Defence Equipment 2010 - Defence Committee Contents

Memorandum from the Ministry of Defence

1. Please provide an outline of the organisation and work programme for the implementation of the Gray report recommendations and the preparation of the Strategy for Acquisition Reform which is due to be published in the New Year.

  1.1 Following the Review of Acquisition by Bernard Gray, a Defence Acquisition Reform Project team has been established. This is led at Director level, and reports to a senior Steering Group chaired by Lord Drayson, and including Bernard Gray. The team is developing a Strategy for Acquisition Reform which will build on the eight-point approach set out in the Defence Secretary's statement to the House on 15 October,[1] together with existing business improvement initiatives in the acquisition sphere.

  1.2 The intention is to publish this Strategy in the New Year. Implementation of some central aspects of the Strategy, notably the creation of a Defence Board sub-committee on Equipment, has already begun.

2.   How is the implementation of Through Life Capability Management (TLCM) being monitored and what progress has been made over the last 12 months? Is implementation proceeding to the MoD's satisfaction? Please provide some examples of benefits identified through adopting a TLCM approach.

  2.1 A number of mechanisms exist to monitor and guide the implementation of TLCM. The principal one is the TLCM Governance Board. As part of this governance structure, the Deputy Chief of Defence Staff (Capability) and senior 2* and 3* representatives from across Defence meet monthly to review progress and ensure that the strategic risks to implementation are being managed effectively. Industry is represented on the TLCM Governance Board and through joint strategy and working groups as part of the National Defence Industry Council (NDIC) structure.

  2.2 The Department remains committed to the continuously improving the provision of capability to our Armed Forces. Over the past 12 months, we have improved the capability planning structures introduced as part of TLCM, including more effective engagement with the Front Line "User". We have also made progress in our engagement with industry and have established new mechanisms for involving industry earlier in our planning processes. This will lead to greater realism and improve our understanding of the options available to meet the future needs of our Armed Forces. We have also made good progress in implementing the programme approach to the delivery of capability, further details are set out in the answer to Question 3.

  2.3 Specific examples of benefits arising from the programme approach include the rebalancing of resources across the Maritime Platforms Programme by cancelling planned enhancements to the Type 42 Destroyer and reinvesting the freed-up resource in the Type 45 Destroyer. For the same Programme, the coherence and greater visibility delivered by a broader programme view across all major maritime platforms, both current and future, has given much earlier visibility, by some four to five years, of the overall manpower implications for the Royal Navy, thereby allowing better informed and proactive manpower planning. The programme approach has also been beneficial in how the Department responds to the delay in the A400M project. Faced with a potential gap in our tactical air lift capability, the Programme Board has been the primary means to examine opportunities to enhance the delivery of capability from existing fleets by improving the flexibility of personnel, the quality of support infrastructure, the capacity of logistic support organisations and whether doctrinal changes—the way we operate the aircraft—will reduce the maintenance burden on the existing fleets. The recommended mitigation action is a combination of these measures and demonstrates the greater benefits of a broader programme approach, along with a the more rigorous examination across all of the Defence Lines of Development as advocated by Through Life Capability Management.

3. What progress has been made with regard to the implementation of programme arrangements for acquisition activities? The Government Response to the Committee's Defence Equipment 2009 Report stated that the programme approach would be "embedded across the MoD acquisition community" by March 2010: will this be achieved? What metrics are in place to ensure that individual projects do not under-perform in a "programme managed" system?

  3.1 Implementation of a Programme Approach to Capability Delivery, and the establishment of Capability Programme Boards began in November 2008 and implementation is focussed on achievement of four staged outcomes:

— Programme Stand-Up (April 2009—Achieved): The MoD has formed Programme Boards to take a consistent approach to the delivery of capability through grouped projects across Defence Lines of Development (DLoDs).

— Programme Coordination (September 2009—Partially Achieved): The MoD consistently coordinates the delivery of capability through grouped projects and DLoDs, and has tested how we can use the programme approach to improve coherence in the Planning Round (PR).

— Programme Balance (target March 2010): The MoD consistently achieves balance in the through-life delivery of capability across projects and DLoDs including managing risk within programmes.

— Programme Optimization (target March 2012): The MoD Acquisition system delivers a stable, affordable capability programme, balanced with defence policy and with the agility to adapt to changes in the operational environment, by optimising the management of risk across delivery programmes.

  3.2 These outcomes are embodied in the Programme Approach Maturity Model which is used to monitor progress on a six-weekly basis. The latest Maturity Assessment (as at the end of September 2009) showed that overall programmes are making good progress in areas where they have control, with 97% of programmes assessed as Good or Satisfactory against Programme Stand-Up.

  3.3 Against the Programme Coordination maturity measures, 53% of programmes are assessed as Good or Satisfactory. This represents a 25% increase since August 2009 due to improved availability and maturity of pan-DLoD information and increased ability of Programmes to consider programme issues and decisions. Over 75% of Programmes are forecast to reach a satisfactory level of Coordination maturity by the end of 2009, although we do not expect full achievement of this milestone due to the shortened timescales for Planning Round 2010 which limited Programme Board input.

  3.4 The majority of programmes achieved the September Programme Coordination milestone and remain on track for the March 2010 balance maturity level. It should be recognised that Programmes Boards are at different levels of maturity which will be reflected in the proportion achieving the Balance milestone.

  3.5 Under the programme approach, the role of the Head of Capability is to sponsor the delivery of a set of related projects and associated Lines of Development that form a programme. The Head of Capability acts as the programme sponsor, ensuring coherence across all Lines of Development and that the programme requirement output is met. Responsibility for individual project and Lines of Development performance remains with the MoD Top Level Budgets (TLB) and delegated officers delivering the projects. Existing metrics at project level, for example Performance, Time and Cost, are set and monitored by each TLB and remain in force to ensure project delivery in accordance with the agreed programme direction.

4. Please provide a progress report for the staff restructuring programme in DE&S, explaining what efficiency savings have been made. What have been the effects on service delivery of the efficiency savings and what safeguards are in place to ensure that these savings do not have an adverse impact on the equipment programme? What scope remains for further efficiency savings?

