1. May 2017  |  Security and Defence

The GLOBSEC NATO Adaptation Project is clear; NATO suffers from inadequate and unbalanced defence capabilities and capacities, particularly amongst the European allies, which have to cover too great a range of missions and tasks, at too high a level of cost, with too few assets. Like all change, Adaptation costs money, demands compromise, and in the right circumstances, promotes innovation. Given the nature and scope of emerging threats the Alliance will need new systems, platforms and technologies, if NATO is to really become the Adapted Alliance. Equally, affording and equipping a future-proofed Alliance also creates a profound dilemma; without proper AGREED understanding of the inherent risks and threats in the strategic environment, the priorities it generates, and the funding levels and equipment choices it must drive, the Alliance will continue to find it hard to agree what level of capabilities it needs, and at what mass of capacity. Equally, the contemporary strategic environment is also being ‘invaded’ by such novel levers of potential disruption and destruction, as artificial intelligence (AI), disinformation, cyber, and other exotic technologies to create a new spectrum of conflict. Therefore, not all Adapted tools will be military.

Adaptation and Innovation: The need to recapitalise and re-equip European forces as a consequence of Adaptation also a ords the Alliance an opportunity to properly consider innovation. Or, to be more precise, what balance to strike between effciency and effectiveness, and by extension, between collective capability, i.e. owned and funded by members of the Alliance, and common capability, which is ‘owned’ by the Alliance or, as will be often the case in future, the EU. 

PART ONE: EQUIPPING THE ADAPTED ALLIANCE

Message One: NATO Adaptation must help fix national procurement

Alliance members do not generate anything like the return on defence procurement investment they should for the amount of money they invest. Irrespective of any future shared threat assessment, a first aim must thus be to drive down the cost of procurement, increase the speed of procurement cycles, and deliver more assets per dollar, euro, pound, krone et al invested. For Adaptation to be a orded there can be no more Horizon/Type 45, Euro ghter/Rafale, A400M, or F35 Lightning II procurements in which an unbearable cost override is imposed on the taxpayer by a toxic mixture of division, duplication and defence-industrial rent-seeking, reinforced by low production runs at great cost over too long periods from which European defence procurement suffers, and has done for far too long.

There are several barriers to sound investment in Europe: over-protected national defence-industrial champions; an over-supply of platform-generating ‘metal-bashers’, and in Europe in particular a paucity of systems-integrators; an inability to agree transnational specifications that in turn prevent effective collaboration; the conflation of industrial policy and employment policy with defence policy; the hanging of too many systems on too few platforms due to small production runs; excessive complexity of poorly-performing platforms that in turn drive up unit cost and defence cost inflation; over-selling by defence industrial giants that see the taxpayer as a subsidy generator; and too many ‘flagship’ political defence projects that de-stabilise defence budgets by preventing the purchase of cheaper alternatives, including off-the-shelf.

Message Two: Adaptation must drive new thinking on procurement

The need for challenging new thinking is vital to question at the outset capability requirement assumptions and choices, before expensive and dangerous mistakes are made. New thinking on procurement must also be an essential driver of Adaptation, which is a process not an event. That means systematic, independent and robust ‘red-teaming’. At times such thinking will need to be ‘disruptive’ in the way it challenges strategy, technology and procurement assumptions. Too often procurement choices reflect an incremental, conservative approach to security and defence in an age when potentially revolutionary technologies threaten the security and protection of both NATO citizens and the NATO force. Indeed, the Alliance is entering a new and dangerous era in which disruptive and destructive technologies will also threaten both the defensive and offensive capabilities of the Alliance. Why, for example, need a tank be necessarily replaced by a better tank? Maybe a completely new capability could perform better and give the Alliance an operational edge over the extended times and distances future operations are likely to demand. 

Message Three: Adapt and strengthen NATO’s entire system life cycle...and more

Much of NATO’s effort to promote efficiency and effectiveness in Allied defence procurement is focussed on the so-called system life cycle. NATO’s aim is to promote harmonisation and standardisation through the adoption of best practice from conception to retirement, supported by the NATO Support and Procurement Agency (NSPA) which aims to act as a broker between national end-users and suppliers. However, it is the strategic level, and the work of both the Defence Investment Division (DID) and the NATO Communications and Information Agency (NCIA), that is the key to driving innovation in Alliance-wide procurement, in close collaboration with the Committee of National Armaments Directors (CNAD). This ‘iron triangle’ will be critical to delivering the future platforms and systems for NATO, particularly the acquisition of all-important enabling systems architectures. However, in conjunction with the EU’s increasingly important European Defence Agency (EDA), NATO Adaptation must help drive the synergies that will vitally increase the performance of new platforms and systems and help drive down unit costs, and deliver assets to forces well within one defence planning cycle, which is too often not the case today.

