Navy Matters | Type 45 Section

This section documents progress on the Type 45 destroyer Programme via official statements. Statements are given in date order.

TYPE 45 ANTI-AIR WARFARE DESTROYER AND ITS PRINCIPAL ANTI-AIR MISSILE SYSTEM (PAAMS)

The Type 45, equipped with the Principal Anti-Air Missile System (PAAMS), will be a versatile Destroyer capable of contributing to world-wide maritime operations in multi-threat environments. The programme came into being following agreement, in April 1999, between the UK, France and Italy not to pursue the tri-national Horizon programme. The three nations continue to collaborate on PAAMS.

The contract for the design and build of the first three ships was placed with BAE SYSTEMS Electronics (the commercial title for the Type 45 Prime Contract Office) on 20 December 2000. The extension of the contractual commitment to six ships and the signature of shipbuilding sub-contracts was announced on 18 February 2002.

Operational Requirement
Envisaged as a replacement for the Type 42 destroyers, the Type 45 will be a multi-role, general-purpose platform capable of operations across the spectrum of tasks, from peace support to high intensity warfare. Its primary role, utilising the PAAMS system, will be Anti-Air Warfare (AAW), providing effective area air defence against aircraft and missiles. The current requirement for PAAMS is to meet the most demanding threat foreseen for 2007 (when the Type 45 is due to enter service), with a Growth Potential Study to examine areas of potential enhancement to meet future threats.

Trade Offs
In order to get Type 45 and PAAMS in service as quickly as possible, a strategy of incremental acquisition of platform capability, from a baseline standard which is both affordable and achievable in the time to in-service date, has been adopted. This will enable the insertion of additional capability throughout the life of the Type 45s as requirements become affordable and to take advantage of future changes in defence requirements and technology advances. Following the placement of the Demonstration and First of Class Manufacture (DFM) contract on 20 December 2000 we have been able to accelerate part of the Incremental Acquisition Plan (IAP) and a hull-mounted sonar (the top priority in the Plan) will be fitted to all the ships on build.

The principal cost/capability trade-off in the PAAMS programme has been the acceptance of a capability sufficient to meet the threat at ISD, rather than beyond. However, the PAAMS Full Scale Engineering Development and Initial Production (FSED/IP) contract includes a Growth Potential Study that examines the modifications that may be required to meet emerging threats.

Numbers
The current planning assumption is for the acquisition of a class of up to 12 Type 45s.

Strategic Defence Review
The requirement to replace the Type 42 destroyers was scrutinised and confirmed in the Strategic Defence Review. This is now being addressed by the Type 45 Programme.

Military Capability
The Type 45s will be fitted with PAAMS, which incorporates the Sampson multi-function radar, representing a quantum leap in capability from the outset. This system will defend the Type 45 and ships in its company from multiple attacks by aircraft and even the most sophisticated anti-ship missiles. The ship will have a powerful general-purpose capability and be able to accommodate up to 60 Royal Marine commandos and their equipment. The Type 45 will also be capable of operating the Lynx and Merlin helicopters.

Equipment Replaced and In-Service Date (ISD)
The Type 45 Destroyer and PAAMS are planned to replace the capability currently provided in the Type 42 destroyer and its GWS30 Sea Dart weapon system. It is planned that the eleven Type 42s currently in service will be replaced progressively by Type 45s starting in 2007.

Deliveries of the Class are planned to complete by the middle of the next decade. Prior to Main Gate, the ISD definition for the Type 45 was revised to match the availability of the First of Class for operational tasking after sea training.

Marconi Electronic Systems (MES) was nominated as the Prime Contractor for the Type 45 Programme on 23 November 1999, and at the same time contracted to complete the Preparation for Demonstration (PFD) phase of the programme. This responsibility passed to BAE SYSTEMS when MES merged with British Aerospace. On 20 December 2000 the DFM contract, which was to complete the design and build of the first three ships, was placed with BAE SYSTEMS Electronics, which is the commercial title for the Type 45 Prime Contract Office (PCO).

Under the MoD's original procurement strategy, the first of class (HMS DARING) would have been assembled by BAE SYSTEMS Marine, with a substantial contribution from Vosper Thornycroft (VT), the second (HMS DAUNTLESS) by VT, and the third (HMS DIAMOND) by BAE SYSTEMS Marine. Thus, both companies would be in the position of having assembled at least one entire ship. Both companies were (and continue to be) jointly involved in developing the design for the Type 45. It was intended that the Prime Contractor would manage, with MoD oversight, competitions for the manufacture and assembly of subsequent batches of Type 45 destroyers.

Following consideration and rejection of an unsolicited bid from BAE SYSTEMS Marine for the construction of the full class of Type 45 ships, as well as an MoD commitment to the company on other naval construction programmes, an alternative procurement approach was accepted in principle in July 2001. This required extending the existing MoD contract to a further three Type 45s (bringing the total to six). It also involved sections of each ship being built by Vosper Thornycroft at their new facility at Portsmouth and by BAE SYSTEMS Marine at the yards on the Clyde and at Barrow in Furness. The First of Class (HMS DARING) would be assembled and launched by BAE SYSTEMS Marine at Scotstoun, with the remainder assembled and launched by BAE SYSTEMS at Barrow. The focus of design support to the whole Class would remain at Scotstoun, with continuing participation by both shipbuilders. An extension to the contractual commitment to six ships and the signature of shipbuilding sub-contracts on this basis was announced on 18 February 2002.

On 14 March 2003, following MoD agreement to a company request, BAE SYSTEMS announced that all of their Type 45 production work planned to be undertaken at Barrow would be transferred to their yards on the Clyde. This change of plan resulted from delay to the Astute attack submarine programme. BAE SYSTEMS considered that this slippage would introduce an unacceptably high risk of conflict between the Type 45 and ASTUTE production programmes at Barrow. In addition, the company did not consider that they would be able to retain the necessary capacity at Barrow until it was required for Type 45 construction and that it would be highly unlikely that they could recruit sufficient suitably qualified people in the future to support both programmes. BAE SYSTEMS therefore concluded that the best way of reducing risk was to carry out all of their work on Type 45 at their yards on the Clyde, leaving Barrow to concentrate on ASTUTE.

PAAMS
Collaboration continues with France and Italy on PAAMS. On 11 August 1999, France placed a contract on behalf of the three nations for Full Scale Engineering Development and Initial Production (FSED/IP) with the tri-national consortium EUROPAAMS acting as Prime Contractor.

National lead contractors were nominated by their governments. The UK member is UKAMS, which began as a jointly-owned subsidiary of Siemens Plessey, GEC and BAe SEMA. Following subsequent industrial restructuring, UKAMS is now a wholly owned subsidiary of, and remains within, the recently formed MBDA (formerly Matra BAe Dynamics). FSED/IP sub-contracts have been let by the Prime Contractor and the placement of second tier sub-contracts is now complete. The programme remains on schedule to meet the ISD for the Type 45 First-of-Class.

Collaboration
The PAAMS Programme MOU and its FSED/IP Supplement were signed by France, Italy and the UK in March 1996. The UK share of the costs of PAAMS FSED/IP will be higher than those of France and Italy on two counts. First, we are bearing the costs of developing the SAMPSON Radar, which, whilst more capable than the FR/IT EMPAR radar, will be used only in the UK variant. Second, the UK is making a contribution to the development cost of the Franco-Italian Family of Future Surface to Air Missile Systems (FSAF) Programme, elements of which are necessary for PAAMS. In addition, the UK currently plans to fit PAAMS to a larger number of ships than the French and Italian navies combined.

The PAAMS Programme is managed by the tri-national PAAMS Programme Office (PPO) in Paris which reports to a tri-national PAAMS Steering Committee (PSC). The aim is to delegate as much programme management work as possible to the PPO, although co-ordination of UK policy on PAAMS remains the responsibility of the Type 45 Integrated Project Team (IPT). Charters, agreed with France and Italy, set out the arrangements for co-ordinating PAAMS with the national Type 45 ship-programme and the Franco/Italian bilateral Horizon programme.

Work is progressing on the transfer of PAAMS Munitions procurement into OCCAR (Organisme Conjoint De Co-operation En Matie"re D'Armament). This is seen as a sensible and cost effective development which will allow the UK to remain at the heart of PAAMS/FSAF production and development activities.

The potential for achieving economies of scale by co-operative purchasing of common items in the Type 45 and Franco-Italian Horizon warship programmes has been explored, but without success to date. However, there have been benefits from PAAMS industry (UKAMS) working closely with the Type 45 industry (BAE SYSTEMS). The most significant was the initiative to develop a common architecture, including servers and consoles, for the PAAMS and Combat Management System. This improves inter-system operability and will generate considerable savings in through life costs.

