Speech on the first anniversary of the Defence Industrial Strategy (DIS) - 15th Dec 2006
Speech by Minster for Defence Procurement, Lord Drayson, at City Forum Ltd in Bishopsgate, London.
Lord Drayson MP
Good morning.
Those of you who know me know that I drive hard to deliver to tough deadlines. In 2005 the MOD delivered the Defence Industrial Strategy inside six months. This time last year, when we launched the DIS, I said that I saw 2006 as the year of Implementation and 2007 as the year in which I wanted to begin to see the results.
Today on the first anniversary of the DIS is the right time to ask if we have succeeded in implementation. The answer to me is a clear yes. But we there remains much more to do.
The DIS had two key sections:
- Section B – focusing on the Sectors and Cross Cutting Capabilities
- and Section C – focusing on Implementing the Strategy
Today I intend to lay out on the progress we have made in implementing both sections. Underlying much of this is the real benefits we are beginning to see delivered as a result of the clarity the DIS provided within the Ministry of Defence, across Government and with Industry and International Partners.
Even at the beginning of this month this speech would have been far less optimistic than it is today – perhaps this is the consequence of working to taunt deadlines. In the last week alone we have made significant progress in two of the most challenging sectors – Fixed Wing and Maritime.
On Tuesday morning I signed the Production, Sustainment and Follow On Development MOU to enter into the next phase of the Joint Strike Fighter programme. The JSF is an essential component of Carrier Strike, vital to the future capability of our Armed Forces. The DIS provided the clarity which allowed me to state clearly to the United States that we would only buy the aircraft if we had the operational sovereignty we required to fight the aircraft. After intensive negotiations and considerable efforts on both sides I was delighted to sign the MOU on Tuesday morning having received Gordon England’s personal assurances that there would be only UK citizens in the operational sovereignty chain of command.
Last Thursday I announced the award of a £124M contract to BAE Systems for Project Taranis, a project to develop Unmanned Aerial Vehicle (UAV) technology. BAE Systems are leading an industry team including Rolls-Royce, Qinetiq, and Smiths Aerospace. Project TARANIS will explore how cutting edge technology can be integrated into the UAV to deliver a new front line capability and play a key role in sustaining vital capabilities and expertise here in the UK. It is a great example of the Ministry of Defence and industry jointly funding research and development for mutual benefit and the rapid pull through of new technologies encouraged in the Defence Technology Strategy.
Turning to the Maritime sector you will all know I have been providing making clear to the industry the need for consolidation of the industry to begin in 2006. This is why yesterday’s announcement by BAE Systems and VT is so important. I strongly welcome the proposed Joint Venture, which demonstrates real commitment by industry to consolidate the UK's surface warship sector which is essential to deliver better value for money for the taxpayer and the performance the Royal Navy needs for the future. It is exactly the right structure, offering the potential to harness the best of both companies to produce a true through life provider in line with the requirements we set out in the Maritime Industrial Strategy to create a globally competitive UK maritime industry.
This consolidation is also essential to the delivery of the Royal Navy's new Aircraft Carriers and a precursor to taking the project to its next stage. I have often quoted Kennedy saying that the “time to fix the roof is whilst the sun is shinning” – well I am delighted to see that the scaffolding is now being put up!
And I am delighted to report that we have made great progress too in extending our co-operative working with France. The Demonstration Phase work has produced a Common Baseline Design that is compatible with the requirements for both CVF and the French carrier, PA2. The UK and French project teams have developed a close, co-operative and productive working relationship and have achieved the best possible level of commonality. This will bring opportunities for joint savings in design costs, procurement and scope for UK and French industry to explore possible areas of shared manufacture and support. It will be up to UK and French industry to make the most of the opportunities provided by this commonality during the next phase of the respective programmes.
This progress, along with the clarity provided for the submarine industry by the White Paper on the future of the UK Nuclear Deterrent amount to real progress in the Maritime Sector.
Another feature of the DIS is taking tough business focused decisions as we did on the LSD(A) programme. Our IPT and industry are now working well together delivering a great capability which the Royal Navy and Royal Marines are delighted with.
I do not propose to rehearse what we have delivered in other sectors in detail. In the AFV field we have provided the clarity industry required on the FRES procurement strategy and proven the ability of our acquisition system to respond rapidly to emerging operational requirements with the rapid procurement and deployment of the Mastiff PPV. We need to take these agile process and build them into our wider acquisition processes. NP Aerospace – the contractor for Mastiff should be commended for taking this agility to heart – and are a great example of the value of SMEs in delivering urgent operational requirements at short notice.
In helicopters there’s the long term partnering agreement with Augusta Westland that’s going to sustain essential skills and programmes.
The formation of ‘Team Complex Weapons’ which is being headed up by MBDA is also a real achievement and involves key players in the sector as well as lower tier suppliers is also a real achievement –although work remains to deliver its full benefits.
And of course the DIS has been the platform for clarity on the Defence Technology Strategy which I launched in October. It spells out very clearly that we’ll be focusing on emerging technologies and promoting innovation. That we’re in the market for new ideas. Ideas that can be pulled through into military capability on the front line. And it also makes it clear that – and again this is all about cultural transformation – we want industry to invest in those ideas. To take risks. And there’s an undertaking on our part that the financial benefits will be there for those companies that are prepared to do that. I want to promote the same high – risk; high reward culture that’s such a prominent feature of the Biotech industry for example. I’m a great believer in competition as a catalyst for innovation, and the Grand Challenge, together with the Competition of Ideas provide this. Roy Anderson will be touching on this in more detail a little later on.
