14.  The current state of retention and recruitment for pilots.

Retention

  14.1  Pilot retention remains a matter of prime concern, particularly in respect of fast jet junior officer pilots in the RN and RAF. An indicator of the extent of the current problem in the RAF is that 62 per cent (38) of all the pilots approaching their 38/16 point during 1998-99 elected to leave. This continues an upward trend since 1993-94 and was around twice the rate of the mid-1990s.

  14.2  The percentage of RAF pilots serving on permanent commissions who, in 1998-99, elected to leave at their 12 year optional exit point rose slightly to 25 per cent (19) whilst the number serving on short service commissions electing to leave at the eight year point decreased sharply to 15 per cent (6).

  14.3  With limited training facilities and high training costs, it is as important as ever not only to retain pilots through to their normal break points but to provide an environment which encourages them to extend their service.

  14.4  Civil airline recruiting continues to be a significant factor affecting pilot retention. The MoD is alive to this and introduced a tri-Service scheme called "LINKUP" earlier this year. LINKUP is aimed at encouraging greater numbers of junior office pilots to serve longer; in the RAF this means at least until their 38/16 Initial Retirement Date (ie the point at which they reach age 38 or complete 16 years service). In return for this commitment, they receive financial assistance towards the cost of obtaining their civilian air transport pilots licence and are registered under the RAF/Civil Airlines Recruitment Scheme, which assists their transition to a second career in civil aviation. In both the RAF and the RN the initial take up rate has been better than expected. In the RN one PVR has been rescinded and a further two serious contenders for PVR decided to remain in the Service. Preliminary modelling of the effect of LINKUP (which will need to be refined) suggests that by 02/03 the RAF will have as many as 25 extra pilots available as a result of LINKUP.

  14.5  Wider RAF Retention strategies are incorporated in a General Duties Branch Action Plan, the main features of which are: a reduction in the number of ground appointments to be filled by pilots; allowing pilots to spend more time in flying and flying-related appointments; removal of the eight year optional exit point for new entrants; a restructuring of flying pay to better reward longer service; and the LINKUP scheme. The target for the number of fast jet pilots entering productive service each year has been increased to 60. The RAF expects to reach this target in 2002.

Recruiting

  14.6  Pilot recruiting remains buoyant. The Into Training Target for 1999/2000 is 187. As at 30 November 1999 the RAF had recruited 205 (111 per cent) of which 167 require initial officer training prior to undertaking flying training. The other 38 are re-selections or transfers from other branches within the Service.

ON EQUIPMENT

  15.  Details of major equipment deliveries to the MoD during 1998-99, deliveries expected in 1999-2000 and orders for equipment outstanding.

  15.1  This information is provided in the Procurement and Logistics chapter of the Departmental Performance Report.

  16.  For the equipment covered by the Major Projects Report, changes to planned/actual in-service dates since MPR 1998. Also changes to ISDs since April 1998 for other significant equipment.

  Changes to planned and actual in service dates of equipment covered by the Major Projects Report

Notes:

  Com = Commercial in confidence.

  [1] Definition of ISD has been revised to Operational Availability Date.

  Changes to in service dates of other major projects

Notes:

  [1]  No month stated in the approval.
  [2]  ISD classified.
  17.  Details of any further developments concerning the equipment projects covered in the MoD's memorandum to the Committee dated 10 May 1999. [ref D/Parliamentary/20/11].

Future Carriers—CVF

  17.1  Responses to the invitation to tender for the assessment phase (issued in January 1999) were received from two industry groups in May. One was led by BAe teamed with Marconi, the other by Thomson CSF teamed with BMT Defence Services Ltd (a UK design company) and Raytheon. Competitive contracts for the assessment phase were awarded to the two teams (the first is now BAE Systems following the merger of BAe and Marconi Electronics Systems) on 23 November 1999.

  17.2  Following an open competition, Mr Ali Baghaei, formerly the Production Director at the Kvaerner Govan shipyard in Glasgow, was appointed to lead the Integrated Project Team in August.

Future Carrier Borne Aircraft (FCBA)

  17.3  Joint Strike Fighter (JSF) remains a strong contender to meet the UK FCBA requirement. Formal negotiations with the US on a without commitment basis have begun. These negotiations are discussing terms and conditions, if the JSF is chosen, of a Memorandum of Understanding for possible UK involvement in the JSF Engineering and Manufacturing (E&MD) phase which is planned to commence in 2001.

