Defence industries urge change in State procurement methods

Robin Fox, the managing director of NDI (Northern Defence Industries), which has 50 members in Yorkshire, warned that the Ministry of Defence was relying too heavily on a small number of large contractors, which meant smaller suppliers were losing out.

In a speech to the NDI conference at the Royal Armouries in Leeds, he said: "Equipment costs are outstripping inflation and spending on defence over the last 10 years has not matched the demands of the Armed Forces. There is already a 35bn programme gap which could continue to grow if the status quo remains."

Mr Fox, a Territorial Army colonel, told the audience of business leaders that the MoD procurement system "is not good" and successive Governments had shied away from reform.

He added: "We are now at a place where the challenge posed by the state of the economy is so great that the next administration will have to be radical in the way it deals with defence expenditure and, in particular, equipment procurement."

Mr Fox called for a "proper review of foreign policy" so defence spending could be focused on areas where it was needed most.

He added: "Once we understand all of this a proper defence industrial strategy can be put in place to make best use of industrial capability.

"What do I mean by that? Well, for the Government it is to remove the politics out of defence procurement as much as is practical, and for the MoD it is a massive reduction in the procurement bureaucracy, a radical move away from process- driven activity and increased accountability...

"Can the MoD move away from the traditional response to financial pressure – the programme delay and the 'salami slice' approach – to a radical review of capability, quantity and quality to meet the requirements of the real world?

"Turning to the supply network, delivering value doesn't mean that a company suddenly becomes the provider of the successor-class nuclear deterrent submarines. The capability to deliver such high-value, high- risk programmes clearly rests with the prime contractor community.

"But there is much greater value to be had for the tax payer from the MoD engaging the supply network either directly or through organisations like NDI to supply defence equipment.

"The SME (small and medium-sized enterprise) sector can, for the most part, provide more innovation, greater agility and better value for money but as the sector continues to consolidate the MoD is becoming more reliant on a smaller number of primes who have little real incentive to engage new suppliers."

A Ministry of Defence spokesman said it was committed to making sure equipment acquisition processes were effective and efficient, adding: "Given the level of military operations, notably in Afghanistan, this is a key priority.

"Earlier this year we published (on the MOD website] the Strategy for Acquisition Reform alongside the Green Paper. This sets out a major programme of change, reinforcing existing reforms but adding new ones, including a radical commitment to greater transparency.

"The strategy underlines our commitment to major reform and explains how we will approach it. In addition, it also covers our approach to wider defence priorities such as safety and sustainability."

The spokesman said the strategy showed how the Ministry planned to reform the acquisition system so that the Armed Forces got the equipment they needed at the best value for money for the taxpayer.

He added: "It builds on the work of previous reforms and includes measures to ensure our equipment plans are – and remain – strategically aligned, affordable and achievable, improve internal skills, management and decision-making and to strengthen our relationship with industry.

Implementation of some of the key elements of the strategy has already begun.

The spokesman added : "For example, the new sub-committee on equipment to the Defence Board has been established and have met to discuss the equipment programme, and we intend to roll out shortly and test a new formal project initiation procedure which will control more rigorously how individual projects enter the equipment programme."

The spokesman said the MoD was committed to bringing the equipment and support programmes into financial balance.

Sector plays big part in economy

Yorkshire companies in the defence sector are a key part of the region's economy.

NDI helps small and medium-sized businesses to forge links with the defence and aerospace sector.

Robin Fox added: "If you take all the companies we engage with (1,028) and exclude the prime contractor interest, such as BAE Systems in Brough, then you are talking about them accounting for 6.2bn out of the 89bn GVA (gross value added) figure for Yorkshire which is about seven per cent."