  4.1 Defence Equipment & Support continues to reduce its numbers under the PACE (Performance, Agility, Confidence, Efficiency) programme. Currently DE&S comprises some 22,500 military and civilian personnel, a reduction from around 27,000 at the formation of DE&S in April 2007, and HM Treasury efficiency reporting cited the efficiencies from PACE to June 2009 as over £190 million. The drawdown in staff has happened more quickly than envisaged at the beginning of PACE, but DE&S maintains support to operations as its highest priority, exemplified by the fact that it has around 800 people diverted from established funded-roles to the activity of delivering essential new Urgent Operational Requirements. Many DE&S staff—around 11,700—are engaged in directly supporting the front line, in areas such as the Joint Support Chain and HM Naval Bases. DE&S regularly reviews the best use of available manpower resource to deliver capability priorities but, with substantial efficiencies already in hand, the scope for further such savings is becoming restricted.

5.   The MoD 2008-09 Annual Report (page 95) states that "a review of research programmes has resulted in funds being reprioritised into activities better aligned to Defence's strategic needs". What research activities have been stopped or cut back as a result of this review and which are expanding? Please provide an updated version of the research spending table shown on p58 of the Committee's Defence Equipment 2009 Report, expressing spending in real terms, and adding data for 2007-08 and 2008-09. What were the reasons for the sharp changes in research spending between 1996-97 to 1997-98 and 2003-04 to 2004-05?

  5.1 Research in the following areas has had some specific activities reduced or stopped as a result of strategic reprioritisation: Maritime, Land and Air domains, Weapons, C4ISTAR, ballistic missile defence and climate research. The main area of activity which has been expanded is Counter Terrorism and Support to Operations.

  5.2 The table below provides an update on the MoD research expenditure estimates expressed in current and constant 2008-09 prices. Estimated outturns for 2008-09 will not be available until the end of January 2010.

ESTIMATED MoD NET RESEARCH EXPENDITURE (CURRENT AND REAL TERMS)

Inclusive of non-recoverable VAT (£million)

Year	Current Prices	Constant 2008-09 prices
1992-93	513	762
1993-94	654	946
1994-95	665	947
1995-96	676	936
1996-97	672	897
1997-98	564	734
1998-99	560	713
1999-2000	552	690
2000-01	566	698
2001-02	557	672
2002-03	515	602
2003-04	524	595
2004-05	639	706
2005-06	598	649
2006-07	632	666
2007-08	635	651
Notes:
1.  Conversion to constant 2008-09 prices uses the latest available forecast GDP deflator series produced by HM Treasury dated 29 September 2009.
2.  Full details of the methodology (including any changes or breaks in series) used by DASA to compile the MoD Research figures are published in DASA Defence Statistics Bulletins Nos 2, 6 and 9.

  5.3 The change in research spending between 1996-97 and 1997-98 reflected reductions in the Research Building Block (RBB) outturn between those years following a decision to reprioritise funding across the Department to match strategic priorities.

  5.4 The increase in expenditure between 2003-04 and 2004-05 largely reflected the movement into the RBB of a specific Met Office programme and an increase in expenditure related to nuclear research between 2003-04 to 2004-05.

6. What have been the most significant consequences of the short examination of the equipment programme? Was the examination a successful exercise? What benefits have resulted from it? How is the MoD ensuring that an appropriate balance continues to be maintained between supporting current operations and the longer term equipment programme?

  6.1 The main success of the Equipment Examination was in going a considerable way towards bringing the equipment plan more into balance. This has enabled us to focus more of our expenditure on those capabilities of highest immediate urgency, such as those needed for current operations, while also continuing to invest in capabilities needed to respond to future threats. However, we recognise that there is further to go. Ensuring the equipment plan is affordable and has the right balance between supporting current operations and longer term capability requirements will continue to be addressed through our planning process and in the forthcoming defence review. The measures we are putting in place in response to the recommendations of the Bernard Gray report will also help us to maintain the appropriate balance in our programme in future.

7. What is the MoD's estimate of the extent to which the equipment plan is under-funded? To what extent have current economic circumstances affected the affordability of the equipment plan?

  7.1 The Department is currently conducting Planning Round 10 (PR10) which will look at the overall departmental programme against the likely future resources for Defence. The Government's spending plans for Defence beyond 2010-11 have not yet been set. It is not possible to give a meaningful assessment of the extent to which the equipment plan is under-funded in advance of the completion of PR10 (currently planned for December/January) when the cost of the programme and available resources should be clearer.

  7.2 Defence, like any other large organisation in the UK at the moment, faces particular pressures including weak sterling, pay increase, increased pension costs, rising costs of utilities and reduced estates disposal receipts. As a result, although the Department's budget has increased in real terms (in line with the Comprehensive Spending Review) our programme pressures have been greater. We have mechanisms in place to deal with these pressures, but we accept that we need to do better at controlling them, as we acknowledged in our response to the Bernard Gray Report, not least because of the severe pressures on public spending generally.

8. Please provide a progress report for the working group which is producing a measure of defence inflation. Is the work on producing this measure still scheduled to be completed by April 2010? Is the work of the group being revised in view of the comments on defence inflation in the Gray report?

  8.1 The programme of work being undertaken to produce a measure of defence inflation is progressing to plan. Details about the measure and estimates for inflation in total MoD expenditure for financial years 2006-07, 2007-08 and 2008-09 are scheduled to be published in April 2010 in a Defence Statistics Bulletin. Estimates for 2009-10 will be produced in October 2010, when the necessary contributing data and price indices become available.

  The status of this work is as follows:

— Estimates for fixed price contracts and high value firm price contracts have been produced and are currently undergoing quality assurance. These estimates account for around £12 billion of annual expenditure through MoD contracts.

— Work on producing estimates for military and civilian pay and labour cost inflation is on schedule to be completed by end of December 2009. These estimates account for around £12 billion of MoD expenditure.

— The remaining work-strands are: estimating effect of currency fluctuations; low-value contracts; high-value miscellaneous contracts; and fuel purchases. These work-strands are planned for completion by March 2010.

  8.2 The Bernard Gray report identifies a number of reasons why equipment costs grow. These include: over optimism in initial estimates; real cost growth with successive generations of equipment due to higher specifications; and drift in project completion date. Gray attributes these to behaviours in the defence procurement community.

  8.3 The measure of defence inflation adopted captures the increase in pay and prices for all goods and services while holding quality and quantity constant. It is aligned to the measures of inflation produced by the Office for National Statistics and is wholly consistent with the Review of Acquisition by Bernard Gray. There is therefore no need for the MoD to revise the definition or scope of this work.

