Select Committee on Defence Appendices to the Minutes of Evidence



APPENDIX 3

Letter from the Minister for Defence Procurement, to the Chairman of the Committee, 2 November 2000

DERA PPP

  Your letter of 27 July to the Ministry of Defence Parliamentary Clerk requested information about the responses received to the Department's consultation exercise. I am sorry for the delay in replying.

  The table below shows the breakdown of responses, more than 200 in total, received from organisations and individuals:

Stakeholder Group Number of Formal Responses
DERA staff125
Parliamentary Enquiries31
Industry19
Parliamentary Questions17
Academia11
Local/Regional Government11
International Collaborative Partners6
Other Government Departments3
Trade Unions (DERA Consultative Council formal response) 1

  I regret that it has taken longer than expected to collate the information but a summary is now available. A copy is attached.

  I note that the Defence Committee has also indicated that it would like to have access to all of the submissions received in full. I hope you will appreciate that this information could not be provided without the express permission of the contributors, and that to seek such permission would be a significant underdaking on behalf of the Department. Although the Consultation Document did ask people to indicate whether they wished their responses to be kept confidential, this was done to allow us to use extracts from their letters rather than on the basis that we might wish to publish the whole response. In cases where people wished their views to be known to MPs I believe they wrote directly to them, and there were a significant number of such cases.

  I hope that the summary paper will provide sufficient detailed inforation for the Committee but I would be happy to discuss this matter with you further should you wish.



Annex

HCDC: DERA PPP OUTCOME OF CONSULTATION

OVERVIEW

  1.  On 24 July 2000 the Secretary of State announced the results of consultation on the MoD's proposal for the Public Private Partnership (PPP) for the Defence Evaluation and Research Agency (DERA). The announcement confirmed that the MoD would now proceed with the implementation of a PPP model known as Core Competence. This approach, which is fully described in the PPP consultation document released on 17 April 2000 (also available on the Internet at www.mod.uk), will create a new private sector company (New DERA), consisting of around three quarters of the current organisation, with the ultimate intention to float this on the stock market. For strategic reasons, the remainder, now called the Defence Science & Technology Laboratory (DSTL), would be retained within MoD to carry out those functions which must be undertaken by Government. The purpose of this document is to provide the House of Commons Defence Committee and other key stakeholders with:

    —  A summary of the DERA PPP consultation process.

    —  An overview of the structure put in place to address these issues and to take forward the other work needed to implement the PPP.

    —  A description of the major issues raised by stakeholders in response to the consultation document and the MoD's initial response to these issues.

    —  A summary of the overall conclusions from consultation.

SUMMARY OF THE CONSULTATION PROCESS

  2.  Initial consultation took place between May and October 1999 on a PPP proposal known as "Reliance". This would have resulted in the majority of DERA's existing staff and facilities transferring to the private sector. Reliance raised a number of concerns from stakeholders, and in response to their views, the Secretary of State for Defence announced a widening of the scope of the work to study a number of other PPP structures for DERA. This further work identified "Core Competence" as the best available approach for meeting the PPP objectives whilst also addressing the main issues raised by stakeholders.

  3.  The results of this work were announced to Parliament on 17 April 2000, by the Secretary of State for Defence. At the same time a detailed Consultation Document describing the revised proposals was sent directly to key stakeholder groups including:

    —  The HCDC and MPs with defence interests.

    —  Trade Unions and DERA staff.

    —  International Collaborative Partners.

    —  UK industry.

    —  Relevant Government departments.

    —  Local Government.

    —  Academia.

  4.  The consultation document was also made electronically available to the public on the Internet and published on the MoD's and DERA's own internal Intranets. The Chief Executive of DERA provided a briefing to staff, which was relayed to major DERA sites by a live video link, and supported by subsequent cascade briefings to staff. The proposal received significant coverage from internal newsletters and there was also external press coverage.

  5.  As part of the process there has been substantial and detailed discussion with the US and other major allies. Meetings and briefings with the US have included ministers, senior officials and staff within the main scientific organisations.

  6.  Formal consultation was completed on 9 June 2000 and written responses have been received from all the main stakeholder groups. This included responses from 125 individual DERA staff (out of a total of 12,000 employees). The Trade Unions also submitted a detailed response and discussed the issue with defence Ministers at a formal meeting in June. The HCDC, conducted its own examination of the proposals, and issued a formal report of its views. [2]An industry forum chaired by the MoD's Principal Finance Officer was held on 16 June 2000 and this provided an opportunity for a detailed discussion of the proposals.

