1 the german defense procurement and its relation to industrial policy andreas glas kingston,...
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The German defense procurement and its relation to industrial policy
Andreas Glas
Kingston, February 2012
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Canadian – German Cooperation
3
Agenda
II. Review of Defense Procurement in Germany
I. Situation in Germany
III. Major Weapon Systems – Current and Future Challanges
IV. Contracting, Cooperation, Partnerships
V. Discussion / Conclusion
4
Situation: Reform of the Bundeswehr
Realization of long-discussed, fundamental transformation
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2
3
International disaster and military operations
Afghanistan, Kosovo, etc.
Abolishment of conscript system – towards professional army
Significant reduction of the Bundeswehr
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Situation: Future Operability of the Bundeswehr
The challange to do more with less
Personnel Budget
Capability requirements
250.000 185.000 soldiers76.000 55.000 public servants
328 <290 military bases
Pressure to economize defense budgetAt maximum: Stable budgets
“Everything for deployed forces”Level of Ambition
Concentration on core competencies
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Situation: Defense Procurement in Germany
International comparison – defense procurement in per cent of GDP
Massive shortages after Cold War, recently slight recovery
* Weltbank - Weltentwicklungsindikatoren, 2012.
USA
Columbia
UK
France
Germany
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Situation: Defense Procurement as Enabler?
Purchasing is the key to profits (private sector) capabilities development (defense)
Total procurement volume of defense procurement in Germany: €billion 10,31 (in 2009)
Increase in efficiency in per cent
Economies in €million
Equivalent to:
1,0 % 103,1Development costs for platform Eurofighter :
(€million 135 Mio. in 2009) *
2,0 % 206,2Shortage of military doctors:
Equivalent to 69% of requird doctors (in 2010: 600; Educatoin and training € 500.000/doctor) **
3,0 % 309,3Finance of defence research and development insitute:
€million 275 (in 2009) *
4,0 % 412,4Civilian reconstruction in Afghanistan:
(German paid means per year €million 430)***
5,0 % 515,5Development of Airbus A400M:
Equivalent to 79,3% of surplus development costs (€million 650 in 2010)****
* Quelle: Bundesministerium der Finanzen (2009), Einzelplan 14.** Quelle: http://www.aerztezeitung.de/politik_gesellschaft/article/596224/motivation-keine-klaren-karrierewege-bundeswehr-aerzte-unattraktiv.html*** Quelle: Deutscher Bundestag (2010), Jahresbericht 2009.**** Quelle: http://de.reuters.com/article/domesticNews/idDEBEE62F02020100316
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Situation: Defense Industry in Germany
Overview of defense industry companies and their products
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Situation: Defense Industry in Germany
International comparison
* Sipri 2008/2010.** Weltbank - Weltentwicklungsindikatoren, 2012.
USA
Russia
Germany
France
Netherlands
GB
Italy
Spain
China
Sweden
Canada
Israel
Poland
Swiss
7888
6733
3850
1557
1481
1071
860
803
564
472
227
224
169
144
Global Arms Trade 2006 US$billion*
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Agenda
II. Review of Defense Procurement in Germany
I. Situation in Germany
III. Major Weapon Systems – Current and Future Challanges
IV. Contracting, Cooperation, Partnerships
V. Discussion / Conclusion
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Defense Procurement in Germany
Development and phases
1950/1960s 1970/1980s 1990/2000s Today
1 2 3 4
Problem to buy equipment for ~300.000 soldiers.
Procurement of (old) equipment from US / UK or other forces (M47 tank, F-84 jet, Destroyer Fletcher etc.)
Technological problems (HS 30, Submarines etc.)
Initial equipmentModernization with German equipment
“Peace dividend” Modern warfare
Development of new equipment in Germany (Leopard, Marder etc.)
TORNADO jet etc. Foundation of German
defense industry after WWII
Cold War „Massive retaliation“ Quick armament of huge
number of soldiers
Cold War „Flexible response“ Mobile forces for joint
operations
German reunification Bundeswehr reduction Economies in defense
budget
Global operations Disaster relief Peace enforcement Modern, specialized
COTS equipment
Sale of old / supernumerary equipment.
Few new projects. Only supplementation
of existing equipment. (e.g. air conditioner for
ships to operate globally)
Changed threats(asymmetric warfare) with new requirements
E.g. protection against mines or IED; protected Transport and logistics
Integrated communications and data systems etc.