9. Please provide a short progress report on the following equipment programmes:

Astute submarine;

Future carrier;

Joint Strike Fighter (JSF);

Type 45 Destroyer;

Future Rapid Effect System (FRES);

Military Afloat Reach and Sustainability (MARS);

A400M;

Nimrod MRA4; and

Future Lynx and Puma refurbishment.

  For the above programmes which have passed Main Gate, the progress report to include:

The Current Forecast Cost (against Approved Cost at Main Gate); and

The Current Forecast In-Service Date (against Approved In-Service Date at Main Gate).

  For each of the above programmes, the progress report to include:

A summary of the key events/decisions over the last 12 months and the key events/decisions expected in the near future (next six months).

  Future carrier—Was the MoD aware that the procurement budget was tight when it ordered the aircraft carriers? Why was the decision made in December 2008 to reschedule the in-service date for the carriers, given that the award of the contracts had been announced only six months previously? What is the cost penalty of rescheduling the aircraft carriers?

  JSF—When will the decision be made regarding how many JSFs are to be purchased? Have all of the technology transfer issues with the USA been resolved? Will UK personnel or UK industry be able to carry out repairs, or will this have to be done by US personnel?

  FRES—What has been the impact of the UOR programme on FRES? What assessment has been made of the ongoing costs of vehicles procured under UORs? What type and numbers of vehicles are still needed, given the extensive procurement of vehicles via the UOR process? What now is the objective of the FRES programme and what capability gap is it intended to address?

  A400M—What options are being considered as a contingency to mitigate any potential capability gaps that may arise from A400M delays? What is the timetable for making decisions? Do you agree with the assessment in Jane's Weekly on 5 October 2009 that "the RAF is faced with a potential gap in capability in sustaining an air bridge to Afghanistan, which is already described as fragile".

  MARS—Is it still the intention of the MoD to compete MARS outside of the UK shipyards or is MARS seen as a requirement to maintain UK maritime shipbuilding skills? Why is MARS not already underway when the restrictions on single hulled ships come into force in 2010?

  Helicopters—Please provide an updated version of the table "Current Platform Numbers and Out of Service Dates"' which was provided by the MoD to the Committee in April 2009 for its inquiry into Helicopter Capability.

ASTUTE CLASS SUBMARINE

Astute Class Boats 1 to 3	Original MG Approval (90%)	Current Forecast (50%)	Difference
Cost (£m)	2,578*	3,933	+1,355
ISD	June 2005	March 2010	+57 (Months)
*  Approval only given at 50% confidence level

Progress Report

  There are four Astute Class submarines under construction at BAES Submarines Solution Shipyard (BAES SS), Barrow-in-Furness; ASTUTE (First of Class), AMBUSH, ARTFUL and AUDACIOUS. Long Lead items have been ordered for Boat five, and the reactor core has been ordered for Boat six.

  Over the last 12 months ASTUTE's programme has been further delayed by six months due to a range of technical and programme issues. BAES SS have had to re-establish the UK's strategic capability to design, build, test and commission nuclear powered submarines, due to the inexperience of the BAES SS workforce following the 10 year gap between Vanguard and Astute Classes.

  ASTUTE has just completed her final stage of testing and commissioning of the reactor, propulsion and ships systems, which is the penultimate major milestone before she is cleared to sail from Barrow to start a comprehensive sea trials programme.

  Following delays, the Astute programme is being rebaselined. The full impact of any programme changes can only be confirmed once this work has been completed. Once the detailed cost and schedule implications have been confirmed, IAB, Ministerial and Treasury re-approval will be sought; an announcement will be made in due course.

Key Events/Decisions since February 2009

— ASTUTE (Boat one) completion of reactor and propulsion system testing.

— AMBUSH (Boat two) initial fill of the primary circuit with reactor quality water and testing of the main coolant pumps.

— Valiant Jetty arrived in Faslane in May 2009.

— AMBUSH final hull weld completed.

— ARTFUL (Boat three) main propulsion machinery tested.

— AUDACIOUS (Boat four) keel laying ceremony March 2009.

Key Events/Decisions expected in the next six months

— ASTUTE to complete the first phase of sea trails.

— IAB, Ministerial and Treasury re-approval of Boat one to four.

— IAB, Ministerial and Treasury Approval for Boat five construction and Boat six Long Lead Items.

— AMBUSH—Completion of the first phase of the primary and propulsion system tested.

— ARTFUL—delivery of the Command Deck Module (CDM) to the BAE SS Devonshire Dock Hall (DDH) at Barrow.

— AUDACIOUS—second hull unit to DDH.

— Start of construction on Boat five.

— Order Long Lead Items for Boat six.

QUEEN ELIZABETH CLASS CARRIER

	Original MG Approval July 2007	Current Forecast	Difference from 2007 MG approval
Cost (£m)	4,3591 (70%)	5,1332	+7743
ISD	October 20154 (60%)	May 20162	+7 months5
1  50% confidence figure of £4,085 million (includes CDEL and iRDEL).
2  Current Forecast at 50% confidence level.
3  The differential between Main Gate 50% figure and the current 50% forecast is £1,070 milion (with adjustments)—as reported in the 2008-09 ARAC.
4  50% confidence date of July 2015.
5  19 months when set against announcements at Main Gate which assumed July 2007 Contract Award. In the event contract award was July 2008.

Key events/decisions over the last 12 months

— As part of the 2008 Equipment Examination it was decided to delay the carriers by one to two years, recognising this would add cost.

— The Departmental Annual Report and Accounts 2008-09, published earlier this year and the MPR 2009 show a cost growth of £1,070 million against the Main Gate most likely cost (50%), which equates to £774 million against the approved (70%) not to exceed cost.

— Updated cost and time estimates are currently going through the Department's approval process, and, as is normal, this information will only be set and announced once the formal re-approval process has completed.

— The Aircraft Carrier Alliance announced a revision of the QE Class Build Strategy on 2 March 2009.

— Construction of the ships commenced with pre-fabrication of steel at Appledore Shipyard, North Devon in late 2008 and a major milestone was achieved with the first cutting of steel at Govan, Glasgow in July 2009.