  7.  In general terms, although respondents identified many detailed issues which would need to be addressed in the implementation phase, the overall reaction was positive:

    —  the willingness of MoD to engage in genuine consultation and to respond to stakeholder concerns was widely welcomed

    —  there was general agreement from the majority of stakeholders that the proposals represented a significant improvement on the previous Reliance model.

    —  the majority of stakeholders, in particular international allies and UK industry, regarded the proposals as workable and indicated a willingness to liaise with MoD to ensure that they were implemented in a way that best meets defence interests

  8.  In the light of this analysis, the Government decided to proceed with the proposals broadly as outlined in the consultation document and this was announced to the House of Commons in a statement on 24 July 2000.

Implementation

  9.  DERA is a complex organisation with a wide range of capabilities critical to UK defence and security. Its customers require that access to these capabilities must be maintained during and after PPP implementation. Achieving this in a way which ensures value for money to the taxpayer, whilst delivering the broader benefits of the PPP requires detailed work to resolve a wide range of issues. In addition, DERA has many external relationships which are of great importance to the UK and the process must ensure that these are not disrupted. The change in status of New DERA from a government organisation to a company subject to private-sector rules and regulations must be carefully managed to ensure a smooth transition.

  10.  The government places emphasis on ensuring that consultation with stakeholders continues throughout implementation, and this, in turn, places a responsibility on MoD to ensure that the process is conducted in as open and transparent manner as possible.

  11.  In advance of the results of final consultation, and the subsequent decision by the Government on the final form that the PPP would take, it would have been premature and potentially wasteful to try to address in detail the full range of potential PPP issues. Consequently, the emphasis was on carrying out sufficient work to provide confidence that the PPP proposals would be workable in practice. In addition, a certain amount of preliminary work was conducted to ensure that the MoD would be in a position to move to implementation quickly once a final decision to proceed was announced. This work included the establishment of a series of Joint Working Groups (JWG) charged with taking forward the necessary planning activities. The groups include representatives from MoD, DERA, specialist advisers, and other government departments. Following the decision to proceed with the Core Competence model the JWG structure was expanded and the groups were tasked with carrying out the bulk of the work needed to implement the PPP.

  12.  The JWGs report to a Project Management Group, chaired by the Director of the MoD's DERA Partnering Team. In general, the JWGs are responsible for carrying out detailed work on implementation and for project planning and risk analysis within their own specific areas. Responsibility for PPP policy and strategy, overall project planning and value issues remains with MoD. The full JWG structure showing the main groups and any associated subgroups is shown below. The frequency with which each group meet varies and is dependent on the nature of the issues being addressed.

    —  Human Resources and Military

      —  Employee Incentives (DERA attend by invitation only)

      —  Military Staff

      —  Interchange

    —  DSTL/New DERA Split

    —  MoD Programmes and Contracts

      —  Programme Issues

      —  Contract/Tasks

    —  Finance and Finance Systems

      —  Insurance

      —  Tax

    —  Corporate Planning

      —  Corporate Modelling

    —  PPP Transaction

    —  International Collaboration

    —  Support Services

      —  Estates

      —  Land and Building contamination

      —  Ranges

    —  Legal

    —  Information Systems

      —  Records Audit and Separation Project Board

      —  Business Information Systems Project Board

      —  Network Project Board

    —  Health and Safety, Security & Environment

    —  Communications/Branding

    —  Aircraft Test and Evaluation.

  13.  Many of the issues which the groups will address require further consultation and this will be undertaken with the appropriate stakeholders as required. This will include, for example, establishment of a new pension for New DERA staff whereby we will consult with DERA staff and Trade Unions on the proposed pension provision.

MAJOR ISSUES RAISED BY STAKEHOLDERS DURING CONSULTATION

  14.  For ease of reference, the issues raised have been grouped under the following headings:

    —  General PPP issues

    —  Personnel issues

    —  The DSTL/New DERA split

    —  The relationship between New DERA and MoD

    —  The relationship with international collaborative partners

    —  The relationship with industry

    —  Status of New DERA and the sale process.

