Off the Shelf

Land Rover WMIK

Not a day goes by without the MoD being urged to ditch the Defence Industrial Strategy and buy everything off the shelf, avoid partnerships at any cost and just use the Urgent Operational Requirement (UOR) process to buy everything we need.

On face value it seems like a compelling proposition and instinctively feels right.

The argument centres on two interdependent factors; cost and time.

If we buy from a UK manufacturer, equipment always seems to be massively over budget and hugely late. As soon as we enter into a partnership on a European basis the same problems are magnified tenfold.

Read the pages of an NAO Major Equipment Report or Commons Defence Select Committee output and you will be left with a deep sense of despair, late and over budget seems to be the norm rather than exception and some of the higher profile examples such as FRES, Typhoon, Nimrod MRA4, Astute and CVF are years late and several hundred millions or even billions over budget. In what is a vicious circle, the so called procurement death spiral, rising costs result in fewer items being purchased, this directly increases unit cost as development cost are spread across a small production run therefore decreasing numbers again and so on and so.

The UK is not alone here, look across the Atlantic and the F35, Littoral Combat Ship, FCS, DDX and many other projects seem to be going down the same route. The US Navy Secretary of State recently commented;

If we keep designing ever more exotic, ever more expensive ships, we’re going to unilaterally disarm.

Enter stage left, Military or Commercial ‘Off the Shelf’

In buying established ‘in production’ equipment we avoid the cost and time delays inherent with developing our own equipment, would be able to obtain equipment in quantity because it is cheaper and it would be in service much quicker.

How can anyone with any sense argue against this, it’s an absolutely compelling argument?

The Off the Shelf argument is being forwarded by an increasing in number and diverse group of people; MP’s like Douglas Carswell, Richard North’s Defence of the Realm blog, Tory Rascal, most of the mainstream media and the report published yesterday by the Centre for Policy Studies calls for off the shelf to be the default. Even General Sir David Richards in his recent speech made the same point.

All these are intelligent and credible people, deserving of respect.

However, despite the good company we would be in if we followed the same line, this is not to be.

To get something clear straight away, Think Defence is not funded by the defence industry or unions; we have no links at all with any of them, even indirectly. When we take this position it is not because of influence from third parties.

In looking at this it is worth trying to see the issue from different perspectives.

Soldier
Just wants the kit to be effective, be interoperable with other UK and allies systems and be available in sufficient quantities to support a mission objective. Short term outlook

Senior Officer and Civil Servant
Wants the kit to be interoperable with allies and UK systems, conform to relevant Defence Standards, be secure (if relevant), have an assured and secure supply chain for spares and maintenance, be able to overmatch potential opponents, be within budgets and fit within the overall equipment plan that is defined by strategy. A medium term outlook

Politician
Has to consider strategic availability of the supply chain, retention of strategic technology, research and manufacturing capacity, costs and let’s be absolutely honest, employment and alliance politics. A long term outlook

These are three competing sets of requirements, basically at odds with each other.

If you favour the soldier’s point of view you take a big pot of cash and simply go shopping, obtaining kit at the best price and with the shortest waiting time. If you favour the politician’s point of view then you make sure you obtain absolutely everything from UK suppliers or complex multinational consortia.

Commentators point at Typhoon or the A400 as examples of overly political projects that end up being late and expensive, EU collaboration = late and expensive, cause and effect. Of course they often forget Nimrod MRA4, Astute and Terrier where we have managed to put Typhoon and A400 in the shade without help from anyone and the SEPECAT Jaguar, an Anglo French development that is still going strong with other nations and was hugely cost effective.

Ah, OK then, if it’s not EU projects then its anything to do with British industry, again this conveniently forgets the Advanced Jet Trainer or the Sting Ray life extension project that are under cost and/or time.

The UOR process has clearly shown that the UK armed forces were woefully under equipped for what is basically a light infantry conflict but that’s another story. The main thing it has shown is that when one takes the soldiers perspective, equipment can be obtained off the shelf at a reasonable cost and in a reasonable time frame.

Unfortunately, the UOR process is not without its problems and this is where the General and Civil Servants perspective comes in to play. Some of the UOR’s have created problems elsewhere in the big complex system that is the armed forces. These problems aren’t generally seen by outsiders but that doesn’t stop them existing. As equipment is bought into service it needs documentation, training, spares, maintenance and a mind bogglingly complex support infrastructure. The problems of rapid getting equipment into service, off the nearest shelf; was manifested in the spares problems with Mastiff. Yes, the vehicles were in theatre, the soldier was initially happy and the politician could be seen in a good light but most of them were VOR (Vehicle Off Road) because the logistics package had not caught up and the shelf with all the spares was being hovered up by another customer, the US military. It is probably fair to say that this issue is not necessarily an illustration of how ‘off the shelf’ is a problem, perhaps the issue was speed but it does flag up a warning.

Where do these mythical shelves exist anyway?

The constant clamour is to buy from the US, their shelf is stuffed full of great products at reasonable prices, a military Wal-Mart. There are other shelves as well of course, Germany, Spain, Italy, France, Brazil, India, China and even Russia.

