Oleg Bochkarev: We cannot rely on imported components in the military-industrial complex
Effective distribution of the state defense order is an entire science. How to find a balance between the price of contracts, the interests of domestic industry, and most importantly, the country's defense, Ruslan Pukhov1 and Sergei Denisentsev2 were told by the Deputy Chairman of the Military Industrial Commission under the Government of the Russian Federation, Oleg BOCHKAREV.According to representatives of the Ministry of Defense, all contracts under the state defense order for 2013 are planned to be concluded before 15 and 2013. What work is the military-industrial commission doing in this connection?
- The state defense order is governed by a government decree. A great deal of work is done during the year before the adoption of the resolution. After all, the state defense order includes not only requests from government customers - the Ministry of Defense and other security agencies, but also the financing of federal targeted programs in the field of technical re-equipment of enterprises of the military-industrial complex. The Military-Industrial Commission considers all these requests in working order, asserts at a meeting, which usually happens in November of each year. At the same time, the state budget is approved, within the framework of which it is determined what amount will be allocated to secure the state defense order. Then the state defense order is approved by the government.
This year, the Ministry of Defense fulfilled in record time - as early as January, additional agreements to almost all rolling contracts were signed. The second group of contracts, which must be signed before March 1, are contracts with the only suppliers and monopolists in the production of various types of weapons. In this case, competitive procedures are not needed, but the price must be registered with the Federal Tariff Service. The April 15 term announced by the Ministry of Defense is the term for concluding contracts of the third group, which brings together procurement contracts under tender procedures. We must pay tribute to the new leadership of the Ministry of Defense: this year, the contracting of all three groups of agreements goes an order of magnitude faster than in previous years. Now we have much higher - around 70% - the share of long-term contracts in the structure of the state defense order (state defense order).
It must be remembered that the State Armaments Development Program (LG) of 2011 – 2020 is decisive for the state defense order for each specific year. In previous years, the industry was faced with a certain misunderstanding on the part of the customer, many types of military products, the purchase of which was provided for the LG, the Ministry of Defense refused to buy. The new leadership of the military department managed to smooth out these sharp corners in a short period. The Ministry of Defense stopped the so-called “price wars” on ammunition and went to meet the industry both in the cost of supplying mass-produced products and in the cost of experimental design work.
What are the main programs in the field of arms procurement for the ground forces that will be carried out in 2013, and what about the signing of contracts for them?
- The Russian army will receive new land defense systems, missile and artillery equipment, a lot of work is underway to modernize tanks T-72. Both our main manufacturers of automotive equipment for the armed forces, KamAZ and UralAZ, will be loaded with orders. Much attention will be paid to the purchase of new equipment for the military.
In 2013, it is planned to complete the ROC on the “Warrior” theme, which will allow the Ministry of Defense to begin with the 2014 year the mass purchase of new combat equipment kits. Before 2018, the Kolomna “Machine-Building Design Bureau” was loaded with an order for the supply of operational-tactical Iskander missile systems. There are positive shifts in the program for creating a unified management system for the tactical level (ESU TZ), which is being developed by the Constellation concern. A large amount of work on the ESU TZ is planned for 2013 year as part of the state defense order. A schedule has been drawn up for eliminating the deficiencies of the system, and the trust that the Ministry of Defense has allocated to the creators of this system simply commits the Constellation concern to cope with this task.
It is worth noting that the military-industrial commission is a coordinating body that does not replace neither customers nor executors. Our task is to make the system of interaction between customers and executors of the state defense order work independently, without manual control. However, in practice there are differences and lack of understanding. Therefore, members of the military-industrial commission are constantly working to coordinate the efforts of industry and government customers. Operational meetings are held once a week, customers prepare weekly reports on the performance of the state defense order. Together we come to a compromise.
In November, 2012, Prime Minister Dmitry Medvedev signed a decree on amending the "Regulations on the military-industrial commission under the government." Now your authority allows it to influence both the Ministry of Defense and industrial enterprises in the event of a dispute over the prices of state defense orders. Were there any precedents for the use of this right by the commission in general and, in particular, in the area of procurement of equipment for the ground forces?
- At a certain stage, “price wars” between contractors, industry and government customers, first of all, the Ministry of Defense, reached such a scale that the head of state was forced to interfere in resolving these disputes. It’s nonsense that the president should spend his time settling economic conflicts, in essence, and the military-industrial commission was tasked with eliminating such situations. However, this does not mean that we, as an arbitrator, will set the price on top of any products. Our task is to create a regulatory legal field in which clear rules of the game will be for all participants. In December, four new regulations on pricing were approved by the military-industrial commission: at the conclusion of contracts for research and development, for experimental design works, contracts for the supply of mass-produced products, and contracts for repair and service work. These provisions are developed by the Federal Tariff Service. Now both the customer and the performers have uniform pricing rules.
