14 Jan 15. As we enter 2016, it would be worth examining some structural, policy, and procedural changes which will be crucial for defence procurement planning and process. Upon analysis, it appears that the main driving factor behind reforms in most countries is the need to streamline procurement processes and reduce delays. This is followed by the need to ensure that the military is able to cope with future threats while also ensuring growth of local defence industries. While there are many ongoing reforms in all countries, here is a brief description of some of these major changes arranged by region.
AUSTRALIA – Shipbuilding reform.
In 2015, The Australian government embarked on a programme to strengthen and support the country’s shipbuilding industry. Diminishing shipbuilding capability has been a source of concern over recent years. It is likely that the government will undertake further reform of the Australian Submarine Corporation (ASC), in 2016, to make it more capable of undertaking current projects and absorbing future naval projects.
CHINA – PLA reform
The People’s Liberation Army (PLA) has created three new military units as part of reforms to modernise its military. These units are: a general command for the People’s Liberation Army, a missile force and a strategic support force. The PLA is undertaking a major reform process which includes phasing out old equipment, developing new hardware, establishment of a joint operational command structure by 2020, and a reduction of troop numbers by 300,000.
INDIA – Defence Procurement Procedure (DPP) changes
The Government of India has approved major changes to the Defence Procurement Procedure (DPP) which will come into effect in about March 2016. Among other changes, a new category has been created to promote domestic manufacturing called “Indigenously Designed Developed and Manufactured (IDMM). The new category will have two sub-categories: firstly, it will be mandatory to have 40 per cent local content in case the design is also indigenous. Secondly, in case the design is not Indian, 60 per cent local content will be mandatory. The offset baseline has also been increased from contracts worth INR3bn to INR20 bn. This is indicative of the underlying fact that not many Indian companies are able to absorb offsets, hereby, causing procurement delays and other supply chain issues.
JAPAN – Defence Reform
In May 2015, Prime Minister Shinzo Abe’s cabinet approved a set of defence reform plans which will change the defence acquisition process, while also altering the operational parameters of the Japan Self-Defense Forces (JSDF). It is likely that 2016 will provide more detail about planned reforms. By late 2015, Japan has established and staffed a new procurement agency called Acquisition, Technology and Logistics Agency (ATLA). This year is going to highlight how ATLA will function and how it will change Japan’s procurement process.
POLAND – Industry Overhaul
2016 is likely to see measures to consolidate Poland’s fragmented defence industries. The new government has announced plans to subordinate state-run companies under the Defence Ministry, hereby increase the MoD’s control over Poland’s state-run defense industry. Arkadiusz Siwko was appointed to be the new chief executive of Poland’s leading state-run defense manufacturer, the Polish Defense Group (PGZ). It has been reported that Siwko is a close aide of the Poland’s Defence Minister.
GERMANY – Defence White Paper
The German MoD is drafting its first white paper in a decade and is scheduled to publish it by summer 2016. The document will begin by considering Bundeswehr’s role within the NATO, and advice on how to improve international military partnerships. There have also been stated intentions to combine all cyber capabilities of the Bundeswehr into an integrated cyber command.
SWEDEN – Changes affecting Defence Export
On 1 January 2016, the Swedish government terminated its Defense & Security Export Agency, transferring a large portion of its duties to the Swedish Defense Materiel Administration (FMV). According to news source, UPI, tasks transferred to FMV include sale of surplus equipment; central government tendering procedures for inter-governmental agreements (government sales agreements for Gripen fighters, for example); and export support tasks for other defence agencies undertaken due to requests from private companies.
NORWAY – New procurement agency
The Norwegian government has created a new procurement agency, called Forsvarsmateriell, under the Ministry of Defence (MoD). The agency was created in January 2016 and will oversee acquisition planning and implementation. According to the Defence Minister, “the purpose of its establishment is to achieve a more efficient investment process with better continuity and a shorter completion time for projects, as well as shorter and more efficient control lines.”
UNITED KINGDOM – Defence Reform
On 8 January 2016, Lord Levene delivered his fourth annual report on Defence reform in which he set out five recommendations. Of these, one will have direct impact on the procurement process as Lord Levene has recommended simplification of the planning and resource allocation process.
LITHUANIA, SWEDEN – Joint-procurement.
In October 2015, the two countries had signed an agreement paving way for joint-procurement of defence material. Lithuania can be expected to possibly explore options of bilateral negotiations with potential suppliers of equipment and services to make acquisitions more economical. The country has come under pressure to modernise its military in order to keep up with other NATO countries.
