Tinkering with defence

The House of Commons Defence Select Committee published its report “Gambling on ‘Efficiency’: Defence Acquisition and Procurement" on 14th December.  It notes that the MoD is trying to live well beyond its means and doubts that the future efficiencies promised by the MoD to narrow the gap will be realized.  So far, so correct.  The report makes ten recommendations, sensible in themselves perhaps, but none resolve the strategic issues.

The ten recommendations can be summarized as:

1. The MoD should provide us the criteria to assess the effectiveness of “Defence Equipment and Support” (DE&S) which is currently seen as failing.

2. The Chief Executive of DE&S left after two years.  An interim should be appointed urgently and the proposed appointee interviewed by the Select Committee.

3. The MoD should review its efficiency plans and contingencies.

4. The MoD should publish an ‘efficiency tracker’ which would detail when, where and how efficiencies are to be made, together with risks and contingency plans.

5. The role of Single Source Regulations Office (SSRO) to ensure the MoD’s contractors make enough money (currently >10%) when procurement is not made competitively on the open market: the SSRO’s scope should be extended to government-to-government contracts and any single source contracts, save in exceptional circumstances.

6. The SSRO must also be given similar powers to those of other regulators.

7. To serve as a fully-fledged regulator, rather than just as a unit to assist the MoD, its personnel must be chosen, and its funds provided, independently of the MoD. Proposed appointees to the Chair and the Chief Executive positions should be interviewed by the Select Committee.

8. Those updating the defence industrial policy should consider adopting a broader definition of ‘value for money’ that incorporates the impact of major defence projects on local economies, skills and employment levels.

9. The new defence industrial policy should emphasise the importance of a regular drumbeat of activity to sustain a successful and high-skilled work force and to maintain the UK’s sovereign capabilities. It should also look at the types and quantity of defence equipment that are currently sourced externally, with a view to identifying where such equipment could be sourced domestically.

10. The Government should commit to spend at least 2% of the defence budget on science and technology.

There are key strategic issues lying behind this report including: how the MoD can live within its means; how the MoD will deliver the efficiencies it claims it will make by cutting the tail and not the teeth of the armed forces and their essential suppliers; how to get better bangs for the bucks by sourcing from the competitive market, without decimating the UK’s defence industry needed for national security; and how to stop senior officers and civil servants commissioning distant future contracts which will be unaffordable when the bills roll in and they themselves have moved on.

To what extent do the Select Committee’s recommendations address those issues?

The first two are practical housekeeping for the DE&S.  Interviewing the sole nominated candidate is a bit late in the process.  The MoD will simply “take note” of any concerns.  Better to establish consensus sooner with the MoD and headhunter.

I am no prophet but I am willing to bet that the MoD will conclude its review of its own plans (recommendation 3) by finding them wholly admirable.  It would be better to have them exposed to the light of day, independently assessed and (recommendation 4) tracked.

Recommendations 5 – 7 concern the SSRO which is an extraordinary beast designed, it would seem, to featherbed the British defence industry at the expense of the taxpayer and more or less guarantee the MoD will overspend its budget.  These recommendations exacerbate the problem but do contain a valuable kernel.  Within the SSRO is the Investment Approvals Committee (IAC) whose role is to challenge non-competitive procurement.  If it worked, it would make a sizeable dent in the MoD’s overspend. The reality is, as the Select Committee points out, that the MoD has rendered it entirely ineffective.  For example, on all 14 occasions (out of a total of 166 decisions made between January 2015 – September 2017) where the IAC challenged the decisions to make non-competitive contracts, they were told it was too late as commitments had already been made (those interested should read the full report Improving value for money in non-competitive procurement of defence equipment produced by the National Audit Office in October).

The solution is not to give SSRO powers similar to unspecified regulators, some of whom are less than effective, but to transfer the IAC to the Treasury and make its pre-agreement to bespoke procurement mandatory.

“Value for money” (recommendations 8 and 9) should mean the impact on cost/effectiveness of our armed forces. Watering it down to incorporate “the impact of major defence projects on local economies, skills and employment levels” would mean, for example, that the UK production of rifles was good value for money, even though they did not work, if it provided employment in Huddersfield. Most soldiers would be able to express an opinion on that.  The Select Committee’s intent could be met by requiring the IAC to take the wider UK economic considerations into account.

Finally, recommendation 10, which may well be a good idea, is not relevant to the topic of the paper.

In conclusion, the strategic issues do need to be addressed head on. There are a few points that the government could start with:

• It is already policy, albeit not implemented, to use the competitive market for procurement wherever possible. More could be done to focus resources on lower cost, but more often used. armed forces such as the infantry which are engaged almost every year. Only one non-ballistic submarine, by contrast, has seen action in the last 70 years. 
• The MoD should publish the efficiencies it claims it will make, open them to criticism and, as the Select Committee suggests, progress each year against that plan.
• Inter-service rivalry contributes to the commissioning of what might be considered vanity projects.  There is a belief, correct or otherwise, that the army is down-sized as a result. We need a fully independent (of the MoD) IAC. The spending options and their relative values for money should be transparent, at least to the Select Committee. The UK defence industry has to be brought up to world standards so that it can win competitively.  Featherbedding only worsens its long-term prospects.
• Senior officers and civil servants do not intentionally over-commit the future. The problem is partly that the commissioners are each deeply engaged in their own projects and the MoD does not seem capable of scheduling and adding up the likely year-by-year total bill for the ten or even twenty years ahead. As responsibility moves over that time period and new options arise, specifications keep changing. Anyone who has had a house built knows how expensive it is to change specifications. The IAC’s role should be expanded to monitor the overall management of these future commitments and, in conjunction with the NAO occasionally, report annually to the Treasury, the MoD and the Select Committee.

Defence procurement has been a mess since the MoD was founded in 1947. Numerous consultants have advised numerous changes but the fundamental strategic issues have remained much the same. Last week’s Select Committee report is welcome but it does not go far enough.