Letter to the Chairman of the Committee
from the Minister of State for the Armed Forces (25 March 2002)
I wrote to you in January 2001, informing you
that the Ministry of Defence intended to enter negotiations with
Babcock Rosyth Defence Ltd (BRDL), Devonport Management Ltd (DML)
and Fleet Support Ltd (FSL) with the aim of modernising arrangements
for warship support to achieve better value for the Defence Budget.
Negotiations have now been successfully concluded
with the companies on increasing the proportion of the surface
warship refit and repair programme which will be opened up to
competition. At Portsmouth, negotiations have also concluded with
Vosper Thornycroft on their proposal to establish a new warship
building facility on land leased at the Naval Base.
Also, in September 2001, formal proposals were
received from each of the Companies for partnering at the Naval
Bases. At the same time, we received formal proposals from our
Trades Unions. We have evaluated both proposals against an internal
Benchmark of the projected costs of running the Naval Bases, including
internal efficiencies. The proposals from the Companies cover
the provision of engineering and waterfront support, logistics,
estates and facilities management activities. The TU proposals
put forward further Naval Base efficiencies, and wider restructuring
proposals, whilst retaining the workforce within the Ministry
Our analysis has demonstrated that, together
with the changes to warship repair, the partnering arrangements
with the Companies offer best value for money. It is the intention
therefore, to place partnering contracts with each of the companies,
subject to the successful completion of detailed contract negotiations.
In total these changes will achieve a saving to the Department
of £327 million over the period 2002-07. This is higher than
our original estimate of £237 million over the same period,
and reflects in particular an increase in the level of savings
to be achieved at the Naval Bases.
Negotiations with the Companies on the warship
repair programme have been aimed at increasing the amount of work
open to competition and reducing excess capacity. The negotiations
also addressed the reduction in the overall volume of work following
the Strategic Defence Review and led to the agreement of reduced
allocated programmes, for some of which reduced prices have already
been negotiated. The renegotiated programme takes into account
the time needed for the companies to adjust their workforces and
infrastructure against the diminished workload.
Further analysis was undertaken of the option
of competing the Naval Base business. This confirmed that the
scope for mounting a competition in the warship maintenance market
is severely constrained. This is particularly the case at Devonport
and the Clyde where competencies in nuclear maintenance work would
be required. The analysis also shows that, under competition,
a higher level of savings would be needed to match those on offer
under single source partnering, because of the additional time
and cost involved in mounting a competition.
The partnering arrangements at the Naval Bases
will involve the transfer of approximately 3,000 MoD posts to
the private companies, under TUPE regulations. As the Companies
review existing arrangements and rationalise the operations for
which they will be responsible, job reductions are likely to occur
over the next five years. Although these reductions would be unwelcome
in the regions concerned, the changes upon which they are based
would help to ensure the long term future of those jobs which
remain in both the Naval Bases and the Dockyards. The changes
will provide greater efficiencies in support to the Fleet, and
there will be no compromise on safety and security at the Naval
Bases. Operational capability will remain of paramount importance,
and these arrangements will ensure that current standards and
levels of support to the Fleet will be maintained, or indeed improved,
as processes are streamlined and improved working practices are
Exemptions from the competition elements of
European Union regulations, on the grounds of protection of UK
security interests have been confirmed by security and legal advisors.
No issues of state aid have arisen from the proposed arrangements.
Partnering contracts are anticipated to be placed in April, subject
to successful completion of negotiations, with transition to the
new arrangements planned to complete in July.
Geoff Hoon will announce this decision to Parliament
by means of written answer today.