One of the criticisms levelled at the DIS was that it did not focus enough on the supply chain and SMEs. We have taken this concern to heart and are working with industry real progress is being made in this area. This is why I welcome the cultural change we are seeing on this issue. The Society of British Aerospace Companies is today launching its Guidance Manual today on the SC21 Initiative, which aims to make it easier for SMEs to break into the defence market. This is exactly the kind of practical guidance that opens up the opportunities that I want to see underpinning the DIS.
We are determined to drive improvements in the UK’s defence industry – we aim for a lean, high performing industry able to compete on the world stage… but we recognise the need to offer industry incentives to transform and to allow industry to share in the gains achieved. We are working with industry to review the Government Profit Formula. This formula offers industry a return for the efficient performance of contract that is comparable with other relevant sectors of British industry. We are looking to expand the current arrangements to ensure that industry is suitably rewarded for the types of behaviours we want to encourage including taking a higher risk for a particular type of work or contract and supply chain management.
In summary – we are making real progress in implementing Section B – but much work remains. High priorities for me next year include amongst others:
- Seeing through the consolidation of the Maritime Industry, and progress on the Carrier.
- Driving through to an agreement with Team Complex Weapons.
- Delivering real reforms to the Fixed Wing sector working with BAES. I also intend to drive efficiency and improved performance into the Typhoon programme. As you will know I have been crystal clear about my determination to personally grip the current industrial construct.
Turning to section C of the DIS I also see real signs of progress. Following the publication of the DIS we commissioned the McKane review – which delivered to time aggressive timescales a far reaching set of proposals to reform the acquisition system and clearly set out the challenges we would face in implementing these – based on our previous experience, a theme I will return to.
We are on track to create a new organisation - Defence Equipment and Support – that will bring together the Defence Procurement Agency and the Defence Logistics Organisation in April next year. The DE&S is going to be the engine which delivers Through Life, and making sure the whole factory to front line process is seamless and properly integrated.
Financial Processes
I also think we’re making real progress when it comes to our financial planning process, in the way that we plan and resource capability long term. The establishment of a 10 year view of defence, and a single integrated planning process – will I believe- make a big difference.
David Stephens (Director of Acquisition Change Programme) will be talking to you later on about the new organisation and the rest of the Defence Acquisition Change Programme, but can I just say for my part that I know industry back these moves. They say imitation is the most sincere form of flattery, and I’m delighted by Monday’s announcement of BAES restructuring which clearly responds to the way that we, as customer intend to operate in future.
I’d like to take this opportunity, by the way, to pay tribute to Sir Peter Spencer and his team in the Defence Procurement Agency for its ever improving performance, and in particular for achieving its key targets in 2005-2006.
Finally I would like to turn to what McKane rightly identified as two of the greatest challenges to the effective implementation of our acquisition reforms – the changes to culture we require and the personal issues which must underpin them. He rightly identified them as an area in which the Department has failed to embed real change in the past.
Tom’s findings echo my own experience since being made Minister(DP). Let me give you two examples:
- Firstly the Department threw together a crack team to develop the DIS. But when I spoke to them on the day of publication they all made clear to me that they intended to move on – they were not motivated to take responsibility for its implementation.
- The quality of our IPT Leaders is varied – yet the very best such as the current leader of the LSD(A) team who has really turned round his project – will barely be rewarded more than those who don’t perform
Looking around the Department I can see positive signs of change. But the challenge which I have given to myself as Minister(DP), to Bill and to the other permanent leadership of the Department, both civilian and military is “will the IPT Leader arriving at work in DE&S on 2 April 2007 feel the real difference in culture, motivation, accountability and reward – or will it seem like business as usual.” For me the jury is still out on whether we can achieve this…..
We have made real progress in some areas such as:
- The appointment of Amyas Morse as our first Defence Commercial Director
- Our healthy Graduate Engineer and Commercial programmes
And we are building on a solid foundation of motivated staff – who whenever I speak to them are clearly enthusiastic about the opportunities that the new structure will offer.
However, the challenges remain on both the Civilian and Military sides:
- Can we put in place the appropriate reward and recognition package for our staff – to motivate the behaviours we want to see?
- Can we ensure that tenure in post is linked to project deliverables?
- How do we ensure that those on the Front Line feel that acquisition is something that the Armed Forces are engaged in (as is the case) and not something done to them?
For too long in this area the Public Sector has focused on “the art of the possible”, one of my least favourite phrases, rather than on what is required in order to deliver the outputs we require. I have placed many challenges on the MOD and Industry in the past year – but I see that delivery in this area so we embed a permanent step change in performance – as one I must personally drive as Minister(DP).
So in summary – in 2006 – the year of implementation we have achieved a great deal in the sectors, on cross cutting issues and in reforming the MOD’s acquisition processes and structures. I feel as if I have made real progress in driving the Department forward over the last year. MOD and Industry should be proud of what it has achieved. However, it is also clear to me I must continue to push and increase the pace of change. I need to ensure that the people issues and other cultural change happen and are firmly embedded so that they outlast my time as a Minister.
I am also determined to increase the MOD’s agility in procurement – by simplifying processes, better balancing risk and taking difficult decisions quickly – and then keeping to them. These changes are essential if we are to deliver the step change in performance we need to ensure that those on the Front Line receive the equipment they require, when they require it and at value for money for the tax payer.
