14 April 2005 | Cara Whitehouse
The Ministry of Defence is to rationalise its supply base through a single £300 million contract with Westland Helicopters for the operational support of the Sea King aircraft.
The deal, which covers the helicopter until its anticipated 2018 retirement date, replaces around 60 individual contracts with over 30 different suppliers.
Under the contract, Westland will act as a contractor, subcontracting work to other suppliers. An MoD spokesman said savings would be made as the ministry would no longer be involved in multiple contract negotiations.
The £300 million figure covers only the first five years of the contract and the MoD is anticipating savings of £50 million over its initial 10 years.
Keith Hartley, director of the Centre for Defence Economics at the University of York, told SM: "The MoD will deal with one first-tier supplier, who then manages the rest of the supply base.
"Risk and management responsibility will shift to industry, which is more commercially orientated."
This new outlook could mean suppliers face further squeezing by Westland Helicopters or even competition from abroad, he said.
But he added that tighter terms could help suppliers, as long-term contracts offer security of supply and longer production runs. Suppliers could then reduce costs through economies of scale.
David Moore, course director of defence acquisition management at Cranfield University, agreed that the deal could be good news, especially for small to medium-sized enterprises (SMEs).
"This is a chance to forge new relationships with Westland Helicopters and potentially with other SMEs," he said.