Availability Contracting – Making Defence Procurement Smarter
(Source: Frost & Sullivan; issued March 28, 2006)
When the Royal Navy’s new patrol ship HMS Clyde heads for the Falklands in 2007, it will represent the culmination of a number of revolutionary changes in the way that the MoD conducts procurement. The four River Class vessels (the others are HMS Tyne, HMS Severn and HMS Mersey) are more capable than the Castle and Island class craft they are replacing, although the number fielded by the navy will be cut from seven ships to just four. The reason that this is possible is that the new vessels are more powerful than the older classes, being larger and more durable.

The purchase of the River Class patrol vessels from VT Shipbuilding was a radical development in terms of defence contracts, which allowed the procurement of a more potent vessel at a far lower price. The acquisition of these ships was possible due to the Royal Navy’s use of Availability Contracting, when the vessels were commissioned.

The concept of Availability Contracting, a process by which defence contractors are paid according to the amount of time that an asset is available, is by no means a new idea for Western defence departments. Availability Contracting is an evolution of the idea of Contractor Logistic Support (CLS), by which services which would previously have been within the writ of military forces are outsourced to private contractors. CLS has long been entrenched in British defence procurement practice.

The idea itself derives from the American concept of Performance Based Logistics (PBL). PBL originated in the late 1990s, and was intended to make US forces more responsive, channel funds from support to teeth arms, and cut the logistics footprint. PBL resulted in the award of some very large contracts, particularly for the provision of infrastructure and support activities in support of US deployments. The LOGCAP programs, which were awarded to Kellogg, Brown & Root (KBR) in the late 1990s and imitated in the UK’s CONLOG have been worth billions of dollars to KBR, their value depending directly on the number and scale of commitments.

The essential premise of PBL is that contractors are paid accordance to measurable performance targets, for example the speed of repairs or relative cost effectiveness. These types of criteria are intended to ensure that contractors perform their tasks at least to the level of service that would have been provided by the equivalent military body.

The US has embraced PBL across the majority of defence procurement, which is testimony to its perceived success in the on-going conflicts in Afghanistan and Iraq. As a result the US is increasingly committed to PBL contracts. Current US estimates suggest that the size of the military support market available to contractors in the US will more than double over the next ten years, as the DoD seek to outsource ever greater proportions of their support functions. The DoD has identified various classifications of PBL, ranging from arrangements where spare parts are purchased ad hoc, through to fully fledged CLS agreements. This range of possibilities illustrates the diverse nature of Availability Contracting, and the number of ways that the model can be applied to the DoD‘s requirements.

Despite the ubiquitous nature of PBL contracts within the DoD, the US military have shied away from fully developed CLS agreements that can be found within the UK MoD. As in the US, the MoD’s CLS agreements have included the widespread privatisation of dockyards and other suppliers. However CLS in the UK differs from PBL in its strong emphasis on availability contracting. Availability Contracting can be applied to various assets.

The recent contract awarded to Rolls Royce for the maintenance and upgrade of Tornado engines at RAF Marham, was availability-based. Availability Contracting produces better working practices and higher quality maintenance. Contractors are more highly motivated to perform high quality maintenance work in order to avoid missing targets. This was demonstrated during the pilot project for the Tornado Engine project, which revealed 35% reductions in the number of repairs needed. The Tornado engine contract is just one of a large number of contracts within the UK which have been let in their entirety to contractors. The main advantages for the MoD are that they no longer have to retain the personnel, and facilities required to perform these particular tasks. Fixed contracts based on availability, allow a much more predictable level of expense. The Availability Contracting model can be applied to various types of assets but particularly vehicles, where availability is relatively simple to define.

Despite the increasingly frequent nature of Availability Contracting within the MoD, contracts for certain European vessels still represent a departure from previous practice. With the UK MoD, the River Class Patrol Vessels were not purchased by the Royal Navy. Instead, VT Shipbuilding owns the vessels, and leases them to the navy. This is popular with the MoD because it means that the financial risk for the vessels is transferred from them to the contractor.

The change in ownership also has other implications. The contractors are responsible for all aspects of support aboard these vessels. This includes the usual functions such as maintenance and repair as well as the replenishment and supply of the vessel. The contractors are represented on board by a crew member who provides an interface with the vessel. Although he is an employee of the manufacturer rather than the navy, their representative is also a naval reservist. Because vessels purchased through this method are likely to be committed to a much higher level of availability than was the case with earlier ships, they tend to be more robust.

These vessels can be built to more exacting specifications than previous ships. It is hoped that the more robust manufacture will mean that HMS Clyde will not have to return from her seven year stint in the Falklands for repair as previous vessels did. It is hoped that the lesser requirements for repairs will create savings amongst vessels procured by these methods.

However the model of Availability Contracting pioneered with the River Class is not the most advanced form of this type of contract currently in existence. The Royal Norwegian Navy (RNoN) have taken Availability Contracting a stage further by the launch of their Fridtjof Nansen class of frigates in 2005. The Fridtjof Nansen class remain possessions of the builders, the Spanish shipbuilding giant IZAR, in the same way as the British vessels. The main difference is in the greater extent of IZAR’s involvement in crewing the ships. Not only are IZAR responsible for support and maintenance, but the builders also supply up to half of the mariners.

Although the River Class is large for a patrol vessel, the willingness of the RNoN to entrust fully fledged warships to crews containing large numbers of contractors is a further development of the concept of Availability Contracting, which has not yet penetrated the British Royal Navy.

Although the Royal Navy’s commitment to Availability Contracting may now lag behind that of Norway, the River Class ships heralded a new level of Availability Contracting on their launch, and an evolution of the role that private companies played in UK defence procurement. The MoD remain committed to the money-saving effects of CLS contracts, and are keen to incorporate these concepts into new programs. Major programs such as the Merlin EH1901, the Nimrod MRA4, the AS90 and parts of the Tornado contract include Availability Contracting elements.

Some MoD contracts, such as their ‘C Vehicles’ program are entirely availability based, with Lex Amey taking control of cars, commercial vehicles and heavy plant. In addition the MoD hope to extend the Availability Contracting concept to new naval projects, particularly the Type 45 Destroyers, Astute Class Submarines and even the CVF program.

Despite this, it seems unlikely that Availability Contracting will be an acceptable solution for all scenarios. While the MoD are keen to offload financial risks for platforms onto contractors, it seems implausible that even large consortia could risk the massive sums needed for assets like the CVF. Cultural resistance to change within the Armed Forces, and security concerns make it unlikely that the ultimate expression of Contractor Logistic Support that the Royal Norwegian Navy are edging towards, the deployment of ships which are owned and crewed wholly by private industry, will occur in the UK in the near future.

It is only to be expected that the concept of Availability Contracting will define the majority of the MoD’s procurement in the years to come, particularly in terms of new ships. However, while the UK can be expected to continue with and expand their commitment to this form of procurement, it is unlikely for these reasons that Availability Contracting on the Norwegian model will be a realistic option for the foreseeable future.


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