GENERAL PPP ISSUES

  15.   Issue: Lack of detail in the Consultation Document, making it difficult for respondents to feel confident about future trading relationships with MoD, DSTL and New DERA.

  16.   Response: MoD was very conscious of the need to balance the desire of stakeholders to see very detailed information on PPP implementation with the need to avoid conducting excessive and costly work on proposals which could be subject to revision. The department believed that the Consultation Document represented a sensible compromise and contained a sufficient level of detail to explain the principles behind the approach and to provide confidence that its proposals would be workable in practice. The MoD fully accepts that there are many important issues that will have to be worked through in full detail as part of the implementation process.

  17.  Specific issues such as contractual relationships, Intellectual Property Rights (IPR), and safeguarding of sensitive information are also dealt with in more detail later on in this document. However at this point it is worth stressing that New DERA, as with any other company with whom MoD contracts, will have a normal commercial contractual relationship with the department. This will bring greater clarity to the situation than we currently have at the moment where DERA, as a part of the MoD, does not have formal legal contracts with all its customers.

  18.  MoD remains committed to continuing consultation with its stakeholders during the implementation process to ensure that they are informed on the detail of the approach and that their views are taken into account wherever possible.

  19.   Issue: Alternatives such as the Independent Publicly Owned Corporation (IPOC) were not sufficiently considered.

  20.   Response: The MoD has been looking at possible options for a DERA PPP since summer 1998 and has conducted detailed studies of all the different mechanisms and organisational solutions that might have been used to bring about the benefits of being in the private sector for the larger part of DERA. None of the alternative solutions that were looked at offered a suitable way forward and the MoD is absolutely clear that the best option available to it is that of "Core Competence", which forms the basis of the proposals that have now been agreed. The difficulty with the Independent Public Owned Corporation was that it left the position of DERA employees somewhat confused in that they would have ceased to be government servants, although government would still have owned a majority stake in the corporation. This was unacceptable to a number of stakeholders, in particular our international allies, who wish to be clear as to the status of people with whom they are collaborating.

  21.   Issue: The PPP is only being pursued as a way of meeting shortfalls in the defence budget.

  22.   Response: This is absolutely not the case. The main drivers for the PPP are not financial. The main objectives, which are clearly outlined in the consultation document, are:

    —  to enhance the opportunity for the exploitation of technology locked up in DERA;

    —  to improve access to technologies from the civil sector for military application;

    —  to introduce private capital into DERA to meet its investment needs, and thereby accelerate its development through exposure to private sector disciplines; and,

    —  to provide increased freedoms for DERA, in for example, employee terms; conditions; reward; and its ability to grow commercial business.

  23.  As MoD ministers have made clear on a number of occasions, the imperative to change the status of DERA comes from the Agency's own need to have the freedom to exploit its technology in the commercial sector and to have the capital and employment freedoms necessary to succeed in that arena. Coupled with the decline in defence research funds and changes in the environment within which DERA operates which, if nothing was done, would lead to the gradual degradation of the Agency's capabilities, this makes a compelling case for the introduction of private capital. The government's PPP initiative offers an ideal solution for achieving these ends.

  24.   Issue: The PPP as proposed does not offer good value for money.

  25.   Response: As is made clear in the previous paragraph, DERA needs to undergo change to avoid slipping into a period of managed decline as the environment within which it operates changes. If nothing was done there would be a steady stream of site closures and redundancies which would incur considerable costs. Such decline would also mean that the knowledge and experience that DERA possesses and which can now be turned to the advantage of a broader customer base would be lost. Neither of these situations would represent good value for money.

  26.   Issue: There will be a high level of cost incurred in completing the PPP.

  27.   Response: There will be some costs arising from the initial separation and creation of New DERA and DSTL and the establishment of their supporting infrastructures. However, estimates are sufficient to give confidence that any costs will be small in proportion to the benefits of the PPP. Estimates of all costs are continually examined by the PPP Project Management Group, which oversees all the working groups, to ensure that they are properly scrutinised and authorised.

  28.   Issue: The review of central science and technology organisation within the MoD should be allowed to report before a final conclusion on the DERA PPP is taken.

