Select Committee on Defence First Special Report


APPENDIX 4

Letter from the Minister of State for Defence Procurement concerning negotiations with BAE Systems on potential partnering with Royal Ordnance (21 December 1999)

  In my letter of 15 December, I advised that I would write again on the outcome of our negotiations with BAE Systems over a potential partnering arrangement with Royal Ordnance.

  I am now able to inform you that, following the successful conclusion of these discussions, I have instructed officials to enter into a 10 year Partnering Agreement with Royal Ordnance, which will cover the supply of a wide range of ammunition products from the company's Weapons and Munitions business unit and from the Small Arms ammunition facility at Radway Green. The agreement, which will provide Royal Ordnance with a stable workload worth some £100 million per year, is being announced to Parliament later today.

  Our primary negotiating objective for this arrangement was to achieve best value for money for the taxpayer, while taking into account the potential implications for security of supply of losing Royal Ordnance as an indigenous ammunition manufacturer. I believe that this is consistent with the Defence Committee's recommendations in its Fifth Report of 1998-99 on "Security of Supply and the Future of Royal Ordnance Bishopton". I am pleased to say that, through hard and determined negotiation on both sides, this objective has been realised. In particular, the government will obtain, through contractually and legally binding arrangements, increasing value for money through the introduction of initiatives which will drive down the cost of procuring the ammunition products contained within the agreement. The partnering will involve the Ministry of Defence and Royal Ordnance in sharing costs, risks, and benefits over the period of the arrangement. For BAE SYSTEMS, the agreement will provide the company with a secure contractual workload for a rolling five year period, which will create the stability necessary for BAE SYSTEMS to invest in and re-structure Royal Ordnance.

  We consider that the partnering arrangement represents good prospects for the future of Royal Ordnance as a whole, although BAE SYSTEMS has stated that some rationalisation and re-structuring beyond that already announced will be required to meet our future needs. Such re-structuring will remain a matter for Royal Ordnance and BAE SYSTEMS management to determine. As you will understand, we have signed an agreement for the supply of ammunition products, not for the retention of particular Royal Ordnance sites, and it is for the company to determine how it wishes to meet our requirements under the agreement. With particular regard to Royal Ordnance Bishopton, I understand that BAE SYSTEMS has advised that manufacture of propellant at the factory does not form part of its current plans for the future Royal Ordnance and that, as previously announced, the facility, and those at Faldingworth and Featherstone, will close after the completion of existing contracts.

  I hope this is helpful


 
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