— The first sponson unit was delivered from Appledore to Rosyth in August 2009, and work is now under way in four UK shipyards—Babcock Marine at Appledore and Rosyth, BVT at Govan and A&P Tyne.

— Significant progress has been made on infrastructure preparations at Rosyth, including completion of No 1 dock in September 2009, where the ships will be assembled.

— The Aircraft Carrier Alliance has, to date, placed sub-contracts for some £1.1 billion for materials and equipment required to build both ships.

Key Events/Decisions expected in the next six months

— A&P Tyne contract Signature for manufacture of the Centre Blocks (November 2009).

— Prince of Wales dock naming ceremony at Rosyth (March 2010).

— IAB submission (Apr 2010) to set Final Target Cost by June 2010.

— Goliath crane delivered to Rosyth (May 2010).

— Delivery of Steering Gear and Rudders (May 2010).

Was the MoD aware that the procurement budget was tight when it ordered the aircraft carriers?

  The QE Class project was considered broadly affordable when approval was given to order the two carriers in 2007. The Alliance commercial model was expected to drive out cost over time on a stable programme. Although costs have increased on the programme as a result of the Equipment Examination decision and other economic factors, these additional costs will be managed by the Department. In conjunction with the ACA, we continue to work hard to drive down costs in order to agree the Final Target Cost for the Carriers in mid 2010.

Why was the decision made in December 2008 to reschedule the in-service date for the carriers, given that the award of the contracts had been announced only six months previously?

  In order to best manage resources and address affordability issues across the Department, the Equipment Examination reprioritised investment to deliver the most important and urgently needed capabilities, while continuing to invest in capabilities needed to respond to future threats. The decision to reprofile the QE Class programme allowed resources to be diverted to more urgent projects. The carriers will deliver wider benefits as part of the Defence Industrial Strategy and we have worked closely with the Aircraft Carrier Alliance to find workable solutions.

What is the cost penalty of rescheduling the aircraft carriers?

  The direct impact of the Equipment Examination re-profiling measure to reprioritise cost in the first four years and to delay each ship by one and two years respectively, was in the order of £700 million. Although costs have increased on the programme as a result of the Equipment Examination and other economic factors, the Department is working with the Aircraft Carrier Alliance to find ways of reducing them.

JOINT STRIKE FIGHTER (JSF)

	Original MG Approval	Current Forecast	Difference
Cost (£m)	2,874	2,451	-423
ISD	No formal ISD will be set until the programme is sufficiently mature.

Key events/decisions since 2008

— March 2009—Secretary of State announced the approval to purchase three JSF to allow the UK to participate in the Operational Test and Evaluation of JSF in the USA.

— June 2009—Contract negotiations completed for the UK 2 Short Take Off and Vertical Landing (STOVL) jets for Operational Test and Evaluation.

— September 2009—Production of first UK STOVL aircraft commences at Rolls Royce in Indianapolis.

Key Events/Decisions expected in next six months

— December 2009—First transition to full STOVL mode flight.

— February 2010—Initial Gate for the UK Main Operating Base at RAF Lossiemouth.

— March 2010—First flight of the Carrier variant (CF-1) of JSF.

— March 2010—Conclude contract negotiations for the 3rd UK STOVL jet.

JSF Progress

  JSF programme is progressing to plan with both the CTOL and STOVL variants completing in excess of 100 sorties to date with better than expected predicted results.

When will the decision be made regarding how many JSFs are to be purchased?

  JSF numbers are driven by a range of factors including training needs and pilot numbers, the anticipated airframe life, attrition considerations and, of course, the number of JSF we might anticipate deploying in a range of operational scenarios.

  The JSF programme gives us considerable flexibility in the timing and numbers of aircraft to be purchased and we do not intend to make final decisions until the programme has matured further and we have completed successful operational evaluation of the Air System. This will not be before 2015.

Have all of the technology transfer issues with the USA been resolved?

  The UK has all the information it requires at this stage of the programme however the UK continues to work closely with the US to secure the commitments it requires with regards to operational sovereignty—that is to say the ability to operate, repair and maintain UK assets at a time of its choosing and through life. Progress is being made in this area by the UK's inclusion in the JSF Operational Test and Evaluation (OT&E) development planning, continued presence and increased access of UK SME's within the JSF programme in the USA and proposals to increase the level of access to JSF information for UK Industry

Will UK personnel or UK industry be able to carry out repairs, or will this have to be done by US personnel?

  The most cost effective solution for maintaining our JSF fleet will be under a common support solution that is being designed to meet the needs of all nine nations engaged in JSF who are collectively planning to buy 3,173 aircraft. It is our stated intention to maintain sovereign capabilities to train our pilots and maintain and repair our aircraft at our Main Operating Base at RAF Lossiemouth. These facilities will be operated primarily by UK personnel in a Government/Industry partnership using the lessons learned from current fast jet fleets.

JSF is a US led product—what does UK Industry get from it?

  Under a "best athlete" procurement strategy, UK industry has won a significant role in the development, demonstration, production and sustainment of the JSF, with more than 100 UK companies delivering approximately 15% by value of the aircraft. UK industry orders for the system development and demonstration phase are over USD 4 billion, with production orders expected to generate over USD 40 billion for UK industry based on the 3,173 aircraft that JSF partners expect to purchase. Key UK suppliers include BAE Systems, Rolls Royce, Martin Baker, GE Aviation, Goodrich and QinetiQ with many contributing cutting edge skills and technology and benefiting from involvement on a highly advanced fighter programme.

TYPE 45 DESTROYER

	Original MG Approval	Current Forecast	Difference
Cost (£m)	5,475	6,464	+989
ISD	November 2007	July 2010	+32 (months)

Key Events/Decisions since the Committee last examined Type 45

— November 2008—DRAGON (Ship 4) was successfully launched on the Clyde.

— December 2008—DARING (Ship 1) was accepted off contract from the Prime Contractor, BVT Surface Fleet Ltd. She sailed into Portsmouth, her base port for the first time on 28 January 2009.

— December 2008—DAUNTLESS (Ship 2) completed her first set of Sea Trials. These confirmed the performance of the power and propulsion system. Initial Combat System testing was also successfully completed.

— February 2009—Sea Viper (PAAMS) successfully test fired from the Longbow trials barge for a second time.

— July 2009—DARING commissioned into the Royal Navy.

