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DSG 01
Memorandum
from the
The Defence Support Group (DSG)
Q1. Developing the role, status and work of the DSG
1. DSG is a trading fund agency of the
2. DSG has been retained within MOD ownership to support (a) delivery of the Defence Industrial Strategy, and (b) UK military operations, by securing access to responsive, cost-effective in-house capacity and capability for the maintenance, repair, overhaul and upgrade of strategically important Land and Air in-service equipments.
3. The four main DSG business streams
covering Armoured Vehicles, Land and B Vehicles, Large Aircraft and Electronics
and Components operate across 18 sites supported by the DSG Head Office,
currently located at
4. MOD has set DSG the goal of transforming the ABRO-DARA businesses into a single, viable entity that secures the benefits of the merger and delivers better value for defence in the provision of these support services going forward. Good progress has already been made with £10M of benefits realised and programmes in place to continue the transformation of the new combined business.
5. MOD will review DSG progress on a regular basis, through the established governance structures, including the Owner's Advisory Council chaired by Minister for Defence Equipment and Support, to ensure that the synergies and benefits of the merger are fully exploited and that DSG's business strategy and capability retention and development plans continue to be well aligned to both MOD customers' needs and developments in the market environment.
6. As required by HM Treasury, MOD will also review DSG's trading fund status regularly to ensure that this business model remains the best way of delivering the services customers need in the most cost-effective way. In this respect, MOD is following developments with the current DBERR review of the Government trading fund model and will examine what this means for DSG, and MOD's three other trading funds, once the review's conclusions are finalised.
Q2. DSG performance against Key Targets
7. DSG's performance to date against its 2008/09 key targets is outlined in tabular form at Annex A to this memorandum. The organisation forecasts that all the targets will be achieved or exceeded at year end.
Q3. Progress in amalgamating ABRO and DARA
8. Work on the merger of ABRO and DARA began in May 2007 following the Ministerial announcement, and in August 2007 Archie Hughes, then Chief Executive (CE) of DARA, took on the additional roles of CE ABRO and CE DSG Designate, in order that all necessary arrangements to secure the successful vesting of DSG as a new trading fund on 1 April 2008.
9. DARA and ABRO continued to operate as two separate trading funds with separate executive management and trading fund boards until DSG formally came into operation. The formation of a single executive management and trading fund board was the first tangible synergy benefit of the merger and delivered annualised savings in the region of £1M.
10. Since 1 April 2008, DSG has, in accordance with its business plan, focused on developing a sustainment strategy for the organisation through a number of initiatives at both the strategic and business unit level. This work has, among other things, been designed to identify and fully exploit the synergy and benefit opportunities of the DARA and ABRO merger and set targets for future improvements. The work will also inform the development of DSG's corporate strategic plan, setting out the DSG business agenda for the next five years, for approval by MOD Ministers in March 2009.
11. Transfer of the Sapphire House staff at
12. Overall benefits of £10m have already been achieved primarily through manpower reductions at a corporate level and a tranche of further measures will drive down costs across the whole of the business. Excellent progress has already been made in driving up efficiency in each of the business units. The increase in efficiency in 2008/09 is forecast to be almost double that set in key target 4.
13. DSG has also put in place key changes to streamline the management and business structure across the various businesses to establish operational integrity and give the transparency and accountability necessary to ensure operational discipline. The robustness and credibility of these new measures is being progressively validated by the increasing correlation between financial planning and in-year outturn, and they will be concluded by the end of this financial year.
14. A synergy study is currently underway examining
how best to exploit the benefits of merger within the Electronics and
Components work-streams currently undertaken at Sealand,
Q4. The strategic need to keep DSG capabilities within Trading Fund status
15. The aim of trading fund status and its associated arrangements is to create accountability within the service supplier organisation and to improve its responsiveness to customer requirements. It also imposes commercial disciplines on the trading fund that encourage greater efficiency and effectiveness while providing customers with visibility of the real costs of the services and capabilities they require, allowing them to make informed choices on value for money grounds.
16. DSG operates on these principles, employing the flexibilities that trading fund status bring, to provide responsive key strategic capacity and capability in support of UK Armed Forces. This has proved especially important in allowing DSG to respond at short notice to urgent overseas operational support requirements. MOD has no plans to change DSG's status but is required to keep trading fund status under review, especially in light of the DBERR review of trading funds generally.
17. Trading fund status also provides DSG with the potential to adopt best market practices and skills to sustain value for money advantage against industry competition, as well as the opportunities to engage in, and compete for, wider market work using spare capacity, thereby reducing overhead costs across its MOD programme work. DSG, as a trading fund, plays a valuable role as a competitive lever for driving fair and reasonable industry bids for work that falls within DSG's capability (but outside their capacity). Trading fund status also provides the opportunity to create a separate non-exclusive industry-facing identity that enables partnering and other commercial models.
