualifying Defence Contracts (QDCs) have been signed with a total value of over £4.5bn. This value is expected to increase significantly over the period to 2020 with contracts for major capabilities, such as Successor (replacement for Trident), Type 26 frigates, and ASTUTE submarine Boats 6-7, being due for signature.

 

  1.            Analysis of the first £2.4Bn of spending covered by the regime indicates achieved savings to MOD of over £50m from implementing the regulations – or around 2.2% of costs.  We are also expecting substantial savings from reductions in the Baseline Profit Rate. We are therefore keen to bring as much single source contracts by value under the regulations as possible.

 

  1.            The SSRO forms a key part of the new framework.  In particular, if the MOD, or a supplier, believes that the regulations are not being properly applied to a particular qualifying contract and it is not possible to resolve this on a bilateral basis, then there is the option of referring this to the SSRO for a judgement. This is particularly useful in resolving disputes about costs. To date, there have been three referrals to the SSRO, two for opinions, which are given prior to contract award, and one for a determination, which resulted in a mandatory adjustment to the contract price. We expect to make further referrals as the volume of QDCs increases.

 

  1.            The SSRO also has a key role in providing the Secretary of State for Defence with an annual recommendation for the Baseline Profit Rate. In addition, the SSRO has issued a considerable amount of guidance on its website which is available to interested parties within the MOD, industry and other stakeholders. The SSRO has also carried out useful analytic work at our request. 

 

Q9.              How effective is the application of science and technology and research and development within the defence environment

 

  1.            Science and technology (S&T) plays a vital role in defending the United Kingdom.  The Government recognises the advantage S&T gives our Armed Forces and committed, in SDSR 2015, to spending 1.2% of the overall defence budget on S&T.  Twenty per cent of this expenditure is on research projects emerging from our ‘disruptive capabilities’ programme which develops potentially game changing ideas from academia and industry.  In addition, co-operation with other UK Government Departments and with international partners enables us to benefit from S&T investments made elsewhere.

 

  1.            Effective S&T investment translates into improved security for the UK and better procurement for our Armed Forces.  For example, to prepare for a biological attack at the London 2012 Olympic Games, MOD’s Defence Science and Technology Laboratory (DSTL) designed and implemented a system to detect and test airborne biological agents that would have allowed medical treatment to be administered with maximum efficacy (within 24 hours of exposure).  DSTL and industry engineered the hardware which used filters developed through research that we funded.  The system collected 1,818 samples during the Games which were normally tested within 14-15 hours of collection.  Having the equipment and system in place for such rapid testing was crucial: in the event of a biological attack, the people affected could have received medical treatment within 24 hours to ensure maximum medical efficacy.

 

  1.            We built on the experience from London 2012 to develop and procure technology for the Armed Forces’ next generation of biological survey collection system (BSCS).  This provides remote sensor capability and a central ‘hub’ laboratory for deployment in operations.  DSTL provided advice on modelling, collection methods, the purchase of sample analysis systems and laboratory work flow processes and facilities to assist DE&S in procuring equipment that is the best solution for the Armed Forces, fit for purpose and affordable.

 

  1.            To ensure the application of S&T is even more effective in the defence environment, we are implementing recommendations from the Government Chief Scientific Adviser’s ‘Science Capability Review’ produced in March 2015.  These recommendations include the production of an S&T Strategy, working to strengthen MOD as an expert customer and separating commissioning from delivery.

 

  1.            In September 2016, the Government launched its Defence Innovation Initiative.  The initiative comprises a dedicated defence Innovation and Research Insight Unit and the Defence and Security Accelerator.  By working across government, the private sector and academia in the defence sector and beyond, this initiative provides key infrastructure to support a pipeline of new technology for application in the defence environment of the future.

 

 

Annex A

 

MOD Case Study on procurement of Apache AH-64E, the Apache Capability Sustainment Programme (CSP)

 

BACKGROUND

 

1.                  The MOD is buying 50 new Apache AH-64E helicopters, built by Boeing, via a Foreign Military Sales arrangement worth around $2.3 billion from the United States Government.  The delivery of the programme will address existing and forecast critical obsolescence issues that will otherwise degrade the operational capability of the current UK Apache AH Mk1 fleet. The contract for the new fleet includes an initial support package, spares, training simulators and other supporting equipment for the helicopters.  The first UK helicopters are due to be delivered in 2020 and will begin entering operational service with the British Army from 2022 onwards.

