House of Commons - Defence Equipment 2009

Defence Equipment 2009 - Defence Committee Contents

5 The Defence Industrial Strategy

175. The aims of the Government in the Defence Industrial Strategy (DIS), published on 15 December 2005, are summarised in its Foreword as follows:

Our Defence Industrial Strategy takes forward our Defence Industrial Policy, published in 2002, by providing greater transparency of our future defence requirements and, for the first time, setting out those industrial capabilities we need in the UK to ensure that we can continue to operate our equipment in the way we choose […] to maintain appropriate sovereignty and thereby protect our national security […] In doing so, it builds upon the Defence Industrial Policy, explains more clearly how procurement decisions are made, and to assist industry in planning for the future commits Government to greater transparency of our forward plans, noting that as in any business, these change over time as spending priorities shift or cost estimates mature.[263]

176. We have published two reports on the DIS:

The Defence Industrial Strategy,[264] published on 10 May 2006; and
The Defence Industrial Strategy: update,[265] published on 15 February 2007.

177. In our first Report on the DIS we acknowledged that the strategy was produced to a tight timescale and that a wide consultation with industry had been undertaken. We congratulated Lord Drayson, the then Minister for Defence Procurement, and his team for this work. We considered that:

The success of the DIS will depend upon how well it is implemented and whether the MoD is adequately funded by the Treasury to deliver it. The Minister for Defence Procurement is providing the impetus for implementing the DIS and this must be maintained. The Minister has provided us with a timetabled programme for implementation of the DIS. We plan to monitor closely its progress.[266]

178. In our second Report on the DIS we concluded that:

The Minister for Defence Procurement, Lord Drayson, considered that 2006 was the year in which the DIS would be implemented; and overall, good progress has been made.[267]

Responsibility for implementing the Defence Industrial Strategy

179. Lord Drayson stood down from his ministerial responsibilities in November 2007. Baroness Taylor of Bolton replaced Lord Drayson as Minister for Defence Equipment and Support in November 2007 (the post of Minister for Defence Procurement was renamed Minister for Defence Equipment and Support in March 2007). Following changes to the Defence ministerial team announced in early October 2008, Quentin Davies MP was appointed Minister for Defence Equipment and Support.

180. At our evidence session on 12 November 2008 for our inquiry into the Ministry of Defence Annual Report and Accounts 2007-08, we asked the Secretary of State who was responsible for driving forward the DIS at the ministerial level and which official within the department had responsibility for the DIS. The Secretary of State said that:

The Minister for Defence Equipment is the Minister who has, as it were, day to day responsibility for the Strategy. I decided to chair the National Defence Industry Council because I am very, very interested in this work of the department. In addition to operations which I described as my focus, the equipment programme for anyone who does my job is going to be in your face day in and day out. Relations with industry are very, very important to us so I am going to be very heavily involved in this as well. Quentin [Davies] has the day to day responsibility but I see myself as very, very closely involved in this as well.[268]

181. At our evidence session on 25 November 2008 we asked CDM who, below ministerial level, was in charge of the DIS. He said that he was "not really sure I understand what you mean by "in charge". If you mean "delivering to it" because it is now policy, yes, I am; we all are".[269] He added that "driving forward the current extant policy is the business of the Department and a lot of that falls on my shoulders".[270] At our evidence session on 16 December 2008 we asked the Minister for Defence Equipment and Support who had overall responsibility for the DIS. The Minister told us that "I do as a Minister and Mr Amyas Morse [Defence Commercial Director] who is here with me as an official".[271]

182. We note that the Minister for Defence Equipment and Support has overall responsibility for the Defence Industrial Strategy (DIS) and that the key official within the Department with responsibility for the DIS is the Defence Commercial Director. However, the Chief of Defence Materiel (CDM) is also responsible for "driving forward" the DIS. In its response to our Report, we expect the MoD to set out the specific responsibilities relating to the DIS which fall to the Minister for Defence Equipment and Support, the Defence Commercial Director and CDM.