18. Details of DSG's key strategic core capacity and capability for Land equipment, aircraft avionics and large aircraft are contained at Annex B to the memorandum
Q5. Long Term viability of DSG
19. DSG is MOD's preferred in-house option for equipment maintenance, overhaul and upgrade support solutions. To sustain this, the business must continue to build on its strengths - particularly its ability to adapt and flex its capabilities to meet MOD customers' changing needs - while demonstrating that it provides best overall value for defence in an increasingly competitive and challenging market environment.
20. Building successful partnerships with the industry prime contractors, responsible for the through-life support of the UK Armed Forces' current and future land and air equipment, will also be critical to the long-term viability of DSG. Maintaining the organisation's competitive edge, and therefore its attraction as a partner of choice for the industry primes, will depend in large part on the capability investment and restructuring choices the organisation implements over the next few years.
21. With the ABRO and DARA merger now complete, DSG is on a sound footing going forward in the short to medium term. Plans are being prepared for MOD Ministers' approval in March 2009 which will aim to ensure that the business is best configured to achieve success in the longer term by continuing to offer the most competitive, high quality output required by the Armed Forces customer.
22. While it is too early to report on the detail of these plans and their likely impact on the future size and shape of DSG, they will address the significant challenges facing the long-term viability of the Large Aircraft business unit at St Athan as the VC-10 tanker fleet approaches its out of service date of 2014. DSG is working closely with MOD, other agencies and government departments, including the Welsh Assembly, to identify what future opportunities exist.
Q6. DSG support to the Defence Industrial Strategy
23. The Defence
Industrial Strategy (December 2005) set out the key capabilities that MOD
wished to retain in the
24. Through application of its unique skills, practical know-how, intellectual capital and platform specific expertise, DSG has demonstrated its ability to meet its primary objective of ensuring continuity of service to a significant number of in-service, operationally critical platforms in support of the Defence Industrial Strategy. In particular, DSG's flexibility in responding to the significant levels of operational activity and urgent operational requirement projects has highlighted the pivotal role it plays in support of operations.
25. In recognising that this resource requirement will change over time in response to changing operational demands, the capacity and capability of DSG will consequently be jointly assured by DSG and the MOD customer. The mechanism that helps ensure MOD provides the necessary sustainment support for DSG into the future is the publication of Defence Equipment & Support Standing Instruction 20. This instruction requires that, as a retained defence capability, DSG's capabilities and resources should be maximised and the core capability and capacity sustained to ensure their continued availability to the MOD customer.
Q7. Status of the £875M contract between DSG and MOD
26. The DSG Repair agreement[1]
covers the 5-year period 1 April 2008 to 31 March 2013 and has a potential
value of £875M over the period. It covers the maintenance, repair and overhaul
of vehicles and equipments for predominately the
Programme Load - Programme Load is planned and budgeted work identified by Defence Equipment & Support teams, for which DSG is required to provide a firm price. These teams load the work throughout the year and delivery is against a schedule. On completion of repair the tasks are invoiced to the customer.
District Load - District Load work is provided predominantly from the Army customer but also from the RAF and RN. This is essentially unscheduled work and covers a vast array of repair, maintenance and inspection work at a number of sites and in-barracks to ensure convenience to the 3 Services' customers. This part of the agreement is covered under a yearly Limit of Liability for each customer.
Ad Hoc Tasks - Ad Hoc tasks can be raised on DSG by either the Defence Equipment & Support teams who contribute to the Programme Load work or other MOD customers that require work undertaken at short notice. Urgent operational requirements are also loaded to DSG in this manner. Each task is separately priced.
27. Maximum provisional rates have been agreed for 2008/09 and these rates together with material costs will be the basis of the prices that will be firmed up in February 2009. Rates are currently being compiled for 2009/10 and these will be forwarded to the customer in the early part of 2009 for consideration.
28. Agreement terms and conditions are all agreed. Regular dialogue and meetings are held with CDLE and his team to ensure the smooth operation of the agreement.
29. The estimated total value of this agreement for the period 2008/09 to 2012/13, at the point the agreement was placed in April 2008, was £875M. This will change as actual requirements are clarified year on year.