What prices of weapon systems cause the greatest contradictions between the customer and the industry?
- The more complex the weapons system, the more difficult the issue of determining its price. The key issue is the cost of the manufacturer. Direct costs, labor costs, material consumption - these are, as a rule, easily callable articles. The biggest controversy is overhead. Does the enterprise write off the expenses for the creation of this particular type of armament or military equipment as overheads? How effectively is the enterprise organized? After all, if an enterprise is inefficient, then all this inefficiency becomes part of the overhead. The problems of outdated production assets are also reflected in overhead costs. And the Ministry of Defense quite reasonably does not want to compensate enterprises for their often unjustified overhead costs. This is the main cause of price conflicts and may concern the purchase of any type of weapon.
Another problem is pricing for the development and production of high-tech products. Previously, when concluding R & D contracts, we were forced to follow the 94 law, which prescribes fixed prices. In general, it was suitable for contracts for the supply of serial products, but was completely unsuitable for contracts for research and development. Now, according to the new law on state defense order, we use three types of pricing: a fixed fixed price, a reimbursable price, and an estimated price. Due to this, the issue of pricing at the conclusion of contracts for R & D was solved. But the question of optimizing production and reducing overhead costs remains the main problem for the Russian military industrial complex.
What is the position of the military-industrial commission regarding the procurement of military equipment for ground forces abroad and on the issue of licensed production Iveco LMV "Lynx" for the Ministry of Defense?
- For the Russian armed forces, the domestic industry should make military equipment and weapons systems. Of course, there are some areas in which our industry significantly lagged behind technologically. But the purchase of ready-made systems can not overcome this lag. If we resort to import, then to import solutions: constructive, technological, in the field of materials science. Take, for example, the Iveco LMV "Lynx". This machine is superior to its Russian counterparts in a number of indicators, primarily in mine protection. But nothing prevents us from taking these constructive solutions and materials and applying them on a machine of domestic production. Only in this way can we reduce the technological gap. Therefore, we need to create joint ventures with foreign manufacturers, to conduct joint experimental design work. We have now given a clear signal to foreign partners - we will not buy ready-made weapons systems, but we are ready to cooperate. Negotiations in this regard are quite successfully conducted by many Russian companies. At present, the contract for the assembly of 350 machines "Lynx". The further fate of this machine will depend on the degree of localization of production can be achieved. If there is a screwdriver assembly, then this is not serious.
Representatives of the Arzamas Machine-Building Plant during your recent trip complained about the low quality of Russian-made components and the long terms of coordination with the customer when switching to imported components. How do you feel about the use of imported ground-based components for Russian ground forces and what steps are being taken to speed up the approval process between the customer and the industry regarding changes?
- Not only AMZ, but also other leading enterprises for the production of weapons have complaints about the quality of Russian components. These are issues of lack of rigor and discipline, the lack of modern equipment and modern control tools implemented. But also the leading enterprises deserve criticism, because the complaints about the quality of the components are the result of poorly organized work with suppliers. Why do parent companies not apply double redundancy, do not look for alternative sources, do not create competition between suppliers? Yes, in terms of production, it has been difficult to change the existing cooperation for a long time in a series of systems. But after all, when designing new systems, head enterprises turn to the same component suppliers, and then continue to complain about them. We say to the management of the head enterprises: do not complain, work, optimize the chains of suppliers, demand from them the introduction of product quality management systems - it doesn’t matter, "Lin Six Sigma", "lean production", if used properly, these tools give a tangible result.
The head enterprises want to work with Western manufacturers, because they have higher quality, guaranteed delivery times, a higher commitment culture. But we cannot rely on imported components in the military-industrial complex. Today we are friends - and they sell us, but tomorrow they are not friends - and all our equipment has risen. After all, now there is a process of powerful expansion of American companies in the European military industrial complex. Today, the company is European and is set to cooperate with us, and tomorrow it was bought, and the new management no longer wants to sell anything to us. We always tell the leaders of the leading arms manufacturers who want to buy imports: can you guarantee that these components will be available to you tomorrow? If not, then you put our army in a dependent position. Our position is as follows: to foreigners need to apply only when there is confidence that tomorrow their production will be localized in Russia.
Regarding the long terms of coordination with the Ministry of Defense, we are more likely ready to support the military. The problem of red tape exists, but the current approval procedure cannot be changed to chaos. It would be wrong to give a change in the design of military equipment to the mercy of industry. The military are responsible for the operation of the systems, and reducing the requirements for military acceptance will ultimately have a negative effect on the combat capability of the troops.
How is the Boomerang theme evolving? When should we wait for the start of the military test of the machine, when the adoption? How are works developing on other interspecific unified platforms - Kurganets-25 and Armata?
