Thank you Nick [Prest, Chairman of Cohort plc and Conference Chairman] for that kind introduction.
I’m really pleased to be here at the end of the first day of NDI’s conference here in Leeds.
We are of course adjacent to the Royal Armouries Museum, and next Tuesday they will be marking the 550th anniversary of the battle of Towton here in Yorkshire.
In blizzard conditions, more than 50,000 soldiers from the Houses of York and Lancaster fought in the largest and bloodiest battle of the Wars of the Roses.
More died that Palm Sunday than on the first day of the Somme, and it’s said that by the end around 1% of the entire English population lay dead.
Time heals many wounds - as the Yorkshiremen and Lancastrians sitting side by side today shows…
And even coalitions now work, and I can vouch for that!
Yet I was surprised to learn that Towton was also famous for innovation.
Some of the earliest handguns were fired at Towton making it the first gun battle on British soil.
And it’s the innovation that NDI members bring which helps to keep our Armed Forces and Security Forces safe and at the cutting edge of technology.
So let me start by thanking you for all that you do on their behalf.
And that’s primes and SMEs alike, by the way.
Of course, as well as innovation, today’s attendance is a reflection of the strength and diversity of the Defence and Security industry across the country, and the tremendous success story that is Defence and Security Exports - innovate, diversify, export - the themes of your conference.
What I’d like to talk about today is the success that comes from these themes.
The context of success.
The opportunities for success.
And the barriers to success, including some bread and butter issues I know affect all of you in industry - and what we are doing to address them.
First, the context.
We live - as you know - in a more volatile world than during the Cold War.
9/11, the international financial crisis, and the current events in Libya are clear examples of that.
All unexpected challenges that we have no option but to face.
We also face twin financial pressures: a yawning national budget deficit and an account in Defence which is critically overdrawn.
The figures are so huge that their impact can often be lost, so I’ll be clear.
We inherited a national debt which was increasing at the rate of £3 billion a week.
Now that would buy roughly three Type-45 destroyers or about an aircraft carrier each week.
Debt interest each year is higher than the combined budgets of the MOD, the Foreign Office, and DfID.
Or to put it another way, £120 million every day just to pay the interest on our debt stock - that’s money that could be spent on public services.
Instead, we will get nothing for it.
As if this were not bad enough, before the SDSR there was also a £38 billion ‘black hole’ in the Defence programme over ten years - a figure which is larger than the entire annual Defence budget.
That’s why we’ve had to make some tough decisions in the Defence Programme - ones that many of you as business people would recognise: where best to direct your efforts; how many staff will that require; and how much ‘risk’ can you take?
We’re in Yorkshire which is known for plain speaking, and the plain fact is that there simply isn’t the money there was before.
So let’s not disguise how difficult it’s going to be - and I heard the question during the previous session about the defence budget - and how tough the competition for contracts is going to be.
But let’s not do ourselves down either.
Our recent Strategic Defence and Security Review committed us to having Armed Forces which remain among the very top rank of military powers - supported by the fourth largest Defence budget in the world - and which can adapt and respond to new world realities.
Britain remains a global player, and we will continue to protect our national security wherever it is threatened.
And we should also be proud of the contribution that British Defence, Security, and Aerospace companies - you in this room - are making to our economy.
Statistics from the British Chamber of Commerce reveal that the manufacturing sector is growing very strongly - led by exports.
And in 2009, Defence and Security exports contributed almost £9 billion to our balance of trade.
Despite the recent deep recession, these industries employ and sustain thousands of high tech jobs.
And they are providing our Armed Forces with the best equipment they have ever had.
Defence exports leverage more influence in bilateral relations with our friends and allies than any other area of trade.
So our policy is clear: helping one of Britain’s most dynamic and successful industries to export is unarguably in the British national interest, which is why this Government attaches so much importance to responsible Defence and Security exporting.
And it’s also why we attach great importance to SMEs.
Most of you here own, manage, or work in SMEs.
You are a massive lever for recovery and growth, and you are at the centre of the Government’s Growth Strategy that will lead us out of recession.
I hope you were encouraged by yesterday’s budget measures to help SMEs.
But SMEs really matter to MOD.
You represent a hugely important source of research and innovation, as well as offering flexibility, adaptability, and niche capabilities.
And despite the reductions you have heard so much about that the MoD has had to make - we will be spending around £50 billion or so on equipment and support over the next four years.
That’s a lot of money by anyone’s standards.
We have also just secured agreement that the Defence Science and Technology budget will rise in cash terms over the Comprehensive Spending Review period.
With approximately 4.8 million SMEs in the UK I expect a larger proportion of our work to go your way.
And to do so on merit.
But all of this is money that hard-working people, and companies large and small like yours, have entrusted to us through their taxes, so that Britain can be more secure.
That’s the purpose of the money we spend.
Now, I know that this is business, and the bottom line for you has to be profitability.
But the bottom line for us is getting the right kit for our Armed Forces, at the right time, and at the right price.
So the long-term prosperity of you, the British Defence industry, depends on it doing three things:
- First, investing wisely and effectively in R&D - which cannot solely be a government responsibility and tax credits can help encourage that;
- offering the right equipment while delivering better value for money to the British taxpayer;
- and being competitive and market sensitive so that the prospects of successful exports are maximised.
Now, those that can do this will find there is still plenty of work available - at home and abroad.
And “abroad” is increasingly important - both in terms of exports, and our international partnerships and relations.
For example, last year’s Defence co-operation Treaty with France presents real opportunities for industry, and we have been discussing how best to communicate and develop these with NDI.