 

2.                  The new Apache AH-64E will provide the British Army with a key supporting component of its future Strike Force.  Although outwardly similar to the current UK Apaches, the technologies within the AH-64E will deliver a capability that is more advanced and world-leading on the current and future battlefield.  Some components from the current Apache Mk1 will be reused where economic to do so.  Alternative procurement routes were fully considered, but this approach represents best value for money for the UK and was approved by the MOD and HM Treasury in May 2016.

 

GOVERNANCE AND RESOURCE

 

3.                  Accountability.  The Army’s Head of Capability for Air Manoeuvre has been appointed as the SRO with clear alignment of responsibility, accountability and authority to oversee the Apache CSP.  He is personally accountable to the Chief of the General Staff (CGS) for delivering the programme, for the realisation of benefits and for assuring capability coherence.  The Apache Project Team within DE&S are responsible for procurement of the aircraft and support solutions, and are accountable to the SRO and internally to DE&S’s Chief Executive Officer.  The SRO has delegated the day-to-day management of the overall Programme to his staff, with an appointed Programme Director and Programme Manager, and maintains effective control and governance through the Apache CSP Programme Board.

 

4.                  Requirement Setting.  The enduring need for an attack helicopter capability was reaffirmed through SDSR 2015.  The Army has taken a holistic, pan-capability view of the requirement, rather than simply focusing on the platform.  Strategic needs, such as interoperability with key allies such as the US, were also considered.  Under clear direction from CGS and the SRO, the Army undertook a cost/benefit review of the requirement to avoid unnecessary ‘bespoke’ UK requirements that would have resulted in significant additional cost and increased delivery time for proportionately low overall capability benefit.  This has enabled the AH-64E to be acquired “off the shelf” with only two changes from the baseline US Army design to maintain operational sovereignty (a UK Defensive Aids System) and operational requirements (a Windscreen Wash-Wipe capability to enable maritime operations).  By procuring an “off-the-shelf” AH-64E, the Apache CSP not only meets the Army’s needs, but also enables the UK to capitalise on opportunities for through-life burden sharing while delivering enhanced interoperability with the US and other key allies.

 

5.                  Resource Allocation.  Capability planning and delivery responsibility for the Apache CSP, with the appropriate funding, were disaggregated to the Army Front Line Command post-Levene.  Strategic decision-making and investment decisions remain within a reformed Head Office.  As Lead Command for Battlefield Helicopter capability, including Apache, the Army is now responsible for funding the Apache CSP from its own Equipment Plan.  Notwithstanding the programme’s early assumptions and the resources transferred to it from Head Office, the Army has the freedom of choice within its own budget to deliver the programme according to its own design.  The new Apache AH-64-E aircraft will also deliver operational outputs for other Front Line Commands and an appropriate Apache fleet size is being acquired to meet all of Defence’s outputs. 

 

EFFICIENCY AND BENEFITS

 

6.                  Efficiency.  Ownership of the programme and its funding has provided the Army with the incentive and opportunity to strive for novel solutions, seeking better support arrangements and working environments while delivering efficiencies.  This will be achieved in part by taking a Whole Force Approach, which sees Industry, the Reserves and Regular forces working together.  The reduction in UK tailoring of the US Army configuration is another example of these incentives being applied.  The Army is required to derive efficiency and coherence benefits across all the Apache CSP Lines of Development, including equipment, support, infrastructure and personnel.  This is complex given the separate funding sources for infrastructure and equipment.   By focusing on the delivery of such benefits, the Apache CSP is at the forefront of Army programmes in this regard and could set a blueprint for future capability change programmes, such as the Chinook CSP.

 

7.                  Strategic Benefits.  Convergence through cooperation, via a US/UK Memorandum of Understanding, is entirely consistent with the Department’s nascent Strategy for the Defence Relationship with the US.  This sees interoperability and influence as its key tenets.  In the case of Apache CSP, such co-operative working has secured influence with the US aircraft design and future US Army requirements, including the co-development of a real-time operating system that enables the “off the shelf” solution to better meet the UK requirement.  It has also created the opportunity to leverage areas where UK capabilities remain world-leading, such as Air Platform Protection and aircraft support solutions.  In turn, this may offer opportunities to service the UK prosperity agenda in the global marketplace.  These lessons from Apache CSP are already being applied by the Army to the future Chinook CSP.