- “Boomerang”, “Kurganets-25” and “Armata” are the start of the system re-equipment of our armored vehicle fleet. We maximally unified all three chassis. But, of course, the work on all three projects is proceeding at a different pace. The work on the “Armata” program is developing most successfully; we plan to see the first results in September 2013. In 2014, the platform must go through the entire test cycle, and already in 2015, it is planned to begin mass deliveries. On the topic "Kurganets-25" there is a problem of the exit of some companies from cooperation in creating a platform. I will not call them, but the companies that have chosen the way of blackmail in an effort to grab a bigger piece are wrong, and we made it clear to them. The state will not allow the collapse of such an important program. Bulk deliveries must begin in the 2015 year, and we will try to do our best to meet these deadlines.
"Boomerang" is in a more difficult situation. The decision of the previous leadership of the Ministry of Defense to focus on the purchase of imported wheeled military equipment had a negative impact. Fortunately, at the Arzamas Machine-Building Plant, they did not give up work and are now doing everything to achieve a positive result on the program. Recently, Deputy Prime Minister Dmitry Rogozin visited the company, personally acquainted with the state of affairs, found out how to help him. We agreed that at the end of the year we will see a Boomerang prototype. The roadmap of the project by deadline is the same as that of Kurgants and Almaty: 2014 year - state tests, 2015 year - the beginning of deliveries to the troops. The fact that the Arzamas Machine-Building Plant, even in the conditions of the Ministry of Defense’s refusal to purchase domestic wheeled vehicles, independently developed and proposed an upgraded version of the BTR-82А, which the armed forces are now receiving, tunes in a positive way. We help and will help people who struggle for the result and sincerely want to do everything efficiently.
How is the work going on to create the Typhoon family of armored vehicles? Will the announced deadlines for the completion of work for the family in 2014 be met? When should we expect the arrival of vehicles in service with the Russian army?
- “Typhoon” is a unique topic for the Russian military industrial complex, since the first prototypes of both machines were made by KamAZ and UralAZ companies at their own expense. Both companies are quite competent developers of army cars, both, according to the Ministry of Defense, were able to offer good cars. A decision was made in 2013 to purchase a batch of one and the other machine and then, based on the results of troop exploitation, decide on bulk purchases. This will be a good example of real competition. The winner in 2014 will receive an order of magnitude greater order than in 2013.
In December, a meeting of the council of the military-industrial commission for the development of public-private partnership was held. Plans to attract private business in the production of weapons declared priority. However, over the past years we have been witnessing the opposite trend - deprivatization and the nationalization of private assets in the defense industry. Is there no contradiction here?
- In the production of armored vehicles, we have two of the three developers and manufacturers, namely, Kurgan Machine-Building Plant OJSC (KMZ) and Arzamas Machine-Building Plant OJSC are private companies. We understand that, in general, private business is more flexible and proactive than state-owned companies, it generally has a higher corporate culture, and we want to bring more private capital into defense production. After all, the production and supply of weapons is a good, highly profitable business with a guaranteed sales market. Now, thanks to the initiatives of the military-industrial commission, private capital is beginning to look closely at the defense business, exploring opportunities.
Yes, attracting private business to the defense industry is a slow process. After all, in almost every area we have vertically integrated structures, private owners will have to look for niches. The creation of state corporations was necessary at a certain stage, when the state needed to restructure industry, but we understand that the private business will have a future and sooner or later there will be a primary placement and privatization of state companies. Therefore, the process of engaging a private business should be launched now.
In January, the conflict between private shareholders of Motovilikha Plants and NPK Uralvagonzavod over the post of general director and control over the enterprise escalated. Do you think that the transfer of the enterprise to state control will contribute to its development, and does this not contradict the announced plans to expand the share of private business in the production of weapons?
“Motovilikhinskiye Zavody” is a very important enterprise in the system of the military-industrial complex. We positively assess the activities of NPK Uralvagonzavod and we believe that the arrival of such a system player as NPK Uralvagonzavod on Motovilikha is an important step that will positively affect the activities of the enterprise. The state today wants to develop artillery production at the Motovilikhinsky Plants, we need good guns that the Motovilikha is capable of doing. For this, the state is ready to invest. But any investment involves the receipt of shares, and the private shareholder must determine whether he is ready to reduce his share. It will be wrong to interfere in this process from our side, it is a conflict of shareholders, but I hope that they will reach an agreement soon.
Now, on the initiative of the military-industrial commission, a Fund for Advanced Studies is being created. Will he be engaged in development topics in the interests of the ground forces?
- The Military-Industrial Commission considers the Advanced Research Foundation as a tool to look into the future of military technology. Of course, in the field of armaments for the ground forces, it is necessary to carry out developments in the field of new protection systems (both military personnel and equipment), new fighter equipment kits. We already have a great start. The Sagittarius reconnaissance, control and communications complex in most parameters is not inferior to the widely publicized French personal equipment set of the FELIN infantryman. In terms of personal protective equipment, we generally set the world level - with similar protection parameters, our helmets and body armor are lighter than foreign ones. The Advanced Research Foundation will help us develop this advantage and make breakthroughs in areas where we are not so strong.