Export Potential
Export potential for the Type 45 system as a whole is constrained by its high technological specification and cost, but elements of the system such as the selected prime mover (the Rolls Royce/Northrop Grumman WR21 gas turbine), the electric propulsion system (Alstom), and PAAMS (in particular its associated multi-function radar) have considerable potential export prospects up to the value of several billion pounds over the next fifteen years. There could be prospects for refit programmes as well as in new build hulls. There is continuing interest from the Royal Australian Navy, which has plans for three air defence destroyers from 2013, with a capability very similar to Type 45.

Industrial Factors
In accordance with government policy for the construction of Royal Navy warships, Type 45 will be built in UK shipyards. Industrial factors were taken fully into account in the decision in 2001 to adopt the alternative strategy by which MoD committed itself to the procurement of the first six Type 45 destroyers in return for changes in the shipbuilding strategy. The decision for substantial sections of each ship to be built by VT (at its Portsmouth facility) and by Marine (at its yards at Barrow and on the Clyde) allowed each yard to increase efficiency and produce better value for money for the taxpayer as well as offering the best prospect of maintaining the in-service date. The effectiveness of this approach was supported by the findings of a detailed study by RAND into the MoD's naval acquisition strategy. This revised strategy was made legally binding between the Prime (BAE SYSTEMS) and the two build sub-contractors (BAE SYSTEMS Marine and Vosper Thornycroft) in February 2002. Industrial factors were also a key consideration in the decision by BAE SYSTEMS in March 2003 to focus all of its Type 45 work at its Clyde yards while the Barrow facility concentrates on its role as a submarine producer. VT is not affected by this re-location of work and will continue to manufacture its share of the key sections at its Portsmouth facility.

For PAAMS, the UKAMS consortium was formed as a convenient marriage of those companies possessing the technologies crucial to the programme—notably the existing FSAF contractors and the Sampson radar supplier Siemens Plessey Systems (now AMS). PAAMS work share is constrained by existing FSAF arrangements, but the aim is to achieve equitable work share throughout the life of the programme as far as practicable, subject to considerations of cost-effectiveness and competition.

Smart Acquisition
The Type 45 Programme is being undertaken in accordance with the principles of Smart Acquisition. The Type 45 IPT was formally established in September 1999, consisting of the MoD Project Team at Abbey Wood and the single Prime Contractor Organisation (PCO) two miles away at Filton, Bristol. A charter, setting out the working ethos between the DPA and PCO, has been agreed and has proved to be successful in creating an environment where truly joint working can take place. The Department is confident that the Smart Acquisition approach to requirements management, through the development of an initial operating capability, which could be progressively enhanced through a programme of incremental upgrading, provides the optimum environment in which the first of class ship can be delivered on time and to cost.

Acquisition Phases
The PAAMS FSED/IP contract was placed on 11 August 1999. This includes the supply of the systems and associated equipments and spares for the three nations' first of class ships. Negotiations are currently taking place with industry for systems for follow-on ships. Contracts are expected to be signed by France, on behalf of the UK and Italy, in the summer of 2003.

For the warship, the Prime Contractor, BAE SYSTEMS Electronics, was contracted on 20 December 2000 to undertake the DFM phase. This contract has since been extended to include the second batch of three Type 45s.

Milestones and Costs
The tables below show the high level milestones and approved budget.

Note 1. Following Main Gate Approval in July 2000, figures show: total approved level of expenditure for six ships and prior approvals covering predominantly PAAMS FSED/IP, HORIZON and T45 Assessment phase (Latest Approval); against the current estimate of expenditure (Current Estimate). Expenditure is calculated at out-turn prices.
Note 2. Warship assessment phase completed on placement of DFM.

For a projected class of up to 12 ships, the total cost is expected to be of the order of £8 billion, including £2.8 billion total acquisition costs for PAAMS (with figures calculated on a resource basis, as in MPR 2002).

In-Service Support
The first stage of a phased approach to support, now on contract, aims to devise the optimum support solution for all Type 45 equipments. The study will also define the means of managing in-service support, coupled with Post Design Services. It is planned that a Contractor Logistics Support (CLS) contract will be in place a year before ISD, to provide experience in its operation during trials and validate the in service support solution for the In Service phase.

Front Line, Storage and Reserve
On average two or three ships would be undergoing maintenance (including one or two in refit) leaving the rest of the class available to the Commander-in-Chief Fleet for tasking.

Interoperability
Commonality of many of the PAAMS systems and sub-systems, including in particular the Aster missile, will ensure a good level of interoperability with both France and Italy. In the warship context, the requirement for interoperability with Joint and Combined Forces at system and sub system level is a high priority. Multi-link capable, the ship will be able to share its operational picture with allies, and control assets in theatre with NATO land, sea and air forces that are similarly equipped, providing maximum flexibility in force mix. As part of the class solution, Type 45 will be fitted with the US Co-operative Engagement Capability which will greatly enhance the force situational awareness and bring the full benefits of the Sampson radar to other suitably equipped platforms in the task force. The Fully Integrated Communications System will provide the infrastructure to support a wide range of communications facilities, including Bowman, which will provide a secure command and control net with UK land forces.

Disposal of Equipment Replaced
The sales potential of Type 42 warships is being examined as part of the disposal process.

Development Potential
The Type 45 has been designed with space and weight margins that will allow for greater capability to be added in the future. Its systems and sub-systems will be updated as appropriate throughout the life of the platform to take account of developments in technology and the operational environment. It is possible that the Future Surface Combatant programme, currently in the early stages of concept development, will draw on major elements of the Type 45.

Memorandum from the Ministry of Defence on Major Procurement Project Survey (March 2002)

The Common New Generation Frigate (CNGF), a collaborative programme with France and Italy, was planned to replace the UK's Type 42 destroyers in the early part of the century. CNGF comprised two distinct collaborative programmes: the Principal Anti Air Missile System (PAAMS) and the ship with its other systems (Horizon). Whilst the contract for the development and initial production of PAAMS has been placed, the Horizon project did not progress satisfactorily. The three nations agreed on 25 April 1999 that it would not be cost-effective to pursue a single prime contract for the ship and that the tri-national Horizon programme would end upon completion of its Project Definition and Initial Design Phase (Phase 1) at the end of October 1999. The UK is now taking forward its ship programme, designated the Type 45 Anti-War Warfare Destroyer Programme, through a national Prime Contractor, building on the tri-national project work already carried out and pursuing opportunities for co-operative procurement in equipping the ships.

1. PAAMS and Horizon both derived from the single Tri-Partite Staff Requirement for CNGF. The requirement was approved by the three participating nations, the UK, France and Italy, in December 1992. At the start of Project Definition for Horizon in 1995, the intention was that PAAMS would provide an anti-war warfare capability sufficient to meet the most demanding threat foreseen. It was subsequently agreed that the initial capability sought should be sufficient to meet the most demanding threat forecast at the then expected In-Service Date (ISD) for CNGF (2004), but that a growth path to provide the capability necessary to address future predicted threats would also be identified as part of this work. This remains the position for the Type 45, which will provide effective area air defence against aircraft and missiles. We have confirmed that PAAMS will be able to meet the most demanding threat foreseen for 2007, when the Type 45 is due to enter service.

2. The principal cost/capability trade-off in the PAAMS programme has been the acceptance of a capability sufficient to meet the threat at ISD, rather than beyond. However, the PAAMS Full Scale Engineering Development and Initial Production (FSED/IP) contract (see Paragraph 14) includes a Growth Potential Study that examines the modifications that may be required to meet the threat beyond 2010. Studies into cost/capability and programme/capability trade-offs for Project Horizon to achieve an affordable CNGF were undertaken as part of Phase 1 of its programme which completed on 31 October 1999. This work has been carried forward into the UK's national programme.

3. The UK planning assumption is for the acquisition of up to 12 Type 45s. The Horizon Memorandum of Understanding, which was signed in 1994, assumed French and Italian acquisition of four and six ships respectively.

4. The requirement to replace the Type 42 destroyers was scrutinised in the Strategic Defence Review. No changes were made to the operational case underpinning Project Horizon, which is now being addressed by the Type 45 Programme.

5. Type 45 destroyers equipped with PAAMS will provide area defence against aircraft and missiles, including local area defence against modern anti-ship missiles, to protect lightly armed or unarmed ships. In this role, the warships will support maritime assets across the range, from RoRo vessels through amphibious assault ships to aircraft carriers, in both UK national and allied/coalition operations. In addition, the Type 45—in common with all destroyers and frigates—will be a multi-role, general-purpose platform capable of operations across the spectrum of Defence tasks, from peace support to high intensity warfare.