 

8.                  Programme Delivery.  To enable the management of its portfolio of capability change programmes, the Army has focused on up-skilling its staff and organisational re-structuring to ensure a greater ability to coordinate all of the components of capability, such as training, personal and infrastructure.  The adoption of Portfolio, Programme and Project Management (P3M) principles, aided by external expertise has established a clear and evolving governance mechanism around the Apache CSP.  The area of the Army delivering Apache CSP (Air Manoeuvre Capability Branch) has restructured, with its staff trained in Managing Successful Programmes.  The Army has approved an increase in Air Manoeuvre Capability personnel to deliver Apache CSP as well as manage the overall Air Manoeuvre Capability portfolio. 

 

10.              Behaviours/Relationships.  The Army has transformed significantly over the last two years, developing a new Operating Model and structure, while adopting a P3M methodology.  Concurrently, DE&S is undergoing a major transformation.  The introduction of detailed agreements between the Front Line Command and DE&S in the form of an annual ‘contract’, called the Army Command Acquisition Support Plan (CASP), has improved outcomes and behaviours in many circumstances.  By design, it has required the Army to clarify exactly what it expects and funds DE&S to deliver and by when; acting as an intelligent and appropriately demanding customer.  This has overwhelmingly been a positive development, although areas for continuous improvement remain.  Going forward, a balance between programme delivery risk and necessarily demanding capability requirements is needed.  This will ensure DE&S continues to procure and support world-class equipment in a way that is affordable, on time and meets the Army’s operational needs. 

 

CONCLUSION

 

11.              The adoption of the delegated Operating Model has, in the case of the Apache CSP: better aligned responsibility, accountability and authority; enabled the Equipment Programme to meet the Army’s agenda of efficiency and resource-aware requirement setting; enhanced interoperability and burden-sharing with a key ally; re-focused the relationship with DE&S, with the Army acting as an intelligent customer; allowed opportunities for best practice to be transferred to other programmes; and encouraged the Army to seek novel and innovative solutions across all areas of capability. 

 

 

Annex B

 

 

MOD Case Study on procurement of Maritime Patrol Aircraft programme – Poseidon P-8A

 

  1.                As an outcome of  SDSR 2015, the MOD announced that it would acquire a Long Range Maritime Patrol Aircraft capability through the acquisition of nine P-8A Poseidon aircraft and associated support.  This was to be achieved primarily through a Foreign Military Sales arrangement with the United States Navy.  It was also announced that all nine aircraft would be based at RAF Lossiemouth in Moray.  The delivery programme is due to conclude in 2024, albeit there will be earlier deliveries of capability, including the first aircraft that is currently scheduled to arrive in the UK in 2020.  On the conclusion of the programme, there will be a total of 18 front-line crews contributing to Defence Tasks 1 to 6 but apportioned principally to help in the protection of the UK’s nuclear deterrent.

 

  1.                In line with the Department’s delegated operating model, Joint Forces Command hold the responsibility for developing all such capability requirements for new Intelligence, Surveillance and Reconnaissance (ISR) capabilities for Defence.  Accordingly, they led the activity to develop the proposed Maritime Patrol Aircraft Programme, which provides a Targeting Acquisition Capability in addition to ISR, and made a robust case for investing in the capability that was approved by the MOD and then HM Treasury in summer 2016.

 

  1.                Throughout this process, DE&S operated in close conjunction with the capability staff of Joint Forces Command, acting as advisers and subject matter experts for the development of the programme concept.  DE&S ensured that the programme was both technically feasible and adequately resourced, even before it reached the investment approval stage.

 

  1.                In line with the principles in the Department’s delegated operating model, it had always been understood that the Programme, once approved, would be delegated to Air Command to deliver into service, with Joint Forces Command remaining in the role of Capability Sponsor.  Accordingly, since receiving approval, Air Capability staffs within Air Command have assumed responsibility for delivering the Programme on behalf of its SRO, and have initiated an appropriate period of due diligence.  It is expected that this period of due diligence should be complete around the end of 2016 and is serving to reinforce further the assurance to the Department, and Government, that the Programme remains deliverable.

 

  1.                Given that the Maritime Patrol Aircraft Programme is part of the Government Major Projects Portfolio (GMPP), it is now being managed fully under the best practices advised by the Infrastructure and Projects Authority.  For example, the SRO is undertaking the Authority’s Major Projects Leadership Academy while the Programme Director is a graduate of the Authority’s Project Leadership Programme.  All other associated programme management staff within Air Capability are ‘Practitioners’ in the methodology of Managing Successful Programmes.