Progress in implementing the Defence Industrial Strategy

183. Our Report The Defence Industrial Strategy: update included a summary progress report on significant DIS milestones as at 19 December 2006.[272] The MoD has provided us with an updated summary progress report which reports that, in general, good progress has been achieved in the maritime sector. In the fixed wing sector, a key milestone was to "reach a firm decision on the viability, shape and scope of the proposed LTPA [Long Term Partnering Arrangement] by the end of 2007". However, the progress report states that both parties have agreed that a phased approach is more appropriate and they are now "actively negotiating the next phase of the programme". The progress report states that good progress has been achieved in the Armoured Fighting Vehicles (AFVs), Helicopters, Complex Weapons, General Munitions, and CBRN [Chemical, Biological, Radiological and Nuclear] sectors. [273]

184. The issue of Long Term Partnering Arrangements [LTPAs] was raised at our evidence session with industry representatives. Mike Turner told us that:

We have agreements in principle in a number of sectors now: on helicopters, land, air and maritime. The problem we have is that, having the agreements in principle, we have now basically stalled in putting those into long-term partnering agreements with the benefits that will flow.[274]

185. Most of the memoranda submitted to our inquiry referred to the progress in implementing the DIS. For example, the memorandum from the Defence Industries Council states that:

Since its publication in December 2005 there have been many steps taken towards embedding the principles set out in the Defence Industrial Strategy into normal business. There is now a greater understanding and appreciation within Government of the contribution industry makes to delivering defence capability and its overall value to the nation's industrial, technological, scientific and economic base…. However overall progress has been much slower than industry would have wished. In part this reflects MoD's ongoing financial and programme problems but also difficulties progressing some commitments on policy issues i.e. greater transparency over its plans, clarity over how operational sovereignty would be assessed and how to present, measure and deliver Value for Money. It also needs to reconcile the key roles that the Defence sector can make to delivering wider Government objectives for Innovation, skills and manufacturing.[275]

and:

We are heartened that the new Defence Secretary and Minister (Defence Equipment and Support) have already confirmed their commitments to the key principles in DIS and their willingness to work constructively with industry. We hope that we can make progress over the coming months on those outstanding policy issues like transparency etc…. We continue to believe the original commitment to provide a DIS which sets out "those industrial capabilities we need in the UK to ensure we can continue to operate our equipment in the way we choose" remains the correct goal. Such a DIS should also fulfil the commitment to provide "overall indicative planning assumptions for each sector" in sufficient detail to enable "our suppliers to make informed decisions". A retreat from this level of transparency would be a disincentive to company investment plans in the long term.[276]

186. Other examples of references to the progress in implementing the DIS from the written evidence submitted to our inquiry are provided in table 12 below.

Table12: References to the progress in implementing the DIS in the written evidence received

References to the progress in implementing the DIS

EDS (an HP company) "The clarity of the first DIS is in danger of being lost whilst MoD determines what should be in the affordable equipment programme, and the realisation that there will have to be a Defence Review, whatever government is in power in 2010…. Furthermore the efficacy of DIS was based on the personal commitment and drive of Lord Drayson; and it will require the same from his successors."[277]

VT Group "Industry has responded to the agenda initiated by the publication of DIS. The formation of BVT is a direct response to DIS as part of the Maritime Industrial Strategy (MIS). It was facilitated by the Government's agreement to proceed with the Future Carrier Programme. If this progress is to be sustained, then focus is required now to pin down the programmes that will follow the future carriers, not least to ensure that we are able to keep together the UK's design capability.

However, DIS embodies a long-term approach. The short-term requirements of supporting current operations and the need to find immediate savings within the defence budget do not facilitate the implementation of DIS."[278]

Royal Aeronautical Society "Clearly, the changed financial situation and the impact of operational needs on MoD planning have affected original assumptions about the timetable for DISv2.0. Nevertheless, the failure to maintain the momentum and energy associated with work on the DIP and DIS gives the Society considerable cause for concern. Companies, now even more than ever, need some indication of Ministry thinking to set their own budgets and to define priorities. Companies, either UK or foreign, with global footprints may determine that overseas investment should have more attention than here in the UK."[279]

187. Concerns about the implementation of the DIS were also raised at our evidence session with industry representatives. The issue of transparency was raised by Dr Wilson who told us that:

transparency was one of the big tenets of the first Defence Industrial Strategy. I think everybody in industry thought that was going to be the opening of a rather better regime and relationship between industry and MoD. The transparency, sadly, has not materialised yet.[280]