— July 2009—DAUNTLESS completed her second set of Sea Trials, which focussed on testing the ship's Combat system. The entire radio and satellite communication suite was also tested using RN shore communication stations, aircraft and other RN vessels; all trials were successful and confirmed system flexibility and performance.

— September 2009—BVT Surface Fleet Ltd were awarded the contract to provide in-service support to the Type 45 Destroyers for a period of up to seven years, commencing from 1 January 2010.

— October 2009—DIAMOND (Ship 3) Sea Trials commence (due to conclude 4 November). DEFENDER (Ship 5) was launched on 21 October.

Key Events/Decisions expected in the next six months

— A further test firing of the Sea Viper system is due to take place in early November.

— In late November DAUNTLESS will leave the Clyde and sail to Portsmouth. She will be Accepted off Contract soon after arrival (planned for 3 December).

— The In-service Date for DARING is being targeted for February 2010, some five months ahead of the forecasted in-service date.

— The first set of Sea Trials for DRAGON are planned to begin in July 2010.

FUTURE RAPID EFFECT SYSTEM (FRES)

Specialist Vehicle

  The Specialist Vehicle element of the FRES programme is in the Assessment Phase and continues to make good progress, with the competition process proceeding at pace. The programme's Invitation To Tender was issued in July 2009 following Departmental approval of the Specialist Vehicle programme's Acquisition Strategy. Tenders are due to be returned at the end of the year. We are now working to an aggressive schedule for a Main Gate decision and entry into a Demonstration Phase with the down selected bidder next year.

Utility Vehicle

  In May 2008, General Dynamics (GD) (UK) were awarded the provisional preferred bidder status for the Utility Vehicle Design competition based on their Piranha V design. This status was provisional because it was recognised that more work was needed. Following earlier discussions with GD (UK), the MoD had good reason to believe a mutually satisfactory solution could be found. Unfortunately, this was not possible and GD (UK)'s provisional preferred bidder status was withdrawn in December 2008 after a period of intensive negotiations that failed to reach agreement on the commercial conditions required to enable further progress. Separately, the Department's examination of the Equipment Programme concluded that, in the context of current operations and the recent investment in protected mobility, the highest priority should now be accorded to delivering the Warrior Capability Sustainment Programme and the FRES Scout vehicle as quickly as possible. FRES Scout is part of the FRES Specialist Vehicle family. Against this background we decided to restructure the FRES programme, giving priority to FRES Scout over the FRES Utility Vehicle. Although this will mean a delay to the FRES Utility Vehicle, we recognise the importance of this programme and are now looking at the best way to take this procurement forward.

What now is the objective of the FRES programme and what capability gap is it intended to address?

  The objective of the FRES programme is to deliver a medium-weight armoured vehicle fleet with higher levels of deployability and protection than the current in-service fleet, and the potential to accommodate new advances in technology. FRES will replace a number of vehicles that have reached or are reaching the end of their service lives, such as CVR (T) Scimitar and FV430, in addition to introducing new vehicle roles.

What has been the impact of the UOR programme on FRES?

  The MoD's approval of over £1.2 billion for new vehicles under the Urgent Operational Requirement process shows the Department's commitment to supporting our Armed Forces on operations, but FRES has not been made redundant as a result. Unlike the Protected Patrol Vehicles procured as UORs, FRES is not designed for one specific theatre, such as Afghanistan. FRES will operate across the whole spectrum of operations, including rapid intervention, peace keeping/peace enforcement and support to high intensity war fighting. Ultimately, FRES will provide a superior capability with greater longevity than UOR vehicles.

What assessment has been made of the ongoing costs of vehicles procured under UORs?

  For procurements made under the UOR procedures, the speed of delivery of life-saving equipment is the absolute priority and the capability may be so specific to the threat that we would not expect to retain it beyond the operation. In these cases, while support costs are considered, predicted whole life costs are generally not calculated as a pre-cursor to the procurement. An initial twelve month support solution is approved before the UOR vehicles are procured, giving the Department time to negotiate a more comprehensive solution without impacting detrimentally on the time taken to deliver the capability to the operational theatre. While the equipment is deployed on operations in Afghanistan the support costs are met by the Treasury Reserve.

What type and numbers of vehicles are still needed, given the extensive procurement of vehicles via the UOR process?

  Our success in delivering UOR vehicles has not changed our need for the numbers and types of vehicles the FRES programme will deliver. Our success in delivering UOR PPVs for current operations was taken into consideration during the Department's examination of the equipment programme and led to a restructuring of the FRES programme, giving priority to FRES Scout over the FRES utility vehicle.

MILITARY AFLOAT REACH AND SUSTAINABILITY (MARS)

Key Events/Decisions since Initial Gate approval (July 2005)

— July 2005—Entry into Assessment Phase announced via Written Ministerial Statement. The Procurement Strategy at the time was the formation of an Alliance, comprising the MoD, an Integrator, a Design, Outfit and Build Alliance Partner and a Through Life Support Partner.

— May 2007—The Minister for Defence Equipment and Support (DE&S) approved a decision to review the Procurement Strategy to take account of changing market conditions and the opportunities generated by the delivery of the Defence Industrial Strategy (DIS).

— December 2007—Following approval of open competition by the Minister (DES), advertisement placed in the Official Journal of the European Union (OJEU) seeking expressions of interest from companies who wish to compete for the design and build elements of the MARS Fleet Tanker (FT) programme.

— May 2008—The Minister (DE&S) approval to down select to four bidders (Fincantieri, Navantia, Hyundai and a consortium of BVT/BMT/DSME) to enter into Competitive Dialogue over the MARS FT programme.

— December 2008—Equipment Examination announcement concluded that there was scope for considering alternative approaches to the procurement of elements of the MARS Programme. The Fleet Tanker competition was `paused'.

— March 2009—The Minister (DE&S) decided that the Fleet Tanker competition should be cancelled. A review of the procurement strategy and requirement continued.

— October 2009—The Minister (DE&S) approved revised Procurement Strategy to consider a range of possible solutions which takes account of market conditions and is more likely to secure best value for money.

— October 2009—Advertisement placed in the OJEU and the Defence Contracts Bulletin seeking expressions of interest from companies who wish to compete to deliver solutions for the MARS Tanker programme. Interested companies will be asked to submit a Pre-Qualification Questionnaire (PQQ).

