Defence IssuesMinister of Defence Procurement, Lord Drayson, addresses the Defence Systems & Equipment International - Defence Manufacturers Association Dinner - 15 September 2005
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| Lord Drayson, Minister for Defence Procurement |
Defence Industrial Strategy
I’d like to start by saying a few words about the Defence Industrial Strategy that I have been asked by John Reid to undertake. First let me be clear: This is about maximising the military capability and security of the country. It’s not about jobs. Nor is it a fundamental rewriting of the Defence Industrial Policy. It will build on that Policy, addressing some of the difficult questions surrounding the future shape of the defence industrial base, and explaining, in detail, how Government is applying the Policy in practice. Not least, I intend it to develop a clearer joint understanding across Government and with industry of the technologies and industrial capabilities which are essential for us to retain on shore.
I intend the Strategy to be published before Christmas. That might seem almost indecent haste for a Minister new to Government. But in defence procurement, time is money. I also think that the public and industry deserve some clearer answers; I also know that several companies are fundamentally reviewing their business strategies over the next few months. And our own major procurement decisions, such as on CVF, need to be put within a framework. Industry’s independent conclusions could, if we are not crystal clear, see some industrial capabilities disappearing, before we have specified whether or not MOD regards them as important.
That means the work has to be prioritised. By December, we will not be able to cover all the sectors to the same depth, and there will be an element of ongoing work. But I am demanding gritty conclusions on shipbuilding and ship support; fixed wing aircraft (including UAVs); rotorcraft; guided weapons; general munitions; armoured fighting vehicles; and a number of other key areas.
Just as the Defence Industrial Policy is ‘driven by the need to provide the Armed Forces with the equipment which they require, on time, and at best value for money for the taxpayer’, so will the Strategy be. Not blanket protectionism for domestic industry, whether for initial procurement or through-life support. But a hard-headed assessment of what kind of industry – globally and nationally – we need to interact with, and how to promote it. Defence needs come first; the military challenges we face need effective and efficient responses, and the challenge to industry is to help us form such a response. When a non-competitive and/or national arrangement can be shown to be more effective and efficient than an open competition, we should pursue it; but only then. For example, we announced in March this year a Heads of Agreement with Agusta Westland to develop a long-term partnership for helicopter support. We expect significant efficiency and effectiveness improvements as a result. But any areas which merit more investment will inevitably and necessarily require hard choices to cut elsewhere.
We want to respond to what Industry is telling us. And I want real consultation with Industry and the Trade Unions. If you haven’t had the chance yet to comment, and want to, then make sure you do. The MOD web site has a Public Forum area for anyone to post their comments on the Strategy. I’d encourage you to use it.
The list of industrial capabilities that must be sourced from the UK will, I expect, be a short one. And of course, we continue to include foreign-owned companies operating in the UK within this. The other areas we need to investigate include:
- where we need to retain, in the UK, effective through-life support, including upgrade and urgent operational requirements;
- where specific UK capabilities give us important strategic influence, in military, political or industrial terms;
- and in some cases, to maintain realistic global competition – in other words, so we are not dependent on an overseas monopoly.
We also need to recognize, and emphasise even more, the general shift away from the traditional pattern of designing and manufacturing successive generations of platforms. We need a new paradigm centred 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 integration 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. 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.
We have, I believe, an excellent research base. But what we must do is pull through technologies of real military potential – and ensure we can access as wide a pool of innovation as possible. We have world-class defence science and technology organisations with significant scale – dstl, the Met Office, the Atomic Weapons Establishment, and QinetiQ. We have also introduced complementary initiatives, such as the Defence Technology Centres, which have been well supported by industry and academia. Overall, we are much better placed to ensure that useful innovation, wherever it arises, can be applied quickly in imaginative ways to improve frontline capability.
We also need to be clear on the relationship with other technologies and equipment, developed by our allies. We – the MOD and industry – need to think carefully about where, and how, we match, complement, or disinvest in areas compared to key allies. I explicitly include continental Europe in that.
The defence industrial strategy will require change for MOD and the wider government, as well as the supply-side. This will include reassessing the use of competition at different stages, and optimum contract durations to encourage investment. So we also need fresh approaches to demonstrating value for money. More broadly, we will consider the potential impact on our wider structures, policy and processes. In all this we need to be more open and transparent.
Export Performance
We are used to competition in the export market. Last year indeed new defence export orders were valued atfour and a half billion pounds - helping the UK maintain its position as the most successful defence exporter in Europe, and second only to the United States in the global market. It is a substantial achievement against stiff competition.
But we must not be complacent. US market share is well ahead in the competition and it’s from them we must win business. At the same time we must contend with challenges from Russia, France and Israel, who are working hard to improve their market shares with more assertive marketing, the offer of better after-sales support, and widening product range. So we in the UK have to pull together. We should examine how we might improve performance in the land and naval sectors. The growth sectors lie in products and systems associated with Networked Enabled Capability, Smart Weapons and domestic Security. There is business to be won offering integration skills and support services – areas in which the UK should do well – and there’s still substantial business to be won in platform sales.
International Arms Trade Treaty Initiative
The export business must take place within a responsible and transparent framework. The UK is already one of the most transparent nations in terms of its export control procedures. In May this year, here in London defence industry representatives took part in a Meeting of Experts to consider a proposal for an international treaty on the trade in conventional arms. At Gleneagles, with G8 partners, we agreed that the development of a common understanding of governments’ responsibilities will be an important step in tackling the problem of undesirable proliferation. We shall continue to use all opportunities to build the broadest possible support for an international treaty. The immediate aim is to secure a formal process of consideration within the UN. The developing world has led the way in calling for such a treaty, an encouraging sign that there is common ground. Clearly there is work to do; industry views and support will be vital as we progress this work.
So let me close by emphasising some joint challenges for MOD and industry in equipping the military of today. Better agility to respond to a changing strategic environment. Better at identifying and rapidly translating useful technologies into military capability, including from the civil sphere. Relationships which allow more information to be shared, to mutual advantage. 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. Finding ways of maintaining vital long-term knowledge when traditional programmes will not support those, whether in small areas of deep technical expertise or critical cross-cutting systems integration skills. Ensuring the value to Defence of a healthy, sustainable, internationally competitive industry is maximised. Looking at cooperation and collaboration on their merits in particular contexts. Not easy, but important to tackle – hand in hand.
Finally, can I congratulate the organisers and everyone involved in DSEi for staging a stunning event this week. I would also like to thank Richard Vincent for all his efforts as Chairman of the DMA, and welcome his successor, Peter Levene. Thank you.
Last Updated: 16 Sep 05