Bob Keen also referred to transparency:

We are being consulted on a number of programmes as a company at the moment. I suppose if you take a step back and look at what the DIS was trying to achieve in terms of transparency, the sort of generic openness that the DIS was talking about, I think that has proved a challenge in a time of financial constraint.[281]

188. At the evidence session Mike Turner told us that:

It was quite clear that the Government did not give Lord Drayson, the MoD, the financial support necessary to execute that strategy, and that is the limbo-land we have been in ever since. We have a DIS and have it spelt out in DIS 1 sector by sector with a Strategic Defence Review some ten yeas old now, which is the background for that, but we do not have the financial wherewithal to execute that strategy and that is where we are and that is where we have been for some time.[282]

and:

It [the DIS] is on hold. First of all, the principles are magnificent but also we saw before us long-term planning taking place in helicopters, on land, air and sea, against which industry could then plan resources, apprentice intakes, investments and all the rest. We welcomed it and I remember the board meeting where we said good, at last we have a future in the United Kingdom, because that was very much in question. Now I think I think it is in doubt. We are very pessimistic about the future because we have the DIS, we have the principles, we have the strategy; we do not have the money.[283]

189. Bob Keen saw the progress in implementing the DIS as more of a "mixed picture":

I am not disagreeing with anything either of my colleagues has just said, but I do go back in relation to the DIS to the work that is actually already taking place on a daily basis. We are actually implementing the DIS in a number of important sectors in the defence industry. That is not to say we are doing it everywhere and there are key areas for the future, particularly in the air sector, where key decisions have got to be made about the industry and about the skills and technology that we are able to maintain over the long term and the extent to which that will enable to us deliver operational sovereignty, I would say it is a mixed picture. There are some huge decisions yet to be made and the industry really is waiting for some of those big decisions to be made, but we are also making progress.[284]

190. We asked the MoD about the claim that the DIS was "on hold". Dr Tyler, DE&S' Chief Operating Officer did not share the concerns which we had heard from industry representatives. He told us that:

I would love some of the managing directors, for example, in the maritime sector, the armoured fighting vehicle sector, the helicopter sector, or the fixed-wing sector to sit here and say that; because the evidence and their engagement in it has been very great over the last two years since the Defence Industrial Strategy was progressed. Indeed, there is lots of evidence that has come in front of this Committee of exactly the outputs from the implementation of the Defence Industrial Strategy: the partnering agreement with AugustaWestland; the formation of BVT in the maritime sector and the surface ship support project; in the armoured fighting vehicle sector—the work we are doing at the moment in maturing that sector strategy. There is evidence right across the piece, all of which has involved industry to a great degree.[285]

191. We raised Mike Turner's concern as to whether we still have a Defence Industrial Strategy with CDM. He told us that "I am absolutely clear that we do and it is on the stocks and that is the one we are working to".[286] We followed up the concerns with the Minister for Defence Equipment and Support. The Minister was adamant that, since its publication, the DIS was being implemented. He stressed that "it has been implemented and is being implemented and will continue to be implemented".[287] We raised the specific concern that funding issues were limiting the progress in implementing the DIS. The Minister emphasised that "the Government are completely committed to those principles [DIS principles], we are continuing to implement the Defence Industrial Strategy".[288] On the issue raised in the memorandum from the Defence Industries Council that the progress in implementing the DIS had been slower than industry would have hoped, the Minister told us that:

It would intensely surprise me if the customers of the MoD at any one stage said "Thank you very much, we are quite satisfied with the flow of orders, we are quite satisfied with the defence budget, we do not want any more." That would not be a natural state of affairs, so I regard it as a very natural understanding of the state of affairs. When they say they would like a bit more money that is perfectly reasonable but they recognise realities, they are getting more money all the time but not, obviously, at the pace that they might conceivably be asking for.[289]

192. We questioned the Minister further on the claim by Mike Turner that the DIS was "on hold". However, we could not get a meaningful response. He told us that "As for "on hold", that term is slightly ambiguous. It may mean valid, still in existence, unchanged, and if that is the characterisation he was giving it that is the correct characterisation".[290] This was certainly not our view of the "characterisation" that Mike Turner was giving when he gave evidence to us.