Type 45 Destroyer and the Principal Anti Air Missile System (PAAMS)

  17.4  The Committee will recall that MoD gave oral evidence on this subject to the Committee on 16 June and subsequently submitted further written evidence on Type 45, and its predecessor programme, the Common New Generation Frigate, on 15 July.

  17.5  The French Defence Contracting Agency placed the PAAMS full development and initial production contract with EUROPAAMS SAS on 11 August on behalf of the three nations involved.

  17.6  Following the decision to pursue a national prime contract for the replacement for the Type 42 destroyers, Ministers decided in May that the new warship should be known as the Type 45 Destroyer. Preliminary work on the warship programme is underway with industry. A contract was placed with GEC partnered with BAe in May which has confirmed the credibility of cost and time assumptions. A further contract was placed with GEC in July to cover initial preparation for demonstration activities. On 23 November 1999, Marconi Electronic Systems (MES) was appointed as the Prime Contractor for the Type 45 programme and contracted to complete the Preparation for Demonstration phase of the programme. These responsibilities have now passed to BAE Systems following the merger of MES and BAe. Subject to satisfactory progress, we would then aim to place a contract for the demonstration and manufacture of a First of Class ship by the end of 2000.

HORIZON

  17.7  Contracted Project Development work for HORIZON has now been completed and the results will be used to inform the Type 45 programme.

Sea Lift Assets, Roll-On Roll-Off Vessels

  17.8  The four companies which received the invitation to negotiate about a Public Private Partnership arrangement (Andrew Weir Shipping, the Maersk Group, Novomar SA and Sealion) submitted their bids on 28 July. Following detailed negotiations, optimised bids are currently being evaluated with a view to selecting a preferred bidder.

BOWMAN

  17.9  It had been planned to award the first of the production contracts, Package 1, in late 1999. However, work undertaken (following a submission from industry in March) made it clear that this would not be achievable. Further work is now underway with the aim of awarding the Package 1 contract around the end of 2000. The ARCHER consortium revised their Joint Venture agreement earlier this year, with BAe taking over the management role, through their subsidiary, BAE Systems—one of the ACSL shareholder companies. Shareholdings were not exchanged.

Tactical Reconnaissance Armoured Combat Equipment Requirement (TRACER)

  17.10  There are no significant developments since 10 May to report.

Eurofighter

  17.11  Norway has shortlisted Eurofighter and F16 to replace her existing F5 aircraft. Eurofighter's proposal was presented to Norway on 1 June. The proposal is currently being considered by Norway and a decision is expected next year. Should Norway decide to procure Eurofighter, they will be invited to become a member of NETMA, the NATO agency managing procurement on behalf of member nations. Greece has declared its intention to procure up to 90 aircraft. We have agreed arrangements to safeguard the information which will be released to Greece in support of their evaluation. We understand that Greece aims to have a contract in place before spring 2000.

Beyond Visual Range Air-To-Air Missile (BVRAAM)

  17.12  The UK is currently evaluating the Best and Final Offers we have received. The evaluation will take into account a wide range of issues including missile performance, cost, industrial impact, overall value for money and the implications for potential sales of Eurofighter. We hope to announce a decision in the early part of next year. A contract for full development and production of the system is unlikely to be signed before mid-2000. France joined the collaborative programme in July. Sweden's participation is subject to the outcome of their defence review to be concluded early next year.

Advanced Short Range Air-To-Air Missile (ASRAAM)

  17.13  A Smart Procurement proposal was agreed with Matra BAe Dynamics Ltd in early September 1999 which introduced a more powerful processor and better alignment of missile deliveries with candidate aircraft platforms. The decision to alter the delivery programme to align with the candidate aircraft has led to a slippage of six months. In addition, technical problems with the missile hardware and software, which need to be resolved to achieve the required specification, have led to a further 21 months slippage. The revised ISD is April 2001.

Hercules Rolling Replacement Tranche 2 (HRR2)

  17.14  There are no significant developments since 10 May to report. We hope to announce a decision in the early part of next year.

