While unions wail and others question the value of a modified off-the-shelf buying strategy for the defence sector, others prove the approach can bring jobs and exports to UK plc.
The Defence White Paper released by the Ministry of Defence today gives responses to the Government’s public consultation on defence and security equipment procurement.
A central issue of the consultation is whether the MoD’s stated intent to pursue an off-the-shelf procurement strategy to reduce costs would render some British SME’s bids less competitive. Another issue was that totally open competition had intrinsic limitations within these sectors, because many governments place some form of restriction on their domestic defence and security markets.
The White Paper says: “UK-based suppliers expressed concern that the preferred position of buying equipment and support off-the-shelf would lead to a decline in the UK industrial base, because it is thought that this would provide an advantage to overseas suppliers.”
The White Paper confirms that the Government is committed to ‘best value’ equipment acquisition, a preferred method for which is modified off-the-shelf procurement (MOTS).
Here equipment should be bought on its own merits in an open market, but where core equipment is sourced overseas, UK-based companies can benefit by providing modification services to these sub-components. In addition, the prime contractor within the UK generates expertise and jobs through systems integration. The downside is that UK contractors whose costs, and bids, are higher than foreign competitors may miss out on crucial MoD contracts.
One company who approves of the MOTS method is General Dynamics UK. The company is the prime contractor for the Specialist Vehicle (SV) programme, contracted in July 2010, chosen to replace the ageing CVR-T vehicle range for British and other Armed Forces. The company says the SV “typifies the Government’s aspirations as laid out in [today’s] White Paper. SV is a tangible demonstration of how investment in British science and technology can inject significant UK sovereign capability into a European off-the-shelf product.”
How does this work? SV is based on a pan-European platform, with key components such as the vehicle hull and tracks fabricated in countries including Germany and Spain, but engineered and integrated in South Wales at GDUK’s facility and assembled elsewhere in the UK. A spokesman at General Dynamics explains: “SV is a perfect example of MOTs. SV is a modified, upgraded version of the original ASCOD vehicle which General Dynamics (GDUK) has modified and improved for the UK user. GDUK takes base parts like the hull and adds British engineering and IP to improve its capability. Many of the clever bits – the turret, IP and electronic architecture – are British.”
The electronic architecture system, developed and patented by GDUK, flows power and data around and SV vehicle using a busbar, rather than a complex wiring loom. After incurring damage, a busbar data system is easier to repair.
“MOTS is good for companies like ours who add value to off-the-shelf equipment procured overseas,” he says. “It’s also very good for UK SMEs who supply to those prime contractors in the modification work.”
MOTS has been questioned as an effective procurement strategy – some in the defence industry have questioned the value to the customer – the taxpayer – from excessive modification, when a domestic bespoke solution might be superior and work out cheaper.
But it’s important to mention both the jobs and exports that MOTS creates, GDUK says. “The SV programme is predominantly British and will create and sustain perhaps 4,000 to 5,000 people over its lifespan. That’s jobs here at GDUK in Wales, at [sub-contractor] Lockheed Martin UK for the turret and many subcontractors in a long supply chain. Also the export value of this vehicle is high.”
CVR-T, which SV is replacing, was exported to 16 countries. Ernst & Young, who GDUK commissioned to evaluate the export value of the SV programme, estimated this to run to over a billion pounds.
Off-the-shelf opportunities go both ways
Elsewhere, one SME told The Manufacturer that while an open market seemed to offer no preferential treatment to British companies, his company is manufacturing ‘off-the-shelf’ items that are being sold to foreign companies as well as the MoD.
The overseas contracts can be stages of big defence programmes that end up back in the UK anyway. While subcontract pricing needs to be keener in a MOTS environment, this will help UK parts-manufacturers to be more competitive with European competitors, even if the effect might be to squeeze margins short term.
Rees Ward, chief executive of defence and security body ADS, commented on the off-the-shelf approach: “The need to develop capability in the UK remains, as the White Paper recognises in its section on technology. Industry believes that each procurement should be evaluated against criteria which ensure that our Armed Forces needs are met and the value for money test includes the benefits to the economy as a whole rather than any narrower measure.”