Off the Shelf

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.

11 Comments
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Euan
February 3, 2010 3:21 am

I actually believe some capabilities should be nationalised and formed into a not for profit government owned defence industry any money that would have been profit get’s reinvested. What would be included under this would mainly be production facilities so they could be used to manufacture what is needed. So if we wanted to buy off the shelf we would have the facilities available to produce that product at home with a large slice of technology transfer added in for operational sovereignty. Currently the facilities are owned by companies and those companies of course want us to buy their designs rather than realise something is already available that fills the role and is working. Basically we should get the best of both worlds the ability to buy off the shelf where needed and have it built and supported here within the UK providing jobs etc. Transfer of Technology should also be part of the deal and things are moving this way in most competitions so it should also be part of UK deals. Transfer of Technology is important so knowledge is not lost completely and it could even boost knowledge in some areas. This is not that outlandish as it seems to be, it’s the case in more than a few nations around the world so we could look at and learn from their mistakes. At the end of the day the design may or may not be British but the equipment will be made in the UK and should be supported in the UK. Design skills are another issue however BMT has managed to survive as an independent design house and does not depend solely upon the MoD for work I would say it is successful as it is involved in projects all over the world. The same could maybe be done for the design and research in aerospace sector at the very least it would keep the basic design skills alive but who knows it could be successful. The idea would also be to essentially form a new Defence Evaluation and Research Agency to carry out much of the sensitive work that would be wise not to give wider industry. Research and development in the UK is more or less solely dependant on the MoD so essentially it is state subsidised so why not just bring it back in house?

A side note would be on cooperative projects; this is a tricky area as the US won’t transfer technology because we are stupid enough to pass it onto the French when we work with them. This I suspect is the reason for the UK not being given access to the F-35 source code because there is a chance that it will not be kept confidential.

What should also be noted is the Defence Industry in the UK is pretty small and employs and contributes a tiny fraction of GDP it’s always blown completely out of proportion as to how valuable it is. As noted in the “more bang for the buck” report much of the equipment in the NHS and elsewhere is manufactured abroad even the basics are made abroad and nobody cares. Even the argument of operational sovereignty is a bit dodgy as many key components are made abroad in most weapons systems from nuts and bolts to computer chips many small seemingly unimportant items. Maybe people who read this blog and comments will have heard stories of important systems being down for the want of some nuts, bolts or gaskets if so there should be some questions and I even mean systems originally manufactured in the British Isles by British companies. Maybe just a symptom of the world we live in of “Just in time” or usually too bloody late.

Naturally what I have said/suggested would not exactly be popular even I don’t like it in some respects but it should have the benefits of strengthening the ability to defend ourselves and increasing operational sovereignty. Alongside keeping those all important jobs and therefore votes while hopefully being more efficient from a monetary and effectiveness perspective at its main goal of providing defence equipment. Should we do something to piss of our suppliers what would we have to do to warrant them cutting off supplies of spares, between the UK and US it might need to be something monumental. Even if our supplier turned on us we should still be able to operate equipment for quite some time as shown by US equipment operated by nations such as Iran. We should be better prepared with domestic production coupled with healthy amounts of technology transfer and hopefully with any sense a substantial amount of spares held in the supply chain.

Am I nuts? :-) feel free to load aim and fire.

DominicJ
February 3, 2010 10:27 am

****
Important bit is the last paragraph
****

I dont agree, but I dont agree a lot less violently than I was expecting.

I’m vehemantly against the DIS and a big supporter of M/COTS, but you do make fair points, which I’ll try and address.

I kind of disagree with your what people want bit.
The Soldier wants to be out “smash” (Damn you Michael Yon) the enemy when he’s getting shot at.
The Senior Officer wants to win his Strategic War.
The Civil Servent wants to get promoted
And The Politician wants to get re-elected.

Both the soldier and the politician are short termists, but they have very different goals, the soldier just doesnt want to die, the politician doesnt want to lose votes, and if letting the soldier dies doesnt lose votes. Neither are really interested in maintaining strategic capacity

The Senior Officers and the Civil Service are both long termists, but again, they have very different ideas, the Senior Officers are planning for what they think the next big war will be, and the Civil Service is looking to, certainly over the last several decades, create international partnerships and focus groups.

I’m not against collaberation, but I’m not for it either.
If it suits a particular circumstance, we should do it, if it doesnt, we shouldnt, its not a good or bad thing in itself.
SEPECAT worked because there were two partners, who eventualy both wanted something similar, and had reasonable aims in regards to workshare.
Typhoon has been such a disaster because it has too many partners, with no coherant vision on what they want and with insane demands on work share, leading to Italy building on wing and Spain another, which I’m sure lead to spat in the late 90’s because they were building them to different dimensions.

You rightly point out that Astute was a disaster not of collaberation, however, it was not a disaster of MOTS either, it was one caused by the DIS.

