House Of Commons Defence Committee Procurement Report
No Wriggle Room Left

The once-sharp fangs that the House of Commons Defence Select Committee (HCDC) bared regularly in the 1980s and early 1990s have been criticised for their relative bluntness in this current decade. Doubters had become concerned that the free spirit of HCDC chairman, Bruce George MP, had become dulled by so many years of sterling work. But never fear! The HCDC report Defence Procurement, published at July's end, showed that HCDC's carnivorous appetites are not sated – it's just that the Committee has not had such juicy red-meat to get its collective teeth into for some time.

To put it mildly, the HCDC's conclusions on the state of UK defence procurement are far from complimentary, encouraging or approving – in fact, the total opposites could be said to be the case. The question now is whether the report reveals the first cracks and crumblings of the collapse of Smart Procurement/Acquisition, or whether matters might actually be even worse. Certainly, the room for news management manoeuvring available to the Ministry of Defence and the Defence Procurement Agency (DPA) is significantly less now than in the past.

The main areas of concern are twofold. Firstly, there is ever-diminishing evidence that Smart Acquisition/ Procurement is delivering its hoped-for benefits. The premise that the vast majority of problems are "legacy" issues is no longer valid, for "Smart" programmes are affected by the same problems as their "Non-Smart" counterparts. So the broad escape route when questions on defence procurement problems are raised has narrowed from motorway breadth to alleyway width – and a there's a cul-de-sac ahead.

Secondly, on deeper examination, the basic principles of Smart Acquisition have yet to be implemented, some seven years after the process was supposed to have started. It should cause eyebrows to shoot up stratospherically that the process of implementation of the new procedures is still, in effect, in its infancy. Other matters of interest are contained in the report's main body and appendices:

• Programme Costs. Coming back to the mantra of "Faster, Better, Cheaper", the target for average cumulative cost variation listed by the DPA is 2.2 per cent. So what? Well, this is less than the rate of inflation in the UK by most calculations. Yet for defence programmes worldwide, it is recognised that defence inflation runs at least a couple of percentage points higher than bare bones economic inflation. In the case of the UK, if general inflation is around 2.5 per cent, then defence inflation of 4.5 to 5 per cent could be regarded as an acceptable level. Yet strangely, average in-year cost growth was 5.4 per cent, above where one might expect it to be on the basis of best practice worldwide.

  As an aside, the total cost overrun of all the major programmes over their entire lives is some 6 per cent – above a reasonable figure to account for defence inflation but perhaps not as bad as might have been thought. The bad news is that this amounts to some £4 to 5-billion, cash which even taking into account its spending over time could be better used in actually buying materiel.

  Which raises a question – why set a target that appears unrealistic? Is this another sign that the management of defence procurement lacks the skill-sets to define acceptable, achievable targets? Certainly, cost estimation is an area in which the National Audit Office has highlighted skills shortages at the DPA before now. OK, one does have to set some form of target, and it always makes sense to set a standard that is going to be something of a challenge. But trying to limit defence programme cost increases to less than inflation seems to take the principle too far.

• Smart Acquisition Progress. Was it only Defence Analysis that found some of Chief of Defence Procurement Sir Peter Spencer's oral evidence mindbogglingly laid back. Sure, it was honest, but the way in which some of it was presented didn't seem to show that it was regarded as problematic. Witness the following:

  "I was not shocked because I had seen emerging signs of this [cost and time overruns] before I took up the post. I was fairly clear in my own mind that we either had a one-off problem with a year of bad results or we had something which was more fundamental, so the focus of attention was really to examine the underpinning evidence.

  I guess among the things that were very telling, one was the fact that although you could draw a conclusion that Smart projects were doing considerably better than so-called Legacy projects, there was also an argument that said the majority of those Smart projects were at a rather earlier stage in their total cycle and that if you looked back on the projects which had completed, very often a lot of difficulties emerged as those projects had approached their originally planned inservice dates, a point we had not arrived at on the Smart projects. That was a very clear warning not to assume that the forecasts to completion were going to be good for those youthful projects simply because they had been badged as "Smart".

  "My judgment is that there will be a problem next year. It is unlikely to be quite on the same scale as 2002-03. It would be surprising if that were not the answer given that there is a systemic problem and it is going to take time to sort this out … I am not trying to make excuses here; I am just trying to create realistic expectations. This is something which needs to be tackled very fundamentally."