193. When we asked the Minister about Mike Turner's claim that that "It is extremely difficult for industry to plan as we hoped we would be able to when we had a DIS, but that is reality".[291] He responded as follows "He said it is difficult to plan when we have a DIS?".[292]

194. We have heard mixed messages about the progress made in implementing the Defence Industrial Strategy (DIS). The MoD reports that good progress has been made in most of the industrial sectors. However, we have heard several concerns from industry, including concerns that the progress has been slower than hoped, that the expected transparency has not materialised, and that the DIS was "on hold". In its response to our Report, we expect the MoD to consider the evidence we have received from industry, and explain to us why there is a difference of opinion between the MoD and industry on the progress made in implementing the DIS. We are particularly concerned to hear from industry that the expected transparency has not materialised and expect the MoD to set out how it plans to address this specific issue.

195. We also look to the MoD to provide us with an update on the progress in negotiating a Long Term Partnering Arrangement in the fixed wing sector, including when it expects to have reached agreement on such an arrangement.

THROUGH-LIFE CAPABILITY MANAGEMENT

196. A key objective of the DIS was to move to a Through Life Capability Management (TLCM) approach to acquiring and managing defence equipment programmes. At our evidence session with industry representatives concerns were raised about the progress in embedding the TLCM approach. For example, Dr Wilson told us that:

Following on from what Ian Godden has just said, I agree entirely with that and I think TLCM is key. I think the process is only part way through and has to be driven quite hard in future to the point where we get proper programme boards with industrial representation on them and it is at that point that we start to get true transparency on future requirements.[293]

Ian Godden considered that:

in the context of TLCM that we were talking about earlier there is a risk because to implement that programme you actually probably have to spend a bit higher up-front in order to get the lower positions later. I think some of that is at risk in the current situation. It is not just a matter of delaying the programmes but also the idea of the TLCM being a longer term value for money is at risk from this current situation.[294]

Mike Turner also referred to funding issues and TLCM:

Through life capability management depends on having sufficient money up-front… We have never done that in MoD. That is why DIS was so important. It focused on through life capability management through partnering, but it does mean investment up-front. In the current climate, you cannot do that.[295]

197. A key objective of the DIS was to move to a Through Life Capability Management (TLCM) approach to acquiring and managing defence equipment programmes. However, some industry representatives have raised concerns that the TLCM approach has not been fully embedded. In its response to our Report, we expect the MoD to set out its assessment of the extent to which the TLCM approach has been embedded across the department.

Updated version of the Defence Industrial Strategy

198. At our evidence session on 21 November 2007 for our inquiry into the UK/US Defence Trade Cooperation Treaty we asked when the MoD planned to publish the updated version of the DIS. The updated version was originally expected to be published in December 2007. Baroness Taylor, then Minister for Defence Equipment and Support, told us that:

I think the date that was previously suggested was 13th, and I have just written to you, Mr Chairman, to say that as I have come into this position I want to review the whole situation, so we will not be publishing anything on 13th. I think we need to make sure that anything we publish on the Defence Industrial Strategy dovetails in with decisions we are taking on the planning round. I think it would be foolish for me, having just come into this, to make statements on 13th in advance of other work that is going on.[296]

199. At our evidence session on 4 November 2008 for our inquiry into the Ministry of Defence Annual Report and Accounts 2007-08, Sir Bill Jeffrey acknowledged that the MoD had "a longstanding commitment to reissue" the DIS. However, he said that the MoD had taken the view, which industry supported, that it would be "pretty pointless to reissue the Defence Industrial Strategy until we completed the examination of the equipment programme".[297] We reminded him that the MoD had told us last year that the delay to publishing the updated version of the DIS was to await the outcome of Planning Round 08. This year, the delay was to await the outcome of the short examination of the equipment programme. We pressed him on when he expected the updated version of the DIS to be published. He told us that "I hope by next year [2009] that it will have been issued".[298]

200. The MoD's memorandum set out its position regarding the updated version of the DIS and its assessment of the impact on industry of the delay in publishing:

The Department remains firmly committed to the Defence Industrial Strategy and has engaged closely with industry to develop it further. Work continues on developing the policy framework and examining the medium and long term equipment programme issues that will inform the industrial sector strategies. We are discussing the revision of the Strategy with the National Defence Industries Council; and through bilateral meetings with individual companies at all levels.