6. The warship and PAAMs are planned to replace the capability currently provided in the Type 42 destroyer with its GWS30 Sea Dart weapon system. It is planned that the eleven Type 42s currently in service will be replaced progressively as Type 45s enter service, starting with the First of Class in 2007.

7. The ISD for CNGF was defined as the completion of Part IV Trials, which indicate the ship is fit to enter service. The original estimated ISD was December 2002. This slipped to June 2004, largely owing to the need to synchronise the warship and combat system programmes. The last offer from the Horizon industry group pointed to a UK first of class CNGF being further delayed until 2007, although there was no detailed plan to support even this date. The planned ISD for the Type 45 first of class is now set at November 2007 with less risk in the programme than would have been the case for CNGF. Deliveries of the Class of up to 12 ships are planned to complete in 2014. Prior to Main Gate, ISD definition for the Type 45 was revised to match the availability of the Destroyer for operational tasking after sea training. There was no effect on the programme as a result of this change.

8. Marconi Electronic Systems (MES) was nominated as the Prime Contractor for the Type 45 Programme on 23 November 1999, and at the same time contracted to complete the Preparation for Demonstration (PFD) phase of the programme. This responsibility passed to BAE SYSTEMS when MES merged with British Aerospace. The nomination of BAE SYSTEMS ensured: the minimum of delay to the overall programme; that maximum benefit from the Horizon programme was carried forward into the UK national programme; and that the Prime Contractor would own much of the risk associated with that earlier work. On 20 December 2000 the Demonstration and First of Class Manufacture (DFM) contract, which was to complete the design and build of the first three ships, was placed with BAE SYSTEMS Electronics, which is the commercial title for the Type 45 Prime Contract Office (PCO).

9. The MoD's original procurement strategy for the Type 45 was announced by the Secretary of State in July 2000. Under this, the first of class (HMS DARING) would have been assembled by BAE SYSTEMS Marine, with a substantial contribution from Vosper Thornycroft (VT), the second (HMS DAUNTLESS) by VT, and the third (HMS DIAMOND) by BAE SYSTEMS Marine. Both companies continue to be jointly involved in developing the design for the Type 45.

10. Under this strategy, it was intended that the Prime Contract would manage competitions for the manufacture and assembly of subsequent batches of Type 45 destroyers with MOD oversight. It was expected that all UK shipyards would have the opportunity to bid for the manufacture of blocks for the second batch of ships (with the competition for assembly of this batch being limited to Marine and VT), and for both ship assembly and manufacture for subsequent batches. In line with Government policy, there were no plans to extend competition for warship construction for the Royal Navy to yards overseas.

11. In late 2000, the MoD and Prime Contractor received an unsolicited bid from BAE SYSTEMS Marine which proposed assigning construction of twelve Type 45 ships to that company, as well as commitment to other naval programmes. After careful consideration, in conjunction with other Government Departments, the bid was rejected.

12. In June 2001, a possible alternative approach emerged from BAE SYSTEMS Marine and Vosper Thornycroft. This required MoD commitment to a further three Type 45s (bringing the total to six, within the planned class of up to twelve) but did not include reference to other programmes. It proposed that substantial sections of each ship would be built by Vosper Thornycroft at Portsmouth and BAE SYSTEMS Marine on the Clyde and at Barrow in Furness. The First of Class (HMS DARING) would be assembled and launched by BAE SYSTEMS Marine at Scotstoun, with the remainder assembled and launched by BAE SYSTEMS at Barrow. The focus of design support to the whole Class would remain at Scotstoun, with continuing participation by both shipbuilders. After careful consideration, involving other Government Departments, this alternative approach was accepted in principle.

13. On 10 July 2001, it was announced that the construction of a further three Type 45s had been approved, subject to successful completion of contractual negotiations. The intention was to extend the MoD's contractual commitment with the Prime Contractor to include this second batch of three ships, bringing the total to six. At the same time it was expected that the Prime Contractor would sign legally binding agreements with the shipbuilders (BAE Systems Marine and Vosper Thornycroft) for their work on the first six Type 45 platforms. The extension to the contractual commitment and the signature of the shipbuilding sub-contracts was announced on 18 February 2002.

PAAMS
14. Collaboration continues with France and Italy on PAAMS. On 11 August 1999, France placed a contract on behalf of the three nations for Full Scale Engineering Development and Initial Production (FSED/IP) with the tri-national consortium EUROPAAMS acting as Prime Contractor. Prime Contractor members were nominated by their governments. The UK member is UKAMS, which began as a jointly-owned subsidiary of Siemens Plessey, GEC and BAe SEMA—see paragraph 24 below. Following subsequent restructuring, UKAMS is now a wholly owned subsidiary of, and remains within, the recently formed MBDA (formerly Matra BAe Dynamics). FSED/IP sub-contracts have been let by the Prime Contractor and the placement of second tier sub-contracts is now complete.

15. In order to get PAAMS to sea as quickly as possible, a strategy of incremental acquisition of platform capability, from a baseline standard which is both affordable and achievable in the time to in-service date, has been adopted. This will enable the insertion of capability throughout the life of the Type 45s as requirements become affordable and to take advantage of future changes in defence requirements and technology advances. Following the placement of the Demonstration and First of Class Manufacture (DFM) contract on 20 December 2000 we have been able to accelerate part of the Incremental Acquisition Plan (IAP) and a hull-mounted sonar (the top priority in the Plan) will be fitted to all the ships on build.

16. Before the 1996 PAAMS Programme Memorandum Of Understanding (MOU) was signed, the UK considered a number of procurement options, including life extension of Type 42s and acquisition of off-the-shelf alternatives.

17. The PAAMS Programme MOU and its FSED/IP Supplement were signed by France, Italy and the UK in March 1996. The UK share of the costs of PAAMS FSED/IP will be higher than those of France and Italy. This is because we are bearing the costs of developing the Sampson Radar, which, whilst more capable than the FR/IT EMPAR radar, will be used only in the UK variant, and because the UK is making a contribution to the development cost of the Family of Future Surface to Air Missile Systems (FSAF) Programme being used for PAAMS. In addition, the UK currently plans to fit PAAMS to a significantly larger number of ships than the French and Italian navies combined.

18. The PAAMS Programme is managed by the tri-national PAAMS Programme Office (PPO) in Paris which reports to a tri-national Steering Committee. The aim is to delegate as much programme management work as possible to the PPO, although co-ordination of UK policy on PAAMS remains the responsibility of the Type 45 Integrated Project Team (IPT). Charters, agreed with France and Italy, set out the arrangements for co-ordinating PAAMS with the national Type 45 ship-programme and the new Franco/Italian bilateral Horizon programme.

19. At 12 February 2002, the PPO had 21 full time staff (ten from the UK (including two locally employed), five Italian and six French) and four part time staff (one Italian and three French). The UK also has one member of staff located with the FSAF Project Office in Paris. The tri-national Joint Project Office (JPO) located in London disbanded on completion of Phase 1 of Project Horizon on 31 October 1999. The Type 45 IPT has an annual running costs budget of £4.2 million, including the salaries and expenses of UK staff working in the PPO and FSAF Project Office.

20. Work is currently being undertaken to enable the integration of PAAMS into OCCAR (Organisme Conjoint De Co-operation En Mati"ere D'Armament). The OCCAR Board of Supervisors has stated that entry should be completed by the end of 2002.

21. The reasons for the failure of the tri-national Horizon programme were the subject of analysis by the tri-national Horizon JPO and the Horizon Steering Committee. The lessons learned are informing the UK's approach to future potential collaborative ventures. A short paper summarising the lessons learned was provided to the Committee as an Annex to the 2000 Memorandum.

22. The potential for achieving economies of scale by co-operative purchasing of common items in the Type 45 and Franco-Italian Horizon programmes has been explored without success to date. However, there have been benefits from PAAMS industry (MBDA) working closely with the T45 industry (BAE Systems). The most significant was the initiative to develop a common architecture, including servers and consoles, for the PAAMS and Combat Management System. This improves inter-system operability and generates considerable savings in through life costs.

23. Export potential for the Type 45 system as a whole constrained by its high technological specification and cost, but elements of the system such as the selected prime mover (the Rolls Royce/Northrop Grumman WR21 gas turbine) and PAAMS (in particular its associated multi-function radar) have considerable potential export prospects up to the value of several billion pounds over the next fifteen years. There could be prospects for refit programmes as well as in new build hulls. There is a growing level of interest from the Royal Australian Navy, which has plans for three air defence destroyers from 2013.

