1.2 Over the period 1992-1998 the Department's budget for research fell in real terms by over 40 per cent - faster than the wider defence budget - to less than £500 million.8 This decrease in spending challenged DERA's ability to maintain the breadth and depth of its capability, which is of vital strategic importance to the Department. In advance of the 1998 Strategic Defence Review, DERA's chief executive officer proposed a range of options to address this situation. These were presented in the DERA Corporate Plan 1998-2003, published in October 1997. The options were based on the principle that DERA needed to strengthen its links with the science and technology base outside the defence sector to help achieve more for less. Options were appraised against three criteria:
■ The impact on expected business performance.
■ The risks to DERA's stakeholders (including the Department).
■ The likely return to the Exchequer.
1.3 DERA's corporate plan considered five options, set out in Figure 2 overleaf. It recommended adopting either the Federated Laboratories case or the Public Private Partnership (PPP) case, though it noted that only the PPP would give returns to the Exchequer significantly greater than from continuing with DERA's current form.
1.4 The Strategic Defence Review, published in July 1998, stated that the Department would 'harness the opportunities offered by a Public Private Partnership' for DERA. The Department did not judge it necessary to consult the Defence Industry about this decision although it had been involved in some other aspects of the review. Although DERA's top management could potentially benefit personally from the involvement of private investment, the case for a PPP was not validated by the Department. The Department sees no reason why it should have validated this policy decision which was based on analysis prepared by DERA management.
1.5 The Department clearly set out its objectives for the PPP, which are listed in full in Appendix 2. Principally, its objectives were:
■ The continuing availability to the Department of the scientific and technical capabilities required to support UK defence needs and maintain international collaborative research programmes.
■ The introduction of commercial disciplines, to achieve reduced contract prices for the Department and other public sector customers.
■ Enhanced flexibility to develop commercial business partnerships and engage in a greater range of joint ventures.
■ Giving DERA access to private capital through either equity or debt in order to build capability and support future investment in technology.
■ Strengthening the links between civil and military technology so the Department and the wider economy would benefit from broader application of technological advances.
■ Effective and productive relationships between private and public sector.
■ The ability to address skills shortages in critical technologies through greater flexibility in pay structures.
■ Establishing a structure that would provide international partners and other stakeholders with confidence that collaborative relationships would be maintained and protected.
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8 House of Commons Defence Committee 6th report, 6 July 1998, HC 621.