BAE Systems and the UK government have settled Astute and Nimrod but there is no case for the company to be made a national champion
The UK government has agreed to hand BAE Systems another £700 million ($1.1 billion) to continue development of the Nimrod MRA4 maritime patrol aircraft and the Astute attack submarine. Both programmes have been plagued by technical and management issues, cost overruns and delays. The Nimrod should have entered service in April, and earlier problems had slipped that date to March 2005: now the MRA4's in-service date is 2009. Meanwhile, the Astute is delayed by three years to 2008.
Against this background of cost overruns and delays, how can BAE justify its increasingly vocal demands to be treated as the UK national champion and to be awarded contracts without the need for competition? It is true that the company will pump more of its own money into the programmes, £500 million for Nimrod and £250 million for Astute, and that there are issues with the way the Ministry of Defence handled its maritime patrol competition in the 1990s, but is BAE fit to be a champion?
That the UK opens its major defence procurements to competition, ironically, can be traced back to another Nimrod-based debacle - the AEW3 airborne early warning programme. In that instance, British Aerospace delivered the platforms on time and to budget, but GEC-Marconi - now merged into BAE Systems - failed to deliver a working solution. The UK government at the time was lambasted for abandoning the Nimrod AEW3 and running a competition, ultimately selecting Boeing's proven E-3 Sentry.
Since that time, competition has been the central tenet of UK defence procurement. It has not always been a successful process and the wrong solution can still be selected. It is not a perfect system - politics get in the way, budgets get slashed and the result can be cheaper and less-capable weapons. Not enough money is spent upfront on risk reduction, the customer frequently changes its requirements, and bid costs - as BAE is fond of stating - can be astronomical. But for better or for worse, competition is the UK's watchword.
Competition encourages companies to submit bids that are competitive - without it, what stops a company ramping up its profit margin or taking so long to develop a system that it is no longer cutting edge when it enters service? But competition can encourage companies to underbid deliberately, hoping that the customer will swallow the overruns and delays as the real costs and schedule become clear. The temptation is greater when the competitors are foreign and domestic jobs are at stake.
BAE does not appreciate competition in its home market, and has repeatedly called on the MoD to make it the national champion - in other words the first port of call when new weapons are needed. But can any company demand the privileged position of "home team", or the white knight that the government turns to when new equipment is required, when it fails so dramatically to deliver what it promised? Any company demanding such special treatment must justify its position.
BAE, today, cannot make such a justification. Aside from Astute and Nimrod, the company has been involved in numerous defence programmes that have failed to meet in-service dates or are massively more expensive than promised at contract signature. This is not good enough, a view the UK government clearly supports. It is true the company has developed some exceptional equipment in the past and will develop good products in the future. But BAE needs to prove its ability to exceed the customer's expectations before seeking special treatment.
Like it or not, competition in the UK is here to stay. Demanding that competition be replaced with the handout of lucrative contracts is not the solution to BAE's problems. The solution lies in delivering working products at affordable prices. Until it has achieved that, no company can expect requests for favourable treatment to be received sympathetically. The UK MoD, meanwhile, can do its part by ensuring that all competitive bids are realistic, and not simply picking the lowest bidder.
BAE needs to rebuild its reputation. Work on Astute and Nimrod has essentially been stopped so that problems can be ironed out. At the moment there is no proof that the £1.45 billion infusion of government and company money will breathe life back into the programmes. Nor is there any guarantee that BAE will deliver to the revised timescales. The company needs to demonstrate it can deliver. If BAE fails on either of these programmes it can hardly expect to be taken seriously in future competitions, let alone when it demands to be the UK's national champion.
Source: Flight International
