Sir John Bourn, head of the National Audit Office, today told Parliament that defence equipment acquisition was an inherently complex and often expensive task. Co-operation adds another layer of complexity. It also offers potential economic, military, industrial and political benefits but in the past not all of these have been secured. Recent initiatives from the Ministry of Defence (MoD) and its partners, together with the new opportunities opened up by the re-structuring of the defence industry should improve matters in future.
Defence equipment co-operation covers defence research, the development and production of new equipments and the joint support of equipments once they have entered service. The MoD currently spends some 13 percent (£1.3 billion) of its equipment budget co-operating with 19 partner nations on 64 programmes. At the time of the Strategic Defence Review the management consultants McKinsey & Co estimated that 47 percent by value of the 172 largest planned future programmes were candidates for co-operation.
The National Audit Office’s main findings are:
Defence equipment co-operation can offer:
- economic benefits throughout the equipment lifecycle:
- co-operative research programmes generate a 5:1 return on MoD’s investment in joint research programmes and information exchange programmes provide knowledge with an annual value of approximately £280 million at minimal cost;
- sharing development costs and through economies of scale in the production. MoD has been successful in taking these cost implications into account but has done less well in estimating the timescale implications of co-operation;
- offering the prospect of sharing in-service support and equipment upgrade costs;
- military benefits by harmonising our mission capabilities with allies. Such inter-operability is important given the increase in joint and coalition operations;
- industrial benefits by preserving existing, and developing new, market influences and technological competences as well as influencing industrial restructuring; and
- international political benefits include strengthening security relationships, and the enhancement of European security and defence identity.
On how co-operation is planned and managed:
- MoD and its major European and United States partners have recently signed two major agreements¹ which, along with the creation of OCCAR², should help in planning and undertaking co-operative programmes and aid the restructuring and efficient operation of the defence industry. It will be important that MoD is able to demonstrate that the expected benefits of these initiatives are being secured;
- the identification of opportunities for co-operation has been constrained by difficulties aligning national requirements and differences in national legal systems, planning timescales and funding approvals processes. We commend MOD’s actions in taking forward the Capability Management initiative³ and endorse its intention to encourage partners to discuss opportunities for co-operation on the basis of future capability needs rather than specific requirements;
- reluctance to share sensitive technical information and the time taken to agree joint research programmes have limited defence research co-operation. Developments enshrined in the Declaration of Principles and the Letter of Intent¹, and the proposed EUROPA Memorandum of Understanding on research hold the prospect of addressing some of these factors;
- complex government and industry management and decision-making arrangements, such as the need to divide up work very precisely between partners on programmes, have reduced the economic benefits of co-operative acquisition and in some cases may have torpedoed promising co-operative ventures before they came to fruition. The formation of OCCAR should help to address these challenges;
- differences in nations’ operating and maintenance philosophies and national “customisation” of designs have limited co-operative in-service support activity although sharing non-recurring costs is much less of an incentive to co-operate in the support phase;
- industry restructuring has created a small number of defence companies with wide-ranging capabilities. In future, co-operation may be easier to start at the industrial than the government level; and
- MoD has put a great deal of effort into responding to requests from its co-operative partners to explain the potential benefits of “Smart Acquisition” and although the scope for change in well-established programmes is limited, there are signs that some existing programmes are being managed more effectively.
On how MoD decides to co-operate:
- MoD has implemented a structured system of cost and operational effectiveness analyses to inform decisions on which equipments to acquire, and works with other government departments to produce analyses, of varying degree of sophistication, of the industrial and wider political factors involved;
- Reflecting the importance of many major equipment acquisition programmes, over half of seventeen recent decisions on whether or not to commit to co-operative programmes were made collectively by Ministers, (including non-Defence Ministers) who may choose to emphasise the importance of securing outcomes in addition to those which pre-dominate in MoD’s own assessment such as technical capability, costs of the project and in-service costs;
- this approach accords closely with Modernising Government principles; and
- in assessing the success of co-operative programmes it will be important to ensure that all of the expected benefits are clearly recorded and their achievement measured.