ISRAEL – New Defence Plan
2016 opens with a new multi- year plan for the IDF codenamed “Gideon”. According to Israel Defence, the new plan will guide the IDF in adapting to new security realities which will see the IDF operating fewer tanks (pursuant to previous cuts), more protected APCs and light vehicles, and the expected assimilation of two squadrons of F-35 future fighters and new submarines. This is a long-term defence plan and it is not yet clear as to how procurement programmes are prioritised under Plan Gideon.
SAUDI ARABIA – Proposed new “Anti-Terrorism Coalition”
Saudi Arabia announced in mid- December 2015 that 34 nations had agreed to form a Muslim Anti- terrorism Coalition. If true, details about this coalition can be expected to emerge in 2016. Such a coalition could change the course of ongoing counter-terrorism operations in the Middle-East. News reports were limited to the information that Arab countries such as Qatar and the UAE will join the coalition, as well as Middle Eastern, African and Asian states including Pakistan, Malaysia, and Nigeria. No further details have been provided about the full list of participants are, what their contributions would be, and how basing arrangements would work.
USA – Beginning of Third Offset Strategy:
The Defense Advanced Research Projects Agency (DARPA) is searching for futuristic technologies to fulfil the US government’s third offset strategy. Among other areas of focus, the third offset strategy includes disruptive technologies in the areas of electronic warfare, battle management C2 systems, and technologies for the maritime domain. The first offset strategy gave birth to the US theory of nuclear deterrence, while the second offset strategy led to networked warfare and precision weapons systems.
USA – Final year for ITAR changes/ECR:
2016 is the final year of the Export Control Reform (ECR) initiative set up by the Obama administration and it is likely to finalise as many changes as possible. It appears that the main plans for 2016 could well be to focus on formalising rules that have been proposed so far. There are no signs of any progress towards a common set of regulations, nor a Single Control List.
In 2015, the proposed revisions of USML Category XII (Fire Control, Range Finder, Optical and Guidance and Control Equipment) and Category XIV (Toxicological Agents, Including Chemical Agents, Biological Agents, and Associated Equipment) have come under criticism from the industry. According to Defense Trade Law blog, more changes can also be anticipated in USML categories VI (Surface Vessels of War and Special Naval Equipment), VII (Ground Vehicles), XIII (Materials and Miscellaneous Articles), and XX (Submersible Vessels and Related Articles), which were subject to previous reform amendments.
USA – Possible FMS reform:
Various complaints have been made over the slow pace of the Foreign Military Sales (FMS) process, but these complaints only increased in 2015 due to urgent requirements stemming from operations in the Middle-East. Complaints have come from Gulf allies that have allegedly depleted weapon stockpiles. In November 2015, Stars and Stripes reported that the Pentagon will be looking into ways to speed up the process.
USA – Sequestration:
A crucial two-year bipartisan budget deal eases budget caps in 2016, but Defense News has warned that it is worth watching whether lawmakers discuss repealing the law or if it’s here to stay. In November 2015, legislations were introduced to exempt the DoD, DHS, the intelligence community, State Department and National Nuclear Security Administration from spending caps.
USA – “Future of the Army” recommendations:
The National Commission on the Future of the Army will publicly unveil its recommendations on a wide range of issues on 28 January 2016. It will be a crucial report which will include recommendations on the size of the US Army, its structure, equipment, and capability to respond to future challenges. The Commission has remained tight-lipped about what some of these recommendations might be.
USA – DoD Reforms commercial technology procurement
Defence contractors are following regulatory changes affecting procurement of commercial products and intellectual property rights. The US DoD reported in 2015 that it is studying how to implement requirements of six sections of the 2016 National Defense Authorization Act that seek to lower current barriers to the procurement of commercial technology. It is expected that 2016 will bring some clarity into this.
USA – Proposed DFARS amendment
In November, the DoD proposed a new rule to amend the Defense Federal Acquisition Regulation Supplement (DFARS) in an attempt to provide some relief to contractors facing audit burdens under the Truth in Negotiations Act (TINA). Under the new rule, a DoD contractor could request a limited-scope audit if a contractor voluntarily discloses defective pricing, hereby giving flexibility to focus an audit on defective portions rather than re-examining all historical pricing data.
(Source: MPI – Hawk Information)