The Government’s procurement plans for up to three new support ships for the Royal Fleet Auxiliary are facing opposition from Labour, the SNP and trade unions.
According to a briefing paper in the House of Commons library released today, the programme is currently in the Assessment Phase with the competition expected to be formally launched towards the end of 2018 and a contract signed in 2020. The MOD says the contract will be for two ships with an option for a third.
The briefing paper states:
“The Government intends to compete the contract internationally. Labour, the SNP and the shipbuilding trade unions argue the contract should be restricted to UK shipyards to support the shipbuilding industry, secure jobs and retain skills.
They argue the proposed ships are ‘warships’ and as such, the Government can use the Article 346 exemption to exclude the contract from EU procurement rules on national security grounds.
The Government disagrees, defining warships as ‘destroyers, frigates and aircraft carriers’, and says all other surface vessels should be subject to open competition.”
Two major unions, GMB and the Confederation of Shipbuilding and Engineering Unions (CSEU), have published reports outlining why they believe the ships should be classified as warships and why they should be competed domestically:
According to the briefing paper, the Unions’ arguments can be summarised as:
- The FSS should be seen as warships. They are armed and take part in counter-piracy and counter-narcotic missions;
- The Government’s commitment to revitalising domestic naval shipbuilding (as espoused in the National Shipbuilding Strategy) will only be achievable with a steady stream of orders;
- Building the FSS in the UK will help protect the UK shipbuilding industry, protect jobs and retain skills: GMB estimates up to 6,500 jobs could be created or secured, including 1,805 shipyard jobs;
- Rosyth shipyard will have a gap between the completion of HMS Prince of Wales (the second aircraft carrier) in 2019 and the expected refit of HMS Queen Elizabeth (the first aircraft carrier) in 2030, and FSS work could keep the shipyard operational in between these dates;
- The UK will financially benefit from returns to the Treasury in the form of taxes and national insurance contributions and lower welfare payments: GMB estimates £285m of the estimated £1bn contract could be returned to taxpayers this way; CSEU estimates 20% of the contract cost could be returned to the Treasury;
- The Government should factor in the revenue that could be returned to the Treasury when scoring bids between domestic suppliers and foreign competitors;
- There isn’t a level playing field as, the CSEU argues, “many foreign yards are either state owned, or receive significant direct or indirect subsidy… UK yards do not benefit in this way and are therefore at an unfair disadvantage.”
The TUC has also assessed the Article 346 exemption argument and argues the Government “has the sole right to determine” what its essential national security interests are. The TUC claims “other European nations have used the exemption to place orders for similar support ships with their own shipyards since the Directive was introduced”.
What is Article 346?
EU law requires most government contracts to be procured via an open, competitive process. The main EU legislation in the defence domain is the Defence and Security Directive 2009/81/EC, transposed into UK law by Defence and Security Public Contracts Regulations 2011.13
However, Article 346 of the Treaty on the Functioning of the European Union (TFEU) provides for an exemption to the procurement rules where a country considers it to be necessary for national security reasons: “any Member State may take such measures as it considers necessary for the protection of the essential interests of its security which are connected with the production of or trade in arms, munitions and war material”. Article 346 refers to a list drawn up in 1958 by the Council of Ministers of products to which the provisions
The briefing paper also states:
“While their primary purpose is to replenish Royal Navy vessels, the RFA also provides operational support including for counter-piracy and counter-terrorism missions. RFA vessels may embark Royal Marines and/or helicopters and work with allies (e.g. the US Navy in the Caribbean) on these operations. RFA Fort Victoria, for example, was involved in joint US/UK counter-narcotic operation in the Gulf which resulted in the seizure of £40m of heroin in March 2017, while a Sea King helicopter crew on RFA Fort Rosalie helped guide an Australian Frigate to a suspicious dhow carrying over £100m worth of drugs in the Indian Ocean earlier this year.”
December this year will see the formal issue of documentation inviting bids for the design and build contract and in 2020, the contract for design and build is to be awarded.