24. For PAAMS, the Matra BAe Dynamics UKAMS consortium was formed out of the companies possessing the technologies crucial to the programme—notably the existing FSAF contractors and the Sampson supplier Siemens Plessey Systems (now BAe Defence Systems Ltd). PAAMS work share is constrained by existing FSAF arrangements, but the aim is to achieve equitable work share throughout the life of the programme as far as practicable, subject to considerations of cost-effectiveness and competition.

25. For the national Type 45 warship programme, MES, as part of GEC, was part of the Horizon International Joint Venture Company (IJVC) and was heavily involved in the work that was undertaken by the IJVC during Phase 1 of the Horizon programme which completed at the end of October 1999. To avoid further delay to the replacement of Type 42 destroyers, it was essential that the chosen Prime Contractor would be able to make maximum use of the outputs of the HORIZON definition work and demonstrate an ability to resource the programme and deliver to the required timelines in partnership with the IPT.

26. The Type 45 Programme is being undertaken in accordance with the principles of Smart Acquisition. The Type 45 IPT was formally established in September 1999, consisting of the MoD Project Team at Abbey Wood and the single Prime Contractor Organisation (PCO) two miles away at Filton, Bristol. A charter, setting out the working ethos between the DPA and PCO, has been agreed. The Department is confident that the Smart Acquisition approach to requirements management, through the development of an initial operating capability, which could be progressively enhanced through a programme of incremental upgrading, will enable the first of class ship to be delivered on time and to cost.

27. The principal lessons for the UK that were learned from the outcome of the Horizon programme have been built into the Smart Acquisition Initiative. These lessons covered the procurement strategy, risk reduction, communication with industry at an early stage of the project, and affordability.

28. The PAAMS FSED/IP contract was placed on11 August 1999. This includes the supply of the systems and associated equipments and spares for the three nations' first of class ships. Systems for follow-on ships will be covered by a Supplement to the PAAMS programme MOU which is expected to be submitted to Ministers for signature by the Summer of 2002.

29. For the warship, the Prime Contractor, BAE SYSTEMS Electronics, was contracted on 20 December 2000 to undertake the DFM phase. This contract has been extended to include the second batch of three Type 45s.

Note 1
Following Main Gate Approval in July 2000, figures show: total approved level of expenditure for six ships and prior approvals covering predominantly PAAMS FSED/IP, HORIZON and T45 Assessment phase (Latest Approval); against the current estimate of expenditure (Current Estimate). Expenditure is calculated at out-turn prices.
Note 2
Warship assessment phase completed on placement of DFM.

31. Delays in the PAAMS programme were largely related to slow progress in agreeing a procurement strategy with partners and then in negotiating a satisfactory contract.

32. Forward commitment now amounts to £2,252 milliob (this figure has been increased from the one reported last year because of the ongoing progress in the ship programme). For the projected class of 12 ships, the total cost is expected to be of the order of £8 billion, including £2.8 billion total acquisition costs for PAAMS (with figures calculated on a resource basis, as in MPR 2001). The years of peak expenditure are expected to be 2007-08 and 2008-09.

33. Under the terms of the Horizon MOU, the UK carried liabilities in respect of additional expenses associated with winding up the Horizon JPO/International Joint Venture Company (IJVC). Following completion of the contract, the IJVC has been wound up without any claim on the MoD. The JPO was closed on 31 October 1999, with no additional expenses being incurred.

34. As part of the initial contract to procure the first three Type 45s, BAE SYSTEMS undertook to study options for Contractor Logistic Support (CLS) of the platforms, reporting by the end of 2001. As this study progressed it became clear that a CLS contract based on whole warship availability would be extremely complex and necessarily require a high degree of contingency built in to cover the contractor's risk exposure. Additionally, it would not enable the MoD to optimise its resources and priorities over all platforms. It was therefore decided, in conjunction with the Warship Support Agency, to alter the scope of the study into a phased approach to support. The first phase, now on contract, is to devise, in conjunction with the Warship Support Agency, the optimum support solution for all T45 equipments. From this, it is envisaged there will emerge a range of support from conventional support, or CLS contracts through the Equipment IPT, to a core CLS contract for the T45. The study will also define the means of managing in service support, with the aim of delivering a bid in late 2003 to undertake the core CLS activity including post design services.

35. Ship staff training and spares storage are potential bottlenecks to ships coming into operational service. The former can be managed by the increased use of experienced Type 42 crew which would reduce the need for pre-joining training when the Type 45 comes into service; use of computer-based training will reduce disruption to operational programmes. `Just In Time' stock management techniques will also reduce the volume of spares to be held, thus minimising the need for new storage facilities during the transition period. It is planned that a CLS contract will be in place a year before ISD, to provide experience in its operation during trials and validate the in service support solution for the In Service phase.

36. Assuming a class of 12 ships, nine or ten would, on average, be available at any one time to the Commander-in-Chief Fleet for tasking, while two or three would be undergoing maintenance, including one or two in refit. It is not planned to hold any ships in storage or as in-use reserves.

37. Commonality of many of the PAAMS systems and sub-systems, including in particular the Aster missile, will ensure a good level of interoperability with both France and Italy. In the warship context, the requirement for interoperability with Joint and Combined Forces at system and sub system level is a high priority.

38. The sales potential of Type 42 warships as they are being disposed of is being examined.

40. The Type 45's systems and sub-systems will be updated as appropriate throughout the life of the system to take account of developments in the operational environment. It is possible that the Future Surface Combatant programme, currently in the early stages of concept development, will draw on major elements of the Type 45.

THE RAND REPORT ON THE TYPE 45 PROCUREMENT STRATEGY, AND THE WARSHIP SUPPORT MODERNISATION INITIATIVE

The MoD commissioned RAND EUROPE in April 2001 to investigate potential procurement strategies which the MoD could pursue for its future warship programme over the next 10-15 years with particular reference to the Type 45 Anti-Air Warfare Destroyer. This followed an unsolicited proposal received in December 2000 from BAE SYSTEMS Marine, which proposed assigning construction of twelve Type 45 ships to that company, as well as commitment to other naval programmes. This differed from the Type 45 shipbuilding procurement strategy at that time which saw Vosper Thornycroft building one of the first batch of three ships and competing for later batches. Interim results from RAND's study informed MoD's decision to proceed with a revised procurement strategy for the Type 45, which was announced by the Secretary of State for Defence on 10 July 2001. RAND continued their study, taking a broader look at the foreseeable balance of demand and supply in the sector, and the potential effects of different procurement approaches. The study is now complete and at the time of writing RAND is expected to publish their report shortly. This memorandum sets out the background to the study, RAND's approach, and the results that informed the decisions on Type 45.

Another issue for MoD in considering the unsolicited proposal was the potential impact on the development of the Warship Support Modernisation Initiative. This memorandum also provides details of this initiative, including the MoD's current views on the relative merits of the proposals put forward by industry and the trade unions.

1. On 11 July 2000 the Secretary of State for Defence announced the approval of the procurement of the first three Type 45s. At that time the procurement strategy envisaged a prime contract placed later that year with BAE SYSTEMS Electronics with back-to-back sub-contracts with BAE SYSTEMS Marine (Marine) (for the assembly of the first and third ships) and Vosper Thornycroft (VT) (for the assembly of the second ship). Marine would also be expected to sub-contract a pre-determined amount of work on the first ship to VT. A substantial element of the total manufacture work on all three ships would be shared between VT and Marine. The precise division of manufacture work was subject to negotiation between the Prime Contractor, and Marine and VT. This strategy was intended to ensure that both yards would have sufficient experience to compete equitably for the second batch of Type 45 (which were planned to be ordered around 2004), and to preserve the potential for competition not only for later Type 45 production, but also for future warship production, such as the Future Aircraft Carrier. In the event, Marine and VT could not agree a risk sharing partnership in time for sub-contracts to be let back-to-back with the prime contract (the Demonstration and First of Class Manufacture contract) which was placed in December 2000.

2. Later that month, the MoD received an unsolicited proposal from Marine, through the Type 45 Prime Contract Office. The proposal suggested, inter alia, that Marine should build all twelve planned ships and appeared to offer substantial savings to the MoD over the previous procurement strategy for Type 45. As with any approach which appears to offer value for money, MoD was obliged to consider it seriously. An immediate concern however was that by assigning all the Type 45 work to Marine, the potential for competition for the production of future major warship programmes could have been put at serious risk.