What is needed is a much more rigorous and systematic approach to understanding where waste happens and how it can be eradicated at every stage of the cycle from conception to retirement. NATO’s system life cycle has six stages; concept, development, production, utilization, support, and retirement. If Alliance forces are to be equipped for the full range of missions, which both the Wales and Warsaw summits called for, there needs to be much tighter convergence at the conceptual stage when the requirements are established. Too often establishing common requirement fails because of hidden national and parochial industrial pressures. Such failures immediately push up defence cost in ation and the unit cost of defence equipment. Only through a proper and early establishment of a fair and systematic approach to work-share will nations feel comfortable enough to harmonise requirements.

Making production smarter and bigger, harmonising utilisation of assets, pooling support functions, and better managing mutually the retirement of assets, are when taken together, all areas where more efficiency and effectiveness could be driven into equipping and a ording capability and capacity. Common requirement and speci cation also needs to be enacted throughout the entire life-cycle of an asset, including common life-cycle logistics. The latter point is very important because not only is much of the cost of an asset incurred during the extended life of an asset, but a reasonable level of work-share among partners helps facilitate consensus for multinational programmes. 

Message Four: Make the case for defence procurement harmonisation

One of the main reasons industrial policy has trumped defence policy in the making of defence investment choices is the lack of a reasoned rationale. Indeed, the under-supply of over-priced military assets in the Alliance is precisely the consequence of the lack of any shared assessment and agreement over the definition of what is a reasonable, or what is a sustainable, level of operational capabilities. There has been a particular failing on the part of the expert community to Alliance political leaders, with issues of equipping and a ording forces too often subordinated to strategy and policy.

However, precisely because affording and equipping has been allowed to drift for so long, rectifying the problem to meet the Warsaw mission will require substantial reform. For example, Adaptation must be the platform for the ruthless re-examination of the EDTIB by the Alliance, in close collaboration with the EU’s European Defence Agency (EDA), to properly understand the relationship between those producing platforms and those integrating systems. Such a review would need to be undertaken in conjunction with a full analysis of the defence supply chain to see where rent-seeking by defence companies is being generated, ine ciencies maintained, and where possible to open up defence to a much broader supply chain, and thus help Allies drive down development, production and in-life support costs. 

Message Five: Innovate now...

This aim of the Adaptation must be to help safeguard the defence base and associated supply chains whilst reforming them at one and the same time. Equally, procurement adaptation must also be pragmatic if it is to secure high-level support across the Alliance, and any assessment of future requirements must not shoot for the moon. Indeed, unreasonable moon shooting is an a iction from which for too long the military community has su ered, and which has driven costs to unsustainable and unnecessary levels. Procurement innovation is needed to promote a range of new practices.

Innovation could include the following: encouraging defence industries in conjunction with defence establishments to look more closely at dual technologies rather than bespoke military solutions; the generation of ‘disruptive solutions’ that might encourage and favour shared innovative multinational approaches rather than more conventionally-driven systems and platforms; adoption of a broader concept of ‘defence industry’ as a driver of economic development and technological innovation; viewing defence as a driver of advanced qualified jobs (rather than the cost-plus low level jobs it too often generates today).

There is also a range of practical solutions that could be pursued. The EU’s idea of permanent structured co-operation or Pioneer Groups, or something similar, could be adopted by the Alliance, with commanders and end-users, together with industry helping to develop new forms of partnership. The Alliance is already fostering clusters of members and partners to help develop key asset areas, but both the idea and implementation need to be far more robust in the future. O setting agreements could also be further developed to enable partner states to be involved from the outset in the development of advanced defence technologies.

All the above pre-supposes a new level of openness and transparency between Allies. However, ‘openness’ will only be politically viable for many NATO nations if it is seen to be fair, and part of a real two-way street of co-operation, not just yet another device to favour national champions at the expense of allies. Equally, the more advanced NATO states will not, and cannot, be expected to dumb-down their own programmes simply to ease political pressure on recalcitrant allies. NATO has for too long su ered from a lowest common denominator approach to both common and collective procurement that has undoubtedly helped to accelerate relative decline. If the more advanced Allies are to commit to enhanced collaboration under ‘openness’ then less-advanced Allies must in return drive out their own ine ciencies, not see Adaptation as yet another excuse to lock them in through a form of adapted protectionism. 