We do not believe that the lack of an updated version is having a significant impact on the achievement of the original DIS objectives, where we continue to make good progress. The principles set out in the original DIS still underpin all MoD's acquisition activity and are driving transformation that will deliver equipment to the front line at value for money for the taxpayer.[299]

201. We followed up the issue about the delay in reissuing the DIS with CDM and, specifically, the claim that industry supported the delay. CDM told us that:

I sit on the NDIC [National Defence Industries Council], and industry quite openly and publicly at the NDIC were clear that they did not want DIS 2 published until it could be published in its totality; and that cannot be done until PR 09 is complete. At some point we will be able to publish DIS 2. Industry, I think, would have liked it a year ago, or two years ago; but until we have got our mind round the sector strategies and exactly the sort of funding that might be available for the various strategies, industry would rather stick with DIS 1.[300]

CDM was "absolutely clear" that the MoD would publish "DIS 2 as soon as we are able to".[301]

202. Most of the memoranda submitted to our inquiry referred to the updated version of the DIS. Examples of references to the updated version of the DIS from the written evidence submitted to our inquiry are provided in table 13 below.

Table 13: References to the updated version of the DIS in the written evidence received

References to the updated version of the DIS

Unite Amicus Section "Unite is clear that the best way forward for the UK defence sector is for a second Defence Industrial Strategy."[302]

VT Group "Industry hopes that the current capabilities review will create the circumstances in which it will be possible for the DIS process to regain momentum and for DIS 2 to be published finally."[303]

Royal Aeronautical Society "The DIS promised to be a dynamic document subject to discussion, review and regular updating. Even if this would not approach the annual review of American defence industrial affairs as mandated by the US Congress, there were hopes that a second version (DISv2.0) would be published by early in 2008 at the latest. There was a strong expectation that several lacunae present in the DIS would be addressed, particularly in respect of supply chain issues and a more extensive reference to space technology and the promotion of UK space technology."[304]

Defence Industries Council "Companies of all sizes still need the clarity for planning decisions that we had hoped DIS v2.0 would provide. However we need to be pragmatic about what it is sensible to publish now in light of the recent financial crisis and when a general election will be held within the next eighteen months. Given these circumstances we do not believe it is the right time to push for early publication of a DIS v2.0 at a time when it may not provided the clarity industry needs to plan with confidence for the long term. We have advised HMG of this conclusion and we hope that the Government will prepare a revised DIS when the necessary conditions are in place."[305]

203. Both Sir Bill Jeffrey, MoD's Permanent Secretary, and CDM told us that they were confident that the MoD would be publishing an updated version of the DIS. We asked about the progress in producing DIS 2 at our evidence session with the Minister for Defence Equipment and Support. Amyas Morse told us there had been more of a delay in producing DIS 2 than "we planned originally".[306] The Minister said he was committed to the principles of the DIS. However, he added that:

Whether it makes sense to have a second version of that, Defence Industrial Strategy 2, is a matter on which I am open-minded and I have expressed myself along those lines with industry. In so far as Defence Industrial Strategy 2 gave a greater degree of clarity, a greater degree of investor confidence to industry, in other words in so far as it was more explicit on the sectoral information, on the budgetary information and so forth than the existing one, industry would no doubt be pleased to have it, but if it did not achieve those things—and it might be difficult for us to achieve those things —then there is a great danger having too frequent a re-issue of the Defence Industrial Strategy because it is supposed to be a long-term framework.[307]

204. We found the Minister's statement odd given that DIS 2 was originally expected to be published in December 2007 and then spring 2008, and now we were hearing that the MoD might not publish DIS 2 at all. We asked the Minister why Lord Drayson considered it important to produce an updated version of the DIS and why the new Minister did not. The Minister said that he did not "exclude having a new document", but:

I am open-minded about when that should best be and I am very conscious that there is no point having a document for the sake of having a document, there is no point having a document which is full of general principles and aspirations, the only sort of document that industry is actually interested in—and you will know this as well as I do—is a document which gives a very great deal of clarity and certainty about our purchasing plans.[308]

