Equipped to do the job: British armoured forces in action in Afghanistan.
The history of defence procurement is not a happy one. Ensuring that our Armed Forces get the best possible equipment they need, when they need it, is easier said than done. Today, Labour will publish the findings of a comprehensive 10-month study into defence acquisition policy that will inform a wholesale review of party policy launched by Ed Miliband last year. There are few benefits of being in opposition, but being able to take a step back and reflect is one.
Labour can be proud of the fact that we increased the defence budget by 10 per cent in real terms during our years in power. Defence procurement was reformed and equipment, from drones to personal kit, was transformed – so much so that, by 2009, the last chief of the defence staff, Air Chief Marshal Sir Jock Stirrup, remarked that our troops had never been so well equipped. The welfare of our forces, and crucially that of their families, was also improved.
But defence procurement is a complex and challenging activity. The lead times are enormous and technology changes So what is to be done? It is often said that there is a “conspiracy of optimism” in defence procurement. At best, there is a tendency to muddle through in the hope that both the customer and supplier “get there in the end”. At worst, defence procurement has been based on unrealistic assumptions and over-ambitious plans that balloon beyond all recognition, along with the costs. This conspiracy of optimism has to be replaced by a culture of consequences.
This must apply to the defence industry. In the past, the taxpayer has been left carrying the can for some of its lamentable failings, with some suppliers seeing the UK government as little more than a cash cow. Too many times, once a company or consortia has been awarded a contract, the price begins to ramp up.
First, we need firmer and fairer contracts that incentivise good performance, with industry asked to provide higher warranties for performance. There should be far greater penalties for those that fail to deliver on time and on cost, and the MoD should not be afraid of taking companies back to the initial approval stage, or indeed calling time on contracts that are simply not working. Experience should triumph over hope.
Second, in the case of de facto and actual monopoly suppliers to the MoD, there should be what is known as “open book” contracting once a contract is let. This means far greater transparency of costs and profits in a long-term partnering approach. Within such an approach, there should be not just an agreed price but an agreed target level of profit, too. If the MoD’s requirements change due to operational imperatives – where, say, our Armed Forces need something extra on top of the original specifications – industry must not be allowed to cash in and make super-normal profits on the change in price.
And third, we need shorter, less complex projects with streamlined processes and decision-making. In defence procurement, time is money.
But we also need that same culture of consequences inside the MoD. In the commercial world, promotion and bonuses are based on performance. But in the MoD, there is little sense that poorer performing individuals in very senior roles are ever held accountable. The people leading Integrated Project Teams (IPTs), who manage major procurement programmes, should have the authority, accountability and responsibility for project execution. Currently, they are given as little as four or five days’ training and tend to come from either the Civil Service or from the military – this does not always make them best able to manage hugely challenging commercial contracts.
These problems are compounded by the frequent changes in project managers. The norm in the MoD is to move jobs every two years. This leads to constant changes of strategy and emphasis, which are not helpful and avoid the need for managers to live with the consequences of their actions.
This autumn, the Government will publish its White Paper on the defence industry, but all the signs are that it will have little to say except – as is the case with the Bombardier contract for new trains – that we should give up at home and simply “buy off the shelf” from abroad. Today, Labour will present a host of ideas to reform defence procurement. But in beginning to shape policy for the future, all parties need to be honest about the past and learn from their mistakes.
Michael Dugher MP is shadow minister for defence equipment rapidly, as do our requirements, with the enemy having a say in all of this. And despite all the investment and improvements, we made mistakes. The problems of defence procurement have plagued all governments, but the huge delays and massive cost overruns continued on our watch.
That is why Labour in government commissioned the Gray Report in 2009 to identify the serious failures in acquisition. The current Government liked the report so much that it hired the author, Bernard Gray, to head up defence equipment and support at the Ministry of Defence.
The fact is Britain’s record is poor. Over the period for which there is consistent data (2003-2010), major projects costing the taxpayer in excess of £200 million, and those that were planned to take four to five years between “Main Gate” decision and entry into service, exceeded their most likely out-turn estimate of costs by more than 10 per cent on average – with extremes of up to 40 per cent. These programmes also slipped by 40-50 per cent – some by as much as 250 per cent – from their expected schedule.
So what is to be done? It is often said that there is a “conspiracy of optimism” in defence procurement. At best, there is a tendency to muddle through in the hope that both the customer and supplier “get there in the end”. At worst, defence procurement has been based on unrealistic assumptions and over-ambitious plans that balloon beyond all recognition, along with the costs. This conspiracy of optimism has to be replaced by a culture of consequences.
This must apply to the defence industry. In the past, the taxpayer has been left carrying the can for some of its lamentable failings, with some suppliers seeing the UK government as little more than a cash cow. Too many times, once a company or consortia has been awarded a contract, the price begins to ramp up.
First, we need firmer and fairer contracts that incentivise good performance, with industry asked to provide higher warranties for performance. There should be far greater penalties for those that fail to deliver on time and on cost, and the MoD should not be afraid of taking companies back to the initial approval stage, or indeed calling time on contracts that are simply not working. Experience should triumph over hope.
Second, in the case of de facto and actual monopoly suppliers to the MoD, there should be what is known as “open book” contracting once a contract is let. This means far greater transparency of costs and profits in a long-term partnering approach. Within such an approach, there should be not just an agreed price but an agreed target level of profit, too. If the MoD’s requirements change due to operational imperatives – where, say, our Armed Forces need something extra on top of the original specifications – industry must not be allowed to cash in and make super-normal profits on the change in price.
And third, we need shorter, less complex projects with streamlined processes and decision-making. In defence procurement, time is money.
But we also need that same culture of consequences inside the MoD. In the commercial world, promotion and bonuses are based on performance. But in the MoD, there is little sense that poorer performing individuals in very senior roles are ever held accountable. The people leading Integrated Project Teams (IPTs), who manage major procurement programmes, should have the authority, accountability and responsibility for project execution. Currently, they are given as little as four or five days’ training and tend to come from either the Civil Service or from the military – this does not always make them best able to manage hugely challenging commercial contracts.
These problems are compounded by the frequent changes in project managers. The norm in the MoD is to move jobs every two years. This leads to constant changes of strategy and emphasis, which are not helpful and avoid the need for managers to live with the consequences of their actions.
This autumn, the Government will publish its White Paper on the defence industry, but all the signs are that it will have little to say except – as is the case with the Bombardier contract for new trains – that we should give up at home and simply “buy off the shelf” from abroad. Today, Labour will present a host of ideas to reform defence procurement. But in beginning to shape policy for the future, all parties need to be honest about the past and learn from their mistakes.
Michael Dugher MP is shadow minister for defence equipment.
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