Integration in SANDF: Final Report; British Procurement Policy: briefing

Meeting report

DEFENCE PORTFOLIO COMMITTEE
27 May 2003
INTEGRATION IN SANDF: FINAL REPORT; BRITISH PROCUREMENT POLICY: BRIEFING

Chairperson: Ms. T Modise

Relevant documents
Text document on British arms procurement (Appendix)
Final Integration Report

SUMMARY
Two issues were discussed in the meeting. Firstly the Committee was informed about restructuring in the UK Defence Ministry's process of arms procurement. It emerged that procurement was done by an autonomous body within the Ministry. This briefing was held for the Committee to become informed of other models before finalisation of the Armscor Bill. Secondly, the Committee was presented with a final report on integration within the SANDF. It emerged that there were still quite a few issues not resolved and the Committee called on the Department to attend to them.

MINUTES
British arms procurement policy: briefing
The Chair opened the meeting by explaining that the Committee had asked a representative from the British government to address them on restructuring in the Ministry of Defence (MoD) in the UK regarding arms procurement. This had arisen out of the hearings relating to the Armscor Bill. The Committee wanted to hear about models used by other governments before they adopted the Armscor Bill.

Mr N Fisher from the British High Command addressed the Committee. He explained that the British government had a strategic defence review in which procurement was examined. Through the process, the Defence Procurement Agency (DPA) was established. This agency is similar to Armscor. It has an annual budget of 6 billion pounds. Projects are run by 80 project teams or IPTs. The big change has been that the operation functions on the output that is needed and not the cost. The MoD does not specify the equipment needed but rather the output that is required. There is a close partnership between government and industry.

Discussion
Mr Ntuli (ANC) asked how the mobility between the industry and civil service is handled. He also wanted to know if the DPA was sustained solely on government funds.

Mr Fisher replied that there is a constant interchange between industry and the DPA. The civil service could never compete with industry as far as salary levels were concerned. They therefore constantly "seconded" people both ways. The DPA was solely funded by government and had a huge budget to function with. The chief of the DPA has autonomy and could earn money from the industry.

Mr Schmidt (DA) questioned if the DPA was a national asset, how the return on investment was handled by IPTs, and what was done with surplus military equipment.

Mr Fisher confirmed that the DPA is a national asset and should remain so. The government retains some of the IPTs but might sell some. It was important for the partnership with the industry to be kept. The MoD had a disposal agency to dispose of surplus material. Sometimes auctions were held to dispose the goods. To scrap excess material was a last option.

Mr Dlali (ANC) inquired as to the autonomy the DPA and the relationship between the MoD and the DPA..

Mr Fisher said that the necessary capability was specified by the MoD and the DPA and the IPT then decided what was needed. The DPA has the flexibility to engage industry on its needs. It was not prescribed to by the central Ministry of Defence. The MoD has no procurement people in London, as all of them have been moved to the procurement facility in Bristol. The structure of the MoD was therefore different now. The chief of procurement was with the DPA and there was no central MoD involvement. There is however constant monitoring and daily communication between the MoD and the DPA.

Mr Schippers (NNP) wanted clarity around the IPT that was outside the MoD. He also asked about the primary function of the diversification agencies.

Mr Fisher answered that the IPT leaders were very senior and were mostly from the public sector, but could be outsiders, e.g., from the industry. They fulfilled a project manager function. The diversification agencies used SMMEs to find innovators to bring in.

Mr Ngcobo (ANC) said that the commercialisation of the defence scene might work in developed countries, but he was not sure about South Africa as many South Africans were not trained technically because of the past.

Mr Fisher said that it was his personal opinion that the defence industry in South Africa was small and capable. It was, however, important to attract new industries. In the UK, science parks had been created and the smaller companies were clustered around the bigger ones. This was a long term project however.

Mr Morwamoche (ANC) wanted to know whether South Africa also signed the letter of intent which was signed by other EU countries. He wanted to know whether there were any international projects involving South Africa and what kind assistance could be expected from the UK as far as Armscor was concerned.