 

  1.                The governance structure for the programme has been firmly established under the direction of a Programme Board, chaired by the SRO.  Membership of this Board includes the owners (at military 1* or civilian equivalent) for each of the Defence Lines of Development[3] that comprise the subordinate projects that deliver the overall programme.  DE&S provides the lead for the Equipment Defence Line of Development.  Finally, Joint Forces Command retains its relationship with the Programme as Capability Sponsor and attends Programme Board meetings.

 

  1.                Below the Programme Board, a full governance structure is in place to manage the day-to-day delivery of the Programme.  The relationship with DE&S as the delivery organisation for equipment is formalised through the Joint Forces Command’s Command Acquisition and Support Plan (CASP), the formal agreement that effectively delivers the “robust and disciplined interface between DE&S and its customers” that was advocated by Levene.  DE&S is held to account for its delivery against the CASP.

 

  1.                The SRO is held to account for the effective delivery of the Programme through several formal processes.  These include a quarterly formal report utilising the MOD’s Programme Management Reporting System that informs both the Programme Sponsor and MOD Head Office of the status of the Programme and of any risks and issues that may affect its deliverability.  The reports also inform various ‘Holding to Account’ sessions at which the SRO is further questioned on the continued programme viability and progress.

 

  1.                Overall, therefore, the contemporary nature of the Maritime Patrol Aircraft Programme has allowed it to be established and implemented fully in line with the principles of MOD’s delegated model.  The relationships that have been established with all agencies associated with the Programme are well found, robust and controlled, and the chain of accountability is clear and regularly reviewed.  As a consequence, the Programme continues to be assessed as fully deliverable against the key criteria of performance, time and cost.

 

 

Annex C

 

 

MOD Case Study on procurement of Typhoon Tranche 3

 

  1.                The UK has procured Typhoon in collaboration with Germany, Italy and Spain. Together, the four partners have contracted to buy 472 Typhoon aircraft in three Tranches, along with a further 87 purchased by Saudi Arabia and Austria. The collaborative project began in the mid-1980s and, as one of the partners making the most significant investment in the programme, the UK MOD played a central role in establishing the collaborative management structures we see within the NATO Eurofighter Typhoon Management Agency (NETMA)[4] . These early arrangements have proved complex and inefficient, but the Department has recognised the shortcomings and is working with partner nations to streamline decision-making. The Government arrangements are replicated by industry with contractors from each nation forming consortia to manage the development, production, continued enhancement and support of the aircraft and engine.

 

  1.                The Government underlined its commitment to Typhoon in SDSR 2015 by extending the Out of Service Date to 2040 and committing to a new Active Electronically-Scanned Array Radar.  As such, Typhoon will form the core of the RAF’s combat aircraft capability for the next 24 years.  The MOD is buying 160 aircraft with the first Typhoon delivered in 2003 and the last currently expected to come into service in 2018.  The UK Typhoon Programme is divided into 3 Tranches (Tranche 1, 2 and 3) with each Tranche improving capability and hardware.  The Tranche 3 contract, signed on 30 Jun 2009, agreed to a final purchase to deliver a total of 40 Tranche 3 aircraft to the RAF by Apr 2018.  Within each Tranche, the airframes are delivered in Blocks; each Block introduces a new aircraft baseline with new capability or obsolescence fixes.  The Tranche 3 aircraft, delivered in two blocks (Block 20 and Block 25), are functionally identical to Tranche 2 aircraft.  However, there are some structural differences with the Tranche 3 aircraft including provision for future upgrade e.g. mounting points have been included for an Actively Electronically Scanned Array Radar.  

 

  1.                Planning for such capability enhancements is imperative as the operational and threat environment has changed significantly since Typhoon was conceived. The ground-attack role, for instance, has become increasingly more important and with the scheduled retirement of the Tornado GR4 aircraft in Apr 2019, Typhoon will undergo a series of enhancements[5] making it an extremely capable ‘multi-role’ aircraft.  This ability to conduct both air-to-air and ground-attack missions will be undertaken by the Tranche 2 and Tranche 3 aircraft and will be delivered under Project CENTURION[6] which has a target in-service date of 31 Dec 2018.  The timelines for delivering this transition are proving challenging, particularly with regard to gaining timely partner nation agreement on international clearances for capability enhancements.  However, the establishment of a revised NETMA 4-Nation forum in early 2016 has improved collaboration and provides the UK with greater visibility and influence of critical Project CENTURION deliverables.  This new forum is welcome and adds better levels of assurance which will help ensure that Typhoon will be able to assume tasks currently undertaken by our Tornado aircraft.

