The Way Forward in Defence Acquisition: International

Cooperation and Reform

Bernard Gray, Chief of Defence Materiel, UK
INTRODUCTION

Thank you Alex for that kind introduction.

I want to start by thanking the International Institute for Strategic Studies for arranging this important
seminar.

From my perspective, the timing could not have been better. Because how we, as defence customers and
suppliers, meet our collective responsibility to provide the means by which nations remain secure from
threats, most effectively in the future, defines my role as the Chief of Defence Materiel.

And although the principles of international defence cooperation have traditionally had national
governments as their focus, those that underpin the NATO Smart Defence principles of prioritisation,
specialisation and cooperation - being aimed at collective security through that Alliance - are in many ways
equally applicable to the challenges that the defence industry faces, and my own challenge in reforming
defence acquisition and support.

A SHARED PROBLEM – A SHARED SOLUTION

Indeed, I am struck by the common themes that underpin the problem and the solution in both the
respective spheres of Smart Defence, and its underpinning values of cooperative effort, and the Material
Strategy reform of the UK’s defence acquisition organisation.

Both have their genesis in resource constraints which, as belts have tightened, have brought to light other
underlying capability shortfalls. Both recognise that to be effective and efficient you need to eradicate waste
and duplication; stop doing those things that you’re not the best at; accept the help of others – you can’t do it
all yourself; be willing to change your approach; and to persuade others to do so too.

And we are changing our approach.

Across the MOD we are undergoing the widest and most far-reaching transformation programme that has
ever been undertaken.

We have just published a fully-funded, balanced, audited Equipment Plan which provides, for the first time,
the certainty, transparency and commitment that industry rightly requires.

And within my own area of responsibility, I too am addressing the challenge of change, encouraging just
such an involvement by the private sector to help drive improvement.

But it is not only industry that benefits from transparency and financial stability in our equipment planning.
Such a clear commitment to those capabilities that are we are funding also displays our commitment to what
NATO can expect us, in the UK, to contribute to collective security.

Indeed, The UK’s commitment to NATO is impressive.

 We are the 2nd largest contributor to NATO operations, with around 9,500 personnel
 We provide a combined civilian and military budget of over £230M

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  UK personnel fill over 900 posts in the Command & Force Structures, Agencies and Headquarters
 And we are one of only 3 Allies to meet the 2% GDP defence spending target

Yet within NATO, too many countries are struggling to meet their financial responsibilities to the alliance,
and so not managing to maintain appropriate and proportionate capabilities.

And within Europe, arguably we have over-capacity and duplication in manufacturing:

 Europe’s armed forces have at least 7 types of military helicopter and 4 types of modern main battle
tank
 There are 3 types of fighter aircraft currently in manufacturing in Europe and around 9 in service with
European nations
 There are 11 suppliers of frigates and 4 suppliers of aircraft carriers versus just 1 of each in the US
 And no fewer than 23 types of armoured vehicles will be commissioned in Europe in the next 10 years,
a situation that we have all been aware of for some time.

And yet, despite this multiplicity of suppliers, as was demonstrated during the Libyan campaign, there are
some critical capability shortfalls.

So within Nato we have experienced the symptoms, but we have also identified one possible treatment –
Smart Defence – we now need to persuade ourselves to take the medicine.

PAST LESSONS, FUTURE CHALLENGES

Our collective challenge, then, is to maximise the capability we can squeeze out of the resources we have.
This is not a new conundrum.

But it is one that has been brought into sharp relief in these times of harsh financial challenge.

And as a possible response to this challenge, the history of equipment collaboration is, of course, both long
and chequered.

There have been notable successes, if one defines success in delivering – eventually - important and versatile
capability.

Lynx, Puma, Gazelle, Jaguar, Tornado and Typhoon and, more recently, the Stormshadow missile are all examples
of success. Indeed, for Stormshadow, as I am sure many of you will know, a unique cooperative approach was
adopted where both the French and UK governments agreed a joint requirement and asked the supplier,
MBDA, to provide the solution for both nations. A collective trust, therefore, both between nations and
between customer and supplier.

And if I have one suggestion for you in your discussions during this conference, it is that you consider why
this approach has not been successfully replicated more often.

Many such collaborative programmes have been bedevilled by delay and spiralling costs and, in some cases,
complete abandonment by us, or one or more partner nations. Maybe this was the inevitable price of our
initial attempts at collaboration in the past.

But it will only have been an acceptable price if, in the paying, we have learned the lessons and have risen to
the challenges. And, now more than ever, it is a price that we can no longer afford.