Key Events / Decisions expected in the next six months

— 2010—Following evaluation of PQQ responses, approval for a short list of companies will be sought in early 2010.

Is it still the intention of the MoD to compete MARS outside of the UK shipyards or is MARS still seen as a requirement to maintain UK maritime shipbuilding skills?

  The Defence Industrial Strategy is clear that projects within the maritime programme that exceed core workload requirement may be competed more widely, and potentially undertaken offshore if to do so would not prejudice key capabilities. The UK shipbuilding industry is benefiting from a sustained period of MoD investment of some £14 billion over the next 10 to 15 years in both new and far more capable ships, such as the future aircraft carriers, the Type 45 destroyers and the Future Surface Combatant. In view of this, a competition for the MARS Tanker requirement was originally competed internationally in late 2007. Following the examination into the Department's equipment programme that was carried out in 2008, which concluded that there was scope for considering alternative approaches to the procurement of elements of the MARS Programme, the competition was cancelled in March 2009. Since then work to review the procurement strategy has continued and has concluded that a more open procurement strategy considering a range of possible solutions, including commercial solutions, and which takes account of current market conditions, is more likely to secure best value for money for the Department. A new open and international competition to deliver the MARS Tankers has, therefore, recently been approved and, in accordance with EU and MoD commercial policy, expressions of interest from industry are currently being sought through advertisements in the Official Journal of the European Union and the Defence Contracts Bulletin. The closing date for these is 4 December 2009. The later ship classes, Fleet Solid Support and Amphibious Combat Support, remain uncommitted at this stage. The extent to which they will contribute to the sustainment of key UK design and build skills will continue to be evaluated in the MARS Programme's Assessment Phase.

Why is MARS not already underway when the restrictions on single hulled ships comes into force in 2010?

  The International Maritime Organisation and EU legislation bans the operation of non-exempt single hulled tankers of any age from 2010 onwards. The UK has agreed to implement legislation to meet the requirements of the Maritime Pollution (MARPOL) Convention. Vessels to which this convention does not currently apply include naval auxiliary ships operated and manned by the Royal Fleet Auxiliary. These ships are maintained in accordance with Lloyd's Register and the Maritime Coastguard Agency as the UK's classification and statutory certification organisations. The Department is working closely with these bodies to ensure that operation of our single hulled tankers is not impaired whilst working towards achieving full compliance as soon as is practicable.

  The age of the current in-service tankers does not significantly affect their ongoing operability, or the current levels of sustainment that they provide. The risk of continuing to operate single hulled tankers is mitigated by careful programming, operating outside sensitive geographical areas and additional training for the crews. Additionally the tankers are subject to a detailed structural inspection every two and a half years.

A400M

	Original MG Approval	Current Forecast	Difference
Cost (£m)	2,744	3,285	+541
ISD	December 2009	December 2015	+72

Progress Report

  A400M remains a key element of the UK's future defence capability, providing both tactical (intra-theatre) and strategic (inter-theatre) airlift capabilities.

  Airbus Military, responsible for the design and manufacture of A400M, announced delays to the programme in late 2008. Challenges have included development of the engine, leading to delays to first flight, and also a reappraisal of overall programme risk for the transition from development into the production phase. Airbus informed the Partner Nations that first flight would be delayed (from January 2008) until the end of 2009 or early 2010. Airbus also announced that aircraft deliveries would be significantly delayed, with UK deliveries not expected to commence until 2013 at the earliest.

  The Partner Nations subsequently agreed to enter a "Standstill Agreement" (which ran from April 2009 until the end of July 2009) with Airbus Military, which protected the rights of all parties under the existing contract, in order to facilitate exploratory discussions. At a Ministerial meeting on 24 July 2009, the Minister (DE&S) agreed that the UK would join Partner Nations in a negotiation phase with Airbus Military to determine a way ahead for the A400M programme.

Key Events/Decisions since March 2009

— Ministerial agreement to enter into negotiation phase with Airbus Military in July 2009 in Le Castellet.

— Successful completion of the Flight Test Programme for the A400M Engine Flying Test Bed in October 2009, conducted at Marshalls Aerospace in Cambridge, UK.

Key Events/Decisions expected in the next six months

— First Flight of the A400M prototype MSN001.

— Ministerial agreement on way ahead for the programme in December 2009, with a view to a revised contract being in place by March 2010.

What options are being considered as a contingency to mitigate any potential capability gaps that may arise from A400M delays?

  The delay to the delivery of A400M causes strategic and tactical capability gaps for future operations; there is no effect on current operations. The tactical airlift capability gap due to the A400M programme delay will be met, where possible, by the existing fleet of 24 C-130J aircraft. We are thoroughly assessing our ability to sustain current operations and exploring options to enhance our capabilities.

Do you agree with the assessment in Jane's Weekly on 5 October 2009 that "the RAF is faced with a potential gap in capability in sustaining an air bridge to Afghanistan, which is already described as fragile"?

  The airbridge is absolutely critical for the success of current operations. We have invested significant effort and resources into maintaining and improving the current airbridge. Given the operational context, which does not apply to commercial airlines, we believe the airbridge is performing to a high standard. However we are not complacent and the performance of the airbridge is kept under constant review. In 2008 we received an additional two C17s; in 2008 we also signed the contract for the Future Strategic Tanker Aircraft, which in due course will deliver Air Transport capability. Beyond that, we are looking at what further measures we might need to take to sustain the current airbridge. Options being considered include buying one or two more C17 aircraft.

NIMROD MRA4

	Original MG Approval	Current Forecast	Difference
Cost (£m)	2,813	3,647	+834
ISD	April 2003	December 2010	+92 months

Key Events/Decisions since March 2009

— Design and Development flight trials programme has made good progress and is expected to complete at the end of December 2009.

— The first production aircraft (PA04) completed its first flight from BAES Woodford on 10 September 2009 and is expected to be delivered to MoD in November 2009.

— Aircraft production remains on programme to meet an In Service Date of 2010.

— Measures have been identified to reduce the additional cost growth (+£46 million) that will be reported in the MoD's Major Projects Report 2009 (as shown in the table above).

Key Events/Decisions expected in the next six months

— A Main Gate submission proposing the strategy for the support of MRA4 is planned for early 2010.

