UK defence procurement overhaul off to rocky start

949

The government and the defence industry are on a collision course over proposals to reshape their relationship, including plans to buy more foreign and off-the-shelf equipment to cut costs and boost competition.

The defence sector is a rare global success story for British manufacturing, and the country is one of the world’s largest defence exporters. It contributes 35 billion pounds per year to the economy and employs some 300,000 people, industry figures show.

But with the country now tackling a record budget deficit, evidence of overspending has prompted the government to rethink ties with defence firms it once championed, and this month it launched an official review and consultation paper, Reuters reports.

The government wants firms to cut prices to help shore up a 38 billion pound funding shortfall at the defence ministry, which is stretched despite escaping with a relatively light cut of 8 percent to its budget in last year’s spending review.

Other departmental budgets fell by an average of 19 percent.

Defence companies say one of the best ways to cut costs is for the government to clarify its needs better and streamline its procurement process. Defence firms and analysts argue that buying more off-the-shelf and foreign equipment will harm the economy and national security.
“The government is trying to warn the defence industry that the days of the gravy train are over,” said Charles Heyman, editor of the Armed Forces of the United Kingdom. “But the defence industry will say it is dealing with a procurement mad house, pushing costs higher.”

The government singled out the 4 billion pound Nimrod surveillance jet project, axed as part of a military review last year, as a prime example of cost over-runs and delays that have strained ties between the government and industry.

Images this week showed the expensive planes being cut up for scrap, drawing howls of anguish from former defence chiefs.
“We are absolutely committed to high-end manufacturing industries. But what defence can’t do is use the defence budget in some surrogate way to subsidise these industries,” Peter Luff, minister for equipment, told Reuters this month.

WISHFUL THINKING?

Analysts and defence firms say the government’s shift will cost jobs and runs counter to its claims that the country will remain a leading military power with stronger defence exports and manufacturing.

The media, generally supportive of the Conservative-led coalition, is already grumbling over declining British military muscle. The loss of jobs in towns heavily reliant on big defence deals will add to that sense of unease.

Expertise such as ship and aircraft building is difficult to reconstitute once lost, putting Britain at risk if such capabilities are needed again at a time of conflict.

Buying abroad leaves the country reliant for spares and maintenance on foreign countries that may not always be friendly or put Britain at the front of the queue for service.

That reduces the country’s “operational sovereignty” — the ability to act alone. Off-the-shelf products offer limited advantages in conflict and are of limited export value compared to unique innovative products, analysts say.

Defence firms rely on domestic sales to boost exports, because foreign nations are reassured when Britain tries, tests and purchases the hardware itself. Companies may shift investment abroad if Britain was no longer a reliable customer.
“To a certain extent there’s a bit of naivety or wishful thinking about the government’s plans, which when confronted with reality will be modified,” said Trevor Taylor of the Royal United Services Institute defence think tank in London.

GREATER CLARITY

Defence firms and analysts say a key problem is the defence ministry’s muddled procurement process and meddling in ongoing projects, delaying completion and adding billions to costs.

Navy chief Admiral Mark Stanhope this week called for closer ties between military and industry on projects, though critics say both sides have colluded in the past to price projects optimistically low so that they can be approved.

Ben Merrick, head of the defence ministry’s defence acquisition reform programme, told a seminar last week that independent cost advisers would be mandated to projects and an annual report on programmes would be presented to parliament.

The ideas failed to impress industry experts.

Firms recognise the relationship with government must change, if only to avoid project cancellations and bad press.

Defence contractor BAE Systems had to cut 1,300 jobs due to the cancellation of the Nimrod and other programmes, which also hit growth and earnings.



With the ministry in the process of slashing some 25,000 civil service jobs, there are concerns it will be in no position to get its house in order and offer more clarity soon.