Q8. Impact of operational tempo on DSG work
30. There has been a significant increase in demand for DSG support with Land vehicle repair
as a result of operations in
Q9. DSG staff in operational theatres
31. Besides having a long-established
tradition of deploying its skilled personnel to support on-going military
operations, operational deployments also characterise DSG's utility and
flexibility during critical vital Front Line operations. Deployments have
included Operation GRANBY during the first Gulf conflict, through Operation
OCULUS in the Balkans to current Operations HERRICK and TELIC in
32. DSG personnel actively support deployments with many taking more than one tour and requests for volunteers are consistently oversubscribed. There is no shortage of keen, capable volunteers, even when they know they may be faced with the threat and reality of enemy indirect fire. 33. Deployment volunteers are drawn from
several DSG sites but are inevitably limited to the various skills available
and the business needs of each site. They include personnel from Donnington,
Bovington, Catterick, Colchester,
34. DSG staff work under REME Command, helping optimise the skills of Service personnel while delivering support at the point of need, and potentially saving on the base workload. DSG manpower are extremely enthusiastic about providing vital support direct to deployed operations and many have won campaign medals for their efforts which are recognised and applauded by their Service colleagues.
ANNEX A to MOD Memorandum on DSG
DSG Performance against Key Targets 2008/09
ANNEX B to MOD Memorandum on DSG
DSG key strategic core capacity and capability
LAND EQUIPMENT
1. Unique
on-shore[2] Armoured Fighting Vehicle (AFV)
· Large aluminium milling machines · Hull manipulators[3] · Aluminium Armour "approved" welders · Expert knowledge of aluminium armour repair
2. Small Arms repair and upgrade capability including:
· Full Small Arms weapons test facility · Secure storage and repair facility located next to the main Defence Storage & Distribution Agency (DSDA) Armoury · Knowledge and ability to repair and upgrade in-service small arms.
3. Repair of legacy Electronic and Communications systems typically:
· PTARMIGAN Radio system, repair, modify, test, and manage out of service · Encrypted radio systems requiring secure repair and test facilities.
4. The unique footprint; 18 Workshops strategically located, [most of which are] close to the customer training base to mitigate downtime and transport costs of repairable equipment.
5. The
ability when required to embed staff within
6. Level 1 to 4 maintenance, repair and overhaul of the Army's Inventory[4], (if required).
7. Flexibility, the ability to haul and veer a workforce at short notice to meet changing Customer demand.
8. Management of the supporting supply chain through DSG Land Supply and its own in-house Procurement Group (PG).
9. Ready availability of a security-cleared multi-skilled workforce.
AVIONICS (specific to the avionic business at DSG Sealand);
1. For the combat air platforms, DSG Sealand has played a key role in driving value for money support for the fast jet platforms. In the last 5 years they have 'leaned up' significantly and their prices are highly competitive. At one end of the scale, they are able to deliver low cost through-life solutions for equipments that Industry would not necessarily be interested in supporting i.e old/obsolescent equipment and would probably charge premium rates. At the other end of the scale, they have a world class diagnostic and repair capability for the support of modern equipments where they are able to access the intellectual property rights.
2. In summary, the MOD sees a viable DSG as a key component to delivering value for money support for current and future fast jet platforms in partnership with Industry primes.
LARGE AIRCRAFT
1. DSG's Large Aircraft business unit located at St Athan provides strategic maintenance and support for the VC-10 fleet. DSG will continue to provide these services, as a sub-contractor to BAE Systems, until the out of service date of the aircraft in 2014. ANNEX C to MOD Memorandum on DSG
Summary of operational impacts on DSG
OPERATION TELIC
a. Current. Continued support through Programme and District Load work provided in UK for equipments/assemblies returned and repaired under the main Land commercial agreement.
b. Future. Regeneration of TELIC equipment in 2009 will sustain demand for maintenance, repair and overhaul of returning Armoured Fighting and Support vehicles plus a wide range of other war-fighting equipment.
OPERATION HERRICK
a. Current. Continued support through Programme Load and District Load
work provided in
b. Future. Continued support to HERRICK will be required and will likely see;
i. A continued requirement to fit/integrate UOR's. ii. A continued requirement
to repair battle damaged equipments in iii. A likely requirement to
supply manpower to the Equipment Sustainability Solution (ESS), iv. Continued support to manage the Operational Training Equipment Pool (OTEP). v. A re-distribution in
overall workload for DSG through the creation of the ESS in vi. DSG flexibility to adjust priorities at short notice including the potential to deploy in support of the ESS.
12 January 2009 [1] As DSG is a constituent part of the MoD, trading between MoD and DSG does not have the same legal force as a contract, and is more properly referred to as being an agreement, as opposed to a contract. [2] Required to be retained in [3] Heavy tooling that can lift and rotate complete hulls to facilitate repair activity. [4] Subject to certain IPR constraints. [5] Assuming DSG are invited to provide a
direct labour workforce at the |