LYNX WILDCAT

	Original MG Approval (50%)	Current Forecast (50%)	Difference
Cost (£m)	1,966	1,669	-297
ISD (Army)	August 2014	January 2014	-7
ISD (Navy)	August 2015	January 2015	-7

Programme Update

  The UK commitment to the Wildcat programme was re-confirmed in December 2008.

  The programme remains on target to deliver a new Light Helicopter for the Army and Royal Navy from 2014 and 2015 respectively.

  We have worked closely with AgustaWestland to identify significant savings to Wildcat equipment and support programme and have reduced the number of aircraft we are planning to acquire from 70 to 62.

  The reduction in aircraft numbers is the result of a review of our Light Helicopter requirement and of our work with AW to establish increased commonality between the Army and Royal Navy variants of Wildcat and their training and support arrangements, which will give the fleet as a whole greater versatility and flexibility.

  The Army Wildcat will perform a range of tasks on the battlefield including reconnaissance, command and control, the transportation of troops and materiel, and the provision of force protection. The Royal Navy variant will be an important element of ship defence against surface threats as well as acting as a light utility helicopter.

Key Events/Decisions since the Committee last examined Lynx Wildcat

— 9 September 2009—Delivery of TI#3 Airframe.

— 31 August 2009—Receipt of Technical Proposal for Training and Support Solution.

Key Events/Decisions expected in the next six months

— October 2009—Flight Trials Readiness Review.

— November 2009—Wildcat TI#1 First Flight.

— March 2010—Achievement of block 1 Trials Flying.

PUMA LIFE EXTENSION PROGRAMME (LEP)

	Original MG Approval (50%)	Original MG Approval (90%)	Current Forecast (50%)	Difference
Cost (£m)	339	359	339	Nil
ISD	October 2013	March 2014	October 2013	Nil

Programme Update

  Puma LEP will deliver a series of modifications to extend the life of 28 or more RAF Pumas from the current Out of Service Date of 2012 to at least 2022. The resulting aircraft will be known as Puma Mk2. The LEP will address obsolescence, legislative and safety issues and enhance capability. Upgrades will include a digital cockpit, more powerful Makila engines and an up-rated tail rotor.

  The engine upgrade will provide a significant enhancement in performance terms and would allow Puma to operate effectively all year round in Afghanistan.

  The contract was awarded to Eurocopter (UK) on 18 September 2009. The programme remains within the approved performance, time and cost envelope.

Key Events/Decisions in the last six months

— August 2009—Main Gate approval.

— September 2009—Demonstration and Manufacture contract award.

— October 2009—First aircraft delivered to Eurocopter UK.

Key Events/Decisions expected in the next six months.

— December 2009—Preliminary Design Review for Defensive Aid Suite.

— February 2010—Aircraft Comprehensive Design Review.

CURRENT HELICOPTER PLATFORM NUMBERS AND OUT OF SERVICE DATES

Aircraft type/mark	MoD Departmental Fleet	Effective Fleet	Non-Effective Fleet	Current Planned OSDs	Comments
Apache	67	67	Nil	2030	MoD expects to have to invest further in this aircraft (eg to address obsolescence and meet emerging requirements) during the next decade, in order to sustain its service life up to 2030.
Chinook Mk 2 Chinook Mk 2a	32 6	32 6	Nil Nil	2015 (2040) 2025 (2040)	Two Mk 2 ac lost in current conflict reducing Mk2/2A fleet to 38. MoD expects to have to invest further in the remaining aircraft to address obsolescence, to meet emerging requirements and to ensure they can achieve the planned OSD of 2040 during the next decade, although no investment decisions have yet been made. It is expected that 8 Mk3 a/c will be operational by the end of 2010.
Dauphin (N3)AH Mk 1	4	4	NIl	2029	With effect from July 2009. Replaces Agusta 109.
Gazelle	87	40	47 (see Note 1)	2018	Where there is an enduring requirement for the capability currently provided by Gazelle, MoD is exploring arrangements based on leased aircraft.
Lynx Mk3 Lynx Mk 8	32 33	28 33	4 0	2015 2017	It is expected that these aircraft will be replaced by the maritime variant of Future Lynx from 2015. (see Note 6)
Lynx Mk 7 Lynx Mk 9	77 23	68 22	9 1	2015 2018	It is expected that these aircraft will be replaced by the battlefield variant of Future Lynx from 2014. (see Notes 5 and 6)
Merlin Mk 1	42	42 (see Note 2)	Nil	2029	MoD is currently preparing to upgrade 30 (see Note 3) of these aircraft through the Merlin Mk1 Capability Sustainment Programme.
Merlin Mk 3 Merline Mk 3a	22 6	22 6	Nil Nil	2030 2030	MoD expects to have to invest further in this aircraft (eg to address obsolescence and meet emerging requirements) during the next decade, in order to sustain its service life up to 2030.
Puma	43	34	9 (see Note 4)	2025	MoD has now invested in upgrading the Puma aircraft and extending the service life to 2025.
Sea King Mk 3/3a	25	25	1	2017	It is expected that the capability provided by these aircraft will be replaced by a joint PFI service with the Maritime and Coastguard Agency.
Sea King Mk 4	38 (see Note 7)	37	1 (see Note 7)	2012	MoD is assessing the future of SK MK4 and how the roles that this aircraft type perform might be best undertaken in the future.
Sea King Mk 6c	5	5	Nil	2010
Sea King Mk 5	15 (See Note 8)	15	Nil (see Note 8)	2017	It is expected that the capability provided by some of these aircraft will be replaced by a joint PFI service with the Maritime and Coastguard Agency.
Sea King Mk 7	13	13	Nil	2018	MoD is assessing the future of SK Mk7 and how the roles this aircraft type performs might best be undertaken in the future.

Notes

1. The Non-effective fleet currently includes 42 aircraft for disposal and five ground training aircraft.

2. Three of these aircraft are in storage and have been cannibalised heavily; one has been extensively modified as part of a joint MoD/Industry technology demonstrator programme. Recovery to a fully serviceable condition would take significant time and investment. These aircraft are, under today's definitions, classified as effective until such time that a decision is taken to dispose of them.

3. The Department reviewed its investment plans across a number of capability areas during 2008; this review was known as the Equipment

Examination. As a result, the MoD determined that, given current defence priorities, it would not take up an option to modify an additional eight Merlin Mk1 aircraft and that its contractual commitment would remain at 30 aircraft. The Department is currently exploring whether it has further use for those aircraft not being modified under the Merlin Capability Sustainment Programme, they will otherwise be disposed of in the most cost effective way (including consideration of sales opportunities).

