Type 31 Frigate (Inspiration Class) [News Only]

[Ron5]

Having a deadline of 20th August leaves very limited room for new bids

I think the 20th is just the deadline to register interest/intent to bid.

[bobp]

I think the 20th is just the deadline to register interest/intent to bid.

Yeah guess that's so, I am hoping that with such tight deadlines, final decisions will have to be taken ASAP for deliveries to begin in five years.

[shark bait]

the 1.25 billion has to include GFE and that has been true since day one.

Not quite, I'm the original competition there was no governy furnished equipment, the MOD did not want to be a supplier to the project.

[Caribbean]

It's like Microsoft Windows, nobody actually "buys" the software, you merely buy the license to use it on a particular computer. Transfer it to another one and your license is invalidated. I expect Bae licenses each copy of CMS-1 to a particular ship. Maybe under a leasing agreement with an annual fee that includes maintenance.

As you say, it depends very much on the terms of the license. I would doubt that the licenses are tied to a specific hull - more likely to be a specific system serial number. It's also pretty common to price on a "per CPU core"/ "other measure of system power" style license, allowing a switch to another system of equivalent power "for a modest paperwork fee" (basically the cost of changing the serial number on the license documents and re-issuing them - printing ink is extremely expensive, y'know), plus fees charged for the services involved in facilitating the physical move. There would normally be additional license costs if you migrate your software to more powerful hardware. Of course, in the case of BAE, those "modest fees" could seem quite eye-watering, but I would think considerably less than the cost of a new license.

[abc123]

the 1.25 billion has to include GFE and that has been true since day one.

Not quite, I'm the original competition there was no governy furnished equipment, the MOD did not want to be a supplier to the project.

Including GFE? So what will bidders offer then? Steel and welding?

[Caribbean]

the 1.25 billion has to include GFE and that has been true since day one.

Not quite, I'm the original competition there was no governy furnished equipment, the MOD did not want to be a supplier to the project.

That's how I read it. The original terms were, if they wanted to put something on the hull, they couldn't expect HMG to provide it - they couldn't expect to deliver it with a big sticker saying "the gun goes here" - the cost of the gun had to come out of the £250m. Now they've been told that they can use GFE, much of which will have been depreciated in value (in some cases, almost to zero).

Yes, common sense would say free issue the equipment, but im sure the accountants have other ideas.

I am not an accountant, but in the past I've been involved in acquiring and disposing of various items of hardware, and IIRC the accountancy rules say that, if you have depreciated the value of something to £x, you can't then put a higher value on it (i.e. sell it for more). I suppose that Government could flout that rule, but then it would be open season for everyone else to do the same. Not good practice for Government to break the rules, basically, as it then loses all moral authority to enforce the rules.

[Ron5]

the 1.25 billion has to include GFE and that has been true since day one.

Not quite, I'm the original competition there was no governy furnished equipment, the MOD did not want to be a supplier to the project.

Not quite, in the original competition the builders were asked to minimize GFE not to exclude it entirely.

[Ron5]

That's how I read it. The original terms were, if they wanted to put something on the hull, they couldn't expect HMG to provide it - they couldn't expect to deliver it with a big sticker saying "the gun goes here" - the cost of the gun had to come out of the £250m. Now they've been told that they can use GFE, much of which will have been depreciated in value (in some cases, almost to zero).

The contract is to deliver 5 complete warships. Leaving work to be completed by the Navy has never been part of the program and never will. Any GFE will have to be fitted and tested by the builder.

I am not an accountant, but in the past I've been involved in acquiring and disposing of various items of hardware, and IIRC the accountancy rules say that, if you have depreciated the value of something to £x, you can't then put a higher value on it (i.e. sell it for more). I suppose that Government could flout that rule, but then it would be open season for everyone else to do the same. Not good practice for Government to break the rules, basically, as it then loses all moral authority to enforce the rules.

The MoD sells a shed load of fully depreciated kit all the time so obviously your experience does not apply.

There is nothing in any accounting rules that I am familiar with, that would prevent sale of old stuff. Usually accountants are pretty happy if you bring in cash for stuff with no book value.

[Ron5]

It's like Microsoft Windows, nobody actually "buys" the software, you merely buy the license to use it on a particular computer. Transfer it to another one and your license is invalidated. I expect Bae licenses each copy of CMS-1 to a particular ship. Maybe under a leasing agreement with an annual fee that includes maintenance.

As you say, it depends very much on the terms of the license. I would doubt that the licenses are tied to a specific hull - more likely to be a specific system serial number. It's also pretty common to price on a "per CPU core"/ "other measure of system power" style license, allowing a switch to another system of equivalent power "for a modest paperwork fee" (basically the cost of changing the serial number on the license documents and re-issuing them - printing ink is extremely expensive, y'know), plus fees charged for the services involved in facilitating the physical move. There would normally be additional license costs if you migrate your software to more powerful hardware. Of course, in the case of BAE, those "modest fees" could seem quite eye-watering, but I would think considerably less than the cost of a new license.

