The Minister for Defence Procurement, Lord Drayson, addresses the Confederation of Shipbuilding and Engineering Unions (CSEU)

Riding the wave: Naval capabilities in the 21 st Century

Lord Drayson, Minister for Defence Procurement

Good morning ladies and gentlemen, I am very pleased to be able to address this Maritime Forum in my first year as Minister for Defence Procurement and at such an important time for UK naval shipbuilding.

We have a rich history of shipbuilding in the UK. Last week’s bicentenary of the Battle of Trafalgar was timely reminder of our maritime heritage. In Nelson’s time, it was well understood that crucial to the Royal Navy’s victories where the nation’s shipyards. Today’s shipbuilding industry remains just as important to Defence today.

Many of you may know that I worked in business before taking my post at the MOD. I trained as a manufacturing engineer at Longbridge before doing a PhD in robotics and going into business.

The businesses I built were all manufacturing companies, so I know that special pride in the job that comes from making things and I can’t think of anything more satisfying than building ships.

I also remember showing my bank manager around my factory 20 or so years ago. We were standing up on a platform when he turned to me and said:

“You know the thing I like about your business Paul is that you can see how the money’s made. Raw materials going in one end – finished product out the other.”

So also for financial types – investors and accountants - there’s a special appeal from making things.

I also learnt in business, the intimate relationship between business and the wider community. Its one of the mains reasons I went into politics.

We are one of the top four manufacturers of warships (by tonnage) in the World, alongside the US, France and Germany. And this is an exciting time to be in the UK shipbuilding industry as we move into the largest programme of new work in decades; a programme that is likely to be worth some £14Bn over the next 10-15 years. This will bring about a step-change in capability for the Royal Navy, increasing its ability to project power across the globe in support of British interests and as a force for good in the world. The ships and submarines that will be built are much more than their steel hulls. They will be complex weapons systems full of cutting-edge technology and require an industry with the necessary technology and infrastructure, and most importantly a dedicated workforce with the skills and expertise to provide the high-value added design and integration services that we will need - sustaining skilled, rewarding jobs. Some of our ships may be in service a very long time, and one thing we can be sure of is that they will need to adapt and be upgraded over their life – systems engineers will have a good future.

The UK will need to buy warships and submarines for the foreseeable future – but our ability to do so will depend upon the industry and the MOD working together to address the fundamental issue of affordability.

I’ve been pleased to see that some shipyards have already got this message and are investing in skills and equipment to become more efficient and are reviewing their processes and working practices to drive improvement. Bringing in new ideas from abroad where needed. For example pressure hull assembly techniques from the US on Astute build.

The MOD is key to driving affordability too. Both in the way it provides a clear investment framework for industry through the visibility of long-term plans and by being innovative and efficient in the way it works with industry to run projects efficiently.

Before discussing our programmes for new ships I would like to take a moment to pay tribute to the dockyards and other ship repair yards whose skilled workforces play such an important role in supporting our ships. Indeed, only last Friday I visited Devonport and witnessed at first hand the challenges of refitting a nuclear submarine. The work being done there is of huge significance to the Royal Navy, and the standard of workmanship is second to none. Over the years we have seen many changes to the way in which support is delivered. From the privatisation of the Royal Dockyards at Devonport and Rosyth in 1997, and the appointment of commercial managers at Portsmouth in 1998, to the Warship Support Modernisation partnering arrangements at the three naval bases in 2002. The support of the workforces for these initiatives is greatly appreciated.

As is the commitment to delivering our new programmes, and I will quickly review three: Type 45; Astute and firstly, Future Carrier. Each Carrier is expected to be three times larger than the current Invincible class. These will be the biggest and most powerful warships ever constructed in the UK and the most capable carrier force outside the USA. They will deliver expeditionary offensive air power over a projected life of more than 50 years.

You may have seen the reports this morning in the newspapers about the House of Commons Defence Committee hearing on the new Carriers. Let me reinforce with you what I said to the Committee.

I know that the Navy needs these Carriers as quickly as possible – they are Key to our future defence. I also know that they are vital to the shipbuilding yards in this country. My job is to get these Carriers built. But its got to be done right – and I am not going to sign off on the main investment decision until we have the contracts in place to build theses Carriers in a way which will transform the shipbuilding industry in this country into a structure which will be sustainable in the long-term, efficient and fit for purpose, globally competitive and able to produce the battle-winning warships that the Navy will need in the 21st century – at a price the country can afford.

The Carriers provide us with the opportunity to do this. And the time to do is now.

The Type 45 destroyer will provide the navy’s primary Anti Air Warfare capability for over thirty years. It is a versatile warship that will provide exceptional detection and defensive capability, efficiency and living standards when the first of class, HMS Daring, comes into service in 2009.