3. During the early part of 2001, MoD spent considerable effort in clarifying elements of the proposal, and sought to supplement the internal analysis with appropriate expert advice from outside Government. In April 2001, RAND EUROPE, a wholly-owned subsidiary of the US RAND corporation, was commissioned to study the advantages and disadvantages of alternative procurement strategies for MoD's future warship programmes, and in particular in relation to options for the Type 45, over the next 15-20 years. The study was expected to inform (but not determine) decisions by the MoD on individual programmes with the aim of securing value for money over the warship programme as a whole.

4. RAND is a very experienced and influential policy-analysis think tank, and has been conducting analyses of military shipbuilding, industrial base, and competition issues for two decades. Most recently, RAND has completed major studies on the US aircraft carrier industrial base, the US submarine industrial base, and on the appropriate role of competition in the production of the Joint Strike Fighter. In each case, the United States' most senior defence decision makers made policy choices based on RAND's analysis.

5. RAND has no commercial interests in the US or UK shipbuilding industries. In this particular study, MoD set the context and defined the problem for RAND. Thereafter, RAND independently developed the study's approach, analysis and conclusions. While RAND considered comments and suggestions from all interested parties along with the way, the report's findings and conclusions are theirs and theirs alone.

6. RAND conducted a quantitative and qualitative comparison of the advantages and disadvantages of having one or two shipbuilding companies produce the Type 45 over the next 15 years. Options examined included single source procurement, dual source competitive procurement and dual source directed buys, employing either whole-ship or modular (`block') production techniques in one or more shipyards.

7. RAND developed a new analytical model of the UK shipbuilding industrial base, which considered all current and future Marine and VT programmes. Using the model RAND estimated workforce, overhead, and investment costs for different options, to display the relative cost impacts on the Type 45 of different acquisition and production strategies, and, in broad terms, to assess the effect of those strategies both on the United Kingdom's shipbuilding industrial base and on the costs of other current and future MoD ship programmes.

8. Using historical information and informed by previous studies, RAND also considered the likelihood of competitive pressures in bidding for subsequent batches of Type 45 reducing costs enough to overcome the cost penalties of distributing work among two producers, using break-even analysis. In addition, they considered the risks associated with different production strategies—ie whole ship or block construction.

9. RAND were provided with information by the Equipment Capability Customer organisation and Integrated Project Teams in the MoD and by five UK shipbuilders—VT, Marine, Swan Hunter, Appledore, and Harland & Wolff. Much of this information was commercially confidential, and the published report will necessarily exclude such data.

10. RAND is expected to publish its report on the overall study shortly (a copy of the report will be placed in the House of Commons Library). The interim results, which informed the decision in July 2001 to alter the Type 45 procurement strategy (described in the separate Type 45 memorandum), were made available to the MoD throughout June and July 2001. The key findings included the following:

11. RAND'S further work on the Type 45 procurement strategy study has included looking at some of the broader capacity and procurement policy issues in relation to the sector. The final report is expected to outline areas which require further investigation. In addition, RAND has been commissioned to assist the MoD in evaluating the build strategy proposals of the two competing primes in the Future Carrier (CVF) programme.

12. The Type 45 procurement strategy report is not expected to make specific recommendations concerning procurement strategies for future programmes, although it has helped clarify the issues regarding block production (which is likely to be employed for CVF). The study has also provided an indication of the industrial capacity required to sustain the future programme, suggesting that, while there is a current risk of excess capacity in the shipbuilding industry if MoD orders are not supplemented by export and commercial work, the workforce will need to expand considerably by the end of this decade to accommodate the forward warship building programme as currently planned.

13. One issue with implications for the Type 45 programme, beyond the scope of work which RAND were commissioned to analyse in detail, was the potential impact on the Warship Support Modernisation (WSM) Initiative.

14. Through the WSM initiative, the Department is pursuing changes to warship repair and maintenance arrangements which should help address current over-capacity and achieve significant savings to the Defence budget.

15. Memoranda of Understanding (MoUs) outlining the principles within which negotiations would take place were signed in January 2001 with each of the interested companies—Devonport Management Ltd, Babcock Rosyth Defence Ltd, and Fleet Support Ltd. A separate MoU was also signed with VT to pursue the possibility of them moving their steel shipbuilding operations from Woolston, Southampton, to land leased at the Naval Base. The move was a commercial decision by the company and in their view contingent upon ship build procurement decisions—specificially, on the Type 45—by MoD. Such a move would lead to additional revenue to the Department, through the WSM initiative. On 18 February this year, VT announced that activity at their Woolston site would cease in 2003 and that they were going ahead with the move to Portsmouth.

16. Agreement has been reached on a 125-year lease with VT for land and buildings within Portsmouth Naval Base. VT are to invest in new steel ship building facilities on an area at the southern end of No. 3 basin, comprising three large dry docks (two of which would be filled in, in order to construct a large shipbuilding hall), extensive workshop facilities, storage facilities and a large office complex.

17. This lease is separate from the discussions that have been held over the last year with Fleet Support Ltd, and their proposals for partnering. Its agreement does not pre-empt decisions on the wider WSM Initiative, nor signal that decisions have already been made.

18. Final detailed proposals from the trades unions and from each of the companies were received in September 01. The trade union proposals hinged on co-operation with Naval Base management in the implementation of in-house efficiencies and also explored the avoidance of transfers to the private sector through alternative forms of partnering arrangements with industry. The company proposals covered the provision of engineering support plus related logistics activities and facilities and estates management at the Naval Bases. All options have been evaluated and compared for best value for money against an internal Benchmark. The results of this analysis are now with the Secretary of State for a decision on the way ahead.

8. In April 2001, the MoD commissioned consultants RAND Europe to investigate potential procurement strategies for the MoD's warship programme over the next 10-15 years. The study's impetus came from difficulties encountered in negotiating the contract for the Type-45 destroyer, and many of its conclusions were directed towards mapping out that programme's future direction.

9. The previous Committee produced a report on the Type-45 destroyer programme (and its associated PAAMS anti-air missile) in 1999. It highlighted the delays, cost overruns and collaboration difficulties of its predecessor programme—the Common New Generation Frigate—which led the UK to withdraw from it in April 1999 and launch its own national Type-45 destroyer programme. The MoD had appointed Marconi Electronic Systems (subsequently BAE Systems Electronics) as the Type-45 prime contractor in November 1999, without competition because the firm had previously been involved in the aborted collaborative programme. The MoD's plan, announced in July 2000, was for two principal sub-contractors to build the first three of what could be "up to" 12 vessels in the programme—BAE Systems Marine to build two, and Vosper Thornycroft one. The intention was to allow both BAE Systems Marine and Vosper Thornycroft to be able to compete for the assembly of further Type-45s, with ship modules, or 'blocks', to be able to be supplied by these and other shipyards.

10. In late 2000, however, one of the subcontracting shipyard firms, BAE Systems Marine, submitted an unsolicited proposal to build all 12 Type-45 destroyers. The MoD "could see that the Type-45 procurement strategy was not delivering results," and commissioned the RAND study to help inform its consideration of the new proposals. Sir Robert Walmsley told us that at December 2000, when the MoD placed the prime contract to build the first three destroyers, the ship's design immaturity was such that the prime contractor could not place sufficiently specific sub-contracts with either Vosper Thornycroft or BAE Systems Marine. The MoD had been looking for a risk-sharing agreement between the prime contractor and each of these two shipyards that would require the shipyards to take a risk that work would be added subsequently to the specification. As the Chief of Defence Procurement put it, "we were unable to persuade the prime contract office and the shipbuilders to share that risk."

11. While the MoD subsequently rejected the unsolicited BAE Systems Marine proposals, the RAND study allowed the Department to accept a new joint BAE Systems Marine/Vosper Thornycroft proposal for BAE Systems Marine to assemble six batch-one vessels from 'blocks' built by both firms. The revised contract, for six vessels, was placed with BAE Systems Electronics (the prime contractor) in February 2002. The RAND study also helped the MoD evaluate construction options for the Future Carrier (paragraph 25).

12. RAND took as its starting point (or 'reference case') the option of one shipyard producing all of the Type-45s, taking advantage of the cost efficiencies possible from 'learning' over a long production run, and then evaluated the possible additional costs or savings should the MoD instead follow one of four alternative approaches—

13. These four options for dividing the work would add to the production costs that could be achieved by a single shipyard, taking advantage of production efficiency savings that are possible when it is decided at the outset to place all of the work with one shipyard. According to RAND's calculations, the extra costs of dividing the work were 10-13% in the case of a whole-ship division between two yards (options a, b and c above), and about 5% for a division of ship 'blocks' between two yards (option d above). These extra costs would reflect the way that Type-45 construction overheads at the shipyards would be spread over fewer ships in each location when the work was divided, and Astute submarine construction overheads spread over fewer ships at the BAE Systems Marine yard at Barrow. The study then examined the likelihood that savings from competition at intervals (as in options a and b) could more than offset these extra costs. There is little reliable evidence on the savings possible from warship competition, and RAND's analysis gave a wide range of figures. Data from 31 ship and missile programmes suggested savings from competition averaging only 7%, with some programmes producing competition savings of up to 40% on the one hand, and others with extra costs of 30% on the other.