Short Term Strategic Airlift (STSA)

  17.15  None of the bids received in response to our Invitations to Tender for the Short Term Strategic Airlift requirement offered an acceptable combination of capability and cost. We therefore concluded that it would be unfair to invite the companies to expend further effort on the competition, and it was terminated in August. The urgent need for outsize airlift remains, and we are seeking ideas from a range of companies on alternative approaches to improving our airlift capability in the short-term. The aim remains to announce a decision on the way ahead for STSA in the early part of next year, at the same time as the decision on the longer term requirement to replace the balance of the RAF Hercules fleet.

  18.  The Committee would welcome a progress report on the establishment of the Defence Procurement Agency and the Defence Logistics Organisations. This should cover achievements, financial savings and changes in staff numbers: secured since the establishment of these organisations earlier this year, anticipated at the end of 1999-2000, and planned for the longer term.

The Defence Procurement Agency

  18.1  The Key Targets for the DPA for 1999-2000 are as follows:

Key Targets for 1999-2000
Key Targets 1, 2 and 3 apply to the Major Projects Report project population and cover projects which have passed the Main Gate approval stage. They represent some 60 per cent of relevant procurement expenditure.
Progressively more demanding targets will be set for ensuing years.
1.  Predicted achievement of projects' core requirements	85 per cent
2.  Average cumulative slippage of in service dates at 31 March 2000 not to exceed	26 months
3.  Average cumulative cost variation at 31 March 2000 not to exceed	4 per cent
4.  Obtain customers' assessments of standards of DPA performance, to set a baseline for targets in subsequent years	March 2000
5.  Whilst continuing to meet the demands of the procurement programme, reduce the operating costs of the DPA in relation to the 1997-98 costs of the Procurement Executive by	10 per cent

  18.2  Key Targets 1, 2 and 3—The DPA is on track to achieve Key Targets 1, 2 and 3. Further detail on the equipment programme is provided in the response to questions 15 to 17.

  18.3  Key Target 4—A Customer Satisfaction Survey is being conducted to establish a baseline for targets in subsequent years as required by Key Target 4. Results will be available by the end of January 2000.

  18.4  Key Target 5—This derives from the target set in the Public Service Agreement following the Strategic Defence Review, to reduce DPA running costs by 20 per cent by 2001-02. The DPA is on track to achieve this year's target, and may achieve the 20 per cent target a year early , in 2000-01. The target is expressed in financial terms, and is measured by comparing costs with those in 1997-98. The relevant costs[1] were £246 million in 1997-98. The comparable expenditure is expected to be £219 million in 1999-2000 (a saving of 11 per cent); and £196 million in 2000-01 (a saving of 20 per cent). Information and plans on staff numbers are complicated by the re-organisation of the Agency currently in progress; the progressive transfer of certain project teams to the Defence Logistics Organisation; and the likelihood that additional logistics and operational requirements staff may transfer into the DPA. Nor are specific manpower targets set, since budget holders have flexibility to adjust grades, numbers and other expenditure within their operating costs allocations. However, actual staff numbers in 1997-98 (on a comparable basis) were some 5,800; there are currently some 5,000 (including for the sake of comparison those that have transferred out); and we are on track to reduce to some 4,600 in 2000-01, in line with the financial savings.

  18.5  On 1 September the DPA was restructured to provide an environment appropriate for the support of the IPTs. An outline structure is shown below. CDP is now supported by an Executive Board (a Deputy Chief Executive and six Executive Directors) which is collectively accountable for the strategic management of the DPA. The IPTs are being loosely formed into Peer Groups on the basis of shared interest. The expectation is that such groups will provide valuable fora for support and advice between IPTs and the development of innovative ideas. The six Executive Directors will also conduct quarterly reviews of the projects in particular Peer Groups. While they will be available to provide help and guidance to IPTs they will not be involved in the day to day management of these projects. This is a major transformation and like the other new formations within the DPA, the members of the Executive Board will undergo training to help them focus on the way ahead.

  The Defence Logistics Organisation

  18.6  The SDR emphasised the increasing need for joint operations in the modern world. This shift in emphasis means that Defence logistics must be organised to provide increasingly unified support as front line maritime, ground and air forces work increasingly together. Much has been done in recent years to rationalise single service logistics areas and to increase co-operation between the Services. However, scope exists to improve the delivery of logistic support through more unified arrangements.