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Political challenges
The political challenges to delivering Smart Defence are considerable, but they must be faced

For governments, the change in mindset required to build the specialisation pillar, in particular, is the most
difficult. Getting nations to think in a more collegiate way and to begin to adopt a more enlightened and
flexible approach to capabilities considered as sovereign is a significant step.

This is a particular challenge when we consider access to IPR across borders.

And, of course, the question of jobs, technologies, the industrial footprint and a nationalistic agenda.

And we must guard against the danger that Smart Defence is seen as the means by which nations reduce
their defence spending unduly; as I have already mentioned, fully-funded and transparent equipment plans
provide a counterweight against such a temptation.

And there are challenges, too, in ensuring that Smart Defence is tied into the NATO defence planning
process and that, as customers, nations demand common standards in defence equipments. Because the
reality is that multinational operations still suffer from poor interoperability.

We also have to be pragmatic – bilateral groupings or ‘ad hoc nodes of shared interest’ may offer the most
realistic ways forward. But even such limited collaborations are often difficult. We have, for example, very
good working relationships between the UK and France on a number of programmes and yet our collective
progress is not as swift as I am sure both our fine nations would hope. Both of us want to do better But
progress is difficult.

And we should all be better at this. Because that most basic of principles, first outlined by the political
philosopher Thomas Hobbes, of acting together in ceding a proportion of our rights to a common authority
for the collective interest and security of all, is not something that is new to us. We accept international rules
and regulations across a wide range of our everyday activities and business lives, and have helped establish
such bodies as the United Nations, NATO and the European Union.

Indeed, with globalisation, more than ever before civil society has to think and act globally too.

In Government the integrated strategies we have for key countries are a classic example of what we may call
‘smart-power’ thinking.

Within the UK, we are linking the work of the Department for International Development, the FCO, the
MOD and our intelligence and security agencies with other organs of state who deal with issues such as
energy and exports to produce a framework of mutually supporting action in each country and each region.

This is about drawing together all the instruments of national power, so that the sum of the British effort is
much bigger than its component parts.

And this is an approach, generated domestically but implemented on an international stage, which we must
use as our template for collective defence with our partner nations through our participation in our
international defence and security alliances.

And in doing so we must exhibit flexibility – another key tenet which applies equally to defence cooperation
and acquisition reform.

For recent events have taught us that, if we are to make Smart Defence a success, then making NATO more
flexible, encouraging collaboration among groups of members, including with partners outside the Alliance,
and which could have the effect of boosting the overall capability of the Alliance, is key.

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And we have already proved we can do this, collectively. One such example is the enforcement of the No Fly
Zone over Libya in 2011. Sweden, a non-NATO nation, contributed eight of its Gripen aircraft and a C-130.
This was the first time in over 60 years that this nation had conducted an out-of-area operation with an
offensive air capability. Indeed, there were times when the Swedish air force was providing something in the
region of 40 per cent of the entire coalition air picture; an extraordinary contribution.

So there are many different ways of working together and we should not be afraid to explore initiatives that
add value to the capability of the Alliance as a whole.

Challenges for industry

And, of course, there are challenges for industry too.

I have already alluded to some.

Fundamentally the question is this: does industry want to come to the table to help Governments reduce
costs by working together or, arguably, as we see now, does industry feel that its own interests are best
served by continuing to operate in various domestic markets?

We need industry to be more efficient, effective and, as with governments and alliances, more flexible.

It must look for common demand, seize opportunities to enhance its own capabilities, particularly in the
service sector, and be open to new approaches.

And we require increasing levels of innovation, both technically and in business processes, to meet threats
within budgets.

Part of this will require us and, more importantly, the larger prime contractors, to encourage an expansion of
involvement in the supply chain by small and medium sized enterprises. This is a particular challenge for us
in defence but one we must meet.

And I would also welcome – and you should not be surprised to hear this - a more demanding set of
suppliers. Industry needs to be more challenging of the customer and look to encourage joint, or even
complementary, requirements.

Future opportunities
Recent operations in Libya and Afghanistan have taught us all a lot about collaboration and the concept of
maximising each other’s strengths and capabilities.

It also reinforced those lessons we have already learned, particularly on the importance of air superiority.

And it is, indeed, in the air domain – partly in recognition of the high investment costs entailed in the
provision of air power -- that we have seen the most fruitful examples of collaboration and which may well
offer the best opportunities in the future where we can benefit from Smart Defence, particularly in the areas
of support and logistics.

Indeed, the A400M aircraft may be an example of where we might, collectively, gain efficiencies through
centralisation of facilities and developing a common support solution, although admittedly we do appear to
consistently lack the appetite to pursue such non-national solutions.

The desire to protect jobs in each country and the ease and convenience to national airforces seems too
strong. But perhaps there might be more of an opportunity to share these assets on operations.

