The most expensive aspect of any military platform is rarely the acquisition cost – it is often the ongoing support and maintenance contracts. Yet rarely is that factored into the purchasing decision.
Last December, the British government introduced the Defence Industrial Strategy, an in-depth analysis of future requirements. The document recognized that while the military is in the midst of a significant transformation of number of its platforms, those platforms will likely have long service lives requiring extensive support and upgrades. Furthermore, the DIS acknowledged that while the UK is making greater use of foreign sources of supply, the government must understand the impact on sovereignty and national security if it does not encourage British-based defence programs.
“If we do not make clear which industrial capabilities we need to have onshore, industry will make independent decisions and indigenous capability which is required to maintain our national security may disappear,” the document stated. It recognized, however, that while the optimum would be to maintain full capability in-house, no country other than US is able to maintain cradle-to-grave industry in every sector. Therefore, Britain requires a policy that identifies future requirements and ensures industry capability to meet them. While open competition might accomplish that it some instances, an open-bidding process is not necessarily the best option. “The bedrock of our procurement policy has to be long-term value for money,” the DIS stated.
“In short, we are telling industry what we think we will need, what will be strategic to the UK, where we will be spending tax payers money, and how we will engage with the market,” said Sectretary of State for Defence John Reid at the launch of the DIS.
Key to the strategy are through-life partnering agreements with industry. One with BAE Systems will see its Customer Solutions and Support (CS&S) become a long-term partner in the maintenance of several platforms, including the Tornado.
“In the past, the focus was on buying the kit and then figuring out how to keep it going,” says Mike Sweeney, BAE’s public relations manager for CS&S. “But typically, the cost of support is four or five times the cost of acquisition. In some areas, facilities management can be 200 times great. Yet all the effort is spent on purchase costs. For the first time, what you’re seeing is support driving design and build.
“Through-life is important. It’s about taking a long-term strategic view of the defence industry and the way it supports the frontline commands, which the UK had never really done before. This has been one of our moans to the government for quite a long time. These are big, complex programs. We need some foresight to plan ahead.”
The notion of a monopoly supplier has raised concerns in some corners – logistics support carries a no-fail requirement, and many remain leery of turning over such capabilities to a private contractor.
In its review of the DIS, the House of Commons Defence Committee urged the Ministry of Defence to “demonstrate its awareness of these concerns and to build into long-term contracts incentives which encourage performance improvements.” In defending the agreement, Lord Paul Drayson, the Minister of Defence, stated in his appearance before the committee that the MoD was in “a mutual dependence with BAE in some very important areas…and we need to manage that with the appropriate management tools to get value for money for the British taxpayer.” He called it a “tough partnership” and said BAE Systems would be expected to deliver improved performance.
It’s a message BAE understands, Sweeney says. “You can’t transfer risk to industry. The customer still has the operational risks, particularly in logistics. But we have to reflect back to the customer that we understand the nature of logistics risk. If you’re a bit late on a program, you can muddle through with the existing equipment. If you’re late with logistics, people can die. We have to show we understand that, and give assurance that in this defence transformation we can do what we say we’re going to do.”
Sole-source support
Sweeney says the DIS was essentially an endorsement of work BAE had performed for the DLO since 2000, and was driven in part by the ubiquitous search for cost-savings – the Defence Logistics Organization set a target of 20%. While that remains important, Sweeney notes that the Chief of Defence Logistics, Gen Sir Kevin O’Donoghue, has since set operational efficiency as a priority.
By way of demonstration, he points to the roughly 300 support contracts that currently apply to the Tornado. “We’re integrating and merging them. Ultimately, the goal is to move to two contracts: Rolls Royce for the engines and BAE for everything else.” In February, BAE submitted the ATTAC (Aircraft Transformation: Tornado Availability Contract) proposal to the DLO, under which it would provide all support, training, and some facilities management for the Tornados at RAF bases.
One of the company’s objectives with this arrangement is to help the customer arrive at the best trade-offs between largely mutually exclusive requirements – capability, availability and affordability. Traditionally, the buyer has made the trade offs between the performance capability of equipment and what was actually affordable – sometimes with some odd results, Sweeney notes.
“Customers come up with a rigid set of specifications for defence equipment, and quite often all the risk, all the expense is in achieving that last two or three percent of performance. Whereas, if you could only have a dialogue, maybe there would be another way of achieving that performance at far lower cost and far lower risk. What the UK customer is now saying to us is, we want you to work with us on making these trade offs.”
To achieve the best balance between those requirements, he points to a proposal BAE is submitting at the DLO’s request for the Tornado called the Capability Development and Sustainment Service. The deal tasks BAE with examining what technologies are available now and “may be there in the near future that could be applied to maintaining Tornado capability through to its out of service date in the 2020s. It will be a small contract, but strategically it’s important. It signifies a real change in thinking for the UK customer. This is now about the art of the possible.”
A significant component of BAE’s arrangement with the DLO is to coordinate the company’s expertise with defence personnel in a way that hasn’t been done before. This means working along side each other on MoD bases and linking certain information platforms.
“Strangely enough, that didn’t happen much before,” Sweeney admits. “If, for instance, there was an issue with a part, what would often happen is that a local RAF station would try a work-around and we would never know what that was. We would never realize there was an issue with the part, and often, because this was all paper-based information, it could take two years to update the manuals. Now we’re introducing online solutions, so if there’s an issue the customer can key in the problem, we can collect that information and then maybe redesign the part. Also, we increasingly have our people working alongside the military, so we don’t even have to use technology – they can examine the problem together.”
Local development
CS&S represents 18% of BAE’s annual revenue – an area it aims to expand. In recent years, it has sought support partnerships with Australia and Saudi Arabia to help grow domestic expertise. “Sovereignty in support matters is important,” Sweeney says. “You want to be able to control it yourself, but you need the skills, resources and capabilities on shore. Part of what we’re doing is growing those local skills.“
By way of comparison to Canada, Sweeney points to the southern hemisphere. “Australia came up with a defence industrial strategy some years ago. What they said was, ‘most of our complex equipment we buy abroad, primarily from the US. However, we want the capability locally to support that equipment.’ Our strategy is to be their capability partner in key areas such as communications, electronic warfare systems, military air support, air defence, and intelligence, surveillance and reconnaissance.”
The Australian approach may be especially pertinent to Canadian officials considering the purchase of transport aircraft. The leading contenders remain Boeing’s C-17, EADS’s A400M and Lockheed Martin’s smaller but more versatile C-130J, but a critical part of that debate is the assurance of opportunities for home grown support and maintenance contracts.
Sweeney adds, however, that any partnership between industry and government can only succeed if there is a relationship of trust, something BAE has worked hard to earn.