Mr Fisher said that he was not sure about the letter. Referring to support, he said that talks with the government were ongoing and that they promoted South Africa in the UK. They could not force contracts to be signed with South African companies. South African businesses were also encouraged to do business with the UK. There was a two way relationship between Armscor and the UK. Plans for Armscor to be trained by the DPA exist.

Mr Fihla (ANC) wanted to know the relationship between the defence industry and the motor industry.

Mr Fisher stated that in some instances the same technology was used.

The Chair thanked Mr. Fisher for his presentation and said that it had broadened the Committee's minds. South Africa did not have a policy around disposal of equipment and it was important to have one. With the information learned the Committee would also be able to decide about the role of Armscor and the involvement of the Chief of the SANDF and the Chief of Procurement. The involvement of these figures had arisen in the hearings.

Mr. Fisher ended by saying that members could visit the MoD's website (www.mod.uk) for more information.

Final Integration Report
Rear Admiral Bakkes addressed the Committee on integration in the SANDF (see attached report). He pointed out that the present racial composition was close to those targeted in the defence review guidelines. Integration was concluded on the 31 June 2001. Integration and demobilisation was concluded on 31 December 2002. He explained that there were Coloured, Black and Indian soldiers who were part of the SADF, who felt disgruntled that they were not considered for integration. The Advisory Committee for Veterans was scheduled to meet with them the following day to discuss their grievances. There was also some bridging training to be completed.

Discussion
Mr Schmidt (DA) asked what sort of time frame could be given for the audit of ranking which was explained in the report.

Adm Bakkes stated that the audit was ongoing but could be completed within two months.

Mr Dlali (ANC) requested more information about the former SADF members. He also questioned why there was a delay in the bridging training. The report stated that no evidence of fraudulent enlistments could be found. Mr. Dlali asked why this matter was brought up if no evidence could be found. He also asked whether there were other members who were perhaps under ranked besides the 384 referred to in the report.

Adm. Bakkes replied that the Coloured, Black and Indian members of the former SADF were not organised into a veterans organisation. The advisory council would liaise with them to help them organise themselves. Once they are organised, pensions and other benefits could be sorted out. The figures regarding bridging training were as of 31 December 2002 and were much better now. The Navy however was different as they did not recognise the ranks of the NSF members. They therefore had to be re-ranked and training had to be upgraded. The fraudulent cases mentioned in the report were only the ones that came to the attention of the DoD. Others were being investigated outside of the DoD. It was introduced in the report as it was raised by the PIOC in the previous report. Adm. Bakkes went on to explain that 5000 members had felt that they were under ranked. The DoD, upon legal advisement, decided that those members who had failed upon appeal would not be considered any further. Some members' cases however would be reviewed and their performance evaluated since 1994. The report therefore refers to issues that were raised at the previous meeting.

Mr Fihla (ANC) referred to those members who were demobilised and wanted to know if the ranking at the time of demobilisation did not affect the pension of the members.

Adm. Bakkes answered that these members were not necessarily ranked when demobilisation was completed. The grant given had depended on years of service and the age of members.

Mr Schippers (NNP) remarked that he was glad that discussions were taking place with the former Cape Corps soldiers as he felt that they had received a raw deal at the Kempton Park negotiations. He pointed out that individuals were collecting money in order to fight the SANDF in court. He wanted to know whether the followings day's meeting would be in the final report.

Mr Middelton (IFP) also referred to the former SADF members and said that there was grave dissatisfaction within the ranks of these members. He pointed out that he had just come from a meeting in which these members were very angry. He felt that it was an overstatement to say that the integration was a success seeing that this issue was not resolved. It was claimed that these members asked to meet BMATT but had been ignored. He wanted to know why this was so.

The Chair said that this issue was raised at the last meeting and had been referred to the Minister. It was a weakness not to engage this group. It was estimated that as many as 30 000 people were affected. Referring to the following day's discussion, she said that it must not be superficial as these were veterans. There was no reason the DoD should not be engaging with them. She wanted to know whether the contracts that these members had were normal ones.