4. The Non-effective fleet include five "Category 5" plus four "Category 4" damaged helicopters not expected to fly again as Puma Mk 1 aircraft.

5. The Lynx Mk 9 Fleet is currently undergoing a Communications and Engine Upgrade programme that will change the overall capability of the MK 9 aircraft.

6. There is currently a scheduled fleet run down and donor strip programme that is feeding the Wildcat project with high -value serviceable assets for inclusion in the new aircraft.

7. An additional aircraft was returned from QinetiQ to MoD ownership—plus 1 aircraft CAT 4 at HMS Sultan.

8. There is and additional flying Mk5 not included in the total above which is a project team owned asset and is on loan to Qinetiq at Boscombe Down to use for testing. In addition there is also a CAT 5 aircraft at HMS Sultan which not expected to fly again.

10. Following the Naval Base Review, which concluded that we should retain all three Naval Bases, could you outline the program of work that each will do over the next 10 years. What is the program for the three dockyards and what is the future utility for Rosyth after the completion of the Carrier programme?

  10.1 The Maritime Change Programme (MCP) was established in October 2007 and incorporates the post Naval Base Review (NBR) work. It provides a strategic framework for the cohesive, coherent and sequenced delivery of a number of change initiatives across the maritime domain flowing from the 2005 Defence Industrial Strategy (DIS) and the outcome of the NBR. On the 6 May 2009, the then Minister for the Armed Forces announced the way forward on a number of MCP key areas that will critically shape the maritime industrial and operational landscape well into the next decade. All three Naval Bases (at Devonport, Portsmouth and on the Clyde) have a strong future and will continue to play a vital role in supporting the Royal Navy.

  10.2 The announcement confirmed that HM Naval Base Portsmouth will be the home port for the new Type 45 Destroyers and the Queen Elizabeth Class Aircraft Carriers. Subject to main investment decisions, to be made early in the next decade, the most complex war fighting variant of the next generation of Royal Naval frigates—the Future Surface Combatant—will be base ported in Portsmouth to maximise the benefits of the common systems and equipment also fitted to the Type 45s and Queen Elizabeth Class Carriers. This paves the way for Portsmouth to become, in the longer term, the main operating base for our most complex warships. In addition to providing Fleet Time Engineering Support for these vessels, six Type 23 Frigates and the eight Hunt Class Mine Counter Measure Vessels, Portsmouth will undertake sufficient Deep Maintenance activity on an occasional basis to sustain the capability of key skills.

  10.3 HM Naval Base Devonport will be the main operating base for Amphibious Shipping, Survey and Hydrographic vessels, for the Type 22 Frigates and for at least the next five years, for seven of the Type 23 Frigates. Devonport will also continue to provide world class sea training through Flag Officer Sea Training and will undertake Fleet Time Engineering support for base ported ships and for visiting sea training vessels. Devonport will also retain and, subject to commercial negotiations, enhance its position as the centre of excellence for Surface Ship and Submarine Deep maintenance activity. Finally, subject to ongoing approvals, Devonport will be developed as the centre of specialisation for Amphibious Operations by moving No 1 Assault Group Royal Marines, including the Landing Craft of 10 Training Squadron and 539 Assault Squadron currently at Poole and Turnchapel to Devonport.

  10.4 HM Naval Base Clyde will become the main operating base for all classes of submarines, including the future classes of submarines, such as the replacement for the Vanguard Class, and eight Sandown Class Mine Counter Measure Vessels. Fleet Time Engineering support for these vessels will also be undertaken at Clyde. To reduce duplication of facilities and to provide future stability for submarine personnel we intend to accelerate the move towards a single submarine operating base some six years earlier than originally planned, although there will be no base porting changes for around five years. This decision will see three of the Trafalgar Class submarines transfer from their base port at Devonport to Clyde upon completion of their respective mid-commission major maintenance periods. This is currently expected to be by 2017, while four will remain at Devonport until their planned decommissioning dates (currently 2010 to 2017). We will ensure that the necessary infrastructure to support this move will be put in place.

  10.5 Rosyth dockyard, which is privately owned and operated by Babcock, currently has a strong order book of MoD work: it is currently a key location for surface ship upkeep work through the Surface Ship Support Programme and is at the heart of the build programme for the two new Queen Elizabeth Class aircraft carriers.

  10.6 As work on the new aircraft carrier programme at Rosyth increases, it is envisaged that deep maintenance surface ship work will be predominately undertaken at Devonport dockyard (which is also owned by Babcock). This is to ensure best use of industry wide resources. Beyond this, the future programme of MoD work with Babcock is still being considered; in particular, the location of future surface warship upkeep packages will be discussed and managed by members of the Surface Ship Support Alliance (MoD, Babcock and BVT Surface Fleet Ltd).

11. The MoD reported in a Defence News article on 7 October 2009 that Apache was playing a crucial and effective role in operations in Afghanistan and that Integrated Operation Support contracts, such as that used for Apache, were achieving a better distribution of risks between the MoD and its suppliers. What lessons have been learned from the Apache programme? What were the key challenges and how were they overcome?

  11.1 The Defence News article on 7 October 2009 was describing the announcement of award of an IOS contract for the Apache IOS to AgustaWestland. The contract was signed on 29 September 2009 with a full service provision date of 1 April 2010. The anticipated benefit of the Apache IOS contract from full service provision is improved aircraft availability both within the UK and on operations at reduced support cost, through incentivising industry to be fully responsible for delivering the outputs specified in the contract.

  11.2 The key challenge in getting to Apache IOS contract award was to achieve an output-based proposal from Industry at better value for money to defence than the current (previous) input-based contract. The challenge was overcome by demonstrating a robust and implementable internal benchmark support solution, which also clearly demonstrated value-for-money in its own right that Industry had to better in terms of value-for-money and effectiveness in order to be awarded the contract.

  11.3 The key lesson learned from this was that Industry had to find innovative ways to deliver a better value-for-money solution as a result of the MoD demonstrating that it had developed an alternative feasible/credible support solution against which the Industry solution could be benchmarked.

6 November 2009

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1   Official Report Column 34WS. Back

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Prepared 4 March 2010