In a surprise move, the MoD confirmed yesterday that it has suspended the international tender process for up to 3 Fleet Solid Support (FSS) ships to be built for the Royal Fleet Auxiliary. Here we consider the context and possible reasons for this decision.
Hardly noticed as Parliament went into recess ahead of the general election, on 4th November the Defence Secretary announced the publication of Sir John Parker’s review of the implementation of the National Shipbuilding Strategy (NSbS). Sir John makes a broadly positive assessment on progress since his NSbS was adopted as government policy in 2017 but was far from content that all his recommendations have been acted on. (Full report available here)
Most controversially, Parker criticised the policy of only designating frigates, destroyers and aircraft carriers as “warships” that must be built in the UK and allowing other vessel types to be open to foreign bids. He says the decision to make the Fleet Solid Support (FSS) ship an international competition is not the right strategic approach. If shipbuilding is to thrive it is important there is sufficient volume of work avoid peaks and troughs in workload. Volume is an important efficiency driver, argues Parker. Despite the ongoing Type 31 and Type 26 frigate construction projects there is still spare capacity across UK industry after the completion of the aircraft carriers and work on large vessels will maintain continuity of work and skills. “While I do not wish to delay or damage the procurement of the Fleet Solid Support ships, I recommend that UK-only competition should be considered for future defence-funded vessels including amphibious vessels and mine countermeasure vessels” Sir John concluded.
Just one day after Parker’s views were made public the MoD has suspended the FSS procurement process. While not providing much detail, the official statement says the bids were not compliant with commercial terms and not delivering on value for money expectations. Many will see this as a victory by those who have argued that the FSS should be built in British yards. It has been quite clear from Ministerial statements by Penny Mordaunt, Ben Wallace and Anne Marie Trevelyan that they were opposed to considering foreign bids. The Parker review may have been the final straw. Ahead of a general election, it may also be politically sensible to reduce the chances of a major shipbuilding contract going abroad. Announcing that the FSS will be built in Britain would be welcomed on all political sides and has wide popular support.
There were originally 5 consortia bidding for the FSS project and there is some doubt if the Japanese (MUC), South Korean (DSME) and Italian (Fincantieri) companies remained in the competition. Navantia/BMT were the only competitor to reveal any details about their design. The British consortium (Babcock, BAE Systems, Cammell Laird & Rolls-Royce) has remained quiet about their proposal. FSS concept designs were delivered to the MoD in July 2018 and final designs submitted in early September. The bidders were competing at their own risk and will not be compensated for expenditure on their submissions.
From the Navy’s perspective, the concern will be that UK construction may be more expensive and see the project reduced from 3 to 2 ships. The MoD statement that the bids were not delivering value for money can be interpreted in several ways. The VfM benefits to the country in terms of industrial continuity, the skills base, employment, economic impact and money returned to Treasury is perhaps now sensibly being considered in the bid process. Alternatively, the MoD may be unsure that the designs presented have been thoroughly costed and can be built within the designated budget. There is some speculation that requirement for the 6-tonne Heavy RAS rigs could be deleted as the need to transfer Storm Shadow missiles has been removed and spare F-35 engines could be held onboard the carrier. HRAS is a big-cost driver in the project, requiring greater electrical power supplies, more complex internal arrangements for the movement of heavy stores and a larger ship.
A key recommendation of the NSbS is that there is competition in shipbuilding procurement. This raises an important question about whether the FSS can simply be awarded to the existing British consortium or if there must now be a domestic competition involving new designs and construction proposals, eg. Babcock/Rolls Royce V Cammell Laird/BAES. Utilising the existing British consortium would clearly be faster than having to begin a new competitive process.
The clock is ticking on the FSS project as the new ships are needed to replace 3 vessels, two of which are Falklands veterans built in the 1970s. As we have highlighted before, they are an important part of the Carrier Enabled Power Projection (CEPP) needed to resupply the aircraft carriers and their support vessels at sea with food, stores and ammunition. The MoD cannot say when it will restart the process but with a general election in December, is likely to be early in 2020 before progress is made. This hiatus has echoes of the Type 31 competition which was suddenly suspended in July 2018 (although was subsequently restarted within a few weeks). Making rapid progress towards starting construction of the FSS must be a naval priority after the election.
Other take-aways from the NSbS review
The Type 31 frigate is central to the NSbS and Parker can take some satisfaction from the bidding process and award of the contract which he describes as evidence the “grip on content, specification, design, and pace of timescale in contracting has been established”. Of course the much more demanding part of the project, actually building and delivering the ships to a very tight timetable and budget, has yet to begin. He notes that the original Type 31 timeline has slipped since the initial announcement (now first ship ‘in the water’ by 2023′ instead of ‘delivered by 2023’) and there must not be unrealistic timescales for delivery being pushed onto Babcock. There should also be equally shared cost risk between the MoD and the contractor.
The export success of the Type 26 frigate design was not really anticipated when the NSbS was drafted. This will not directly benefit domestic shipbuilding but does prove the UK can deliver export-winning designs, will have great value for the UK supply chain and reduce costs for all customers. There is a noticeable omission in the review about the closure of Appledore shipyard together with the struggles of Harland & Wolff and Ferguson Marine, all of which featured as potential NSbS beneficiaries in the 2017 document.
Parker notes in his review that the financing of shipbuilding is still not on a sound footing. He argues that each project should have an assured and ring-fenced budget once approved and not be subject to annularity – the yearly fluctuations in the MoD budget. This would be sensible and ideally applied to all major defence procurement (as it has been for the Dreadnought programme) but would require a major shift in Treasury thinking. Parker is also hoping there will be long-term funding to underpin a 30-year ‘shipbuilding master plan’ which would give industry much greater certainty and ultimately reduce costs and improve efficiency.
Defence Minister, Ben Wallace has been appointed as ‘Shipbuilding Tsar’ and says government is committed to reinvigorating British shipbuilding industry for both the civil and military sectors. A governmental ‘Tsar’ is usually understood to mean someone responsible for co-ordinating cross-departmental co-operation to ensure success and apparently there is a great deal of work underway to “review the pace and nature of the forward warship programme”. Few people are willing to predict the outcome of a volatile general election, whether Mr Wallace will manage to extend his tenure in office and as Shipbuilding Tsar beyond 4 months is hard to say. For example, in the event of a Corbyn government, possibly propped up by the SNP, many of the fundamental assumptions of current shipbuilding policy, and defence planning in general, could be ripped up and all bets would be off.