  If the evidence was that obvious to the CDP a year before entering the job, why was it then so difficult to get a grip on affairs? OK, if the problems at the DPA and MoD are as systemic as they appear, then institutional inertia is a major impediment. But why cannot there be a really tough attempt to break through this logjam and to find new trouble-free ways in which to buy equipment? Defence Analysis is concerned that the existing path – another study, bringing McKinsey back in to try to discover what is going wrong – will merely eat up time, with small guarantee of success. After all, who wrote the Smart Procurement strategy in the first place? Wasn't it McKinsey? In which case, to what extent do the present problems stem from the original recommendations?

• Assessment Phases. We deal in greater detail with this area elsewhere in this edition. But it is noteworthy that there is strong evidence that upfront spending, in the shape of technology demonstrator programmes especially, is a sound way of reducing risk and increasing the chances of project success. Of note is the Sonar 2087 programme for the Type 23 frigate. On this, Assessment Phase spending was just shy of the magic 15 per cent level, sufficient to avoid all of the normal programme pitfalls.

• In-Service Dates. Do we detect a slight element of fudge with regard to increased emphasis on the Assessment Phase, with the issues of In-Service Dates (ISDs), and budget management? Consider two of the CDP's statements to the HCDC:

  "The mission of the Defence Procurement Agency is to equip the Armed Forces. Do we achieve it? Answer, yes eventually. Time is money. What we do need to do is make sure we equip the Armed Forces on time because on time is on cost as a generality."

  "I think in the main the assessment phase will have more resources devoted to it and compared to the way it has been done previously it will take longer and we will not through thick and thin hold on to a pre-declared date for making a main gate decision come what may and regard it as a sign of failure if we do not make it."

  If time is money, then happy procurement is snappy procurement, and penalties will apply to programmes as a result of Resource Accounts and Budgets. So why, then, stress that programmes will be held in the AP for as long as necessary? There is a potentially serious contradiction here with regard to how procurement will be run – and a hint that there is no incentive at all to actually buy equipment.

• Trade Offs. This was highlighted as an area where much work was needed. It was also seen as an area from which some procurement problems have really stemmed. Take the following from Lieutenant General Rob Fulton, Deputy Chief of Defence Staff (Equipment Capability):

  "So we have to balance out being a demanding customer with being an intelligent customer. Crucial to that, of understanding where you have got to come down from that high level of performance, is actually the visibility of what it means – visibility for my people on "If you trade this performance then it can come in at this cost and this time". I think what we have not always had up until now is that full cost/time/performance visibility to enable us to do it, so I would be the first to say that there have been occasions where my people have stuck out for that high level of performance."

  Only one word is needed to provide the solution to this problem – Sweden. Wondering how to achieve trade-offs and risk-balancing? Sweden. Want to see how equipment can be incrementally upgraded? Sweden. And this is not a new direction by the Nordic nation, which has done such work for decades. How can such sayings as, "Perfection: the enemy of the good," and, "Always go for an 80 per cent solution," be so common while institutionally the aim is still 100 per cent? And, as another aside, to what extent is this the problem with the Future Carrier programme, with the Royal Navy pitching for a 120 per cent solution?

• Programme Information. In testimony, Sir Peter Spencer told the committee, "… If you have got some things you need to get off your chest, this is the year to do it." The point was that many problems were simply buried, waiting for the later surprise and shock of exhumation. Surely, a system that allows sensitive programme data to be hidden by interment is in need of radical reform? And, it has to be asked, what kind of system permits this to continue long term? A lack of management and leadership maybe?

• New Targets. With some head-shaking, it can be said that one good move has been initiated within the DPA. Alongside other metrics, a new "Key Target" is that of delivery to the frontline, rather than to an acceptance base in the boondocks. At last there is realisation that the DPA's mission is to equip the armed forces. Too often, the Agency seems more concerned with processes rather than end product. Let's hope this new metric achieves real results.

• UK Procurement System
• UK Support Helicopter Numbers
• European Support Helicopter Fleets
• UK Transport/Support Aircraft Fleet
• European Transport Aircraft Fleets
• De-risking Procurement And Budget Pressures
• Italian Defence Budget
• Guided Weapons Market Survey
• UK Procurement: In A Corner
• European Aircraft Carrier Programmes
• DEFENCE INDUSTRY NEWS
• DEFENCE DIVERSITY

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