  18.7  A Chief of Defence Logistics (CDL) was created to bring together the logistic support areas of all three services to deliver joint support to combat forces. CDL's tasks are:

—  to develop a unified Defence Logistics Organisation (DLO);

—  to harmonise logistics systems and spread best practice;

—  to develop a common approach to supporting front line forces without diluting the diversity necessary to support operations at sea, on land and in the air;

—  to deliver the benefits of the Smart Procurement Initiative within the logistics area;

—  to ensure closer co-operation with industry.

  Major achievements secured and anticipated are:

A.  Convergent Work on Logistic Information Systems

  18.8  CDL has decided that there should be a unified organisation to deliver Communications Information Systems (CIS) for the DLO within a coherent strategic framework. (One of the keys to the development of a single logistics business is to use common computer systems and applications. Staff across the DLO then have access to the same information.)

  The targets are:

—  to create a unified CIS organisation by 1 April 2000;

—  to ensure that both the corporate and local CIS services required throughout the DLO are complementary;

—  to separate business systems software from hardware acquisition and support by 1 April 2001.

B.  Lean Support Chain Programme

  18.9  CDL has initiated the Lean Support Chain (LSC) programme to realise the potential improvements in the efficiency and effectiveness of a single logistic organisation. The early introduction of lean support techniques was a key feature of the SDR but, to be successful, the programme will require significant cultural change amongst staff in the DLO and Industry. The immediate task facing CDL is to meet the sizeable financial challenge the DLO has inherited, while maintaining operational output. Realistically, however, it will be at least two years before new efficiency, over and above that already planned by the DLO's precursor organisations, will start to have a significant financial impact.

  18.10  A study team was formed in January 1999 to seek out Service and relevant commercial best practice and to recommend a way ahead. The team identified the main cost drivers within the DLO's support chain, benchmarked procedures against commercial comparators, sought innovative solutions and then developed a programme of specific projects to deliver the required business change and benefits. Subsequently, the DLO Management Board has approved a programme of 42 projects. The work was carried forward against CDL's clear directive that there was to be no increase in operational risk or adverse impact on front line commands.

  18.11  Main findings of the LSC study included the fact that there were a plethora of worthy but disjointed initiatives; repair turnaround times were unduly long; the culture within MOD and its key suppliers was not conducive to change; contracting processes were inflexible and operational support was maintained only at the cost of a vast inventory. To resolve these, a programme was set up comprising 42 projects which together amount to wholesale re-engineering of the logistics business to provide a coherent, unified cost-effective support chain. The projects span the full spectrum of the support chain, with particular attention to better management of high cost repairable items. The reduction of the amount of stock held is a key objective, ensuring that the stock retained is consistent with operational risk.

  18.12  The key benefits of the programme include:

—  a smaller, leaner, fully visible inventory attracting lower RAB charges;

—  a much-reduced supplier base with lower overheads, optimisation of the DLO's purchasing power and emphasis on partnering with Industry;

—  broad application of E-commerce and automation of routine work;

—  focus on through-life whole support chain costs rather than the lowest acquisition prices.

C.  Defence Fuels Group

  18.13  A further study identified that significant advantages in operational effectiveness could be achieved through the creation of a unified Defence fuels business that would bring together all fuels management in the MOD in a single grouping. The Defence Fuels Group (DFG) will be created on 1 April 2000 on a single site at West Moors, with full responsibility for the management of fuels. The DFG will bring together the following elements:

—  elements of the Defence Petroleum Centre at West Moors, currently operated by the Defence Storage and Distribution Agency (DSDA), including the Army Petroleum Testing Laboratory;

—  Army (QMG) logistic support services staff responsible for petroleum policy and plans and quality assurance currently based at HQ QMG, Andover;

—  RAF(AML) petroleum policy, petroleum provisioning, quality assurance, plans and budgets and embedded contracts staffs currently based at RAF Wyton, near Huntingdon;

—  RN (CFS) fuel staff responsible for petroleum policy, engineering, quality assurance and embedded contracts staffs currently based at Ensleigh, near Bath.

  18.14  The creation of the DFG with responsibility for all MOD fuels management and a single, unified fuels supply chain, will result in greater efficiency, a reduction in operating costs and promotion of best practice throughout the spectrum of MOD fuels activity.