14. RAND concluded from their analysis that "historical competitive programme data suggest that there is approximately a 50:50 chance that competition, if it can be sustained over the programme as a whole, will result in equal or lower costs than a sole source. Therefore, there is no dominant answer to whether competition or sole source would be likely to lead to lower costs". The Chief of Defence Procurement put that in context against past MoD procurement policy—

15. Informed by the RAND analysis, the MoD decided to allocate the Type-45's six 'blocks' between the two shipyards, with the same blocks for each ship to be allocated to specific shipyards. Vosper Thornycroft will build virtually all the ship forward of the bridge (two blocks), as well as both masts, the funnel and the upper works. The BAE Systems Marine Barrow shipyard will build the engine rooms (two blocks) and, after ship-one, will assemble the ships. And BAE Systems Marine's Clyde yard will make the stern and the operations room (each a separate block), as well as assembling ship-one.

16. The unsolicited proposal from BAE Systems Marine was rejected because of a number of factors. First, BAE Systems had attached conditions about other equipment programmes in order to generate the proposed cost savings, and this would have entailed, we were told, "signing up to quite a major shift in our policy, which was to distribute warship building for competition reasons." We noted, nevertheless, that with the 'block' allocation strategy dividing all of the work at the outset, it provides, according to RAND, "no opportunity for continuing competition throughout the production programme, no basis for expecting any reduction from [initially agreed] costs, and minimal incentive for innovation. Therefore, this [block allocation] strategy must be evaluated on criteria other than that of [a comparison of the costs of other options]". The consultants concluded that—

17. Second, the MoD told us that under BAE Systems' unsolicited bid a large component of the Type-45 programme would have been undertaken at Barrow, resulting in congestion in that shipyard between modules of Type-45 destroyers and Astute submarines in the Devonshire Dock Hall: "Either Astute or Type-45 would not have to have much of a hiccup for the whole place to come to a grinding gridlock." We noted, however, that the RAND study also foresaw such risks with the 'block allocation' strategy that was finally settled upon, and they cautioned that under the MoD's new plan "scheduling of the construction and delivery of the blocks must be closely managed; a block that arrives late at the assembly yard [at Barrow] may cause significant delays in not only the Type-45 programme but also in the Astute programme".

18. In adopting the RAND strategy of seeking 'learning curve' efficiencies from allocating ship modules over a long production run, we questioned the MoD about its decision to offer a construction contract for only six vessels rather than for the entire twelve of the class. CDP told us that committing to 12 would have reduced the flexibility of the defence programme. He assured us, however, that the conditions for pricing the seventh and subsequent ships were linked to the productivity secured in the first batch ordered, while retaining flexibility over its equipment fit—

19. It appears to us that that 'sound case' for all 12 of the anti-air warfare destroyers will be the stronger if our carriers are not to have a dedicated air-defence aircraft (we discuss later in this report the early withdrawal of the air-defence Sea Harrier and the non-air-defence role of its Joint Strike Fighter replacement). In its response to our predecessor's report on the Type-45 programme, the MoD stated that the balance of Type-45s and Future Surface Combatants—set by the SDR at 12 and 20 ships respectively—would be subject to "continuing critical operational analysis". It is our hope that the 'sound case' to which CDP refers now settles the result of that analysis, and that the MoD has accepted that it needs at least 12 destroyers.

TYPE 45 ANTI-AIR WARFARE DESTROYER AND ITS PRINCIPAL ANTI-AIR MISSILE SYSTEM (PAAMS)

The Common New Generation Frigate (CNGF), a collaborative programme with France and Italy, was planned to replace the UK's Type 42 destroyers in the early part of the century. CNGF comprised two distinct collaborative programmes: the Principal Anti Air Missile System (PAAMS) and the ship with its other systems (Horizon). Whilst the contract for the development and initial production of PAAMS has been placed, the "Horizon" project did not progress satisfactorily. The three nations agreed on 25 April 1999 that it would not be cost-effective to pursue a single prime contract for the ship and that the tri-national Horizon programme would end upon completion of its Project Definition and Initial Design Phase (Phase 1) at the end of October 1999. The UK is now taking forward its ship programme, designated the Type 45 Anti-Air Warfare Destroyer Programme, through a national prime contract, building on the tri-national project work already carried out and pursuing opportunities for co-operative procurement in equipping the ships.

1. PAAMS and Horizon both derived from the single Tri-Partite Staff Requirement for CNGF. The requirement was approved by the three participating nations, the UK, France, and Italy, in December 1992. The UK requirement was, and continues to be in the national Type 45 programme, for a ship to provide effective area air defence against aircraft and missiles, to replace the Type 42 destroyers. At the start of Project Definition for Horizon in 1995, the intention was that PAAMS would provide an anti-air warfare capability sufficient to meet the most demanding threat foreseen. It was subsequently agreed that the initial capability sought should be sufficient to meet the most demanding threat forecast at the then expected in-service date for CNGF (2004), but that a growth path to provide the capability necessary to address future predicted threats would also be identified as part of this work. This remains the position for the Type 45, and we have revalidated that PAAMS will be able to meet the most demanding threat foreseen for 2007, when the Type 45 is due to enter service.

2. The principal cost/capability trade-off in the PAAMS programme has been the acceptance of a capability sufficient to meet the threat at ISD, rather than beyond. However, the PAAMS Full Scale Engineering Development and Initial Production (FSED/IP) contract (see Paragraph 12) includes a Growth Potential Study that examines the modifications that may be required to meet the threat beyond 2010. Studies into cost/capability and programme/capability trade-offs for Project Horizon to achieve an affordable CNGF were undertaken as part of Phase 1 of its programme which completed on 31 October 1999. This work has been carried forward into the UK's national programme.

3. The UK planning assumption is for the acquisition of up to 12 Type 45s. The Horizon Memorandum of Understanding, which was signed in 1994, assumed French and Italian procurement of four and six ships respectively.

5. Type 45 destroyers equipped with PAAMS will provide area defence against aircraft and missiles, including local area defence against modern anti-ship missiles, to protect lightly armed or unarmed ships. In this role, the warships will support maritime assets across the range, from RoRo vessels through amphibious assault ships to aircraft carriers, in both UK national and allied/coalition operations. In addition, the Type 45—in common with all destroyers and frigates—will be a multi-role, general-purpose platform capable of operations across the spectrum of tasks, from peace support to high intensity warfare.

6. The warship and PAAMS are planned to replace the capability currently provided in the Type 42 destroyer with its GWS30 Sea Dart weapon system. The Type 42s are scheduled to be withdrawn from service from the Type 45 first of class in service date and then at intervals staged to match the in-service dates of incoming hulls, with the exception of HMS Birmingham, which left service in 1999.

7. The ISD for CNGF was defined as the completion of Part IV Trials, which indicate that the ship is fit to enter service. The original estimated ISD was December 2002. This slipped, largely owing to the need to synchronise the warship and combat system programmes, and the internationally agreed ISD for CNGF was amended to June 2004. The last offer from the Horizon industry group pointed to a UK first of class CNGF being further delayed until 2007, although there was no detailed plan to support even this date. We are confident that the Type 45 first of class can be delivered within a similar timescale and with less risk. A 12 ship build programme could be completed in 2014. ISD definition has since been revised to reflect the availability of the Destroyer for operational tasking after sea training. This will normally be two months after the completion of Part IV Trials and sets the ISD for the first of class as November 2007. There is no effect on the programme as a result of this change.

8. Marconi Electronic Systems (MES) was appointed as the prime contractor for the Type 45 Programme on 23 November 1999 when it was also contracted to complete the Preparation for Demonstration (PFD) phase of the programme. This responsibility passed to BAe Systems when MES merged with British Aerospace. The appointment of BAe Systems (formerly MES) ensured the minimum of delay to the overall programme; that maximum benefit from the Horizon programme was carried forward into the UK national programme; and that the prime contractor would own much of the risk associated with that earlier work. On 20 December 2000, the Demonstration and First of Class Manufacture (DFM) contract, which is to complete the design and build of the first three ships, was placed with BAe Systems Electronic—the commercial title for the Type 45 Prime Contract Office (PCO).

