Grant Campbell: Tactics need work for an independent future

Scotland would have very different defence needs from the UK, writes Grant Campbell

In THE independence debate that will follow in the months and years to come, no subject is likely to generate more impassioned debate than that of defence.

Recent coverage of the issue shows just how polarised opinion is. Unionists accuse Nationalists of having no grasp of the strategic issues, whilst Nationalists argue that Unionists need to understand that as a small, independent nation, Scotland’s defence needs will be substantially different to those currently required by the UK.

Recent flashpoints have included the future of the Trident submarine naval bases on the Clyde and whether the Scottish Defence Force proposed by the First Minister might take historic Scottish regiments from the British Army.

All of these questions are essentially political and the debates around them will rumble on. It is important to remember, however, that if the Scottish people do vote for independence then these issues will have to be settled and that is likely to involve compromise on both sides.

In the event of Scottish independence, it is expected that a Scottish Defence Ministry (SDM) would be established. Its responsibilities would depend on the terms of the negotiated independence settlement and would probably change over time, particularly as any transitional arrangements agreed with the Ministry of Defence for the rest of the UK run their course.

In terms of the settlement itself, the two governments would have to agree on the assets (and liabilities) that would be transferred from MoD to SDM. Beyond the obvious issues associated with front-line capabilities, there are other important factors to consider, such as what happens to existing defence supply contracts. Presumably, they will be honoured but will they transfer in part to SDM or do they stay with MoD?

How existing contracts are handled is going to be an issue of major concern to suppliers in terms of business certainty. In terms of new business, the ability of Scottish defence contractors in an independent Scotland to win work will depend on a broad range of factors, including the wider business and economic environment. Again, this is an area of controversy, with some commentators and politicians suggesting independence would devastate the defence industry.

There can be no doubt, however, that the legal environment in which defence procurement operates is a key consideration in the independence debate.

Within the EU, public authorities, including defence authorities, are bound by public procurement rules that are intended to ensure that the process is transparent, fair and open and, thus, competitive. These rules do not just apply in favour of EU contractors – they apply to all procurements irrespective of the location of the contractors.

In principle, therefore, in an EU context at least, Scottish defence contractors would be competing for work from the likes of the MoD on a level playing field with other contractors. There are two caveats to this.

First, there is an exemption which allows governments not to apply the general rules requiring tender competition where they consider that their essential security interests require them to give a direct award of a contract to a specified contractor. However, the EU Commission’s view is that the exemption should only be used in exceptional circumstances so there is no real scope to use it generally to support local contractors.

Second, even where that exemption does not apply, and a transparent competitive process takes place, there is always some scope to build an element of subjectivity into a tender evaluation exercise. As a result, you can never exclude entirely the possibility that a finely-balanced decision might favour a “home” contractor just because they have home advantage. Furthermore, in situations where the public procurement rules do not apply, such as contracts further down the supply chain, contractors are free to contract with whoever they wish. Contractors could take the view they won’t contract with any one north of the Border. This could be a particular issue of concern for SME’s who are more likely to operate at that level of the supply chain.

As one commentator said recently, if Scotland becomes independent, “there will not be many in London who speak up for maintaining contracts with shipyards on the Clyde rather than in Portsmouth”. Maybe. Ultimately though, where public procurement law applies, their legal ability to prevent companies in Scotland winning work is very limited. Will defence companies in Scotland look to relocate south? Possibly, but probably only if they feel that the economic and business climate in an independent Scotland is not conducive to being competitive in the markets in which they operate and, as to that, only time will tell.

• Grant Campbell is head of the technology, information and outsourcing team at Brodies LLP. He will be speaking at The Scotsman Conferences’ event, Defending An Independent Scotland, on Tuesday. For tickets, see www.scotsmanconferences.com.