The Astute class will be the most advanced and powerful attack submarines the Royal Navy has ever operated and will play a key part of our defences for decades to come. With improved communications, a greater capacity for joint operations and the ability to carry more weaponry, the Astute-class submarines will deliver a marked increase in the flexibility of our attack submarines. First of class, HMS Astute will enter service in 2009, and in August I was very pleased to be able to see her under construction at BAE Systems’ facilities in Barrow. It was particularly impressed by the focus on reducing costs that was shared by the whole workforce at Barrow. The positive attitude of the apprentices who showed me round the boat was particularly impressive. It is great to see young people who wish to make their futures in this industry. If this is to continue we need to ensure that it continues to be attractive to young people with the right skills, and to continue to develop them throughout their careers. Together these capabilities are contributing to the development of a Versatile Maritime Force needed to meet the operational requirements of the 21st century. Such a force must be responsive, robust, flexible and optimised to provide decisive effect on and off the sea. But just as the Royal Navy is changing shape so must the industry that supports it. The qualities responsiveness, robustness and flexibility must be embedded in the supply chain if it is to continue to meet our defence needs and ensure a healthy future for itself.

I have just outlined that there is a very strong programme of work for UK shipbuilding over the next ten years or so, but such a large programme cannot be sustained indefinitely. Put simply, as a customer, we cannot afford it and nor do we need it. That is not to say that we will not need new destroyers, frigates or submarines in the future, or that we will not need to upgrade our ships regularly, responding to new technological opportunities and new threats. But the rate of acquisition of new platforms is likely to be much lower than the upcoming peak. The clear trend is for fewer, more capable, vessels with longer operational lives. This has implications for both new procurement and the volume of support business required. We have been working to smooth out the long term cyclical demand for naval warships and provide a more predictable future for ourselves, industry and the workforce you represent. But this more stable future can only be achieved if the design, manufacturing, support and integration capacity within the industry is matched to that pattern of demand. Military business is the lifeblood of much of the shipbuilding industry – 85% of those constructed in our shipyards – and MOD is by far the largest customer. Streamlining the businesses, making them more efficient and profitable, to mirror our demand and the military export potential is not only good for the Royal Navy and the taxpayer, but needed for the long term sustainability of the industry and its workforce. Our shipbuilding industry needs to renew itself and there is a window of opportunity now to do so, now.

I understand that people in shipbuilding want job security and the opportunities to develop their careers and that industry needs to make a healthy profit. I would not have got very far in my own business career if I had not heeded those fundamentals. But in an open capital market the trend will be for investment and economic benefit to migrate towards those sectors providing the best returns. Management, workers, and technology in the defence industry remain largely national, but capital is international. It is vital that investors have confidence in the profitability of the industry, or the investment needed to maintain productivity will not be available. It is important that they have a clear view of what the Government is likely to require, or equally, does not require, over the long term. That is one of the reasons why I have asked the MOD to work urgently on the Defence Industrial Strategy that will set out our likely future needs as clearly as we can so that industry can develop accordingly. This is currently my number one priority and I would like to update you on how this is progressing. My objective is to deliver it by Christmas.

Building on the Defence Industrial Policy published in 2002, the Strategy seeks to provide an understanding of which technologies and industrial capabilities are important for us to retain in the UK for Defence. This understanding is vital if we are to ensure that the capability requirements of the Armed Forces can be met, now and in the future. The Defence Industrial Policy provided an indication of how this issue might be addressed but did not provide the detail industry sought – including the key question of how its principles were to be applied in practice.

The Defence Industrial Strategy will provide that detail and will represent a major step forward in providing industry with greater clarity about the future direction of MOD’s capability requirements. We want to help industry and investors to make informed, long term investment decisions, generating the confidence that will underpin investment – both in facilities, and the ongoing training and skills of your members. Now this is a significant challenge but one which it is absolutely essential to address now. I am committed to ensuring the Strategy is delivered by the end of the year and I am demanding gritty conclusions on shipbuilding and ship support, including submarines

It is clear to all of us that at a time when our Armed Forces are actively deployed on operations around the world that the priority of the Defence Industrial Strategy must be to ensure that we provide them with the equipment that they need, at best value for money for the taxpayer. I should be clear this is not being interpreted narrowly as the best short term value for the defence budget, if that implies project-specific short-sighted decisions. The DIS is about giving a long-term framework, and considering the industrial impacts of our decisions in the round. This long-term perspective is key to the whole thing. It means we have to take difficult decisions as there is only so much money available for Defence. Any time MOD buys something from a British supplier where an equivalent, cheaper alternative product is available abroad, – or a same price but better one, we have to admit they sometimes exist! - that means that the Armed Forces either get less, or worse, equipment than they otherwise would have had. Unless there are valid Defence reasons for taking a broader view of the relative value for money, that is not a position the public should or will accept, particularly while our forces are heavily engaged in operations as they are today in Iraq.

We want to help keep the UK defence industry competitive and innovative, maintaining the necessary industrial base to meet our requirements. But, as I have already said, that does not mean protection for the whole of the UK defence industry as it currently stands. There will remain some areas, including some relevant to the maritime sector like aspects of the nuclear submarine industry, which we cannot depend on another nation to develop or sell to the UK. But I do not expect the list of key capabilities that must be fostered and sustained in the UK to be a very long one. Not being on the list does not mean that there is not additional value to the greater assurance that UK sourcing or participation can offer. Nor would exclusion from the list mean that we are not interested in those industrial and technological capabilities, where we have relevant programmes drawing on them.