9. The MoD's procurement strategy for the Type 45 was announced by Secretary of State in July 2000. Under this, the first of class (HMS Daring) would be assembled by BAe Systems Marine, with a substantial contribution from Vosper Thornycroft (VT), the second (HMS Dauntless) by VT, and the third (HMS Diamond) by BAe Systems Marine. Both companies are jointly involved in developing the design for the Type 45. The Prime Contractor will be letting sub-contracts for the build of the ships as soon as an affordable price at an acceptable risk has been agreed.

10. Under this strategy, it is intended that the Prime Contractor would manage competitions for the manufacture and assembly of subsequent batches of Type 45 destroyers with MoD oversight. It is expected that all UK shipyards would have the opportunity to bid for the manufacture of blocks for the second batch of ships (with the competition for assembly of this batch being limited to Marine and VT), and for both ship assembly and manufacture for subsequent batches. In line with Government policy, there are no plans to extend competition for warship construction for the Royal Navy to yards overseas.

11. Separately, the MoD and the Prime Contractor have received an unsolicited bid from BAe Systems Marine concerning the procurement approach to the Type 45 programme. This proposal is being evaluated and the MoD will consult with other Government departments before coming to a conclusion.

12. Collaboration continues with France and Italy on PAAMS. On 11 August 1999, France placed a contract on behalf of the three nations for Full Scale Engineering Development and Initial Production (FSED/IP) with the tri-national consortium EUROPAAMS acting as prime contractor. Prime contractor members were nominated by their governments and the UK member is UKAMS, which began as a jointly-owned subsidiary of Siemens Plessey, GEC and BAe SEMA. Following subsequent restructuring, UKAMS is now a wholly owned subsidiary of, and remains within, Matra BAe Dynamics. FSED/IP sub-contracts have been let by the prime contractor, and the placement of second tier sub-contracts is now well underway.

13. In order to get PAAMS to sea as quickly as possible, a strategy of incremental acquisition, from a baseline standard which is both affordable and achievable in the time to in-service date, has been adopted. This will enable the upgrade of capability throughout the life of the Type 45 Class to take advantage of future changes in defence requirements and technology advances. Following the placement of the Demonstration and First of Class Manufacture (DFM) contract on 20 December 2000 (see paragraph 26) we have been able to accelerate the Incremental Acquisition Plan (IAP) so as to enable a hull-mounted sonar (the top priority in the Plan) to be fitted to all the ships as they are built.

14. Before the 1996 PAAMS Programme MoU was signed, the UK considered a number of procurement options, including life extension of Type 42s and acquisition of off-the-shelf alternatives.

15. The PAAMS Programme MoU and its FSED/IP Supplement were signed by France, Italy and the UK in March 1996. The UK share of the costs of PAAMS FSED/IP will be higher than those of France and Italy because we are bearing the costs of developing the Sampson Radar, which will only be used in the UK variant, and because the UK is making a contribution to the cost of the Franco-Italian technology in the Family of Future Surface to Air Missile Systems (FSAF Programme) being used for PAAMS. In addition, the UK currently plans to fit PAAMS to a significantly larger number of ships than the French and Italian navies combined.

16. The PAAMS Programme is managed by the tri-national PAAMS Programme Office (PPO) in Paris which reports to a tri-national Steering Committee. The aim is to delegate as much programme management work as possible to the PPO, although co-ordination of UK policy on PAAMS remains the responsibility of the Type 45 Integrated Project Team (IPT). Charters, agreed with France and Italy, set out the arrangements for co-ordinating PAAMS with the national Type 45 ship-programme and the new Franco/Italian bilateral Horizon programme. PAAMS is a candidate programme for administration within OCCAR (Organisme Conjoint De Co-operation En Matie"re D'Armament). The optimum date for joining is under debate.

17. At 1 February 2000, the PPO had 21 full time staff (10 from the UK, five Italian, and six French) and four part time staff (one Italian and three French). The UK also has one member of staff located with the FSAF Project Office in Paris. The tri-national Joint Project Office (JPO) located in London disbanded on completion of the Project Definition and Initial Design Phase of Project Horizon on 31 October 1999. The Type 45 IPT has an annual running costs budget of £4.5 million, including the salaries and expenses of UK staff working in the PPO and FSAF Project Office.

18. The reasons for the failure of the tri-national Horizon programme were the subject of analysis by the tri-national Horizon JPO and the Horizon Steering Committee. A short paper synthesised their and others' views into a single national "lessons learned" report and is informing the UK's approach to future potential collaborative ventures. A copy was provided to the Committee as an Annex to last year's (2000) Memorandum.

19. The potential for achieving economies of scale by co-operative purchasing of common items in the Type 45 and Franco-Italian Horizon programmes has been explored without success to date. However, a recent improvement in relations between the two ship programmes has allowed some more constructive dialogue to take place.

20. Export potential for the system as a whole is constrained by its high technological specification and cost, but elements of the system such as the selected prime mover (the Rolls Royce/Northrop Grumman WR21 gas turbine) and PAAMS (in particular its associated multi-function radar—SAMPSON in the UK variant) may have considerable export prospects to the value of several billion pounds over the next 15 years. There could be prospects in refit programmes as well as in new build hulls. There is a growing level of interest from the Australian Navy where their recent white paper envisaged three air defence destroyers from 2013.

21. For PAAMS, the Matra BAe Dynamics UKAMS consortium was formed out of the companies possessing the technologies crucial to the programme—notably the existing FSAF contractors and the Sampson supplier Siemens Plessey Systems (now BAe Defence Systems Ltd). PAAMS work share is constrained by existing FSAF arrangements, but the aim is to achieve equitable work share throughout the life of the programme as far as possible, subject to considerations of cost-effectiveness and competition.

22. For the national warship programme, MES, as part of GEC, was part of the Horizon International Joint Venture Company (IJVC) and was, therefore, heavily involved with the work that was undertaken by the IJVC during the Horizon Project Definition and Initial Design Stage, which completed at the end of October 1999. To avoid further delay to the programme to replace the Type 42 destroyers, it was essential that the chosen prime contractor would be able to make maximum use of the outputs of the HORIZON definition work, and demonstrate an ability to resource the programme and the timelines in partnership with the IPT.

23. The Type 45 Programme is being undertaken within the principles of Smart Acquisition. The Type 45 IPT was formally established in September 1999, consisting of the MoD Project Team at the DPA and the single Prime Contractor Organisation (PCO) two miles away at Filton, Bristol. A charter, setting out the working ethos between the DPA and PCO, has been agreed. The Department is confident that the Smart Acquisition approach to requirements management, through the development of an initial operating capability, which could be progressively enhanced through a programme of incremental upgrading, will enable the first of class ship to be delivered on time and to cost.

24. The principal lessons for the UK that were learned from the outcome of the Horizon programme, covering the procurement strategy, risk reduction, communication with industry at an early stage of the project, and affordability, have been built into the Smart Acquisition Initiative.

25. The PAAMS FSED/IP Phase contract was placed on 11 August 1999. This includes the supply of the systems and associated equipments and spares for the three nations' first of class ships. Systems for follow-on ships will be covered by a second supplement to the PAAMS programme MoU on which formal negotiations with France and Italy are close to conclusion.

26. For the warship, the prime contractor BAe Systems Electronics was contracted on 20 December 2000 to undertake the DFM phase. The next batch of three Type 45s is expected to be ordered around 2004.

27. The table below shows the currently planned milestones and approved budget at MPR 2000 price base:

Source: House of Commons - Hansard
Date: 10 July 2001

ANNOUNCEMENT TO THE HOUSE OF COMMONS BY THE SECRETARY OF STATE FOR DEFENCE, MR. GEOFFREY HOON

With permission, Mr. Speaker, I would like to make a statement about the procurement strategy for the Type 45 destroyer.

It is almost a year to the day since I announced to the House the decision to procure the first batch of three Type 45 destroyers, as part of a planned class of up to 12 ships. The Type 45s will be the largest and most powerful air defence destroyers ever ordered for the Royal Navy.

Since that announcement, we have made good progress. The contract to complete the design and build of the first three ships was placed with BAE Systems on 20 December last year. Design work is also progressing well. An integrated design team--whose members come from the prime contractor, BAE Systems, and the two shipbuilding companies BAE Systems Marine and Vosper Thornycroft--has been established at Scotstoun for the last six months. In addition, a number of key subcontracts, such as those for the Rolls-Royce WR21 engine and much of the combat system, have now been placed. There have been a number of successful test firings of the Aster missile, the ship's main armament, which is being developed with France and Italy.
However, progress towards the shipbuilding subcontracts has been more difficult. The procurement strategy for the Type 45 was based on the allocation of shipbuilding work for the first three ships between the BAE Systems Marine yards at Barrow-in-Furness and on the Clyde, and Vosper Thornycroft. Thereafter, it was assumed that both companies would compete for the assembly of batches of the succeeding ships.