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Defense Procurement in Germany
Structure and responsibilities
Legal procurement procedures and
price law
“Customer Product Management”
(=defense acquisition process)
Competitive Dialogue Open / restricted
procedure Electronic procedure Frame contract Negotiated procedure
Demand analysis
Development
Procurement and implementation
Usage phase
Functional demand description
Preferred approach of commercial available products (without development)
Legal division between military user and civil procurment agency
MilitaryCivil
acquisition agency
Ministry
Industry
Art. 87a Grundgesetz (Almost) no direct
communication between military and industry about acquisition projects.
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Agenda
II. Review of Defense Procurement in Germany
I. Situation in Germany
III. Major Weapon Systems – Current and Future Challanges
IV. Contracting, Cooperation, Partnerships
V. Discussion / Conclusion
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Major Weapon Systems
The challange of long life-cycles
Leopard 2*
PzHaubitze 2000*
Korvette 130***
Submarine 212A
Euro Hawk**
Eurofighter*
A 400M*
0 10 20 30 40 50 60 70 80 90 100
R&DProductionUsage
* Usage time estimated.** Global Hawk with 12 years R&D in USA*** Full capability after 7 years in service.
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Major Weapon Systems
The challange of long life-cycles (navy)
Platform Number Service Life
Age 2012
Age 2017
Age 2022
Age 2027
T 404 6 30 18,6 23,6 28,6 32,3
Fregatte 122 8 30 27,3 32,3 37,3 42,3
Fregatte 123 4 30 16,7 21,7 26,7 31,7
Fregatte 124 3 30 7,7 12,7 17,7 22,7
Schnellboot 143A 10 30 28,7 33,7 38,7 42,7
Korvette 130 2 (5) 25 4,00 9,00 14,00 19,00
Submarine U212A 4 (6) 25 6,25 11,25 16,25 21,25
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Major Weapon Systems
The challange of small fleets. (Airforce)
A319
A340
Global
5000
A310
Do228
P-3C
A400M
Torna
do
Eurof
ighte
r
Euroh
awk
MALE
HALEVTOL
Bo105
CH 53
NH 90
UH Tige
r
MH90
Mk8
8A
EC135
Couga
r0
50
100
150
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Major Weapon Systems
The challange of small fleets. (Navy)
F 122 F 125 K 130 U 212A
Mjgd 332
Mjgd 333
MsBt 343
HstS 351
HstS 352
V 702 V 703 T 404 Edu Rec 423
0
5
10
15
20
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Procurement of services
Great uncertainty about purchasing services
Share (%) of service bundles on direct spend 25% / 20%
Feeled competence while procurment process of services in contrast to goods or product-service systems
(Durchschnittliche Bewertung auf 5-Punkte-Likert Skala, 5 = sehr hoch, 1 = niedrig )
*: CAPS, 2003, übersetzt und leicht modifiziert; L = Dienstleistungen; DLb. = Produkt-/Dienstleistungsbündel; Mgt. = Management; Besch.= Beschaffung
Mgmt Bundle
Mgmt Service
Mgmt goods
Proc Bundle
Proc Service
Proc Goods
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5
3.4
3.5
4.3
3.5
3.8
4.5
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Major Weapon Systems
Challange of life-cycle support costs
In €million
2008 2009 2010 20110
1000
2000
3000
4000
5000
6000
7000
8000
9000
Maintenance, Repairs etc.R&DInvestment
At least stable means to support existing weapon systems
„Fear for failures“
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Agenda
II. Review of Defense Procurement in Germany
I. Situation in Germany
III. Major Weapon Systems
IV. Contracting, Cooperation, Partnerships
V. Discussion / Conclusion
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Contracting, Cooperation, Partnerships
The range of possible forms of military-private cooperation.A transaction cost perspective.
Market hybrid Hierarchy
Long-term contracts (Performance-based Logistics)Public Private Partnership
…
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HIL, BWI as examples for PPP
Successful outsourcing to Public-private partnership organizationsConcentration on military core tasks
Bundeswehr 49% Rheinmetall , KMW and others
51% Responsible for maintenance
and reparis of army equipment Availability of 70% New contract up to 95%
(depends on vehicle) Savings of over €million 200 in 5
years.
Bundeswehr 49% Siemens 50,5% IBM 0,5% Responsible for domestic IT
system Volume €billion 7.1 (instead of former Bundeswehr
personnel and (aging) IT equipment)
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PBL – Example „Heeresinstandhaltungslogistik“M&R for army combat vehicles
• Daily availability of 70% of all army combat vehicles in Germany.(Guaranteed by HIL)
• Optimization of planned and proactive maintenance and repairs.
• Maintenance levels 2 – 4. (first level is organic military support)
• Institutional PPP.
• No incentives but outcome-oriented service levels for each service.
• Still cost-plus-structure, but measured with performance. (PBL i.w.S.)
