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Defence in 2019: F-35 fighters, DIO and PPPs

Andy Parker

As we enter the new year, many sectors in construction will continue to be somewhat hamstrung by Brexit uncertainty.

But while the defence sector isn’t immune to this, there’s a palpable sense of optimism that 2019 will be a defining year; and one which will see important boosts to procurement processes and pipelines.

Over the past 12 months, there have been some exciting developments in defence estate spending, largely driven by cutting-edge technology and weapon systems.

From the investment at RAF Lakenheath and Marham to support the F-35 Joint Strike Fighter, to the £1.3bn framework launched at HM Naval Base Clyde for the Dreadnought class submarines, we’ve seen high-profile commitments from the MoD.

Outside of these flagship schemes, however, there’s a feeling that some of the defence frameworks haven’t delivered the volume of work many contractors anticipated.

Two key Defence Infrastructure Organisation (DIO) documents – its procurement plan released last month, and its commercial strategy, published earlier in the year – both suggest the outlook for 2019 is far more promising.

Promising outlook for SMEs

Among the DIO’s aims are to be ‘easier to do business with’ and to ‘build a broader and more diverse supplier base,’ whilst also focusing on opening up opportunities for SMEs.

Alongside boosting smaller companies, which are the lifeblood of many local economies, it will also provide the impetus and opportunity for them to upskill.

As a tier one contractor, which enlists many of these firms, that’s welcome news. 

“I predict we’ll see more bespoke PPPs and innovative funding models agreed with main contractors”

Next year also sees the expiration of DIO’s strategic business partner arrangement, which has been in place since 2014.

The likely result? A leaner and more agile DIO, with access to a raft of advisers and with more scope to form new collaborative relationships.

This has come at the right time as a real focus is needed to deliver an ambitious Defence Estate Optimisation Programme by 2040 to create a smaller, more modern and capability-focused estate.

I predict we’ll also see a stronger and better-defined pipeline.

Defined pipeline

With the accountability for defence spending restored to the Front Line Commands – the Royal Navy, the Army and Royal Air Force – we will see a real drive to deliver quality projects; the focus will firmly remain on the prioritisation and optimisation of investment

One of the big questions for 2019 is what will replace PF2?

Resolutely killed off by the chancellor in the Budget, the model had undoubtedly become too toxic in the wake of Carillion.

But to deliver a change programme of the scale required by the MoD will require innovative approaches to procurement and funding. The public purse won’t be able to meet the cost on its own.

Public private partnerships (PPP) are one option.

With standout successes for local authorities like Slough and Bournemouth, the model can work for the MoD too. And there is a precedent; the military has previously used the model to fund simulators, barracks and training facilities.

I predict we’ll see more bespoke PPPs and innovative funding models agreed with main contractors, which have the investment arms to make them viable.

Andy Parker is director of defence at Morgan Sindall

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