  29.   Response: This study, which is being undertaken under the auspices of the MoD's Chief Scientific Adviser, Sir Keith O'Nions, is looking at how the science and technology staff in the MoD can be organised most effectively. It will focus in particular on the staffs who provide advice for the central MoD and who commission the research programme. Obviously this will have some impact on how DSTL is likely to be organised and the results of the study will be fed into the work on the implementation of the PPP through the joint working groups. The teams responsible for the science and technology review and for implementing the PPP are in close contact

PERSONNEL ISSUES

  30.   Issue: Staff morale would be damaged by the PPP process and in particular there might be damage to future career paths for scientists and engineers in the UK.

  31.   Response MoD is very much aware that DERA's capability is based on the quality and motivation of its staff. The desire to ensure full and genuine consultation has meant that the PPP process has taken some time. The need to make changes to the initial proposals in response to the views of stakeholders has also extended the process and resulted in an increased period of uncertainty. This has obviously caused concerns amongst DERA's staff, and has had an impact on morale. DERA and MoD have already made considerable efforts to brief its staff on the rationale behind the PPP And will be increasing this effort in the coming months as implementation issues are progressed. This includes providing information on a new pension scheme and the organisational structures of both DSTL and New DERA. Whichever part of the organisation employees are in, we are confident that there is a secure and promising future and we will continue to convey this message to staff.

  32.   Issue: The PPP will lead to major redundancies at a number of DERA sites.

  33.   Response: The MoD has always made it absolutely clear that the PPP is not about reducing the size of DERA. Finding a PPP solution for DERA is not about cutting jobs. Planning for the creation of two separate organisations has been carried out in such a way as to leave us with two vibrant and viable entities. The PPP is about creating a climate in which New DERA can go out and use its considerable expertise to win new business and expand its customer base. This should be good for employment prospects. Obviously over the next few years there may have to be adjustments in both DSTL and New DERA as they adapt to changing demands and this may have employment implications. But this isn't new—it is happening at the moment in DERA as the balance shifts from more traditional defence technologies to the new information economy.

  34.   Issue: The move to a PPP will lead to a diminution in staff terms and conditions.

  35.   Response: DERA's success is based very much on the skills, knowledge and experience of the people it employs. Both New DERA and DSTL will wish to ensure that they continue to employ the best people and consequently they will not do anything to diminish terms and conditions in a way which would have precisely the opposite effect on employees. TUPE regulations provide a legal assurance on terms and conditions for staff, but in addition DERA has made it clear that it is committed to ensuring that, as an absolute minimum, terms and conditions are maintained at their current level. Ideally DERA would like to see an enhancement as business grows. Incidentally, it is also the case that the TUPE regulations protect the position of employees in the event of any future changes of ownership.

  36.   Issue: Staff in New DERA will suffer detriment to their pension rights.

  37.   Response: Staff transferring to New DERA will, when it becomes a new company, cease to be civil servants and therefore no longer be eligible for membership of the Principal Civil Service Pension Scheme (PCSPS). MoD and DERA have however been working with consultants to design a new pension scheme which will provide a comparable level of benefits. The new scheme will need to be certified by the Government Actuary's Department as providing benefits, which are broadly comparable to the existing PCSPS. Staff who are in New DERA can be absolutely assured that their pension rights will not be diminished.

  38.   Issue: Career prospects will be severely damaged in both DSTL and New DERA.

  39.   Response: In working out the organisation and business plans for both DSTL and New DERA the aim has been to create two sustainable organisations that will both have a secure future. DSTL will be focussed on Government work and will, consequently, continue to act as part of a Department of State. New DERA, on the other hand, will have the business imperative to go out and seek new markets by promoting itself and its capabilities more aggressively. Both parts of DERA will provide satisfying careers and opportunities for staff with good prospects of personal development and promotion.

THE DSTL/NEW DERA SPLIT

  40.   Issue: The DSTL/New DERA split will lead to fragmentation and duplication, and will impact upon the future viability of world-class teams and capabilities.

  41.   Response: The separation is designed to draw the distinction between two aspects of DERA's work. DSTL will undertake those elements of current DERA business that must be carried out in government, for example because of their sensitivity or because close relationships with other governments are involved. With this in mind DSTL will be structured so that it will contain:

    —  a number of elements of the current DERA organisation that are actually engaged in a sensitive research activities, such as Chemical and Biological Division;

    —  the majority of the staff in the Centre for Defence Analysis since they are involved in the conduct of analytical studies that underpin key decisions in MoD and would therefore be inappropriate for the private sector;

    —  and lastly, a cadre of knowledge integrators and system scientists drawn from across the Agency to provide a high level systems knowledge base in MoD that can give advice on the full range of technology areas in which MoD is interested.

