UK Warship Procurement Strategies – Accident or Design?

UK Warship Procurement
Strategies – Accident or Design?
Stuart Young
Deputy Director – Centre for Defence
+44 (0) 1793 785051
• Background – Development of Naval Shipbuilding
in the UK since the 2nd World War
• The Defence Industrial Strategy
• Case Studies
• Offshore Patrol Vessel
• Type 45 Destroyer
• CVF – Future Aircraft Carrier
• Conclusions
Background – UK Warship Building since WW2
• Focus on commercial ships immediately
after WW2 – sellers market.
• Early 50s – first new ships since WW2.
New technologies led to increased cost and
• Development of competitors from
shipyards in Europe and Far East –
problems in UK shipbuilding exposed.
• Admiralty returned to competitive
tendering – by 1965 ten shipyards closed or
• Proposal to reduce to 3 specialist naval
• 1973 Oil Crisis – Ship building collapsed.
UK Government nationalised the industry.
Background – UK Warship Building since WW2
• 1986 – Industry de-nationalised.
Six yards designated as warship
• Competition and reduced number
of orders led to further
rationalisation – 3 yards, 2
• 2005 - Defence Industrial Strategy.
• Establishment of BVT Surface Fleet
joint venture
• 2009 - Signing of long agreement
with MoD – cost savings (£350M)
in exchange for guaranteed
minimum workload (£235M/year)
• Buyout of VT by BAE Systems –
now 3 yards, 1 company
Defence Procurement Initiatives –
August 00
MoD Initiatives
Smart Acquisition Introduced
May 03
Jul 97
Smart Procurement Announced
DPA Stocktake
Feb 04
Performance Partnership Agreement 2004-2006
MoD Plans for Departmental Change
Mar 08
Jul 06
Apr 07
DE&S Formed
2006 - 2008
DIS Performing
Jul 98
Strategic Defence Review
Official Publications
Jul 99
Defence Industrial Policy
Jul 02
Apr 04
Strategic Defence Review
DLO Strategic Plan
A New Chapter
Transformation Staircase
Dec 05
Mar 05
Sep 06
May 06
Jul 07
Apr 07
2009 - 2009
May 08
DSR Report
Aug 08
Partnering Handbook
Defence Industrial Strategy - Aims
• Giving a strategic view of defence
capability requirements going
forward, by sector, and specifying
which industrial capabilities the
government wished to see
retained in the UK for Defence
reasons to meet these
• Providing details on the principles
and processes that underpin
procurement and industrial
• Investigating how the mismatch, or
gap, between the MoD’s plans and
the level required to sustain
desired industrial capabilities
onshore might be addressed.
DIS – Maritime Sector – Key Points
• Need only to retain a minimum ability to build and
integrate complex ships in the UK.
• Priority to retain and develop the systems engineering
capability to design complex ships and their combat
systems from concept to the point of build, and manage
and support the associated maritime capability through-life
(50% of the spend in the maritime sector is on support).
• Need for the MoD to retain intelligent customer skills to
control the procurement and support processes, with a
particular focus on managing risk.
• Supported the establishment of an Alliance/Partnering
DIS – What Happened
• BAE Systems and VT Group established a joint venture,
BVT Surface Fleet, in July 2008, as a condition of the signing
of contracts for the Queen Elizabeth class aircraft carriers.
• 15-Year Terms of Business Agreement (ToBA) signed
between MoD and BVT in July 2009.
• 15 years exclusivity to BVT to design, build, integrate and support
specified MoD shipbuilding programmes
• Maintenance of key industrial capabilities.
• Guaranteed savings of at least £350M over 15-years
• Aircraft Carrier Alliance
• Other Maritime Change Programme initiatives:
• Submarine Enterprise Collaborative Agreement
• Surface Ship Support Programme
– Alliance arrangement between MoD, BVT and Babcock Marine
• Maritime and Engineering Waterfront Support
River Class Offshore Patrol Vessel
• Urgent need to replace seven Island Class
Offshore Patrol vessels, commissioned 19761979
• Roles:
• Initially
– Fishery Protection, Oil and Gas Field
• Additional roles, by late 1990s
– Assisting HM Customs and Excise, Scientific
and Environmental, Assisting vessels in distress
• Island Class did not have the capabilities to
perform these roles effectively and were
costly to maintain and support
• Acquisition timeline:
• Dec 2000 - ITT issued
• Mar 2001 – Vosper Thorneycroft
selected as preferred bidder
• May 2001 – Contract placed
• Jan – Dec 2003 – Ships entered service
• Total Cycle time – 3 years
The Proposal
• VT to lease three ships to the Royal Navy with
Support and Maintenance provided through a
Contractor Logistics Support arrangement
• VT retained ownership of the vessels and
chartered them to the MOD for five years, with a
daily charge for full Contractor Logistics Support
• VT guarantees 960 days availability per year across
the three ships.
• Only when those ships are available for MoD
tasking is the MoD liable for CLS costs.
Why was short Acquisition Cycle
Time achieved?
• Economic - Island Class ships expensive to maintain.
Pressure to reduce short-term support costs. Gapping the
capability was not an option. New, cheaper solution
urgently required.
