Reforming MoD Procurement: Here We Go Again
This week has seen reports that the new government regards the MoD’s procurement system as “disastrous” and intends radical revision. Major MoD procurement reviews come around every 10 years or so. The last one, 299 pages, was by Bernard Gray and his team in 2009. In January 2019, Louisa Brooke-Holland, of the House of Commons Library, provided an excellent update. She begins with National Audit Office concerns that the MoD’s planned 2018-28 expenditure (£186bn) is “unaffordable” and that is before factoring in the 30% over-runs, both in time and money, that we have come to expect. The MoD’s habit of delaying contracts, in order to meet Treasury short term cash limits, compounds the problem: the military do not get the kit they need and the price goes up.
“A third of the MOD’s total procurement spend in 2017/18 was on non-competitive contracts (£8.6bn out of £24.3bn)[1]. A few big suppliers dominate the defence industry – over 42% of total MOD procurement expenditure was with 10 suppliers[2].” It could be described as a hand in pocket relationship.
The 10 yearly strategic reviews lead to much hyped solutions. For example, “Smart Acquisition” was launched in 2000 following the 1998 Strategic Defence Review. Apparently this was new as its purpose was “To enhance defence capability by acquiring and supporting equipment more effectively in terms of time, cost and performance.” A sizeable chunk of the consultancy fee must have gone into that.
Lord Levene’s review (June 2011) prescribed “a delegated model”, giving the three heads of the armed forces responsibility for managing their own budgets, including equipment. A small step but at least in the right direction. The MoD mandarins did not think much of that and have since conducted their own reviews which boiled down to plans and yet more plans.
Commercial procurement experts were hired and fired. Ministers came and went with equal rapidity. The MoD is impervious to change and only likes ministers who are good at extracting cash from the Treasury. The House of Commons Select Committee Report of December 2017 noted that procurement was a mess and the MoD was hugely over-spending but then just tinkered with the problem. Rearranging the deckchairs did not help the Titanic avoid the collision. The iceberg had a better solution: it got rid of the Titanic. Therein lies the answer to equipping our armed forces. When I told Nicholas Soames, then shadow Defence Secretary, that the Tories should take procurement out of the MoD, he fell off his chair. Being an open minded man, he agreed to discuss it with recently retired flag officers (current ones having too much skin in the game). He reported back, with some surprise, that they fully agreed. The armed forces are the customers and the manufacturers are the suppliers. The former know what they want and the latter know what they can make when and the prices they can offer.
We have only had the MoD since 1947. The idea that the armed forces should work more closely together was a good one. No one thought it would lead to a huge bureaucracy preventing the armed forces from carrying out their mission. MoD civilian personnel numbered 57,760 (FTE) at 1 April 2019, a small increase (1.6%) compared with the year before. Within that, the Defence Equipment and Support (DE&S), i.e. procurement, entity employs about 12,000 staff, 25% or so being military personnel. Arie de Geus, head of planning for Shell, showed that the primary goal of any organisation is to look after itself[3]; DE&S is no exception.
The two main roles of most government departments are to formulate policy (including managing legislation) and to distribute the funds provided by the Treasury as equitably as possible across the front line. In the case of defence, there are also two “sovereign” interlocking constraints: ensuring that the UK is independent, e.g. not being dependent on others for key weaponry or ammunition, and providing jobs for British workers. One can question which ministry should be responsible for godfathering British exports of military materiel: there are two or three other candidates.
If the armed forces were doing their own procurement, these constraints would need to be superimposed on their spending budgets.
Over the past 40 years or so, governments of all colours have declared fresh initiatives to cut extravagance, waste and incompetence from MoD procurement. None have succeeded because, over those years, the MoD has inoculated itself against interference. No senior executive, military or civilian, can ever be held accountable for the cost and financial overruns because they are no longer there when things come to a head. It is time to recognise that the MoD’s layer of fat between the armed forces and defence suppliers is simply unnecessary. It should be cut out.
[1] Ministry of Defence ‘Finance and economics annual statistical bulletin: trade industry and contracts 2018’, 6 September 2018, figure 2a
[2] Ministry of Defence ‘Finance and economics annual statistical bulletin: trade industry and contracts 2018’, 6 September 2018, figure 5
[3] "The Living Company" Nicholas Brealey, London (1997)