Of course, Government must be flexible and adaptable too.
That’s not an oxymoron; it is possible.
Together with Lord Levene, Bernard Gray and I will be leading the process of acquisition reform, and I share his view that the number one priority for us has to be to get our equipment programme back into balance.
But doing that important pre-requisite task is not enough.
The constant postponement of difficult decisions which would balance the budget; the lack of transparency and accountability; and what’s been referred to as quote “a conspiracy of optimism across the Department, involving politicians, the civil service, the military, and industry” - these are the root causes of our problem.
So we must also embed permanent cultural and behavioural change.
Let me give you five concrete day-to-day examples of improvement which we hope will bring direct benefit to your businesses.
First, as we initiate new projects, we must engage (and engage early) with industry to allow space for innovation and possible new approaches.
Earlier this month, the Government’s single “Contracts Finder” portal went live, offering a free-to-access “one stop shop” for public sector opportunities over £10,000.
At the same time, the MoD has reduced its advertising threshold by 75%, down from £40,000 to £10,000.
But don’t give up on the MoD Defence Contracts Bulletin as we’ll still be using that, including for larger requirements over £100,000, at least until the autumn.
And we’ll continue to use it to advertise ‘Industry Days’ and briefing events on current and up-coming programmes - I’ll come back to these in a minute.
But the Contracts Finder portal is the future for advertising contract opportunities.
Second, we will explore whether we can take steps to help SMEs access larger contracts normally placed with major prime contractors.
This will be important where we look to ‘bundle’ our requirements to improve efficiency.
We also want our primes to make greater use of the innovation and talent that’s on offer.
I don’t want to distort the market or undermine our primes.
And there is no need to if we can all keep a genuinely open mind to what SMEs may be able bring by way of innovation, value for money, and competitiveness.
Why should we not want to tap into that resource?
Third, I don’t think anyone contests that Government - not least the MoD - needs to smarten up its procurement processes.
Adopting a standard Pre-Qualification Questionnaire or even doing away with PQQs altogether for smaller contracts; changing our internal guidance so that small firms are not unfairly ruled out by an arbitrary turnover-to-contract value ratio; and rolling out standard templates for lower-value requirements - these are important steps, and we’re making good progress on all of them.
We might also look to involve SMEs more in the development of certification standards.
Your views on that would be very welcome.
Fourth, a message we received loud and clear is the importance of rapid payment - not just the billing itself (which we are actually very good at), but more importantly the “paper-chase” which precedes that stage.
I realise as you do that the whole process is reminiscent of Dickens’ circumlocution office where forms need to be filled in to request permission to fill in more forms!
Modern e-procurement systems offer a better way.
We were recently asked how many invoices the MoD had processed in the past 12 months.
Do any of you have any idea?
The answer?
4,697,676…!
If we pay them efficiently, we can save ourselves work - and we can save you a few headaches on the way.
We need primes to pay their suppliers promptly too.
The Prompt Payment Code should represent a minimum standard, not an aspiration, and should cascade all the way down the supply chain.
If the Olympics can do it, so can you.
If a company’s suppliers are stable, then the company they are supplying is stable, which means the economy is stable.
Fifth, we have to make sure that our requirements are seen by those with an interest in supplying or contributing to possible scenarios and solutions.
We hold ‘industry days’ where all interested companies can hear about new requirements before we initiate formal procurement, and we advertise these events in the Defence Contracts Bulletin.
And the Defence Suppliers’ Service - which has a stand here today manned by Martin Wragg; do go and see him if you get a chance - is dedicated to helping prospective new suppliers through a help desk and an active “outreach” service.
Many are directed to the Centre for Defence Enterprise - which is one of our greatest success stories as a gateway for innovation, as Helen [Almey, CDE] has just so splendidly explained.
SMEs I know who work with CDE speak positively of their experience.
Finally, I must mention our Green Paper on equipment, support and technology for UK Defence and Security, which we launched in December.
It’s a consultation document and it’s designed to understand your views.
And it asks a lot of specific questions on SMEs.
Don’t trust us to know what you think; we might well have misunderstood.
Just because you’ve heard things from us you like or dislike, don’t assume they will be policy.
If you disagree, give us the evidence for your views.
Please do.
If you agree with us, reinforce it.
I may have to persuade others the merits of the argument you have put forward.
And the more specific you are, the happier I will be - we need to hear about things that you would like us to do differently, better, or not at all.
But a week today - on 31 March - our consultation period will come to an end.
I urge you to get involved and submit your formal comments.
And on the subject of getting involved you will probably have heard about the creation of a new Defence Suppliers Forum to replace the old NDIC.
We want that forum to be more representative of our suppliers so we are making special arrangements to invite the SMEs through a new SME forum.
Colonel, I read the challenge to me in the forward of the Conference Programme - I want to make an offer I hope you will not refuse - for NDI to join this forum.
I said at the beginning that I want to talk about success.
Success in our approach to science, innovation, and technology because that is our future.
Success in our approach to acquisition because it gives our Armed Forces the equipment they need and delivers better value for money to the hard-pressed taxpayer.
And success in our approach to exports which gives our exporters a fighting chance in a fiercely competitive global market.
It will not be plain sailing - as I have often said, we would like to provide certainty in Defence in an unstable world, but we can’t.
But as I regularly say to industry, with your help and perseverance, we can create an environment with a high level of customer focus, agility, and increased competition with innovation, diversity and exports.
These are just the qualities we need to respond to fast-moving military threats, to drive better value for money, and increase business opportunities.
And just the qualities that NDI members have got in spades.