The question of accountability is important, and I seem to remember that my hon. Friend mentioned it in a telling intervention on the Secretary of State. The House needs assurance that we are getting the best value possible for public money. There is a risk that we will focus too much on price without thinking about value. My hon. Friend raises another important point on accountability. As I understand it—the Minister might contradict me, as he will have far more of an understanding on this than I do—GoCo contracts will be up to nine years long, subject to performance. However, there is no opportunity for contract extension. After nine years, a full review of a GoCo contract will be carried out and put back out to the market.
I have some concerns about that. First and foremost, the project lead-in time for defence projects is often decades. If a project is at least 10 years long, how can a nine-year contract provide any degree of certainty? If a project—whether the development and roll-out of a new ship or a new fighter—takes 15 years to develop and is in operation for a further 30 years, where is the inbuilt institutional memory and stability that allows for truly effective project management if the contract changes three or four times? Will that not make a project more expensive and prone to risk?
The overriding consideration of business, especially in such a vital sector, is certainty. A lack of certainty, and a correspondent increase in risk, increases costs within the main contractor and throughout the supply chain. As ADS has said:
“Industry needs both transparency of future intent and stability of intent to enable essential strategic business planning. Since SDSR there has not been the necessary clarity.”
The manner in which the GoCo might be set up makes that instability even worse.
I mentioned that a nine-year GoCo contract cannot be re-awarded. I fail to see how the re-awarding of a contract can be inherently negative. I hope the Minister can explain some of the thinking behind that. Surely the notion that a contractor is up for a contract again would at least keep them on their toes when it comes to performance.
On part 2, I share the understanding and concerns of the Chair of the Defence Committee about how the single source regulations office might put UK companies at a disadvantage. My understanding is that clause 14(7) allows the Secretary of State to waive the new regulations from any single-source contract he wishes, but that overseas suppliers will be outside the jurisdiction of the new single-source contract regulation. Does that not create an unlevel playing field, where only UK companies will be subject to the new pricing and reporting requirements? If we are to have a true industrial strategy—long-term stability, with co-operation across Government —how will this help to provide UK companies and their supply chains with a level playing field?
The UK brand is strong when it comes to defence capability: we are the envy of the world. Our defence capability is part of a strong, modern and innovative manufacturing offer. While I strongly believe that the overriding consideration has to be whether a piece of equipment is compatible with the objectives of our armed forces in theatre, we undermine our economic competitive advantage if we fail to recognise how strong that offer is in the global market. A quarter of annual revenues in the UK defence sector, some £5.4 billion, is
derived from exports. However, defence manufacturers tell me that export opportunities are being lost because some countries are saying in response to the narrow off-the-shelf approach, “If it is not good enough for the British armed forces, why should it be good enough for us?” How will the Bill deal with that, and will the GoCo system have an explicit remit to promote defence exports across the world?
Clauses 7 and 8, which are concerned with intellectual property, have been mentioned by other hon. Members. The provisions allow the contractor access to confidential and commercially sensitive information. Our intellectual property regime is one of this country’s competitive advantages, with knowledge-based firms feeling that their invention and creation will be protected in law, yet clause 7 reduces the restrictions on the disclosure to, and use by, the contractor of confidential information. A defence firm, highly protective of its technological knowledge, which might be its unique selling point and give it its advantage in the marketplace, might be happy to share IP directly with the Government, especially if it was trying to establish a long-term relationship. Indeed, I would encourage that. It would also aid the MOD by providing it with sector intelligence on the pipeline of technological innovation over the next few years, which might aid operational planning, and I know the Minister has put in place other things in that regard. However, a company might be less happy about sharing such knowledge with a competitor. A small company in the supply chain might feel particularly vulnerable to the takeover of IP by a huge contractor conglomerate, so what safeguards will the Minister put in place to ensure that suppliers’ IP is adequately protected?
I welcome the commitment on the procurement of equipment for our armed forces. Our servicemen and women fight for our country and deserve the best-possible equipment. In order to fulfil its objectives in theatre, this country deserves the highest-possible level of sophisticated, innovative military equipment. As part of that, consideration should be given to value for money for the taxpayer, but we should also be thinking about our defence industrial capability. So I finish where I began. The provisions in the Bill are fraught with risk and uncertainty and might undermine Britain’s defence industrial capability. I hope that these issues will be resolved appropriately during the Bill’s passage through the House.
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