I think it is highly likely that CMS licensing is ship specific otherwise you would have the situation where the smallest CMS user, a River class, would pay the same license fee as the largest, the QE carriers. I don't know but I would expect the price to be based on usage. Maybe the number of terminals or the range of functions used, or something like that.

By the way, pricing by CPU power is old hat and not used very much any more. It's rather hard to manage in a distributed system.

[Opinion3]

Cost - Accumulated Depreciation = Net Book Value

An Asset is Depreciated over it's useful economic life. So the assumption I expect all to have made is that the CAMM parts fitted to the type 23s will be depreciated over a longer period than the ship's life because it is known that they are intended for the type 26s (and probably the T31e).

There is nothing stopping an asset being sold for more or less than it's book value but the calculation is Sale Proceeds - NBV = Profit or Loss on Disposal. What is relevant for the T31e discussion, or more specifically the A160 bid is the rate of depreciation. If the CMS is not going to be reused that means the rate of depreciation is wrong. Whether you can sell a CMS on the second hand market is also in play, but I think we can be fairly sure that as soon as the Accountants know the decision has been made to reduce the economic life they will need to change the depreciation rate.

So Babcock's bid could have failed for accounting reasons. Another point to consider is the transfer of the equipment from one ship to another.

The asset will be carried at the lower of NBV and Net Realisable Value if it is disposed of. Is the handing of the equipment to the winning bidder for fitting a disposal? If it is could there be a book Loss on Disposal? I can't think of a good reason why the accountants would not pay the NBV thereby doing away with this problem but there might be in the world of public sector accounts.

[Repulse]

The Arrowhead 120 looks to be the only variant left on the Babcock website.

I’d only take the GFE inclusion as good news if it somehow provides money for it to become a credible ASW frigate - everything else is lipstick on a pig.

[Lord Jim]

There is a strong possibility that the relaunched competition will result in a platform with less capability than we are hoping for, the budgets has been locked down and any chance of freebies from the MoD has been removed so it is now £250M per ship to cover everything. AS for what the MoD will charge industry for the GFE, well this will be an accountants "Wet dream", moving items from on column to another, deducting costs here and moving them over there, the result will probably show up in the end as efficiency savings to be put towards the already agreed targets for the RN.

[Ron5]

Cost - Accumulated Depreciation = Net Book Value

An Asset is Depreciated over it's useful economic life. So the assumption I expect all to have made is that the CAMM parts fitted to the type 23s will be depreciated over a longer period than the ship's life because it is known that they are intended for the type 26s (and probably the T31e).

There is nothing stopping an asset being sold for more or less than it's book value but the calculation is Sale Proceeds - NBV = Profit or Loss on Disposal. What is relevant for the T31e discussion, or more specifically the A160 bid is the rate of depreciation. If the CMS is not going to be reused that means the rate of depreciation is wrong. Whether you can sell a CMS on the second hand market is also in play, but I think we can be fairly sure that as soon as the Accountants know the decision has been made to reduce the economic life they will need to change the depreciation rate.

So Babcock's bid could have failed for accounting reasons. Another point to consider is the transfer of the equipment from one ship to another.

The asset will be carried at the lower of NBV and Net Realisable Value if it is disposed of. Is the handing of the equipment to the winning bidder for fitting a disposal? If it is could there be a book Loss on Disposal? I can't think of a good reason why the accountants would not pay the NBV thereby doing away with this problem but there might be in the world of public sector accounts.

Interesting comment. I checked the recent MoD audits and it seems that they depreciate ships over their expected 24 to 30 year life. If they indeed depreciate CAMM & Artisan over the same extended period (in my world I've never seen any equipment depreciated for more than 5 years however expensive) and given they are relatively new, they will have a high book value when they become available for transfer to a new ship. As much as 80-85% of original purchase price. But of course it's not real money so as Jim says, it will be up to the accountants whether they take the virtual book value out of the 1.25 billion or not. If they don't, it will just come down the cash needed to transfer, refurbish, and re-warranty the kit. A still significant cost.

As for CMS, if I am right that it's use is acquired on an annual license/maintenance fee, depreciation will not apply. The old license would be terminated with the disposal of the old ship and a new license taken out for the new one (to be taken out of the 1.25b). Of course, the actual CMS will not be ported over, just the latest version downloaded from Bae into the new Type 31.

[Ron5]

My attention was drawn to a speech made by the Cammell Laird Type 31 project director, Tony Graham, when he said the 3 main through life costs for the Type 31 are manning, fuel and combat system.

To me, that indicates that the combat system is on an annual (and expensive) license fee structure for usage & maintenance and supports my comments above.

By the way, he said the Leander had the lowest costs in all thee categories, especially fuel burn (Leander is the most efficient design they looked at). But then again, he would wouldn't he?

[Aethulwulf]

Jane's is reporting that

..in a 20 July communication to industry DE&S said it had “taken the decision to stop the procurement process in light of inadequate competition in the CDP phase”.

