13 Mar 2017

BAE Systems set to be released from competition requirements

The Competition and Markets Authority is examining whether BAE Systems should be released from long-standing competition requirements, as they are no longer relevant.

The undertakings require BAE Systems plc, where possible, to provide access to its resources to actual or potential prime contractors bidding for or performing contracts for the purposes of a Ministry of Defence (MoD) programme.

The CMA began the review in July last year after a request by BAE Systems. The undertakings were originally given by British Aerospace plc (now BAES), to the then Secretary of State for Trade and Industry, following its merger with the Marconi Electronic Systems business of General Electric Company plc in 1999.

Following Office of Fair Trading reviews, the Secretary of State released BAES from most of the undertakings by 2007.

The Competition and Markets Authority independent panel members performing the review are set advise the Secretary of State for Business, Energy and Industrial Strategy (BEIS) that changes of circumstances mean the undertakings are no longer appropriate.

The review has looked at four defence sectors (warships, submarines, combat aircraft and munitions) and discovered there have been relevant changes of circumstances.

These include The MoD has moving away from a competitive procurement process, instead making greater use of long-term exclusive agreements and alliances.

BAES has also sold or closed some its businesses in a number of sectors; and the capabilities of other defence contractors have developed such that any potential reliance on the Company has lessened.

This has meant a reduced role for the prime contractor model where competing suppliers might need to use the undertakings to facilitate access to BAES resources.

The group believes that this situation is unlikely to change in the foreseeable future and so provisionally intends to advise that the undertakings are no longer relevant and that BAES should be released from them.

It will now consult before sending its final advice to BEIS in the spring. The final decision will be taken by the Secretary of State.

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