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First approaches towards PBL
Status Quo HIL: Availability of
70%
P3C-Orion: Availability of 100% in 30d
EC-135: Usage fee per flight
hour
Raytheon: Fixed price with increasing
MTBUR
…(turbine availability)
Law
Profit formula
Service contracts in defense
Price law
Lack of confidence in PBL Lack of training and experiance Unclear competencies No stringent process model No knowledge base
BUT: Few but striking success stories (Heron 1-leasing, EC 135 etc.)
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PBL – Example radar system of Marineflieger
„Full Service“„Improvements 3F“
Performance development in terms of MTBUR of the radar system (flight hours)
• Fixed Price Contract (10 years) ~ First half of intended usage time.• Internal target performance with 6sigma philosophy and
new quality management approach. (changes allowed “form fit function”)
• Fixed Price of flight hour with increasing performance measure
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Agenda
II. Review of Defense Procurement in Germany
I. Situation in Germany
III. Major Weapon Systems – Current and Future Challanges
IV. Contracting, Cooperation, Partnerships
V. Discussion / Conclusion
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Conclusion – Some lessons?
German approach: Cooperation as key for defense procurement
Insourcing Cooperation Outsourcing
Of military core tasks? Of military core tasks? Of military core tasks?
(Efficient) support? (Efficient) support? (Efficient) support?
Hitherto via public private partnership institutions
Future: More and more long-term contractual agreements
But requirement for knowledge database, structered learning, pro-active management
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Conclusion – Some lessons?
Future?
Korvette 131? (Multi-role combat ship 180)
Multi-Role-Helicopter Dockship?
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Thank you for your attention
Competence Network PBL Research Center for Law and Management of Public Procurement
Bundeswehr University Munich, Germany
Werner-Heisenberg-Weg 3985577 Neubiberg b. München
Telefon: +49 89 6004-3790
[email protected] www.unibw.de/pbl
Discussion
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Aviation Spare PartsFirst approaches towards PBL in Germany
From Quality to Performance
• Former Procedure:• Service provider managed stock (CP).
Basis: INPUT: Working hours, value of stock, required stockage space etc.)
• Public Procurement Agency bought parts in dependency of demand.(oftentimes in very small lot sizes)
• Low performance, often stock outs.• Trouble with obsolescences.• Some parts with delivery time over 365d.
• Today´s Procedure:• Service provider manages stock and spare parts
procurement on basis of CP.• BUT: Performance is measures with KPI: Delivery
time.• Public Procurement Agency only involved in
some high-value / high-risk categories.• Contractor allowed to optimize stock.
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Aviation Spare PartsFirst approaches towards PBL in Germany
From Quality to Performance
• Delivery Time:• 85% of all parts within 1 day.• 97.5% of all parts within 3 days.• 100% within 30 days.
The change in the perception of performance led to a mind-shift at the contractor and customer side.
Decrease of “cannibalization” in operating air force units.
Increase of “Repair turn around time” with direct impact on the air force fleet availability.
Nevertheless: Still a CP-Contract due to high risk of obsolescence and importance for the robustness of forces. (PBL i.w.S.)
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PBL – Example Eurocopter
„Parts by the hour“„Repair by the hour“„From Nose to Tail Worry-Free“
• Customer buys guaranteed performance:• Function: Guaranteed service response time
(repair, maintenance etc.)• Availability: Spare parts, immediate support
teams, exchange turbines, helicopters …• Results: Flight hours, Pilot training hours….
• Benefit for the customer:- Planning and cost reliability with regular payments- Optimized mission readiness.
• Problem: Forecast of utilization profile(Which mission, when, where?)
• Full service possible.
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PBL – Example EurocopterPilot Training in the German Army
„From Nose to Tail Worry-Free“
• Support of a training fleet of helicopters in a military site.
• Payments for flown flight hours on basis of a fixed price.
• Weather (abortion) risk (<24hrs) at the contractor (!)
• Very good feed back from both sides.• Success factors: Service orientation.• Enormous improvements in terms of efficiency / effectiveness cp. to CP-Contract.• Fixed Price of Flight Hour PBL i.n.S.
Once /year
twice/year
Cyclically(monthly)
When Used
Managing board
Controlling committee
Operational Planning Team
User(with IT-System)
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PBL – Example Radarsystem
„Full Service“„Improvements 3F“
• Customer awarded a full-service-contract for the radar-module of the P3-C Orion.
• Key Performance Indicator:• Increasing MTBUR (Reliability) over contract-terms• Fixed Price Contract
• Contractor:• Allowed to improve the radar-module without notice as far as
• Form• Fit• Function is equal
• to pre-improvement status.
• Further improvements possilbe (e.g. cables) and issue of negotiations.