Adm. Bakkes said that he could make no promises about the following day's meeting. They were going to the meeting to listen to the affected members. He knew about the money that was collected and had informed the Scorpions. He pointed out that the statement that the integration was a success, was made by BMATT and the DoD had adopted it as well. There was a need to transform the reserve force and it was hoped that these members could be accommodated here. They were also engaging disgruntled TBVC members. He said that the report handed in was the final report on integration.

Mr Ntuli (ANC) referred to the 384 people whose ranking was being investigated and wanted to know if a communiqué had been sent to them. He also urged the Department to take note of the disgruntled veterans. He said that they were not being taken seriously and were being sidelined.

Adm. Bakkes said that the names of the 384 were known and communiqués had been sent to them. This was an open process and the audit had begun in November 2000. The Cape Corps members were volunteers and were drafted on a contractual basis. Many of these contracts had expired around 1994 and they then had to make way for MK and APLA soldiers. It was hoped that the a process could be started the following day with these members.

Mr Dlali (ANC) asked whether other cases besides the 384 referred to in the report would also be considered if it arose.

Adm. Bakkes stated that as part of career development, they would look at other cases. He could not guarantee that they would look at new cases that arose.

Mr Schmidt (DA) said that he also felt that the reserve force might be an option for the former Cape Corps members. He questioned whether the report could be a final version since many processes were still running. He was concerned that processes were still running even though BMATT had left.

Adm. Bakkes said that they would carefully examine the reserve force as an option for the former SADF members. BMATT had left, but one member had remained and was on contract with the DoD to adjudicate some rulings.

Mr Diali (ANC) asked whether under ranked people could approach the military ombudsman if they felt they had been unfairly treated.

Adm. Bakkes was unsure if members could appeal to the ombudsman.

Mr Dlali (ANC) referred to the second chance rule and wanted to know whether those who had made use of this had been successful at all.

Adm. Bakkes said he had no statistics about the second chance rule, but would make them available.

The Chair suggested that the Committee should agree that this was in no way a final report as there was many gaps. Parliament had asked for a list off demotions and dismissals and these had not been submitted. The disgruntled veterans had to be integrated. The IFP protection units were also integrated and it was very interesting that certain patterns were emerging. In the Free State for example, former MK and IFP forces had formed alliances with each other while in Gauteng former MK and APLA had formed alliances with each other. It was felt that only certain groupings of black people were moving up in the SANDF, thus the alliances. Incidents at Tempe and Phalaborwa were linked to integration. Too many gaps, therefore, exist in the report. It was necessary for the DoD to respond to these issues including the issue around the CPR lists. It was inexplicable that the approximately 4000 members who were not on lists, could be dismissed by the DoD. The demobilisation of those members who were not ranked should also be addressed. Problems involving ranking needed to be addressed as well as some members had been very patient. It was therefore not possible for the PIOC to say that this was a final report.

Mr Ngcobo (ANC) said that the issues which the Chair had raised were very thorny issues and had to addressed. They could not be swept under the carpet.

The meeting was then adjourned.

Appendix
BRITISH ARMS PROCUREMENT

I am delighted to be given the chance to speak to you today and hope I can do justice to your requirements. The UK is committed to a Strategic Defence Partnership with South Africa and this concept was pivotal to UK Government support for UK companies bidding to satisfy South African equipment requirements. However, the G to G partnership goes way beyond procurement issues and it is therefore a privilege for me to be with you today.

I have had the pleasure of knowing the Chairperson for some years now but for those of you that don't know me may I just give you a short explanation of my role in South Africa. I am a UK MOD career civil servant and my home branch is the Defence Exports Services Organisation (DESO). I have specialised on sub-Saharan Africa and South Africa in particular since 1993 when the country was in effect a non-defence market for the UK. I have therefore in my small way have followed the political transition of the last ten years and been involved in developing the defence relationship between our countries. I was the DESO desk officer for South Africa throughout the negotiations surrounding the major equipment procurement packages but my remit was always the wider relationship rather than just the packages. This being the case and once the contracts were signed it was a case of "well you promised these things now go down and make sure it works". Well I have no control over the UK companies but try to support them as well as trying making sure South Africa, as the customer, benefits too. Perhaps I am naïve but I do believe we can make this a win win situation but we will not do it without a bedrock of government and industry co-operation. It is in this spirit of partnership that I am here today.