D.  Defence Catering Group

  18.15  The Defence Catering Group (DCG) will form a single Ministry of Defence food supply and catering business by April 2000. The DCG amalgamates the Directorate of Service Food Management with the three single Service food and catering policy organisations currently located at Ensleigh (RN), Andover (Army) and RAF Brampton (RAF). A detailed study and investment appraisal is being undertaken to determine the best location for the headquaters of the DCG. The creation of the DCG will achieve better value for money through greater efficiency, a reduction in operating costs and promotion of best practice throughout the spectrum of MOD food and catering activity.

E.  Defence Munitions

  18.16  A report approved by the DLO MB in June 1999 recommended:

—  the formation of five munitions management "clusters", in effect IPTs, to conduct in-service munitions procurement and equipment management;

—  the formation of a Munitions Corporate Business Unit (MCBU) to conduct corporate business on a centralised basis, thereby alleviating the five clusters of all but their core-functions, as well as to drive process convergence across the DLO munitions business;

—  the retention of Director Munitions (DM) to conduct storage, processing and distribution on behalf of the clusters, positioned (as at present) within the Naval Base Supply Agency (NBSA) for at least a further 18 months prior to any further consideration of rebrigading this function within the DLO.

  18.17  Two of the clusters were launched in Wave 1 of IPTs earlier this year and the remainder will be launched by April 2000. The MCBU should be launched by April 2000.

Formation of DLO—Changes in Staff Numbers

  18.18  It is not anticipated that the formation of the DLO will result in significant changes in overall staff numbers by 1 April 2000. The need to maintain outputs to our customers and to undertake the essential work to deliver benefits in areas such as the inventory and the support chain whilst driving forward convergence of business processes and information strategy will demand considerable staff effort during the early life of the DLO. Once the work has been done to achieve greater convergence and integration across the DLO and to deliver early benefits, it should then be possible to reduce overheads and to assess the implications for overall DLO staff numbers. Further work however, is required before an estimate could be made of potential future reductions.

  19.  Details of progress in implementing the smart procurement initiative. This should provide details of integrated project teams set up so far and those planned for the future, and anticipated savings against the £2 billion target set out in the SDR, and other tangible benefits from the initiative. The Committee would also welcome examples of what has been achieved on particular programmes from use of smart procurement techniques.

IPTs/Central Customer Organisation

  19.1  Seventy-two fully fledged Integrated Project Teams (IPTs) are now in place (as at December 1999), broken down as follows:

—  10 from the Pilot Phase (launched in November 1998);

—  23 in Wave 1 (launched in April 1999);

—  39 in Wave 2 (launched in September 1999).

  19.2  The second wave of IPTs will have completed their "breakthrough" phase by the end of December, when half of all IPTs will be formed up. Breakthrough consists of a structured 12 week period where the teams, with the assistance of both external and MOD consultants, set themselves improvement targets, develop ideas to achieve those targets and introduce new working practices and behavioural changes to support the new way of doing business. The roll-out of the third and final wave will commence on schedule in January 2000. The selection of Wave 3 IPT Leaders is virtually complete, and their training will commence with a week-long course in the New Year.

  19.3  Sixty-eight IPTs are currently planned to be rolled out in Wave 3. Once the transition phase is complete with the Wave 3 rollout, further IPTs will form up and be disbanded as required, taking account of the needs of the Equipment Programme determined by the Central Customer organisation and the support requirements of the Front Line Commands.

  19.4  In addition to the creation of the IPTs in both the DPA and DLO, the creation of an effective Central Customer organisation is critical to the success of Smart Procurement. The Central Customer organisation, headed by the new DCDS (Equipment Capability), formed on 4 October and is proceeding with its own breakthrough programme according to plan. Mentoring by MOD and external consultants is progressing well. The principal effort is focused on developing personal skills and supporting processes for the Directors of Equipment Capability (DECs) who will act as the individual Central Customers to the IPTs. Process work is centred on the development of Capability Area Plans to be used in managing a coherent Equipment Programme. A significant proportion of Requirements Managers from the former Systems area are now working for the relevant IPTs as envisaged by the Acquisition Organisation Review.