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Indeed, post 2015 there are opportunities in the field of air-to-air refuelling where we in the UK anticipate
having spare capacity in our planned A330 fleet of Voyager aircraft. This could be made available to other
nations if contracting arrangements allow.

DEVELOPING THE BUSINESS CASE FOR INTERNATIONAL COOPERATION & REFORM

The theme of your seminar is to consider how NATO and European Union states may maintain and enhance
military capabilities during an era of defence cuts, via cooperation and reform. As such, it is an examination
of the rationale for private sector companies and governments to engage, collectively, with the Smart
Defence and Pooling and Sharing agendas.

There is a quote – attributed to either Harry Truman or Woody Allen, you can take your pick – that
‘Decisions are made by those who show up’. As a call to arms to encourage a potentially apathetic or
uninspired electorate to vote, it is a simple and effective message.

Now I am not saying that any of us are apathetic when it comes to defence acquisition and reform – quite the
opposite. But as a reminder that we must all be prepared to pitch in, collectively, and not leave the decisions
to others, it strikes an equally powerful note.

And I have already outlined to you how I see such collective engagement already as we take forward work
on reform of the UK MOD’s defence acquisition and support functions – and I will say more on this in a
moment.

Simply put, both governments and suppliers must rise to the challenge of the new defence landscape.

This will entail pursuing legitimate and transparent consultation with industry. It is essential that we
continue to share skills and experience – bringing private sector discipline and productivity to public
procurement.

In doing so, Governments will be tough, but fair, customers.

We will root out poor performance, both within our own organisation and within our suppliers.

For as the UK Secretary of State has mentioned previously, defence money is for creating defence capability,
not subsidising failure – either in the MOD or in industry

But the factor we must consider now, in creating this defence capability, is to ensure that the whole of our
collective capability is greater than the sum of parts.

Because, simply put, individual nations are finding it harder, if not impossible, to afford for themselves all of
the parts they need.

I mentioned earlier the capability shortfalls that we experienced during the Libyan campaign – and
remember that this was a relatively small campaign – under NATO definitions it didn’t even qualify as a
small joint operation.

ISTAR would seem to be an area in which, when considering modernising their own airforces, those nations
who may not desire, or cannot afford to acquire, expensive combat platforms may divert a greater
proportion of their defence budget to acquiring air ISTAR assets instead. Specialising in capability for the
generation of collective defence.

And this cooperation is indeed not limited to equipment issues only.

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It should ideally comprise all aspects that will improve our collective capabilities - - organizations,
procedures, decision-making processes, individual as well as collective professionalism, financial discipline,
education, training, exercises and logistic support.

Materiel Strategy
And reforming defence acquisition, which shares many of the facets I have just listed, is part of the solution
to the problems I have outlined here.

Put simply, we cannot continue to sustain our Armed Forces if we do not seize the opportunity to do
something radical.

The Materiel Strategy – the reform of the Defence Equipment and Support organisation within the UK MOD
- is how we see that reform shaping up; we have done the initial analysis we now need to make sure that our
proposals are the right ones.

We expect Ministers to make decisions soon on the direction we should take for assessing proposals.

For me a solution driven by the private sector is likely to deliver the most benefits - but we will test this over
the next year.

CONCLUSION

The aim of enhanced defence collaboration across alliances and within Europe, both politically and
industrially, is not new.

There have been past successes – there are aircraft and helicopters flying, engines powering naval vessels
and missiles ready for use, all the result of successful collaborative ventures.

But the need to deliver further efficiencies in defence acquisition, support and provision of capability to
those international security bodies to which we subscribe has never been so strong.

On the political side, there are many challenges to face. Nationally we must be altruistic, while
internationally, EU Pooling and Sharing and NATO Smart Defence approaches must be complementary.

And there are opportunities there for us, collectively, to grasp - particularly in the areas of equipment and
logistics support.

But we must ensure that collaboration arrangements are so structured as to provide maximum protection
from the temptation of individual national sovereignty overriding the collective, international benefit.

For industry the challenge, for once, is to keep pace with the drive for efficiency that is the current all-
consuming force in the management of defence acquisition.

And by responding positively to our demands for a defence and security industry that is capability driven,
competent, innovative and competitive.

Many of the defence and security challenges and threats we are facing now, and will do so with more
prevalence in the future, do not recognise organisational or national boundaries. They cannot be neatly
packaged. They are not easily eradicated.

They demand a sophisticated, but determined response.

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In doing so – and it is our fundamental obligation to our citizens that we get this right – we must be flexible,
financially disciplined, and ensure our collective sum is greater than our individual parts.

And to do this right, we will need a collaborative and reformist approach.

I wish you well in your discussions tomorrow – I will look forward to hearing your conclusions.