 

  1.                Recently, there has been a landmark reform in the way Air Command conducts Capability Management as part of Defence Reform.  The Levene Report of 2011 resulted in the delegation of responsibilities to Front Line Commands, including Air Command, for capability management, accompanied by an increased financial authority for investment approvals.  Alongside this, the RAF began to adopt best practice from ‘Managing Successful Programmes’[7] guidance. This ensures that the SRO and Programme Manager have full Programme Management support and access to the most current data to make the most informed decisions.  The SRO’s enrolment on the Major Projects Leadership Academy has also benefitted the Programme as he is exposed to a variety of major project case studies and is able to bring ‘best practice’ back into the Programme.  He is also routinely ‘Held-to-Account’ for Project CENTURION by DCDS(MilCap) and VCDS, and is thus able to expose Programme issues to the highest military levels and, if necessary, to Ministers.  In addition, the transition of capability delivery to Air Command – with the resourcing of the Programme Management Office - has enabled greater expert engagement and influence within DE&S, industry and NETMA.  The Tranche 3 aircraft, as part of the wider Programme, has subsequently benefitted from these new practices as Air Command strives to ensure capability is delivered to performance, cost and time parameters.    

 

  1.                Underlining Air Command’s improvements in Capability Management is the Acquisition System Operating Model.  The Acquisition System Operating Model defines the Front Line Commands as ‘Intelligent Customers’ of DE&S and outlines the processes and behaviours necessary to achieve this. These changes are helping to create a more disciplined boundary between DE&S and the RAF, in turn reinforcing the Customer-Delivery Agent relationship between Air Command and DE&S and facilitating a more formal business-like approach.  This is formalised through the Air Capability Acquisition Support Plan, which has seen significant improvements in how the interaction is both governed and managed.  There now exists a much greater level of transparency in DE&S output and a more precise tasking mechanism from the Typhoon Programme due to the continued programme rigours introduced through the new Capability Acquisition Support Plan system of controls. 

 

  1.                The Acquisition System Operating Model also allows Air Command to better realize efficiencies and re-invest these back into capability; the Future State Operating Model is a case in point.  In November 2015, the MOD approved the principle that any cost reduction in the future Typhoon Support model could be re-invested in Typhoon capability development. A deal has now been negotiated between MOD and BAE Systems to provide support at a target price of £2,142M which represents a 38% saving on the existing arrangement; this established a fully anticipated saving of £547M.  Air Command is establishing a prioritised list of capability development options which will be reviewed under the standard approval processes. This will clearly support further Tranche 3 capability development ensuring that aircraft enhancements will meet regulatory, safety, survivability and capability enhancements to meet the future operating context.

 

  1.                In summary, the minimum requirement for Typhoon over the next two decades must be to maintain its current advantage over the adversary threat even as the operating environment becomes increasingly more complex, hostile and contested.  Tranche 3 aircraft will spearhead the whole of the Typhoon fleet’s continued development to deliver the multi-role capability required of the RAF.  The Programme as a whole is benefitting from the transformation we are seeing from Air Capability reform, a more professional relationship with DE&S and closer cooperation with industrial partners.  These improvements are helping to deliver a programme that is affordable, value for money and one that most importantly, delivers the correct capability to the front-line in a timely manner. 

 

17 October 2016

 

[1] https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/27390/cm8278.pdf

[2] Organisation for Joint Armaments Cooperation | Organisme Conjointe de Coopération en matière d’Armement

[3] Training, Equipment, Personnel, Information, Doctrine and Concepts, Organisation, Infrastructure, and Logistics.

[4]   NETMA acts as the single point of contact for customers, governments and the partner companies. The partner companies in the programme are BAE Systems, Leonardo – Aircraft Division and Airbus Defence & Space; they manage industry suppliers employing over 100,000 people across the supply chain.

[5]   Primarily the integration of additional weapons (Meteor, Storm Shadow and Brimstone 2) onto the Typhoon platform to enhance both its Air-to-Air and Air-to-Surface capability.

[6]  CENTURION is the name given to the project that will transition the Tornado GR4 capabilities to Typhoon by the end of Dec 2018 to ensure we retain a ground-to-air capability following the scheduled retirement of the Tornado GR4 in Apr 2019.

[7]   The Defence Finance and Military Capability Operating Model applies Managing Successful Programmes principles as outlined in the ‘Managing Successful Programmes’ Axelos 2011 Edition.