205. Given that the short examination of the equipment programme has finished we asked what was now holding up the publication of DIS 2. The Minister considered that it would "not be sensible to have a new Defence Industrial Strategy every year, it would be crazy".[309] We reminded the Minister that it was envisaged in the Defence Industrial Strategy that there would be a DIS 2. The Minister provided us with another lengthy response:

I personally do not think that we should have these documents too frequently, you devalue them if you have them too frequently, I really mean that. I do not think we should have one every year, I do not think we should have one every two years, we should not necessarily have one every three years. I think we need to make sure that when we do have one it is at the right strategic moment when we can say something which is novel, which is original, which is arresting, which is detailed, which is full of sectoral and financial information of the kind that industry wants. As and when we get to that position the advantages of having such a document would be greater than the disadvantages. If we cannot agree those degrees of clarity then I do not think that the advantages necessarily would override the disadvantages and one of the disadvantages might be to devalue the existing document.[310]

206. An updated version of the Defence Industrial Strategy was expected in December 2007, but the MoD did not meet this deadline, nor the next deadline of spring 2008. The MoD claimed that the original deadline was missed because of the need to finalise Planning Round 2008. More recently, the MoD has claimed the delay has been caused by the need to complete the short examination of the defence equipment programme. The short examination has been completed and both the MoD's Permanent Secretary and the Chief of Defence Materiel have told us they were confident that the updated version of the DIS would be published in 2009.

207. We find it astonishing that the new Minister for Defence Equipment and Support was "open-minded" as to whether it made sense to have an updated version of the DIS. The DIS is now over three years old and a key aim was to provide industry with clarity about the MoD's future requirements. In its response to our Report, we expect the MoD to tell us whether, or not, it plans to publish an updated version of the DIS. If it does plan to do so, we expect the MoD to set out when it plans to do so. If it does not, we expect the MoD to set out how it plans to keep industry informed of its future requirements and the industrial capabilities which the UK needs to retain. We condemn the failure to date to publish an updated version of the DIS and consider that its continuing absence increases the risk that the UK Defence Industrial Base will not be able to meet the future requirements of our Armed Forces.

The Defence Industrial Base

208. At our evidence session on 12 November 2008 for our inquiry into the Ministry of Defence Annual Report and Accounts 2007-08 we asked the Secretary of State about the DIS and the Defence Industrial Base. He told us that:

I think we should do everything we can to help sustain sovereign defence capabilities in a number of very critical areas. The Defence Industrial Strategy tried to set those out. I think it is a balance we have to strike here. We must retain the ability to equip and provide the vital kit that we need from within our own defence industrial base if we are going to retain essential sovereignty in defence policy…. We have to see the defence industrial base. Of course a successful defence base here in the UK can actually help us address some of the value for money issues that you have described. Nowhere is that more evident to me than in the area of exports where we have to get right behind our defence manufacturers in the exporting work that they do because that can help address some of these knotty problems about value and marginal costs and everything else that bedevil defence procurement.[311]

209. At our evidence session with industry representatives concerns were raised about the UK's Defence Industrial Base (DIB). Mike Turner referred to this issue on several occasions:

The big concern that the defence industrial base has is the third area, the future equipment programme. Will this country be able to able to play a role in the world, five, ten, 15 years out? […] We have a world class defence industrial base and only focusing on the short term and not the long term is of huge concern to us.[312]

I tell you now this industry is in decline and unless people pay attention to the budgeting of defence in this country and the defence industrial base we do not have a future.[313]

Bob Keen told us that:

It seems to me the central challenge that the Secretary of State has is particularly to do it, as far as the equipment programme is concerned, in a way that maintains the industrial capability that Mike Turner has been talking about. That is essential, both in terms of delivering capability to the front line in the future and also from the point of view of generating the technology and skills in this country that the DIS recognised were important, not least because of the need to maintain operational sovereignty in the future. From my point of view, I think that is the priority.[314]

210. We were concerned to hear from industry that the UK's Defence Industrial Base was in decline. However, the Minister for Defence Equipment and Support did not share this view and considered that Mike Turner's concerns reflected his role as an "advocate for the defence industry".[315] He said that:

[…] I do understand that the role of advocacy of any particular sector does require putting pressure on the major customer to come up with as much money as possible as rapidly as possible; that is the way the game has got to be played. There is no misunderstanding on either of our parts about the role which Mr Turner plays on behalf of his industry, and he does it extraordinarily well and extremely ably.[316]

211. We are worried to hear from some industry representatives that they are concerned about the future of the UK Defence Industrial Base. However, the MoD does not appear to share these concerns. In its response to our Report, we expect the MoD to set out what assessment it has made of the health of the UK defence industry and, in particular, those parts of the defence industry where the MoD wishes to retain industrial capability in the UK.