Message Six: ...But do think future innovation and reform

Adaptation also implies real change in both structure and practice in the future. Whilst it is correct the Alliance must not shoot for the moon, equipping and affording Adaptation still demands ambitious ‘out of the box’ thinking that may take years to realise, but which is nevertheless important. For example, Macro-Defence Convergence Criteria (MDCC) have been around since the Venusberg Group suggested them in 2004 (together with the 2% defence investment benchmark)2. Such criteria could be a) extremely useful for the smaller NATO members; and b) a vehicle for deepening the EU- NATO strategic partnership. MDCC also calls for increased military e ectiveness by promoting the functional integration of key support elements – starting with the tail and moving towards the teeth of the force. As such, the idea also builds on the proposals made by France, Germany, Belgium, and Luxembourg at the May 2003 Tervuren meeting.

MDCC would be divided into two criteria: economic and military. The main economic criteria would require the Allies to properly agree and enforce defence spending levels, lead to more balanced defence budgets, and in time agree a common budget for main capital investments and to pay for the conduct of long campaigns and operations. There would also need to be a major e ort needed under MDCC to rationalise and re-group Europe’s defence industries and more deeply embed them in the wider technological base. 

Message Seven: Reinforce the defence investment pledge with capability action

Back in the early 2000s, the then European Capability Action Plan (ECAP) identified 144 military shortfalls Europeans needed to ll. By mid-2003 some 100 of the smaller shortfalls had been resolved. However, some key areas, then and now, remain unresolved or only partially resolved. These include air-to-air refuelling, properly manned and equipped deployable headquarters, combat search and rescue, CBRN protection, theatre ballistic missile defence, unmanned aerial vehicles, strategic airlift, and space-based assets. There are also critical lacunae of attack helicopters, cruise missile stocks, precision guided munitions, strategic airlift, munitions procurement in general and their utilisation, and intelligence, surveillance, target acquisition and reconnaissance (ISTAR).

Operations over Libya revealed the extent to which NATO Europe lacks key enablers. It is also the case that whether it be through pooling and sharing, Smart Defence or the Connected Forces Initiative (CFI), efforts are indeed underway to close these dangerous gaps in Alliance capability and capacity. However, given the long and sad story that NATO Europe has to tell in this regard it is clear more is needed than the Defence Investment Pledge, important though that is. Perhaps even more important is the 20% of defence budgets that must be spent on new equipment because the ultimate test for NATO Europe will be the capability it can bring to the table. Therefore, the Defence Investment Pledge should be reinforced by an Alliance Capability Action Plan or ACAP.

Message Eight: The Adapted NATO needs to foster a new approach to multinational defence procurement

The critical need is to create a critical mass of defence investment to ensure the right platforms and systems are purchased at the right price. Indeed, lessons from the past also suggest that multinational defence procurement programmes only work if they are built upon real common requirement. How to do this? If the establishment of a common European defence market is some way off, NATO could seek to become a ‘broker’ for the Allies forging synergies, harmonisation, and thus efficiencies into the relationship between suppliers and end-users, which in Europe today is so weak.

Too often defence planners mask what is in effect national defence protectionism under the banner of nationally-specific requirements, which in turn leads inevitably to inefficient national solutions. This leads in turn to the proliferation of di erent, over-priced, low production runs, as well as often incompatible platforms and systems. One driver of Adaptation is to better promote interoperability, or at least prevent interoperability ‘killers’, which again suggests the Alliance has a direct role to play in equipment harmonisation. Therefore, to further a more constructive relationship between adapted defence procurement and a reformed industrial policy, the Alliance needs to play a stronger role in better promoting a shared understanding about what, where and when to buy. In a sense the Adapted Alliance would act as both broker and referee. This is important, because again market openness and fair competition are indispensable pillars for more intense defence cooperation among and between the Allies.

Such an initiative would face many political, regulatory and business hurdles and would thus likely be more concept than fact. However, in time it would foster a closer relationship with the European Defence Agency, and would also help further foster a more delineated Alliance procurement and acquisition ‘space’. Such a ‘space’ could also better promote the harmonisation of specification and requirement and further promote R&D and R&T, which is woefully under-funded in NATO Europe.