The Mastiff UOR is a very good example of a UOR failing in epic fashion, but that failure is easily identifiable. We agreed to only buy spares from the one company, and they agreed to supply the US first, it shouldnt have been beyond us to get an agreement that anyone (or someone specific) could liscence build them in the UK.

Although its possible we could lose BAE overseas, it would be because we drove them away, rather than because we didnt entice them to stay, companies are shutting their UK operations everyday because we have a very hostile environment.
No, this road leads to 5 year plans, “National Champions”, a successful businesses being penalised because its in “the national interest”.
Just look at defence now, as men died in Afghanistan for lack of £500,000 mine resistant vehicles, all the armoured corps of the army would talk about was what £16,000,000 FRES was going to do the 7th Tank Guards Army if it tried to breach the Fidula Gap.
We need to expunge that, not entrench it.
**nervously climbs down from soap box and wipes froth from mouth**

I do like the idea of freeing arms suppliers from the chains of taxation on supplying the MoD, but its a complicated solution that ignores the simple one.
STOP TAXING BUSINESS INTO OBLIVION

“Off the Shelf” and the DIS are two quite seperate issues, that only really meet thanks to a UOR.

There is a middle ground here.
The problem with the DIS is we say, products X, Y, and Z must be made in the UK, so before negotiations even start, we say to BAE, “feel free to screw us over, we wont say no to any demand, unless your so outrageous a foreign company could build the factory, train the workforce and make it for less”.
And MOTS appears to be, “this product must be deliverable within a week”

Can we not so what other countries seem to do, and issue a requirement, see what comes back, then make a decision?
So, we issue a requirement for a new batch of submarines that do x,y,z, and the various submarine builders of the world can submit offers. Those offers could be of existing designs, a modification to an existing design, a new design, or a suggestion that a partnership might work.
We can then decide wether an M1 is good enough, an upgraded Leclarc will be acceptable, if we need a custom designed Challenger 2 or if we should enter a joint project with a partner or coaliton.

Phil Darley
February 3, 2010 12:24 pm

Buying off the shelf will be the final nail in the UK Defence Industry coffin. The main reason why our kit is so bloody expensive (apart from us asking for functionality that is OTT or just plain stupid) is that we buy such small amounts and so infrequently. The French, Germans and US are constantly upgrading and/or replacing their kit. We buy stuff and then expect to keep it for the next 50 years. How can an industry survive with so few orders?

BAe are already preparing to migrate to the US, they have to as the orders just don’t happen here. Just take FRES. The Army needs new vehicles, they could have placed orders for vehicles to replace the Saxon/FV432 and CVR(T) years ago. The UK has produced a potentially superb vehicle in the Universdal Engineering Ranger. I believe this vehicle could not only provide most of what the FRES utility was supposed to perfom but replace the Mastiff and Ridgeback as well. Will the MoD buy it… NO they are saying that they don’t even have a need for such a Vehicle!!!!!

Why are we bothering to upgrade the Warrior? just replace them all with CV90s. If they pass the Warriors on to the TA along with the Bulldog then maybe its worth it but lets get new kit ordered and UK factories working (Yes I know the CV90 is Swedish but we can build them in the UK at the BAe Newcastle factory.

Somethings we need to leave to others, like small arms. The SA80 was and in my opinion is a bloody awful weapon and needs to be replaced, this we can buy off the shelf or manufacture under licence from H&K, FN or whoever.

As for Helicopters we can retain production and design in the UK but buy the same as our allies i.e. we should have joined the NH90 programme and bought existing Eurocopter designs rather than the Wildcat.

We have no UK base

DominicJ
February 3, 2010 12:33 pm

“The French, Germans and US are constantly upgrading and/or replacing their kit.”

The UK spend more on equipment than everyone in the EU excluding France, combined.

Although I agree, we spend it very badly, very haphazardly and are prone to delaying projects at the drop of a hat.

Should the RN and RFA with a combined total tonnage of about 800,000 and average life span of about 20 years buy 40,000t a year, more or less, well, yeah probably.

Tony Steel
February 3, 2010 8:27 pm

At last, an article on DIS which actually demonstrates some understanding of the issues! The author is to be congratulated.

I just hope the likes of Mr Carswell read it. He focuses almost entirely on the initial acquisition cost of units of kit and thinks we should just pick the lowest price. I have never seen him mention support costs. This article shows exactly why the problem is rather more complex than that.

Just to pick up on a couple of points made by commenters:

Phil Darley said “The SA80 was and in my opinion is a bloody awful weapon”. Have a look on ARRSE and you’ll find that soldiers find the SA80 A2 (yes, the SA80 A1 was a dog) a fantastic weapon. Very accurate and very reliable indeed. It is a real world beater, but as a modification to the A1 it was never a candidate for export.

Dominic J said “You rightly point out that Astute was a disaster not of collaberation, however, it was not a disaster of MOTS either, it was one caused by the DIS.” No it most certainly was not. The problems were caused by the nature of the contract (fixed price for the most complex machine on earth before it was designed, with a subsequent arms length adversarial relationship between MOD and contractor). This was in the late 1990s, several years before DIS, which was not published until December 2005.