SMALL AND MEDIUM-SIZED ENTERPRISES AND THE SUPPLY CHAIN

212. In our Report The Defence Industrial Strategy we examined issues relating to Small and Medium-sized Enterprises (SMEs).[317] In the Report we expressed concern that the MoD was only at "the start of a journey" in terms of understanding supply chains and how to manage them. We noted in our Report that the MoD was working with the DTI, the Regional Development Agencies and the agencies of the devolved administrations to understand defence supply chains better.[318] At our evidence session with industry representatives on 18 November 2008, Ian Godden outlined some of the work to improve the supply chain:

If we go back to the supply chain and say that we have in this country anywhere from 3,000 up to 7,000 companies involved in the supply chain, there is an issue about how efficient that supply chain is […] In an absolute sense, if we compare ourselves with other industries, and we have a nice direct comparison with the civil to defence side in aerospace, we would say that the whole supply chain and the SME community and the primes have got work to do in terms of developing a much leaner, more efficient supply chain that will match the needs of the programmes, so I think on behalf of the industry I accept the challenge. We have established a programme, Supply Chain 21, which is an attempt to overcome some of those difficulties for which we get criticised.[319]

213. We sought further information on the Supply Chain 21 programme. Ian Godden told us that:

Effectively it is a programme of establishing lean timeliness and efficiency into the whole supply chain. The MoD signed up in Farnborough this year to that whole programme, which is an industry-wide programme, essentially self-help, funded partly by work going on in the regions and partly by work going on from central government, but largely funded by the primes themselves in terms of their programmes of lean manufacture, lean design and the whole concept of eliminating duplication in the chain. There are 300 companies that have signed up out of 3,000 that are actively working on that. It is a very large programme […] established approximately 18 months ago. I myself am proud to say that the programme is alive, well and kicking and doing a good job, but it could be faster, it could be better and it needs to be pushed hard from all angles because I think that will have the ripple effect upwards along with things about timeliness downwards that we are talking about.[320]

214. We have previously highlighted concerns about the problems some SMEs experienced in accessing the supply chain. Ian Godden said that the Supply Chain 21 was part of the solution to this problem.[321] He considered that there was "still a long way to go" and looked at Supply Chain 21 as a 5-7 year programme. He considered the UK defence supply chain to be more efficient and better value for money than the defence supply chains in the US and France. However, the UK defence supply chain had "got some way to go" compared with the supply chains for other industrial sectors.[322]

215. We note that the MoD has signed up to the Supply Chain 21 programme which aims to improve the defence supply chain. In its response to our Report, we expect the MoD to set out the contribution it is making to this programme, its assessment of the progress of the programme to date, and what specific benefits if expects the programme to deliver.

263 Cm 6697, Foreword Back

264 Defence Committee, Seventh Report of Session 2005-06, The Defence Industrial Strategy, HC 824 Back

265 Defence Committee,Sixth Report of Session 2006-07, The Defence Industrial Strategy: update, HC 177 Back

266 Defence Committee, Seventh Report of Session 2005-06, The Defence Industrial Strategy, HC 824, Summary Back

267 Defence Committee,Sixth Report of Session 2006-07, The Defence Industrial Strategy; update, HC 177, Summary Back

268 Defence Committee evidence session on 12 November 2008 for the MoD Annual Report and Accounts 2007-08 inquiry, Q 167, available at www.parliament.uk/defcom Back

269 Q 154 Back

270 Q 155 Back

271 Q 427 Back

272 Defence Committee Sixth Report of Session 2006-07, The Defence Industrial Strategy; update, HC 177, Ev 28-33 Back

273 Ev 95 Back

274 Q 44 Back