Opinion: We can no longer afford to fund defence on the cheap

Written by Mike Clancy on 23 February 2018 in Opinion

Every day staff see the pressure on defence caused by pay restraint, delays to procurement orders and purchasing of cheaper foreign equipment to cut costs

Credit: Andrew Milligan/PA 

We need more money for defence. The message from defence secretary Gavin Williamson as he was quizzed by MPs on the Defence Select Committee on Wednesday could not have been clearer. To be fair, this is a drum he has been beating ever since his surprise appointment late last year, and the defence sector has been warning of the impending funding crisis for even longer. This question is, is the Treasury listening?

The facts should make them sit up and take notice. The most recent damning assessment from the National Audit Office found an eye-watering £21bn black hole in the defence equipment plan and described it as “unaffordable”, despite the significant cuts to our defence capability that have already been made. The armed forces are the smallest they have been since the Napoleonic wars, we have halved the size of the fleet since the 1980s, and our only aircraft carrier does not have any planes. A former First Sea Lord has described the current situation as “on a precipice” and argued that under the current government “defence is being screwed”.

Yesterday, defence workers from across the UK, along with Prospect deputy general secretary Garry Graham, will be meeting in Westminster to speak to MPs about their experiences and concerns. As a leading defence sector union, Prospect members have seen the pressure on defence every day. Pay restraint for defence staff, delays to procurement orders, purchasing of cheaper foreign equipment to cut costs – all have been features of the way the Ministry of Defence has been run under the Conservatives in recent years. With billions of pounds of “efficiency savings” left to find, the future looks like it may well be more of the same.

While our defence capability is diminishing, the global security situation is deteriorating. Renewed Russian aggression, the prospect of a nuclear North Korea, tension in the South China Sea, continued conflict in the middle east, international terrorism – all of these are challenges we must face in the coming years and it is vital that our defence is up to the task. The government may say it is meeting the minimum NATO target but the reality is that the annual defence budget has been cut by 14% in real terms since 2010.

Labour’s shadow defence secretary Nia Griffith has been strong on the issue, with clever attacks on the equipment plan, the size of the forces, as well as the pay and conditions of defence staff. She has also moved fast to close off any uncertainty about her party’s commitment to the renewal of Britain’s nuclear deterrent. Yet, the sense remains, that some in Labour’s leadership feel uncomfortable talking about defence, despite the importance of national security and the British jobs the industry supports.

The message of Prospect members to MPs of all parties is that we need a serious debate about defence. We want a consensus to provide the resources and attention necessary to maintain credible armed forces, secure highly skilled defence jobs, and end the indecision about key procurement challenges.

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Mike Clancy
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Mike Clancy is general secretary of Prospect union

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Submitted on 23 February, 2018 - 11:33
One of the reasons why a funding “black hole” has re-appeared in the Ministry of Defence’s budget is because it has never bothered to consider the cost of new equipment procurement programmes on a through-life sustainment basis, preferring instead to bear down on initial acquisition costs. A point that came to light at a recent Defence Select Committee hearing, which was told that MoD did not know what the Whole Life Cost of the first tranche of 48 F-35s was. This situation has come about because, for as long as anyone can remember, MoD has rigorously applied a policy of buying Support Assets for its military equipment separately, on a piece-meal basis, via a steady stream of short-term, renewable Post Design Services contracts let during the in-service phase, as and when the need arises rather than upfront, at the time of acquiring the prime equipment. When priced and submitted as a quotation by bidders, the magnitude of this Whole Life Cost always comes as a shock to people at MoD. It need not be that way, bearing in mind that the cost of acquiring and re-provisioning Support Assets required to sustain military equipment over the whole life cycle, can be in the order of four to five times the prime equipment costs. The simple fact of the matter is that the Whole Life Cost of any new equipment programme comprises of two significant elements – prime equipment costs and its associated Support Assets costs. The latter, itself, comprises of three discrete parts, which should be required to be identified, as separate line items in the ITT response for the first contract performance phase, namely: (a) Not-to-exceed price for the cost of performing the Integrated Logistic Support tasks and activities as detailed in the ILS Programme. This is a one-off, non-recurring cost to MoD. Because this cost is a direct indicator of the extent to which each starting-point for the Technical Solution has already been ILSed, comparing these figures from bidders on a like-for-like basis will quickly reveal which starting-point will require the least amount work to be performed upon it, to make it meet the ILS Requirement. (b) Not-to-exceed price for the cost of acquiring Support Assets for each level of repair to be delivered together with the fielded quote of prime equipment (some well ahead of IOC) to cover a specified initial support period – including the cost of holding the required stock of piece-part spares and/or Maintenance Significant Items at 4th Line, to fulfil the specified Turn Around Time i.e. a fully primed Repair Loop. Clearly, this cost is a measure of the inherent reliability i.e. overall MTBF of the proposed Technical Solution (a design characteristic wholly within the control of the Contractor) – the lower the cost, the higher the reliability. The initial support period (which will be different for each acquisition programme) should be deliberately set to commence the day after the last copy of the prime equipment is delivered and satisfactorily commissioned into service with the User – to incentivise the Prime Contractor to make sure that the manufacturing phase of the programme is completed to schedule, without any delays. The higher the percentage of non-Development items in the Technical Solution, the longer this period ought to be – perhaps 10 to 15 years. (c) Fixed price for the cost of supplying additional Support Assets during the remaining service life of the prime equipment. This cost should be at a progressively decreasing burden upon the MoD, reflecting the steady-state reliability the equipment will achieve beyond the early-life failures exhibited during the initial support period – that is, a cost of ownership profile mirroring the classic ‘bath tub’ curve. The only Whole Life Cost figures that matter are the ones submitted by competing Contractors – because they are the only figures that bear any correlation to the prevailing value of goods, services and labour in the free market shaped by competitive market forces. Only the priming and performance of an ILS Programme of work can result in the full spectrum of Support Assets costs to be identified, quantified and priced. @JagPatel3

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