In a previous article we discussed the importance of the Fleet Solid Support (FSS) ships to the future of the RN. Here we focus more on the industrial aspects of the project and look at why building these ships in the UK is the only sensible way forward.
When the Tide class oil tankers were ordered in 2012 (a remnant of the Military Afloat Reach and Sustainability (MARS) project), no British company had bid for the construction work. There were two main reasons, most UK yards were occupied working on the QEC aircraft carriers blocks but they also knew they would not be able to compete on price with foreign state-subsidised shipyards. The controversial decision to look abroad made sense at the time, the MoD got four ships at a bargain £452M and no British shipbuilder could claim they would go under without the work. (£150M was spent in the UK with BMT who designed the ships together with A&P Falmouth who are fitting them with additional military equipment). Five years later the landscape has changed significantly. The QEC construction project is in its final phase but one of its very positive legacies has been to help stimulate a modest revival in commercial shipbuilding and there are now yards hungry for further naval work.
“We plan to procure the three Fleet Solid Support ships, announced in the Strategic Defence and Security Review 2015, through international competition” (Harriet Baldwin, Defence Procurement Minister, 5th September 2017).
The National Shipbuilding Strategy (NSS), published in 2017 stated that the contract to build the FSS ships would be subject to an international competition and this policy has been reiterated several times by Ministers in Parliament. The NSS says the reason for the open competition is to incentivise British companies to become more efficient and able to match the prices offered by overseas shipyards. This may be a worthy goal but unfortunately, the ‘open competition’ may not be as fair as it appears. Many foreign shipbuilders receive support from their government, either in the form of direct or indirect subsidies, loan guarantees or even complete bail-outs following bankruptcy. This may allow them to submit high-risk, low-price bids which a UK shareholder-owned yard cannot match. British shipyards, entirely reliant on maintaining a sustainable and profitable business, are therefore not competing on a level playing field.
“The defence industry plays an important role in the prosperity agenda of the nation.” (Phillip Dunne, Defence Procurement Minister, September 2015)
Open competition may be in line with Conservative party policy which is broadly against intervening in the free market, but it should not be against intervening in a rigged market. Many foreign governments, even within the EU, have no compunction in subsiding their shipbuilders and government should recognise this. Should UK companies lose out to an overseas yard, it would be a direct contradiction of the Conservative ‘prosperity agenda’ which has been part of their manifesto on UK business since 2010. Placing substantial shipbuilding contracts within the UK has very obvious benefits to the local economy and the wider supply chain. There NSS admits there is a need for a clearer definition of the ‘prosperity agenda’. The Type 31e is supposed to help create a framework that would allow the economic benefits of shipbuilding contracts in specific, and often deprived parts of the UK, to be quantified.
As the QEC project has already demonstrated, building in Britain would help industry invest and become more efficient so as to be able to compete for future work. When the MoD next needs to place a shipbuilding contract it would then have more choices available from a broader and healthier industrial base, offering more competition and value for money. It may also provide another stepping stone towards British yards moving back into the commercial shipbuilding market which could provide a sustainable future.
Five options for competition
There are essentially five possible options government can consider when seeking contractors to build the FSS ships.
- Hold an ‘open competition’ with no caveats or restriction and open to any British or overseas companies (assuming only non-aligned nations such as China or Russia are excluded). This appears to be the option that government is pursuing at present.
- Hold an open competition but exclude any companies that have been bailed out of bankruptcy by its government or received any form of state subsidy. This would level the playing field and exclude a very broad swathe of foreign shipyards such DSME in Korea, Naval (formerly DCNS) in France, Navantia in Spain or Fincantieri in Italy.
- Exclude all foreign companies and allow only British companies or consortiums to bid against each other.
- Ask British companies to form a single consortium to share the work.
- Form a single consortium of British companies of which the MoD owns a percentage (using a similar model to the Aircraft Carrier Alliance)
EU rules no longer apply?
For security reasons, warship construction is allowed under EU rules to be restricted to sovereign nations. Under existing EU regulations, the construction of support vessels must be open to international competition and government is using this as one of its justifications for not restricting bids to domestic companies. Britain will leave the EU in March 2019, so by the time the FSS construction contact is placed, it is likely we will no longer be bound by such rules and could quite reasonably ignore them for the competition phase. For better or worse, Brexit can be seen as a signal that the public wish government to pursue an industrial policy in British interests and exists as a clear mandate to place the FSS contract in the UK.
They may not be warships but the FSS vessels could be more accurately described as “complex naval support ships”. The project to build the three 35,000 tonne ships is expected to cost at least £1Bn, a clue that these are no ordinary vessels. The need to safely embark, store and transfer explosives adds complexity to the design beyond simple merchant vessels or even the Tide class tankers. Ammunition and explosives require careful handling and storage so the ship must be equipped with measures to mitigate the effects of blast and additional fire protection far beyond what is found on a standard merchant vessel. Otherwise the design is intended to follow merchant ship practices where possible and the NSS states that there will be “a focus on ensuring that the military features and standards that deviate from the commercial norms are minimised”.
Within Navy Command, Brigadier Jim Morris RM, Assistant Chief of Staff (Maritime Capability), was appointed Senior Responsible Owner (SRO) of the FSS project in September 2017 and is expected to have this role until at least December 2019. QinetiQ beat off competition from BMT and Frazer-Nash to secure a 4-year, £10M contract with the MoD to provide analysis and consultancy services for the assessment phase of FSS. The project began its initial assessment phase in back April 2016 and a pre-qualifying questionnaire will be issued to potential bidders in the next few weeks. The competition phase will begin officially on 30th April 2018 so there is only a short window of opportunity for Government to decide to revise the terms.
The timing of the FSS and the Type 31e projects presents an interesting conundrum for the Navy. If we assume the Type 31e is not intended as a carrier escort and if carrier strike is the RN’s stated priority, then why is FSS scheduled to pass main gate approval in December 2019, a full year after the Type 31e? The geometry and design arrangements of the RAS rigs on the three current Fort class ships do not permit them to resupply the aircraft carrier’s full range of needs. They do not have heavy RAS rigs compatible with the carrier (capable of supplying big items such as F-35 engines). The only alternative would be vertical replenishment (VERTREP) using helicopters to transfer loads which is a slow process and fatigues the airframes. Effectively a key component that enables the carriers to deploy globally will be missing until the first FSS ship is delivered sometime around 2025. Should the FSS not then be taking precedence over T31e as the more urgent requirement? (Type 26 deliveries can replace the initial Type 23 frigates being disposed of).
The Pound has been devalued by at least 20% since 2012 so any foreign bid for FSS, while still potentially lower than UK yards, is unlikely to be able to match the bargain we got with the Tide class tankers. The only possible benefit from allowing the FSS ships to be constructed overseas might be a lower price which benefits the MoD’s cash flow in the short-term. The Treasury should take the longer-term view that a very substantial part of any money spent in the UK is returned to the Exchequer through VAT, corporate taxes, income taxes and healthier local economies and may outweigh any savings made by foreign construction.
As a matter of urgency, we call on government amend its policy and restrict the FSS project to a domestic competition only, to the long-term benefit of British shipbuilding and the naval service as a whole.
- Fleet solid support ships – an important part of the naval logistic chain (Save the Royal Navy)
- Fears new ships to back up Royal Navy will be built overseas (Daily Telegraph)
- QinetiQ wins ‘customer friend’ role for UK Fleet Solid Support project (IHS Janes)