Anticipated savings against the £2bn target set out in SDR and other tangible benefits from the initiative

  19.5  We remain confident that the Smart Procurement Initiative will deliver the promised £2bn savings over 10 years, and may deliver savings in excess of that level. Recent work initiated to assess and track the level of potential savings resulting from Smart Procurement provides positive indications of good progress, although much remains to be done to ensure delivery. The savings identified, captured from the ex-pilot and Wave 1 IPTs, present an encouraging picture, which, if reflected across the whole IPT community, gives confidence that the savings anticipated in the forward plans can be realised. This work will be taken forward over the remainder of this transition year and into next to incorporate the targets emerging from the Wave 2 and 3 IPT breakthrough process. For Major Projects Report projects, there are positive indicators that the new target for the elimination of cost growth should be met.

Examples of what has been achieved so far on particular programmes from use of Smart Procurement techniques

  19.6  Examples are:

—  Type 23 Frigates: Identified the potential to reduce the support costs by several hundred million pounds;

—  Infantry weapons systems: Plans to achieve significant cost reductions;

—  Future Offensive Air System: Identified opportunities to reduce the time from Main Gate to In Service Date by up to five years;

—  Challenger 2: Transferred IPT to the DLO following Operational Readiness Date (ORD) on 31 October 1999. Cost improvement targets could yield some £400m over the life of the tank;

—  Avionics Systems: identified 7 per cent saving through life as well as time and performance improvements;

—  Brimstone: "gain-sharing" on running contract with both sides saving from flexible approach by end-user; some modest cost savings achieved to date, with the potential for more significant cost benefits through further application of the gain-share approach;

—  Attack Helicopter: 30 per cent saving in in-service logistics (c £100m a year) by spending £85m early;

—  VC10: increased availability as well as cost gains of around 20 per cent.

On People

  20.  Progress of and slippage in targets for achieving full manning in the armed forces. Indicative statistics of establishment strengths, trained strengths, recruitment and wastage rates, and year on year changes.

  20.1  This information is provided in paragraph 23 and tables 3, 4 and 5 of the Departmental Performance Report.

  21.  Quantifiable indicators of progress made in implementing the "policy for people".

  21.1  The following initiatives have been introduced as part of the SDR's "Policy for People".

(a)  Operational Welfare. Improvements to the operational welfare package were implemented a year ago and we have continued to build on this, with recent announcements on post operational tour leave and improvements to the Families Concessionary Travel Scheme, and the introduction of a 20 minutes welfare telephone call home for personnel on eligible operations. In addition, we have established internet links between Army and RAF families centres (HIVEs) and operational theatres and introduced a radio station in Kosovo, as part of the British Forces Broadcasting network.

(b)  Equal Opportunities Corporate Plan. An Equal Opportunities Corporate Plan has been established.

(c)  Common Annual Leave Allowance. All Service personnel now receive the same amount of annual leave (30 working days), irrespective of rank and location.

(d)  Service Families Task Force. The Task Force is successfully working with other Government Departments to tackle the problems faced by Service families as they move around the country. It also provides direct access to Defence Ministers for the Royal Navy, Army and RAF families organisations. The Task Force has been addressing a first tranche of six priority issues affecting access to education, health and employment. Four have either been successfully completed or are nearing completion. These are schools admission policy, eligibility for student loans, incentive schemes for NHS dentists, and claiming Job Seeker's Allowance on posting. Work continues on NHS Waiting Lists and child minders' registration and further issues (including eligibility for student loans) are now being addressed.

(e)  Armed Forces Overarching Personnel Strategy (AFOPS). Development of AFOPS is now at an advanced stage and on schedule for implementation next year. More details are in Chapter 4 of the Defence White Paper.

(f)  "Learning Forces" initiative. This major initiative is increasing personal development opportunities in the Services. We are also continuing the drive to maximise civilian accreditation of military training. Again, more details are in Chapter 4 of the Defence White Paper.

  22.  Quantifiable indicators of progress made in improving recruitment and retention from amongst ethnic minorities.

  22.1  The percentage of ethnic minority recruits into the Armed Forces increased to 1.8 per cent for the period 1 April 98 to 31 March 99, up from 1.3 per cent in the previous 12 months. This represents an increase of approximately 40 per cent.

  22.2  It is too early to be able to measure improvements in retention of ethnic minority personnel, as the numbers are too small to be able to identify with confidence any statistically significant variations. Current statistics show no such variation between retention rates of ethnic minority and majority personnel.