Delivering an industry that can sustain our sovereign capabilities, affordably, is a challenge for industry, but one we are keen to assist. So while the Defence Industrial Strategy will certainly specify what is important to retain on-shore, to maintain appropriate sovereignty, it also has to go further. It has to outline how these industrial capabilities might be sustained. Our sailors fundamentally rely on the industry to make sure they have the equipment they need to keep them alive and able to carry out the tasks we demand of them. If equipment isn’t delivered on time or to capability, it hurts us, as well as companies and workers. The Maritime chapter of the DIS should be one of the most mature, because joint work with the maritime industry, known to some of you perhaps as the Maritime Industrial Strategy, started some time before other sectors. This is now concentrating on more clearly identifying the likely volume and timing of future business, and defining in greater detail how we plan to maintain the sovereign capabilities we require. The work covers submarine and warship build, support and upgrade, and is fully consistent with the broader DIS effort. As I say, we are facilitating the industry’s engagement, but it is not Government’s business to interfere in companies’ structures, strategies or shareholdings even when we are critically dependent on each other. The success of the Maritime Industrial Strategy is ultimately dependent on companies’ willingness to work together and draw their own conclusions. But we need improvements in performance, quality, and efficiency if our programme is to be affordable, and this work needs to define the answers to delivering this and sustaining our sovereign capabilities.

The DIS is also highlighting the need to adjust the traditional pattern of designing and manufacturing successive generations of platforms. We need a new approach based on support, sustainability, and incrementally enhancing capability by inserting new technology. The emphasis will be on through life capability; developing open architectures that facilitate this; and maintaining – and enhancing – the systems engineering know how that underpin it. The attractions for industry should include longer, more assured revenue streams based on long-term support and continuing development. Not a series of big 'must win' procurements. There will, of course, remain some exceptions, where disruptive technologies argue for a more significant change, but in general evolution should be the pattern.

In the warship industry the attractiveness of a move towards systems and incremental acquisition would appear even more compelling. The cost of the combat systems installed in modern warships is more than that of the platforms in which they reside – the cost of a warship is typically 70% systems and 30% hull construction, materials and outfitting. Moving forward the UK shipbuilding industry therefore needs to concentrate on where it can provide unique skills and capabilities that add significant value and best meet the requirements of a modern Navy. Design and systems engineering capabilities are hard to develop and even harder to maintain over the life of a ship, pulling in new technologies as they become available.

I know the announcements we make on particular projects – and media's focus on the big platforms – mean that it doesn't always look like this is where we are going, but it has to be the trend. We need to work together to change the public's perceptions of defence equipment and the defence industry away from this traditional platform focus towards systems and incremental acquisition.

A good example of successful incremental acquisition is the refit of HMS Illustrious to prepare it for a new dedicated strike carrier role. It is also a good example of how the UK shipbuilding industry [Babcock BES] can rise to such challenges. HMS Illustrious was a 30 month, £120M refit, it delivered an extensive upgrade package within an ambitious timescale and came in under budget, enabling the savings to be re-invested in additional upgrades to the ship in the refit. Central to this success was a triangular partnership between the contractors, the MOD and the ship's crew. The NAO cites this as a good practice example in its recent Report - Driving the Successful Delivery of Major Defence Projects. I have visited Illustrious and seen for myself the brilliant job by workforce at Rosyth has done. Removing the gear box from the side of the ship alone was a remarkable feat of ingenuity.

There are potentially some useful lessons to be learned from the Alliancing / partnering approach to the Future Carrier project. Alliance is best described as a co-operative relationship between client and key contractors and suppliers as a means of delivering improved performance and enhanced mutual business results. A good example of this working in practice is the Value Engineering work on Future Carrier, conducted by the Alliance as part of the Assessment Phase. This focussed on identification of opportunities to de-risk the programme by concentrating on the cost of the product design, equipment and construction. This work necessitated some system re-design and produced considerable cost avoidance and risk reduction. These kind of benefits are only available if we can align industry’s and MOD’s incentives appropriately.

Today’s seminar comes at a crucial point in developing this Defence Industrial Strategy. The work is being taken forward across Whitehall at a brisk pace and we are involving stakeholders from Defence Industry and the broader community throughout the process. Our approach has been to engage the shipbuilding industry at large and yourselves as much as possible, though commercial sensitivities obviously come into play when we get into specifics.

In some areas the data is sensitive for commercial or security reasons and cannot be released, but we intend to put as much information as possible into the public domain, and raise the profile of the work. The DIS pages, including a public forum, on the MoD Website is one illustration of our commitment to this. I encourage every one of you to feed in your views in this way, but as I said the work is moving quickly.

Let me close by emphasising some joint challenges for MOD and industry in equipping the military of today. Better at identifying and rapidly translating into military capability useful technologies. Where sovereignty is an issue, working together to ensure it is delivered cost-effectively. Really making a shift to through-life capability, and making 'legacy platform' a redundant term. Ensuring the value to Defence of a healthy, sustainable industry is maximised. Not easy, but important to tackle – by Government; by industry; and by us together.

Last Updated: 27 Oct 05