But look at all these nations armed forces and what do you see?

The French armed forces have equipment from Nexter, Dassault and DCNS. The US military buys from Boeing, Lockheed Martin; Germans from Rheinmettal

What does this show?

Any nation with a defence industry supports that defence industry by buying what they have to sell so by buying off the US the UK taxpayer is subsidising US defence organisations. Cutting the UK defence industry loose and buying off the shelf means it will be operating in an unequal environment, every other major manufacturer gets direct or indirect subsidies from its home country so how could we compete against that. In short, the defence industry would over a period of time contract or move overseas with all its corporation tax and employer national insurance.

So what you might say.

The withering and migration of the UK defence industry would means we would be at the total mercy of overseas commercial organisations for the very means of our defence, is this something that even the most strident advocate of would want. It’s not just the initial purchase price either, but the very expensive through life support element. Vital support may also be withdrawn if the supplier nation did not agree with whatever military operation the UK engages in or political direction it takes.

The cost arguments for off the shelf also ignore the economic contribution that the UK defence industry makes to the economy and balance of payments from exports. Defence manufacturers pay corporation tax and employee national insurance, have sub contractors and suppliers that do the same and support an ecosystem of other supporting organisations that supply vehicles, cleaners, telephones and custard creams for the board room.

All this would go and in a double whammy the social protection payments would compound the problem. These are high value jobs, not easy to replace. The MoD doesn’t see the direct or indirect economic contribution but the taxpayer does. There have been some studies to try and quantify this contribution but it is far from an easy task, estimates range between 10 and 40 percent of the purchase cost.

The off the shelf argument also assumes that the equipment on those shelves is actually suitable and any good, it isn’t always the case. Much of the kit available is utter rubbish but then so is some of the kit we develop, again, there isn’t a clear link and if one assumes that everything that Uncle Sam uses is the best there is obviously has never used some of it. Foreign equipment is often at odds with the way the UK fights, a good example is the Challenger main battle tank. It reflects the UK doctrine of armoured warfare and although it may look the same as a US M1 or French LeClerc to those that know, it is different, this difference reflective of our doctrine. We would therefore have to change more than our supplier in order to accommodate foreign off the shelf equipment because by its very definition, we would not be able to influence design.

The Defence Industrial Strategy tries to balance these competing perspectives and as with most compromises fails to adequately satisfy everyone.

From the soldiers perspective it delivers equipment that is late, never available in sufficient quantities (because of cost) and not always as good as it might be.

The General and Civil Servant are let down because the high cost mean that not enough can be obtained and it distorts the equipment plan meaning short termism becomes rife which is very damaging and actually compounds the problem. On the other hand, the equipment is best suited to our needs and has a secure supply chain.

The politician is happy that the defence industry delivers a range of economic, political and industrial benefits but they are constantly under pressure from those that argue against the DIS and accused of being an industry crony whilst service personnel go short.

There is an argument that says freeing up the defence industry from what is a subsidy might invigorate it and lead to a better industry as a whole, our shelves would be full of the things we actually want to buy. Again, this is a persuasive argument but ignores the reality of the complexity and cost of developing modern defence equipment. The days of the ministry issuing a requirement and a dozen companies building prototypes from their own funds are long gone. BAe are not British Leyland either.

So a vibrant defence industry has many strategic, industrial and financial benefits but it comes at a price and unfortunately that price is paid by service personnel.

We definitely need to encourage greater competition and participation by smaller manufacturers, there has to be a review of what capability areas we consider strategically important and industry needs to have some long term assurance in order to support investment.

Although the UK defence industry is actually a good performer in terms of export sales much of that is for equipment manufactured by acquisitions in other countries, Hagglands or United Defense for example. If one examines export performance of equipment we have developed and manufactured in the UK the story is not particularly good, especially for major equipments.

Challenger, Warrior, SA80, Type 45 destroyer, Stingray torpedo, Typhoon, Nimrod and Terrier have hardly set the export world alight. In fact, some of our most significant export successes were in the pre DIS days of nationalised ordnance factories and a diverse supply base. The 81mm mortar, 105mm light gun and Hawk trainer and Harrier spring to mind.

We need to concentrate on making the products that we make marketable in open competition and if this needs national support then we shouldn’t be shy in doing so, other countries aren’t.

But, and this is the main point, the armed forces shouldn’t have to pay for the benefits that accrue to the nation as a whole.

One idea that has been floated by a number of people is to measure the strategic benefit to the nation and subsidise the equipment the MoD obtains to that value.

Administered by the National Audit Office the programme would assess the strategic financial benefit to the nation from supporting a UK Defence Industry and this value would be transferred directly to the MoD on a deal by deal basis. This might also be linked to export performance.

The nation gets the benefit but the MoD and by definition, service personnel, are not charged for the privilege.

It’s an interesting proposal and one worth a serious look.

The Defence Industrial Strategy needs changing but we should be careful not to throw the baby out with the bathwater.

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