I have been asked to speak on the UK Ministry of Defence changes since the Strategic Defence Review (SDR) of 1998 and in particular the Acquisition environment. I am no expert but given we were only approached last Thursday to do this, (and yesterday was a Public holiday in the UK), I am as good as it gets so please bear with me. I do undertake that any points I cannot answer I shall revert immediately to London for an urgent response. If you feel you require more detail then I would hope we can have a senior Defence official from the MOD here within days to satisfy your requirement.

So may I begin by explaining briefly the impact that the SDR had on defence acquisition. The SDR introduced five key measures:

The launch of the Smart Procurement initiative - a change programme designed to transform processes and organisational structures with the key aim of making defence procurement FASTER, CHEAPER and BETTER. Smart Procurement was renamed Smart Acquisition in October 2000 reflecting that MOD is not only concerned with procurement but also in-service support.

The creation of an Equipment Capability Customer organisation responsible for determining future capability requirements and priorities.

The remodelling of the old MOD (PE) as the Defence Procurement Agency (DPA), an Executive Agency of the MOD.

The amalgamation of the three single Service Logistics Commands to form the defence Logistics Organisation (DLO).

A Defence Estate Strategy and a new model for construction procurement as part of a wider government initiative to reform the construction industry.

In parallel the MOD combined its Private Finance Unit and Competing for Quality teams to form the Public Private partnerships Unit as part of a more integrated approach to PPP.

THE DEFENCE PROCUREMENT AGENCY
So, the Defence Procurement Agency (similar to Armscor) was launched on 1^st April 1999. It is headed by the Chief of Defence Procurement and summarised the DPA's objectives are to:

buy weapons systems and platforms and manage major upgrades
Deliver projects within defined performance, time and cost bands
Provide certain procurement related services, guidance and standards
Participate in the UK's military nuclear programmes

With an annual budget of GBP 6 Billion, the DPA is the single biggest purchaser of manufactured goods in the UK. At any one time its 4600 staff can be managing more than 13000 contracts.

The Agency's performance is first and foremost measured by achievement against its Key Targets:

Four of these relate to the service it provides to its customers.
Three cover the principal project measures of performance, cost and time.
The other customer related target is customer satisfaction (by survey).
The final key target is to deliver equipment and services while remaining within agreed Resource Control Totals.

A measure of DPA success to date is that it is recognised as supplying items that meet over 95% of the key requirements of its customer. On average, they are costing only about 5% more than original estimates (typically 7 years prior to equipment delivery).

The Agency has been less successful on timeliness. But, while on average major projects have entered service nearly two years later than planned, much of this delay occurred on projects that started before the introduction of Smart Acquisition. The DPA has set itself the goal of having 90% of its projects within the agreed parameters by 2005. Its longer term aim is 95%.

The engine rooms driving excellence in project management in the Agency, and delivering smarter acquisition are the 80 or so Integrated Project Teams (IPT). The IPT leaders are accountable for outputs, working methods, the quality of their service to the customer and performance, cost and time achievement.

The IPT develops with the project with the focus passing from concept work by the ECC (Equipment Capability Customer), through acquisition within the DPA to in-service support and then disposal led by the DLO. In May 2001, the DPA and DLO launched a major joint initiative to achieve total interoperability between the two organisations.

The DPA also supplies specialist acquisition-related services to customers elsewhere in the MOD, to other Government Departments and to overseas Governments. These include commercial, legal, pricing, quality assurance services and professional training.

So following the SDR of 1998 the initiatives, e.g. PPP, Smart Acquisition, Prime contracting and so on, share a number of common principles:

Acquiring against output based specifications, rather than the traditional input based approach.
A whole life approach to value for money, rather than considering only initial purchase costs.
Clarification of the roles of internal "customer" and "supplier" organisations.
Application of best practice from the civil and private sectors.

