Refreshing Defence Industrial Policy

As part of the Strategic Defence and Security Review 2015 (SDSR) , the Government committed to develop a refreshed defence industrial policy. Given the political developments that have taken place in the months since the SDSR was published, industry believes that risks posed by Brexit, coupled with the new Prime Minister’s focus on national industrial strategy, serves to justify the Government taking a more fundamental review of the UK’s defence industrial policy. Industry recognises that it has a significant role to play in the new industrial strategy – not least through the sector’s contribution to skills, employment and SME business.

To be delivered within the framework of the National Security Through Technology White Paper (2012) and closely aligned with the work being undertaken by the Department for Business, Energy and Industrial Strategy, it is anticipated that the refreshed defence industrial policy will make clear that competition remains the Government’s preferred approach, delivering value for money and incentivising an innovative and productive industrial base. It will also outline the further action the Government will take to help the UK’s defence and security industries, in particular SMEs, to grow and compete successfully.

The Ministry of Defence (MOD) launched its online six-week consultation on the refresh in late November 2016. ADS, in consultation with members, responded to the consultation, making a number of key recommendations:

  • The MOD should adopt a wider definition of value for money when making procurement decisions. The MOD should consider longer-term export, socio-economic and industrial impacts in making all procurement decisions, setting out clearly and consistently the factors that will be assessed, the weightings applied to each and how relevant data will be sourced and verified. The Department should also ensure greater dialogue with the defence industry to define what strategic capabilities the UK requires in the future and how this should be incorporated into the Department’s value for money evaluation.
  • The Department should adopt a systematic approach to pre-competitive engagement with industry, with this engagement occurring earlier and lasting longer in the procurement cycle. A systematic approach to pre-competitive market engagement will ensure the customer can access the latest technology and innovation, as well as an understanding of how solutions can be delivered in a cost-effective manner. Pre-competitive engagement should occur early in the procurement cycle and should last for a longer period of time, while the competitive phase should be relatively shorter, without unanticipated and undue dwell times. In adopting this approach, the Government will not have to spend more but will be able to spend in a smarter way. This approach is considered key to fostering innovation, engaging SMEs and better requirement setting.
  • The MOD should avoid being overly prescriptive in its requirement setting in order to foster greater innovation, adopting an outcome-based rather than a specification-based approach to innovation. In order to foster more innovative equipment and support solutions, the MOD should strive to share information about the national security challenges the UK faces or the problem it is trying to tackle with industry, rather than being overly proscriptive in its requirement setting. This will allow companies to engage early in the procurement process and to better demonstrate ‘the art of the possible’. Such an open architecture view of design and procurement can also serve as a means of ensuring exportability is considered earlier in the acquisition cycle.
  • The Government’s new industrial strategy and refreshed defence industrial policy should seek to build upon the successes of the Defence Growth Partnership (DGP). Established in 2013, the DGP is a true collaboration between Government and industry which aims to find new means of delivering innovative products and services that will meet customers’ needs and enhance the chances of success in increasingly competitive global markets. The DGP, through initiatives such as the UK Defence Solutions Centre, aims to strengthen the whole of the UK defence sector, maintain the UK’s leading edge capability and position the UK as the preferential partner for international defence collaboration by growing the UK’s global market share through increased exports, fostering greater collaboration and innovation across the sector; and improving competiveness through the whole value chain.
  • The Government must seek to ensure that the policies relating to the wider business environment create market conditions that give managers, shareholders and investors in domestic and international defence companies’ confidence in the value of the UK defence market. Areas such as education and skills policy, changes to immigration and movement of labour, as well the taxation environment should reflect both the challenges and opportunities faced by UK businesses. It is also important that broader commercial terms and conditions, and approaches to intellectual property rights do not inadvertently discourage companies from doing business with the MOD. Similarly, in the area of single source procurement it is imperative that the Single Source Regulations Office fulfils its obligation to deliver value for money for the UK taxpayer and a fair and reasonable return for industry.