Some form of NATO Off-the-Shelf Defence Market might also be worth exploring, with again the Alliance acting as a ‘broker’ matching need to supply at a reasonable level of cost. Close partnership with the EU would help promote momentum in such an effort. There is also a peculiarly European problem that such an approach might help resolve; ‘Christmas trees’. Christmas trees are platforms which, because they are so few in number, compensate by hanging as many systems as possible onto them leading to the entire system becoming sub-optimal, over-priced, and because of shifting requirements, often very late.3

Under such a system some states would still choose to develop national strategic assets in parallel with multinational programmes, such as the British decision to build NATO-assigned large aircraft carriers, nuclear ballistic missile or hunter-killer submarines. However, expanding on the naval/maritime theme Adaptation could also help foster a culture of enhanced multinationalism for all so-called ‘work-horse’ assets, such as, say, air defence or anti-submarine frigates.

Over time well-conceived and managed multinational programmes (underpinned by effective project management) help and facilitate not only convergent defence strategies, but also harmonise the timing of defence planning. Therefore, if NATO’s capability-capacity gap is to ever to be closed, Adaptation should, at the very least, seek to foster a new culture in which national defence planning cycles converge as much as possible, both in timing and the establishment of capability requirements. 

PART TWO: AFFORDING THE ADAPTED NATO

Message Nine: Value-for-money means better spending... really!

Adaptation must also confront an Alliance bottom-line; a ordability. Better defence spending will be vital in enhancing Alliance deterrence and defence, but it is equally vital to state that better spending will also need more spending. This challenge raises a speci cally EU problem which will also profoundly impact the Adapted Alliance. At the EU’s December 2016 European Council the European Defence Initiative (EDI) was agreed. In spite of the likelihood that Britain will leave the EU in 2019, EDI, if closely- coordinated in terms of planning and capabilities with NATO defence planning, might be the best tool and vehicle politically available to bolster the defence spending of European allies.

The implications for the Alliance of such a step-change in the role of CSDP in Europe’s force modernisation would be profound. Indeed, over the medium-to-longer term such a change could well foster the development of new pillars within the Alliance – an Anglosphere and a Eurosphere. Desirable or not as such a development may be, it may also be both politically and strategically inevitable. That is indeed the current political drift and, as ever, policy, strategy, power and structure will over time realign.

Consideration must be given to the balance to be struck between common assets (both NATO and EU) and collective assets. And, by extension, which of those assets that should be procured through common EU funding, those assets that could be procured through collective NATO funding (both multilateral and bilateral), and purely national procurement.

At the very least, if the centripetal forces generated by the need for increased defence efficiency are not to be confounded by centrifugal political forces (Brexit, a widening political divide across the Atlantic, and European defence blindness), an enhanced EU role would also suggest, somewhat paradoxically, the need for much tighter collective procurement planning, based on common procurement standards to promote not just a much higher degree of technical interoperability, but also a crucial sense amongst Europe’s political elite that NATO’s future force is affordable. 

To that end, the Alliance also needs to further promote an ‘affordability culture’ amongst the Allies, which champions creative thinking. For example, it may be possible to work in conjunction with the nancial sector to see where nancial instruments, such as leasing, might be applied to the procurement of equipment, particularly equipment that has dual civil-military utilisation. NATO might also consider the establishment of a NATO Defence Business Affairs Office to better consider lessons from the civilian sector, such as the outsourcing of non-core activities, leasing of equipment, and just- in-time or focused logistics.

Hitherto many NATO nations have been very conservative and failed to be properly seized of the impact of new technologies on the utility, structure and equipment of armed forces. This conservatism has been reinforced by the preservation of a funding stovepipe between armed forces and prime contractors. In fact, nowadays civilian technologies are often far in advance of their military counterparts, and because they are not bespoke often cheaper. Therefore, far more needs to be done to involve innovative companies from across the industrial and services base in helping establish technical solutions that promote force-on-force comparative advantage.

Finally, it is hard to see how an a ordably equipped Adapted NATO could be realised without being in close partnership with the EU. For EU member-states, if Adaptation is to be generated via increased spending and in time enhanced assets, the European Stability and Growth Pact, as well as European scal and budgetary practices, would also need to be adapted. First, EU members would need to include in the common EU budget a meaningful level of common resources for defence research and development from conception up through to the development of prototype capability. Second, national R&D and defence expenditure would need to be excluded from the rules in the Stability Pact (in toto or in part). These steps could lead to a fundamental change to the current European scal construct. Such steps would also be an indispensable step if NATO Adaptation is to lead to increased European defence spending at a time of enduring economic constraint in most European allied members. 

Message Ten: The equipping and a ording agenda

The figures at the start of this short concept paper demonstrate both the need for NATO Europeans (in particular) to become far more efficient and effective and the opportunity that exists for such improvements to be made. Equally, more efficiency and more effectiveness can also work against each other if baseline investment is insuficient.