  42.  It is these people who will handle those areas where security other sensitivities or the requirements of our international collaborators make it necessary for the work to be carried out within Government. All other work will be carried out by outside organisations such as New DERA, whose principal business will continue to be the provision of independent and impartial technology services and research to MoD, as well as the provision of consultancy and advice to an increasingly broad range of commercial customers. There need not be any conflict or duplication in these two roles, which can be clearly defined. DSTL will be able to draw on the scientific and technical experience and resources within New DERA, the rest of industry and academia in order to provide the MoD with access to the capability it requires. In other areas (eg DPA, DLO and front line customers) New DERA will continue to work directly to the MoD customer. It is true that there has had to be some breaking up of existing teams in order to ensure that the right balance of knowledge integrators go into DSTL but it is the MoD's firm belief that this is being accomplished with minimal disruption and minimal impact on capability.

  43.   Issue: There will be insufficient resources in both DSTL and New DERA to sustain each organisation.

  44.   Response: Achieving the right split between DSTL and New DERA is fundamental to the successful implementation of Core Competence. Consequently, this area has received significant attention over the past few months and work is continuing within the relevant working groups to examine and resolve the issues relating to separation. We are confident that we will be able to create two organisations that are capable of carrying out their respective roles and which will be sustainable in the long-term. The basis of Core Competence is that MoD via DSTL will remain expert in the systems area and certain other specialist topics. These experts will draw world class technology from New DERA or wherever the best technology exists.

  45.   Issue: There are not enough resources in DSTL to carry out what appears to be a very extensive range of responsibilities.

  46.   Response: It is important to make the point that DSTL is not intended to be a scaled down version of DERA and will not attempt to do everything that DERA currently does. As explained above, there are three specific functions which DSTL is being established to carry out:

    —  Individual programmes of sensitive research.

    —  Provision of advice and conduct of studies to underpin high level defence procurement decisions.

    —  A top level function of knowledge integration and systems level research in order to be able to put together top level advice on technology areas in which the MoD is interested and also manage international collaboration.

  47. The way DSTL is currently being constructed will ensure that it has precisely the resources needed to carry out those functions.

  48.   Issue: The interface between DSTL and New DERA will be problematical.

  49.   Response: It is fully recognised throughout MoD that New DERA will be a critical supplier to the Department. It will contain many capabilities and facilities of great importance to its MoD customers, and DSTL will need to work closely with New DERA, as the company is likely to continue to be the MoD's largest source of scientific and technical advice into the foreseeable future. However, this does not imply that the relationship between MoD and New DERA will, in principle, need to be different from that which exists with other private-sector organisations. Indeed, as identified in the consultation document, it is important that there should be a clear separation between the two organisations. Stakeholders, particularly industry and our collaborative partners, have indicated strongly that they want to be clear whether the people with whom they deal are in the private-sector or the public-sector. It is also clear that there would be a fundamental contradiction between allowing New DERA the commercial freedoms necessary to operate successfully in the private sector whilst at the same time allowing it to have a privileged relationship with MoD. The relationship between DSTL/MoD and New DERA will be a formal contractual relationship and will be no different from the arrangements that exist between MoD and other private sector suppliers.

THE RELATIONSHIP BETWEEN NEW DERA AND MOD

  50.   Issue: Will the relationship between New DERA and MoD be one of partnership, close co-operation or simply that of customer and contractor?

  51.   Response: For the foreseeable future New DERA will continue to be the MoD's principal supplier of scientific and technology services. However, it should not be inferred that there is an intention for a "special" relationship between New DERA and MoD. The MoD is committed to ensuring that there is a level playing field for competed work and that New DERA does not enjoy an unfair competitive advantage. To ensure maximum benefit is obtained from the broader technology base, MoD will of course continue to form partnerships with a range of private sector companies, including New DERA, who can meet MoD requirements. The same principles that govern these partnerships will apply equally to New DERA with proper commercial contracts established. The work undertaken by a number of the working groups, in particular that relating to Programmes and Contracts, will focus on ensuring clear contractual boundaries are established.

  52.   Issue: There is concern that MoD customers may no longer be willing to do business with New DERA

  53.   Response: New DERA will continue to contain capabilities and facilities of critical importance to MoD, and MoD customers will continue to need access to these and will be placing work with NewDERA.

