The Murky World of Defence Procurement


Jim Murphy
Image by Scottish Labour via Flickr

Jim Murphy – Cheap Shot

The media are reporting today that South Korean firm Daewoo Shipbuilding has been awarded the contract to build new fuel tanker ships (“MARS”) for the Royal Navy.

The unions and Labour are outraged that the ships are not to be built in Britain (although some additional work on the contract will take place here).

Jim Murphy, Labour’s Shadow Defence Secretary, said:

This is more bad news for British industry. First we lose out to France over fast jets and now we lose out to South Korea over Royal Navy tankers. The government do not have an active defence industrial strategy.

Let’s have a look at the history of this project then, shall we, under the previous Labour government? Here it is, courtesy of a parliamentary defence committee report in 2010:

Key Events/Decisions since Initial Gate approval (July 2005)

  • July 2005—Entry into Assessment Phase announced via Written Ministerial Statement. The Procurement Strategy at the time was the formation of an Alliance, comprising the MoD, an Integrator, a Design, Outfit and Build Alliance Partner and a Through Life Support Partner.
  • May 2007—The Minister for Defence Equipment and Support (DE&S) approved a decision to review the Procurement Strategy to take account of changing market conditions and the opportunities generated by the delivery of the Defence Industrial Strategy (DIS).
  • December 2007—Following approval of open competition by the Minister (DES), advertisement placed in the Official Journal of the European Union (OJEU) seeking expressions of interest from companies who wish to compete for the design and build elements of the MARS Fleet Tanker (FT) programme.
  • May 2008—The Minister (DE&S) approval to down select to four bidders (Fincantieri, Navantia, Hyundai and a consortium of BVT/BMT/DSME) to enter into Competitive Dialogue over the MARS FT programme.
  • December 2008—Equipment Examination announcement concluded that there was scope for considering alternative approaches to the procurement of elements of the MARS Programme. The Fleet Tanker competition was `paused’.
  • March 2009—The Minister (DE&S) decided that the Fleet Tanker competition should be cancelled. A review of the procurement strategy and requirement continued.
  • October 2009—The Minister (DE&S) approved revised Procurement Strategy to consider a range of possible solutions which takes account of market conditions and is more likely to secure best value for money.
  • October 2009—Advertisement placed in the OJEU and the Defence Contracts Bulletin seeking expressions of interest from companies who wish to compete to deliver solutions for the MARS Tanker programme. Interested companies will be asked to submit a Pre-Qualification Questionnaire (PQQ).

Key Events / Decisions expected in the next six months

  • 2010—Following evaluation of PQQ responses, approval for a short list of companies will be sought in early 2010.

Note that decision in 2008, under Labour, to “down select” to those four bidders. None of those bidders was planning to build the ships in Britain.

But then the government changed its mind, presumably for financial reasons, in 2009, stopped the process, and then restarted it in 2009.

What happened then, in 2010? Six bidders were selected after that “PQQ” process.

An MoD major projects report reveals that the six shortlisted bidders were:

A&P Group Ltd (UK), Daewoo Shipbuilding and Marine Engineering (Republic of Korea), Fincantieri (Italy), Flensburger Schiffbau-Gesellschaft (Germany), Hyundai Heavy Industries (Republic of Korea) and Knutsen OAS (UK) Ltd.

At least one UK bidder then – A&P Group. Indeed, in August 2010 A&P were celebrating being shortlisted:

The proposal is at an early stage of development however A&P Group are leading a group of UK based suppliers to offer an almost wholly UK based, low cost solution, to provide up to six new Tankers for the RFA to replace the aging RFA tanker assets.

But now it seems the Koreans have won the deal.

Says the BBC:

UK firms took part in the tender, but the Ministry of Defence (MoD) said none made a final bid to take part.

Now clearly I am not in a position to say whether that is the right decision or not. Perhaps A&P were not able to match the price the Koreans could offer. Or perhaps they withdrew for their own commercial reasons, or were unable to meet MoD requirements.

One thing is very clear, however. The whole procurement process has been a shambles. Eight years to go from start to choosing a contractor, for what is a relatively simple requirement! Most of that time was under the last government, so Jim Murphy ought really to crawl away in shame and stay quiet.

And another thing that is clear is that this is all very murky. What happened to A&P between August 2010, when they were gung ho about competing for the contract and now, just 18 months later, when they have apparently disappeared without trace and not even submitted a final bid? Were they excluded from the competition by the government? Or did they pull out themselves, and if so, why?

As ever with defence procurement, we are not being told the truth about what has happened. Cheap shots like Jim Murphy’s are out of order. But the government has questions to answer as well.