At the end of last year, however, BAE Systems Marine put forward an unsolicited proposal for the construction of all 12 of the Type 45 destroyers. We have been examining this proposal carefully to establish whether it offered better value for money for the taxpayer. We have also called on the services of RAND--a highly respected independent consultancy, experienced in this type of issue--to take a fresh look at possible procurement strategies for this programme in the context of the future warship programme as a whole.

For the original procurement strategy to work, the shipbuilding companies need to work closely together during the development and manufacture of the first batch of ships already on order. Such co-operation has not been encouraged by the existence of the unsolicited proposal, nor by the prospect that the companies would have to compete against each other for the second batch of ships.
We have been keen to resolve these problems, as has industry. Working with the companies, we have developed a revised strategy, which allocates work on the ships between the two shipbuilders for the whole class of Type 45 destroyers. The first-of-class ship will be assembled and launched at Scotstoun. The focus of design support to the whole class will remain there, with continuing participation by both shipbuilders. The remaining ships will be assembled and launched at Barrow-in-Furness.

Vosper Thornycroft at Portsmouth, and BAE Systems Marine--on the Clyde and at Barrow-in-Furness--will both build and outfit substantial sections of each ship. The yards will continue to build the same sections throughout the programme, to increase efficiency and produce better value for money for the taxpayer.

Under the strategy, a commitment has now been made to six ships in a planned class of up to 12 ships. That commitment has therefore doubled the number on order. This larger volume of guaranteed work, and a stable foundation to the project, will allow industry to make long-term investment decisions.

Subject to negotiations being completed satisfactorily, I propose to adopt this revised approach, through which we are confident that we can secure demonstrable value for money. We are seeking demanding efficiency improvements from industry. The initial findings of the RAND study support this new approach. It reflects the best features of the BAE Systems Marine bid in terms of learning from experience from one ship to the next, but it also preserves the possibility of competition for a number of subsequent defence programmes. The new strategy gives a welcome level of stability to our warship building industry. Above all, it offers the best prospect of achieving the in-service date for the Type 45 destroyer, with deliveries to the Royal Navy starting in 2007. Any significant delay in that date would have significant operational and cost penalties.

The new approach gives Vosper Thornycroft a defined and significant role in the Type 45 programme. The company will be able to move its operation, as planned, into the Portsmouth naval base, and to invest in new shipbuilding facilities there. The new approach also provides a solid foundation from which the company can sustain its export business and enter competitions for future naval programmes. The company estimates that the substantial level of high-quality Type 45 work should sustain a steady level of some 650 jobs well into the current decade.

Type 45 work, together with the first three Astute class submarines and the order for two alternative landing ships (logistic) announced last year, should support BAE Systems Marine shipbuilding for the rest of the decade. The company's own estimates show that, once the total construction programme is up and running, work on Type 45 vessels can sustain a steady level of some 1,200 jobs on the Clyde and about a further 900 jobs at Barrow-in-Furness. I understand that, in the light of this package of work, the company has no plans to close any of its yards.

This revised procurement strategy for the Type 45 destroyer is a further example of the benefits of smart acquisition, which involves an integrated team approach by the key industrial partners. The companies involved have welcomed this new strategy, and I commend it to the House.

	Latest Approval	Current Estimate
Expenditure (See Note 1)	£6,168 million (approval for six ships)	£5,565 million
	Original	Current Estimate
Start of PAAMS FSED/IP	September 1996	August 1999
Start of warship assessment phase	July 1999	July 1999
Completion of Horizon Phase 1	July 1998	October 1999
Completion of warship assessment phase	End 2000	End 2000
Start of warship Demonstration and manufacture (DFM) phase (for first three ships)	September 2000	December 2000
First-of-class ISD (see paragraph 7 above)	September 2007 (completion of Part IV trials)	November 2007 (availability for operational tasking)
DFM completed (ISD of third ship)	December 2009	December 2009

NOTE 1. Following Main Gate Approval in July 2000, figures show: total approved level of expenditure for six ships and prior approvals covering predominantly PAAMS FSED/IP, HORIZON and T45 Assessment phase (Latest Approval); against the current estimate of expenditure (Current Estimate). Last year's figures therefore excluded the financial approval for six ships. Expenditure is calculated, as for MPR 2000, at out-turn prices on a resource basis.

28. Delays in the PAAMS programme were largely related to slow progress in agreeing a procurement strategy with partners and then in negotiating a satisfactory contract.

29. The table below shows cash expenditure to date (ie excluding accruals and interest on capital). Forward commitment amounts to £2,168 million (this figure has been increased from the one reported last year, since it now includes the Type 45 DFM commitment). For the projected class of 12 ships, the total cost is expected to be of the order of £8 billion, including £2.8 billion total acquisition costs for PAAMS (calculated on a resource basis, as in MPR 2000). The years of peak expenditure are expected to be 2007-08 and 2008-09.

30. Under the terms of the Horizon MoU, the UK carried liabilities in respect of additional expenses associated with winding up the Horizon JPO/International Joint Venture Company (IJVC). Following completion of the contract, the IJVC has been wound up without any claim on the MOD. The JPO was closed on 31 October 1999, no additional expenses being incurred.

31. As part of the initial contract to procure the first three Type 45s, BAe Systems has undertaken to study options for Contractor Logistic Support (CLS) of the platforms. These reports will be prepared in consultation with the DPA and are expected to be completed by the end of 2001. The development of CLS in parallel with ship design activity is encouraging the Prime Contractor to consider low cost maintenance when selecting ship's equipment and material. The decision to pursue these recommendations, in whole or in part, will be based on their potential to improve support and produce savings, bearing in mind any requirement to keep elements of support within the uniformed sector for strategic reasons.

32. Ship staff training and spares storage are potential bottlenecks. Increased use of experienced Type 42 crew would reduce the load on pre-joining training, and thus the training bottleneck, when the Type 42 replacement comes into service. Use of computer-based training will reduce disruption to operational programmes. "Just in Time" stock management techniques will reduce the volume of spares to be held, thus minimising the need for new storage facilities during the transition period. It is planned that a CLS contract will be in place a year before ISD, to provide experience in its operation during trials.

33. Assuming a class of 12 ships, nine or 10 would, on average, be available at any one time to the Commander-in-Chief Fleet for tasking, while two or three would be undergoing maintenance, including one or two in refit. It is not planned to hold any ships in storage or as in-use reserves.

34. Commonality of many of the PAAMS systems and sub-systems, including in particular the Aster missile, will ensure a good level of interoperability with both France and Italy. In the warship context, the requirement for interoperability will remain a high priority.

37. The Type 45's systems and sub-systems will be updated as appropriate throughout the life of the system to take account of developments in the operational environment. It is likely that the future aircraft carrier programme, currently in its assessment, and the future surface combatant currently in the early stages of concept development, will both draw on major elements of the Type 45.

Defence Secretary Geoffrey Hoon today announced the construction of the first three Type 45 Anti Air Warfare Destroyers for the Royal Navy, within a planned class of up to 12.

The MOD will negotiate a £1 billion order for the construction of the first three ships of the class with prime contractor BAE SYSTEMS later this year. The programme is expected to sustain up to 5,500 jobs in BAE SYSTEMS Marine and Vosper Thornycroft shipyards and in other defence industries in the UK.

"The Type 45 will be the biggest and most powerful air defence destroyers ever ordered for the Royal Navy and their construction will be a tremendous opportunity for British industry. When these new ships enter service from 2007 they will represent a huge improvement in capability over the Type 42 destroyers they will succeed.

"The innovative ways that we are procuring these ships, using modular methods of construction and batch ordering from the start of the programme, demonstrate the changes we are making under the Smart Procurement Initiative. Innovations such as these are the key to delivering equipment to the Armed Forces faster, cheaper and better.

"I am also pleased to announce that the Type 45 will be known as the ‘D’ Class and the first two ships of the class are to bear the historic names HMS DARING and HMS DAUNTLESS."

An order for the construction of the second batch of ships is expected to be placed with the prime contractor around 2004.

The main armament of the Type 45 is the world leading collaborative UK/French/Italian Principal Anti Air Missile System (PAAMS), which is designed to defeat salvo attacks by new generations of anti-ship missiles.




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