GETTING THE MOST OUT OF DEFENCE TECHNOLOGY

We live in a world of not only extremely rapid technological change but also of increased interdependency between military and civil technology. There are many examples of where this has already happened such as the development of the cellular phone as a consequence of technology developed for military use and the use of thermal imaging by the rescue services.

Both for defence reasons, and for wider economic reasons, it is therefore important that there should be a ready transfer of technology from the military to the civil sphere and vice versa. As far as diversification from military to civil application is concerned experience shows that it is at the stage at which technologies are evolved that this is best achieved. What is of real benefit to the economy is to make available the fruits of defence scientific and technological advance to the business supply chain of the civil market.

Another recommendation of the SDR was that a PPP arrangement would be the best means of maximising the strategic value and operational cost effectiveness of the UK's defence research capabilities. Accordingly Qinetiq (previously DERA) has been structured to facilitate involvement by the private sector.

The UK government sees the process of diversification through wider exploitation of defence technology as involving a close partnership between itself and industry. Whilst government can do much to improve the availability and accessibility of defence technology for wider exploitation, it is industry that is best placed to make decisions about investing in particular opportunities. Departments and Agencies can offer advice and assistance, but commercial decisions must ultimately be for companies themselves to make and the companies are better placed to exploit these technologies in civil markets. BAE Systems is a notable example of a defence company building up a cluster of defence-related technology companies around its main sites. One begs the question that is it not the national interest that the substantial public investment in developing this technology should be put to the widest possible use?

Another important part of the UK diversification effort is the creation of the Defence Diversification Agency (DDA). This Agency has the goal of significantly increasing the transfer of technology from the military to civil sector and vice versa. Whilst the DDA might be seen as the MOD's principal contribution to defence diversification, MOD also promotes the creation of new technology through the contracts it places direct with industry. MOD usually vests with the contractor undertaking the work the IPR so as to encourage the company to exploit them further for civil or defence use. The company pays MOD a levy for this use, so that the tax-payer gets a return on the original investment.

WIDER MARKETS

So how does MOD view the wider markets?

The MOD is committed to the disposal of surplus capacity wherever practicable. But the nature of the business means that some is always likely to remain: for example that which has to be held in peacetime so that the Armed Forces are able to meet an increased training requirement in times of crisis or war. Therefore, to make best use of the MOD's extensive physical (equipment, land, premises) and non-physical(intellectual property, data, skills) asset base, the MOD budget holders are encouraged to market assets for which the services have no immediate need, but which cannot be disposed of in order to secure extra income.

Depending on the scale and nature of the project, the MOD may decide either to undertake the commercial activity on its own, or through partnering or joint venture arrangements with the private sector. A private sector partner can often provide the commercial and marketing expertise and, sometimes, additional capital investment required to enter new markets and attract third party business more effectively. The range of these wider markets within the MOD includes the sale of meteorological services, charts and maps; the use of MOD locations for film and television productions and the marketing of spare training capacity by the Training Agencies of all three services.

DESO

Finally, I would be failing my own bosses if I did not make a small mention of my own organisation the Defence Export Services Organisation (DESO). I mention this because clearly it has a bearing on the UK Defence Industrial Base.

The UK Government fully supports responsible defence exports, which strengthen the defence of our friends and allies overseas, contribute to our own defence through strengthening our defence industry and help reduce the cost of the defence budget.

Defence exports also help industry to supply domestic defence needs more efficiently by spreading the fixed overhead costs of equipment over the longr production runs that exports generate. Exports save the UK defence budget around GBP 400 million a year from these economies of scale, from the sale of surplus military equipment to Governments overseas, and from royalty receipts on exports of equipment developed with public money.

A strong defence industrial base is important for the United Kingdom's defence. It enables us to manufacture the equipment to meet our armed forces' requirements including the development of future systems and the regeneration of capability in times of crisis. The skills of our defence workers are themselves a valuable defence resource.