Boffo,
I'll nail my colours- I'm a civvy, so I ought to bow to your knowledge! However, the economics of the DIS made sense.
The Govt is the only client for warships in the UK- it therefore regulates demand. When demand is low- as at present, what usually happens is that yards compete vociferously for work and the losers go out of business. This has happened. Whats left is "core" and can't be left to wither any further- unless we really do want to buy warships from DCN or B&V? Assuming we think its a good idea to retain "onshore" design & build expertese, we have to guarantee whats left of the supply base a run of work that will enable them to retain key staff. Thats what the DIS does.
Competition works in a bouyant market- plenty of buyers, plenty of sellers. But thats NOT what we have in the UK.