Jane’s understands that at least two of the potential bidders were judged non-compliant because they were unable to agree to the terms and conditions set by DE&S. Sources have cited both commercial aspects (specifically ‘joint and several’ liability) and issues regarding intellectual property rights.

While the detailed terms of the Type 31e New Procurement are still being established, it is expected that the original commercial conditions will now be amended in an effort to promote a viable competition.

I've no idea what were the issues with intellectual property rights or ‘joint and several’ liability, or how easy they will be to resolve. However, cost/budget does not appear to have been one of the issues.

[donald_of_tokyo]

Not sure how reliable, but UK DJ says

https://ukdefencejournal.org.uk/type-31 ... restarted/
We spoke to a contact in the Ministry of Defence who told us on condition of anonymity:

“The issue here is cost, nothing else. The designs put forward aren’t meeting that requirement from what I’m told. So, the reset button has essentially been pressed in order for the designs put forward to be worked on in the hopes they can be made cheaper while still being credible platforms.

The project hasn’t been cancelled, it’s being effectively restarted with both eyes on cost.”

Janes are more reliable? May be, I do not know.

[donald_of_tokyo]

There will be any announcement on T31e Today?

[dmereifield]

Not sure how reliable, but UK DJ says

https://ukdefencejournal.org.uk/type-31 ... restarted/
We spoke to a contact in the Ministry of Defence who told us on condition of anonymity:

“The issue here is cost, nothing else. The designs put forward aren’t meeting that requirement from what I’m told. So, the reset button has essentially been pressed in order for the designs put forward to be worked on in the hopes they can be made cheaper while still being credible platforms.

The project hasn’t been cancelled, it’s being effectively restarted with both eyes on cost.”

Janes are more reliable? May be, I do not know.

Has the procurement timeline changed? I didn't think it had, in which case thr "pause" cannot be to allow the applicants to have another go at reducing costs, can it?

[Aethulwulf]

Not sure how reliable, but UK DJ says

https://ukdefencejournal.org.uk/type-31 ... restarted/
We spoke to a contact in the Ministry of Defence who told us on condition of anonymity:

“The issue here is cost, nothing else. The designs put forward aren’t meeting that requirement from what I’m told. So, the reset button has essentially been pressed in order for the designs put forward to be worked on in the hopes they can be made cheaper while still being credible platforms.

The project hasn’t been cancelled, it’s being effectively restarted with both eyes on cost.”

Janes are more reliable? May be, I do not know.

Jane's is run by professional journalists, and has a long record of accurate reporting.

UK DJ is an amateur run web site - with a less distinguished record for accuracy (although, to be fair, I think they have been improving).

[Ron5]

Jane's is reporting that

..in a 20 July communication to industry DE&S said it had “taken the decision to stop the procurement process in light of inadequate competition in the CDP phase”.

Jane’s understands that at least two of the potential bidders were judged non-compliant because they were unable to agree to the terms and conditions set by DE&S. Sources have cited both commercial aspects (specifically ‘joint and several’ liability) and issues regarding intellectual property rights.

While the detailed terms of the Type 31e New Procurement are still being established, it is expected that the original commercial conditions will now be amended in an effort to promote a viable competition.

I've no idea what were the issues with intellectual property rights or ‘joint and several’ liability, or how easy they will be to resolve. However, cost/budget does not appear to have been one of the issues.

Hazarding a guess, apart from the IP issues that have attracted some discussion here, the "several & joint liabilities" (surely separate not several?) sounds like an argument on who takes the blame (and accepts the penalties) for cost overruns and schedule slippage.

It will be a very brave CEO that signs a fixed price contract to build 5 warships to be delivered on a fixed date, with all the penalties coming to his company. Not sure that bravery (foolhardiness) exists.

BTW, what's the odds that the two non compliant entries were Babcock's & the German consortium?

[Old RN]

"Joint and several" is the legal term that the purchaser can sue any of the JV members for the full damages allowed in the contract for non-performance. On big contracts it normally scares the smaller JV membrrs to death!

[Ron5]

"Joint and several" is the legal term that the purchaser can sue any of the JV members for the full damages allowed in the contract for non-performance. On big contracts it normally scares the smaller JV membrrs to death!

Thanks! I can imagine why.

BTW, I wonder what was the last RN/RFA ship that was actually delivered on time and budget? And what about first of class?

[bobp]

Defence news says the brief consultation process with industry starts today

https://www.defensenews.com/naval/2018/ ... take-part/

[Halidon]

They really need to offer more concrete intentions to support the class beyond the initial 5-hull buy if they want to broaden the appeal to the industry.

[Poiuytrewq]

They really need to offer more concrete intentions to support the class beyond the initial 5-hull buy if they want to broaden the appeal to the industry.

Surely it will depend on what they turn out like?

If they turn out to be a very lightly armed patrol frigate how many would RN really want? Other priorities might start to take precedence.

On the other hand if they turn out well....

I think at this stage it is too early to say and RN would be unwise to commit to higher numbers until the final design becomes a lot clearer.