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LONDON (Reuters): To get the best deals out of BAE Systems and other top arms makers, Britain's Ministry of Defence (MoD) needs to brush up its negotiating skills, a House of Commons committee report said on Thursday.
Britain's military needs new helicopters, ships and planes, but operations in Afghanistan and Iraq are squeezing the budget, forcing the MoD to look at new approaches to procuring arms involving more private sector management and innovative funding structures.
The House of Commons Defence Committee said in its report that the ministry needed to make sure it had the skills to negotiate such deals.
“Improving the skills of MoD staff, particularly commercial and technical skills, will be crucial,” it said.
The ministry appointed its first commercial director last year, Amyas Morse, but the report said he needed to be given the resources required.
One area for improvement involves the MoD's plans to appoint key manufacturers as “partners”, it said.
“Long-term partnering arrangements are a new approach for the MoD and require specialist skills in negotiating,” it said.
“We look to the MoD to ensure that its staff … have sufficient training in such arrangements, or recruit staff with the experience required.”
When British firm GKN Plc sold its half of helicopter maker AgustaWestland to Italian partner Finmeccanica in 2005, the MoD tapped AgustaWestland as a “special partner” in helicopters.
Analysts say that two years on the nature of such deals — BAE has signed a similar one for armoured fighting vehicles — remains vague. The risk is that the deals, if not properly worded, could hinder Britain's efforts to keep its defence procurement process cost effective and open to fair competition.
CONSOLIDATION NEEDED
The defence ministry said in a white paper published in late 2005 that it wanted British defence companies to focus on certain technologies and consolidate manufacturing in some sectors.
Thursday's progress report on that white paper said the MoD had made “good progress” in achieving several of the aims it set out, including a provisional deal to allow Britain access to coveted technology from the U.S.-led Joint Strike Fighter combat jet programme.
But it noted British companies had not consolidated in the ship or submarine sector as the MoD had hoped.
Minister for Defence Procurement Paul Drayson has made sector consolidation a prerequisite for proceeding with plans for two new Royal Navy aircraft carriers.
“It is possible, though not inevitable, that this may result in later delivery of the carriers,” the report said.
The ministry's call for consolidation in submarines also comes ahead of a key decision expected regarding the sector.
“If the government's proposal for a new generation of nuclear missile submarines is accepted, it will be essential to have an efficient submarine industry focused on through-life costs,” the report said.