  54.   Issue: How can New DERA be impartial?

  55.   Response: There seems to be a mistaken belief amongst some respondents that once New DERA is partly owned by private investors it will no longer be able to offer independent advice to its MoD customers. This is a complete fallacy; indeed there are many companies in the private sector whose principal product is the provision of independent advice. A further safeguard in New DERA's case is the commitment of the government to achieve either flotation or intermediate sale to a strategic investor and not sale to the defence industry. The provision of high quality, impartial and high integrity advice and services will be at the heart of New DERA's business for all customers, including MoD. New DERA would therefore have every incentive to protect its independence and integrity through internal processes and through the maintenance of appropriate values and culture. Customers, both Government and industry, will rapidly determine whether the advice provided is of high quality, and it would be commercially extremely damaging if New DERA allowed its reputation for impartiality to be lost. We believe that this, together with the professionalism of the staff within New DERA, should be a powerful force to ensure that the organisation is rigorous in maintaining the quality of its product.

  56.   Issue: New DERA may well decline under commercial pressures or will cease to do innovative scientific work.

  57.   Response: Commercial pressures are likely to ensure that DERA continues to employ a taut management style which is tough on overheads and ensures that resources are put into the revenue earning areas of the business. This is already being addressed through the development of a corporate model and application of future scenarios. Since DERA's principal product is the advice that it can provide based on its knowledge, it is certainly not going to neglect this core area. There will be many ways of ensuring that New DERA maintains its scientific edge, continuing to conduct research to meet specific customer needs is one way; securing alignments and joint ventures with other organisations is another possibility. What is absolutely certain is that DERA will continue to provide excellent opportunities for scientists who wish to apply and develop their knowledge in finding solutions to challenging problems.

THE RELATIONSHIP WITH INTERNATIONAL COLLABORATIVE PARTNERS

  58.   Issue: It will be difficult for DERA to maintain its relationship with its international partners.

  59.   Response: A major objective for the DERA PPP is to ensure the continuation of the very valuable programme of international research collaboration that DERA currently undertakes with its allies. The division into DSTL and New DERA has been designed specifically to safeguard that relationship. DSTL, whose staff will be MoD civil servants, will be responsible for all areas of international research collaboration that require Government to Government interaction. Where appropriate, and subject to allies' agreement the basic research work that underpins collaboration will continue to be carried out in New DERA and New DERA employees may well find themselves in the position of supporting DSTL personnel in international meetings.

  60.  The working group responsible for this area is examining the details of each of the existing international research collaboration programmes to ensure that appropriate arrangements are put in place. Liaison visits are also planned where UK collaborative points of contact, who will form part of DSTL, will visit international counterparts to ensure collaborative issues area addressed in detail.

  61.   Issue: What about the many Memoranda of Understanding (MOU)?

  62.   Response: There are MOUs which will need to be examined closely, a proportion of which will be amended to take account of the changed circumstances arising from DERA PPP. Recent meetings and discussions with our partners have been very constructive and have confirmed that our allies are keen to see collaboration continue.

  63.   Issue: Information exchanged under collaborative arrangements may find its way into unauthorised hands.

  64.   Response: Information that is provided to the MoD on the basis that it remains within Government will continue to be fully protected just as it is at present. There may be other situations, however, where information provided under collaborative agreements can legitimately be given to New DERA, or other outside organisations, and used specifically for the purposes of that collaboration, but this will only happen where all parties to the collaboration are content. Moreover, it will be essential for New DERA to demonstrate that when it is handling sensitive information, it can be trusted to do so entirely properly. New DERA will be subject to the same security requirements that other private companies must meet when dealing with Government contracts. New DERA's success will depend on it being trusted by MoD and its other customers and it would therefore have a strong commercial incentive to avoid conflicts of interests.

THE RELATIONSHIP WITH INDUSTRY AND ACADEMIA

  65.   Issue: It is feared that New DERA will be in a position vis a vis MoD that gives it an unfair advantage over industrial firms.