If anything, DIS has assisted projects like Astute no end as partnering between MOD and contractors(not necessarily due to DIS, but it all helps set the tone) enables issues to be resolved far more quickly and to the benefit of both parties. And if people think it lets contractors off the hook, just look at the hit to BAE Systems’ profit and loss account from the Astute and Nimrod MRA4 charges…

Tony Steel
February 3, 2010 9:17 pm

Admin, I agree with all of your points about the SA80. But development costs and the quality of the A1 were not at issue with Mr Darley’s opinion that the SA80 still is “a bloody awful weapon”. This is manifestly untrue. Perfect, no, but much closer to “perfect” than “bloody awful”.

Your latter comment on DIS – absolutely spot on! Nail, head, well and truly hit. Where are you standing at the election?!

Jed
Jed
February 4, 2010 1:24 am

Simple topic – SA80A2 – still weighs too much, still cant be fire left handed round corners…. :-)

Complex topic – it is indeed an excellent article, about a very complex topic, and as noted by many, there are just no simple answers. However as I have said before, I believe we have dropped below the ‘critical mass’ required for a Defence Industrial Strategy to have benefits to the armed forces (in terms of capabilities), to the taxpayer (in industrial benefits) and to “UK PLC” in science and technology as well as economic benefits.

How few nuclear submarines can we build while spending a lot of money to keep the design and build capability ? At what point does it become a stupidly expensive and arrogant ‘capability’ ? Perhaps if we drop from 7 Astutes to only 6 ? If we only build 3 new SSBN, and take a long time to do it, and then even longer to order a follow on class to the Astutes ???

CVR(T) and FRES is a good example of where the problem may actually sit with the potential user – scope creep and gold plating. We could have replaced FV432 and CVR(T) with variants of Stormer 15 to 20 years ago (and now we might be replacing them). We have helped fund the development of the Boxer, then we pulled out, then we let it compete for the requirement again – of course this is more about the fact that we apparently can’t “manage our way out of a paper bag” when it comes to procurement. Lets not even mention Chinooks…….

Anyway, all in all it needs to be a balance, COTS and MOTS does have its place, and maybe there should be more of it. UK only and multi-national development programmes also have their place in the overall scheme – but really all the rhetoric about intelligent procurement needs to be made reality, and I don’t see that happening without radical reform of the MoD itself.

DominicJ
February 4, 2010 8:25 am

In regards to Tony Steels point

Ok, hands up, Astute was well before the DIS, however, the same problems are very much in evidence.
BAE, despite manifestly lacking the capability to design and build the Astute Class, was given the contract to protect the UK’s ability to build nuclear submarines.
Both sides are bloody stupid for signing a fixed price contract on something yet to be developed, but was this a hard target or a soft target?

Jed
I’m sure the limit for commercial viability is one submarine per yard per year, or so the US Congress has decreed anyway.
So the US buys two subs per year to keep two yards open, in case one is destroyed in a Pearl Harbour repeat.

So if we want to maintain a submarine building capacity and a four boat nuclear deterrant, we need to field at least 20 additonal nuclear submarines, or start selling some I suppose.
I realise submarines can last longer than 25 years, but surely by that point they’d need so much overhaul work and a refuel that its probably not worth it.

I just realised I missed off Euan.
A nationalised not for profit governmental arms builder sounds great, but it rarely works.
It’ll have no problem not making any profit, it’ll be so good at not making profits that it will rack up massive losses quickly.

My sisters a financial auditor for a big accountancy firm, she’s been to NHS trusts where the Office Junior who’s job was to make tea and photocopy things earnt more than she did, that was defended fiercely by the NHS on the grounds of “we’re the NHS and need the best people”.

Should we tender for design and construction as seperate contracts available to different grroups, hell yeah.

Phil Darley
February 4, 2010 6:17 pm

Tony Steel or should I call you Mr Steel? I stand by my comments on the SA80. Yes I have read the comments on ARRSE but do not agree. Yes they have made the A2 much better but as Admin and Jed have stated the design has major short-comings (cannot by fired left handed, cannot be fired around right corners without exposing the whole body, has really awful ergonomics (right hand cocking, cross-bolt safety catch to name but two) and is bloody heavy. To call it a “World Beater” is laughable!!! Come on stop taking the DE&S word as gospel. Its accurate and that’s about its only saving grace. In virtually all other respects it falls short of most of its rivals. I would rather a G36,HK416, FN2000 or Tavor than an SA80 and none of them are perfect either but better overall than the SA80 certainly!!!

paul g
March 4, 2010 12:15 am

phil, just to clarify it’s left hand cocking on the SA80 which is a pain in the ar*e it’s so you can carry out a forward assist (it’s actually part of the cocking process in the trainng manual) so you have to; on a modern rifle; push the round all the way in!! having said that i liked firing it and i’m left handed!!!