Defence Equipment (Industrial Report) - UK - December 2014
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- December 2014
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“The Strategic Defence and Security Review in 2010 has heavily influenced what the sector has been able to achieve over the last four years. With the spending cuts lasting for at least another year, strategies and defence equipment procurement will continue to be chosen with efficiency and ‘best value’ as the main two priorities.”
– Lewis Cone, Research Analyst
This report will explore the following key issues regarding the defence equipment industry in the UK:
For the purposes of this report, UK public expenditure on defence falls under the heading Total Managed Expenditure (TME). This is segmented into Departmental Expenditure Limits (DEL) and Annually Managed Expenditure (AME).
DEL is further broken down between resource and capital budgets, with the resource budget formerly known as current budget, while AME is largely made up by Main Departmental Programmes and locally financed expenditure.
All of the values quoted in this report are at current prices unless otherwise specified. The term billion denoted one thousand million.
Public Private Partnerships (PPP) covers a variety of procurement initiatives, such as Private Finance Initiative (PFI), Partnering Arrangements, Outsourcing, the Wider Markets Initiative and the Defence Estates Prime Contract Programme.
PFI remains the cornerstone of the PPP programme. Through PFI, the government is committed to seeking value for money by using private sector management expertise, innovation and capital investment. This involves the private sector in creating or buying a new asset and then selling a range of services based on those assets to the MoD.
A Partnering Arrangement describes a long-term contract based on the partnering ethos until the end of the project. In a Partnering Arrangement there is not necessarily a clear direction but rather this is developed during the life-time of the contract.
Outsourcing, or contracting out, remains a key method of achieving targets set under the Public Service Agreement, with requirements often being bundled together under a Multi Activity Contract. Outsourcing contracts are often five to seven years in length. Other forms of PPP are more appropriate when large capital investment is required or if a long-term contract is envisaged.
Prime Contracting is a different approach to the procurement system. A contract is awarded for the delivery of property management services with payment linked to performance and innovation. The Prime Contractor will co-ordinate and actively manage sub-contractors and ensure that lower-tier sub-contractors are working to the same objectives of meeting standardised targets and improving efficiency. This may be compared with the traditional method of estate maintenance procurement, which involves many contracts and many contractors and is expensive to operate and difficult to manage.
Wider Markets refers to exploiting spare capacity in assets on a commercial basis to make the best use of equipment, land, skills etc.
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