  66.   Response: At the moment DERA receives from MoD uncompeted contracts for the research programme. A pilot competition is in the process of being conducted, covering some 3% of the research programme, and the results of that competition are expected in a few weeks time. Gradually over the next 5-7 years, it is envisaged that the remainder of the research programme will be opened to competition. What this means in practice for industry is that gradually over the next few years it will have access to a whole range of projects which were previously closed to it. New DERA will of course also have greater freedom to broaden its markets and will be seeking to take its technology and knowledge into new areas. This may bring it into competition with some elements of industry, but this will be on an entirely level playing field and New DERA will have to prove itself capable of winning work competitively. The one area where DERA will be constrained is in the matter of defence production. DERA has never had any pretensions to be a defence manufacturer and there is no intention that that will change for New DERA.

  67.   Issue: DERA may use intellectual property (IP) that belongs to industry for its own advantage.

  68.   Response: DERA is, and has always been, an experienced practitioner in the knowledge business and is fully aware of the constraints and issues surrounding ownership IP. Mechanisms drawn up during implementation will ensure that IP for which it does not have the full rights of ownership will not be used in an inappropriate way. Indeed it will be very much in DERA's interests to demonstrate to industry that it can be trusted to use IP passed to it for specific defence purposes precisely for those purposes and for no other. MoD is currently putting in place processes to ensure that IP that is currently held within DERA is properly protected. Detailed discussions are being held with industry representatives to ensure that the issue is satisfactorily addressed.

  69.   Issue: There is concern that the mutually beneficial relationships that currently exist between academia, industry and DERA might suffer as a result of a change in DERA's status.

  70.   Response: Both New DERA and DSTL will have MoD customers to serve and as part of this they will wish to ensure that those customers receive the best scientific and technical advice that can be put together. Both parties are therefore likely to want to continue to involve academia in the position of sub contractor since it is from this sort of relationship that many successful joint programmes have developed. There is no reason to believe that DSTL or New DERA will want to involve universities any less than they do now and indeed New DERA's freedom to pursue commercial ventures may prove advantageous in those cases where it has a partnership with a university.

  71.  With regard to intellectual property, then clearly where that has been funded by the MoD and access is required in order to further a MoD programme, then that IP will be made available for such purposes. In the case of academia, some information is accessed via reports and other material published by DERA scientists in academic journals. It is expected that these scientists will wish to continue to publish their work. However, as is the case now with DERA as a Trading Fund, any information with potential for commercial exploitation will first need to be adequately protected (ie by way of patent application) before the information can be published.

  72.   Issue: There might be confusion over the status of New DERA and its employees insofar as international allies are concerned.

  73.   Response: The advantage of the Core Competence model is that there is absolutely no room for confusion about the status of either DSTL or New DERA's employees. DSTL will be MoD civil servants. The employees of NewDERA will be private sector employees and will not be civil. This does not necessarily preclude them from inclusion in international collaborative meetings; indeed there is already significant contractor investment in many collaborative for a, but their presence will be subject to agreement with allies.

  74.   Issue: There is concern over who will be allowed to invest in New DERA.

  75.   Response: As was made clear in the Consultation Document, it is the MoD's intention to retain a special share to allow shareholding restrictions to be placed on New DERA through the Articles of Association. This may include restrictions on undesirable ownership and a maximum limit on individual shareholdings. We are currently developing the specific terms of the special share in conjunction with legal and Other Government Department experts.

SUMMARY

  76.  In summary the overall responses to the consultation process have indicated that stakeholders welcomed the willingness of the MoD to listen to responses from the earlier consultation process and to make changes to the proposals. Most of the main stakeholders feel that the proposals are workable and are a significant improvement over the Reliance approach.

  77.  The main conclusions from the consultation are:

    —  although the process has identified many issues and some potential risks, these are all areas that can be satisfactorily addressed in implementation, and indeed we are currently taking all of these forward in the joint working groups;

    —  stakeholder responses to the revised proposals have been generally positive.

    —  there is broad agreement that Core Competence is a improvement on the previous approach.

    —  MoD's willingness to respond to earlier concerns has been widely welcomed.

    —  the majority of stakeholders believe the proposals are workable.

  78.  The positive response MoD has received has been encouraging. We are of course under no illusion that there are many detailed issues to be addressed. However, with the implementation working groups established and progressing well against the project timetable we are confident that the PPP will be achieved efficiently and result in two viable and sustainable organisations capable of delivering MoD and other customer needs.


2   HC 462, The Future of DERA. Ninth Report of the Session 1999-2000, 7 June 2000. Back


 
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