The Adaptation equipping and a ordability agenda could look thus:

  1. There is no centralised NATO system to support procurement. Whilst some harmonisation of NATO Agencies has taken place since 2010 Adaptation, it is not enough, nor has it happened quickly enough. The aim must be the creation of a single procurement and acquisition advisory hub focused on the Defence Investment Division, both for the procurement of common assets and to better support the co-ordinated procurement strategies of the nations.

  2. NATO should seek to establish Standards for equipment specification and requirements. NATO Standards exists across four domains: operational, procedural, material, and administrative. The aim is to facilitate standardisation in support of the NATO Defence Planning Process (NDPP). In support of the NDPP, NATO should undertake an Alliance-wide systems audit of existing platforms and systems, covering campaign critical military and civilian assets. The aim would be to establish where force synergies can be better fostered, to properly establish shortfalls, and to better understand how existing assets might be better used.

  3. If the Alliance is to properly embrace innovation it must as a matter of urgency consider the role of ground-breaking developments in technology, such as artificial intelligence (AI), deep learning, the military application of nano-technologies, as well as the developing and changing threat posed by chemical, biological, and radiological weapons, and missile and other kinetic delivery systems and weapons;

  4. Under the current system there are too many decisions that need to be made at too many levels with consensus needed at too many milestones on the road to procurement delivery. Military commanders and end-users need a far greater say in requirement development, and much greater effort needs to be made to enable operational commands to drive operational requirement. The Defence Investment Division and NATO Communications and Information Agency (NCIA) have a critical role to play in accelerating procurement processes and should be given the resources and manpower to do the job. 

  5. Too often defence planners mask what is in effect national defence protectionism under the banner of nationally-specific requirements. This protectionism in turn inevitably leads to specific national (and costly) ‘solutions’, as well as the proliferation of different, over-priced, low-production runs, and often incompatible platforms and systems.

  6. There is a vital need for an enhanced and sustained exchange and interface between defence planners, the technology/industrial community, and the broader security policy community.

  7. An audit should be undertaken be the Alliance to better understand the level of resource-waste cause by redundant fixed assets and duplication, especially in non-essential areas. Perhaps the establishment of an Alliance Defence Audit O ce might assist with such a process.

  8. A Future Requirements Framework should be established that would purposively focus far more on the operational capability the Alliance needs, rather than the generation of specific capacity if the more efficient use of assets is to enhance NATO capability. Such a Framework could lead to more pooled assets reducing the need to purchase expensive urgent-operational requirements (UOR) during a campaign.

  9. A deeper NATO-EU strategic partnership is needed, especially in areas such as countering hybrid warfare, internal security, and defence capacity-building where the two organisations’ mandates overlap to help drive economy of action and force.

  10. Since 2012, Smart Defence and the Connected Forces Initiative have proved invaluable in driving more efficiency and effectiveness from munitions procurement through to defence education and training. However, thus far most of these projects have been driven from the bottom-up. The Alliance must be far more systematic in the design and application of such projects and properly embed them in a development programme that will reach far beyond the limited goals of NATO Forces 2020. 

 

Conclusion

If efficiency and effectiveness are to be successfully re-married in European defence procurement, Adaptation must strike a new balance between the two. Adaptation and value-for-money are the flip- sides of e ectiveness and effciency and must thus go hand-in-hand with affordability. It is already clear that the Trump Administration intends to undertake a deep analysis of the cost-base of US defence industries. At the very least, there should be a root and branch review of the European Defence and Technological Industrial Base (EDTIB).

Therefore, if NATO Europe is to close the gap between being credibly able to deter and defend against all threats, as Warsaw demands, and the capabilities and capacities its armed forces need, then the Alliance needs to be far more systematic and rigorous. This means a much stronger role for the Adapted Alliance in standardising, harmonising, and converging both the choices and the defence procurement investments made by Allies. Better buying and better spending is not simply vital to reinforce the Defence Investment Pledge, it is an essential driver of the entire NATO Defence Planning Process (NDPP), and thus the outcomes the Adapted Alliance seeks to generate.

The aim eventually must be clear; a sufficiency of investment critical mass leading to agreed requirements and speci cations, enabling Allies to afford the right type and number of military capabilities, at the right level of capacity, from an efficient defence, technological and industrial base, able to provide a level of security and defence at an affordable price that does not bankrupt the very societies that seek defence. 

Download the full the supporting paper Ten Messages for Affording and Equipping the Adapted Alliance here.