• Smart Acquisition – Senior MoD management under
pressure to deliver early Smart Acquisition savings. OPV
provided an opportunity to deliver clear savings in the
short term and demonstrate to politicians and tax payers
the success of Smart Acquisition.
• Political – In Dec 2000 VT issued redundancy notices to
half its workforce. Considerable political pressure to
ensure that VT won the contract with an order for at least
three ships to maintain jobs and keep shipyard open.
Eventually only 120 jobs were lost.
• In first year of operation, the three River Class
OPVs achieved 97.5% availability , compared to a
maximum of 82% for the five Island Class they
• More capable – vessels are some 30% larger
• More fuel efficient
• Smaller crew – 30 (from pool of 45) compared to
35 on Island Class. Total RN Manpower:
• Island – 175 (5x35)
• River – 135 (3x45)
Key Points
• Lease-based Availability Contract (CfA) most suited to
relatively simple, commercially available technologies used
in routine, predictable operations – normally second-line
(OPV) rather than front-line (T45) capabilities.
• Incentivises company to perform to meet and exceed
capability and availability targets.
• CfA most suited to well-defined capability requirements
which do not cross many environmental boundaries and
do not create significant DLoD coherence issues.
• Leasing may not always be the cheapest option, but does
provide smooth, predictable budget requirements – risk is
transferred to industry.
Type 45 Destroyer
• Successor to Type 42 Destroyers
• History of procurement delays:
• Type 43, 44 designs
• NATO Frigate Replacement
• Common New Generation Frigate
(UK, France, Italy)
• Type 45 (UK) with tri-national
PAAMS weapon system
• 8-years late, £1B over budget, 6
ships compared to original
requirement of 12.
• 1999 – Type 45 established as Integrated Project
Team in line with SMART Acquisition philosophy
• Complex procurement strategy:
Work share between VT and BAE Systems on
first 3 ships leading to effective competition on
further batches
VT and BAE Systems unable to agree risk
sharing arrangements
• BAE Systems’ unsolicited bid for building all ships
• 2001 RAND study examined other procurement
• Final solution announced July 2001 – Batch
production strategy, with different ship blocks
constructed at different shipyards and assembled
in one.
• 2004 – number of ships reduced to 8
• 2008 – number of ships reduced to 6
• HMS Daring undergoing weapon trials – due to
enter service Nov 2010
• Sixth ship enters service 2013
Key Points
• International collaboration on large scale, complex, high-tech
programmes almost impossible to achieve.
• Cost increase due to:
• Delays in establishing a clear industrial and procurement strategy for
the programme
• PAAMS weapon systems
• Increased ship build cost
• £200M to run on older Type 42 destroyers
• Programme has led to rationalisation of UK shipbuilding
industry – highly influential RAND report:
• Competition v sole-source production – need to take into account
factors other than cost.
• Block construction proving a success, but not without risk
• Learning curve effects are significant
• Man-hour savings of 43% predicted from first to last ship
Future Carrier- CVF
• Requirement for enhanced
carrier capability identified in
1998 Strategic Defence
• Studies favoured option of a
large ship with STOVL aircraft
as most cost-effective option.
• Aircraft and Infrastructure
issues necessitated a
programme approach – 2*
Carrier Strike Senior
Responsible Owner, as well as
• June 2001 – Joint Strike Fighter finally selected with
knock–on effect to CVF programme.
• Nov 2001 – Assessment Phase contract awarded to
Thales and BAE Systems
• Dec 2002 – CVF IPT concluded Thales proposal
best. Costs similar.
• Jan 2003 – Prime Minister decides politically
unacceptable to award contract outright to Thales.
• MoD proposes CVF Alliance
MoD – partner and customer
BAE Systems - Prime Contractor
Thales – CVF Design
• Subsequent design and programme reviews to
reduce cost – Budget £2.9B, Cost £3.8B
• Potential French involvement
• Mar 2007 – Treasury approval of £3.74B
programme obtained. Max cost £3.9B
• July 2007 – Orders for 2 ships placed
• Work progressing rapidly (In-service dates now
2016 and 2018) but programme still uncertain until
after General Election and subsequent Strategic
Defence Review
Key Points
• Political interference in project of this size
• Difficulties in getting competitors to subsequently
work as Alliance partners.
• Design reviews to reduce costs only succeeded in
delaying programme and incurring associated
increased costs.
• Programme approach essential due to complex
• Affordability v Capability issue may still result in
programme cancellation.
• Competition in UK warship building impossible to sustain with current
naval requirement.
• Long-term partnering solution only way ahead if the Defence Industrial
Strategy for the Maritime Sector is to be sustained. Government can’t
take a hands-off approach as it tried to do in 80s and 90s
• Requires transparency and commitment on both sides.
• Value for Money obtained through partnering approach, innovation and
continuous learning/improvement.
• Political interference inevitable.
• Project and programme teams must have the necessary skills.
• Innovative procurement strategies can be successful - a one size fits all
approach is not appropriate
• Delays cost money, including additional costs of running on old
• Earlier decision-making and commitment can lead to increased
capability through affordability of greater numbers.
• Accident or Design
Leadership - Openness – Trust – Behaviours - Cultures