The traditional problem of the Russian defense industry in the post-Soviet period is personnel. What efforts does the military-industrial commission make to solve it?
- I came to the military-industrial commission from the post of general director of a large company. I believe that working with personnel is primarily a task of the managers of the enterprises themselves. How can the state help them? First of all, this is education. We have to admit that the idea of bachelor-engineers (four-year training in engineering) did not justify itself, we got under the guise of bachelors of incompletely trained engineers. Today we are working closely with the Ministry of Education and Science to correct the situation and give the industry well-trained engineers. Also, the state can help the industry fixing personnel. It is necessary to do everything possible so that after receiving engineering and technical education a person remains in the military-industrial complex. There are two main motivations - the level of wages and the provision of housing. I personally, as a pragmatist, consider housing the main motivation for a young specialist.
Together with the Housing Development Fund, we agreed to create a legal environment that would allow industrial enterprises to build their housing. Those enterprises that have begun to build houses for their employees themselves know that this is a fully realizable task. Working with the Housing Development Fund allows you to reduce the cost of housing due to allocated land. The state is able to influence the so-called natural monopolies in order to reduce the cost of bringing communications to housing under construction, which will reduce its cost by 30 – 40%. Another important tool is mortgage lending. Today, tools are being introduced that allow enterprises to act as a guarantor of the employee’s mortgage, which greatly facilitates the loan conditions. High hopes are pinned on rental housing.
What are unions doing now? I occasionally meet with trade union leaders and always tell them: find yourself in modern life. Organize housing cooperatives. Together with the Housing Development Fund, we have made a change in the housing legislation that will allow us to create housing cooperatives and receive free land for construction for workers in the military-industrial complex. Build your housing, and the issue of personnel will be resolved. Or head the “lean manufacturing” movement in your plants. You, the trade unions, will benefit first of all from this, since improving the quality of production and reducing costs will optimize labor time and increase production at your enterprises.
You mentioned the need to introduce lean manufacturing techniques. However, the introduction of such systems in the MIC is haphazard. Does the military-industrial commission plan to develop a unified system for optimizing production and management processes in the military-industrial complex, adapted to Russian realities, and promoting its implementation?
- Management is a great art. In addition to a set of technical, economic and legal knowledge, the manager must have quality management tools. In Soviet times, KSUKR was a Comprehensive Quality Management System for the work, but this knowledge was practically lost. The new generation of managers does not know either new or old tools, and because of this, our enterprises suffer huge losses. At the same time, you can take any tools, even the Toyota production system, even though “Lin Six Sigma”, and implement them at Russian enterprises with little or no adaptation. There is no problem of the Russian mentality, which is often referred to as an obstacle to the implementation of methods for optimizing management and production processes. At least in the younger generation.
The question is: how to start the process of implementing these tools? We need a roadmap for the introduction of tools and techniques for optimizing production processes, we need literature, exhibitions, and an information environment for these things to be heard, to be talked about. Here I am very much counting on the media. With your help, you need to create a fashion for these tools. After all, they give an enormous effect.
In March, for the first time, the military-industrial conference "Actual issues of the development of the defense-industrial complex of the Russian Federation" will be held. You are the head of the organizing committee of the conference. Tell us more about this event?
- The need for a conference, in the framework of which it would be possible to discuss topical issues of the development of the defense industry with the participation of all interested parties, was long overdue. We have to discuss the state and problematic issues of implementing the 2011 – 2020 state armaments program, the development of the Russian defense industry, training and retaining personnel in the defense industry, attracting new investments and improving legislative regulation in the state defense order. The following sections will be organized: “Military-technical policy of the state before 2025 of the year”, “Global competition”, “Scientific and technical potential of the military-industrial complex” and others. The conference will be attended by the leadership of the legislature, the Government of the Russian Federation, the leadership of federal executive bodies, scientific and public organizations, industry organizations involved in the implementation of the defense order, as well as veterans of the defense industry complex. We expect that the conference will be a catalyst for the military-technical and military-economic development of the country.
Oleg Ivanovich, you can be called an old-timer of the Military-Industrial Commission under the Government of the Russian Federation. As part of the commission you are already the sixth year. What achievements or what tasks have you been proud of during your work on the commission?
- The work of the military-industrial commission is a team work. We are a small team, but we complement each other well. In this case, the military-industrial commission has always been lucky with the leaders. As for me personally, I consider my main achievement that at a certain stage of my life I accepted the offer to join the military-industrial commission. This is not an easy decision to change profession in 45 for years, to move to Moscow, but now I think that the decision was absolutely right, and I am glad that I can benefit from my country here.
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