The Ministry of Defence (MoD) has been managing suppliers and
delivering military equipment programmes critical to UK national
security for decades, but despite numerous reviews of defence
procurement over the past 35 years the Public Accounts Committee
says in a report today (Nov 3) the Mod “continually fails to
learn from its mistakes”.
The Committee is “extremely disappointed and frustrated by the
continued poor track record of the MoD and its suppliers -
including significant net delays of 21 years across the
programmes most recently examined by the National Audit Office -
and by wastage of taxpayers’ money running into the billions.”
In evidence to the Committee, the MoD “failed to assure that it
is taking these matters sufficiently seriously or that it can
quickly deliver a radical step-change in performance through its
improvement plans.” The Committee is “deeply concerned
about departmental witnesses’ inability or unwillingness to
answer basic questions and give a frank assessment of the state
of its major programmes”. MoD’s attempt to improve procurement
through its ‘Strategic Partnering Programme’ is expected to
deliver savings of less than 0.1% of the forecast Equipment Plan
spend.
Crucially, the Committee says the MoD “continues to be
unclear about what additional capability the taxpayer will get
from the extra £16.5 billion in the 2020 Spending Review”.
Dame , Chair of the Committee,
said: “Despite years of official inquiries and
recommendations and promises of learning and change, we have
still heard nothing from the MoD to give any assurance about our
biggest concern, which is now that last year’s lauded and
substantial uplift to the Department’s budget will
not simply be used to
plug financial holes across its
programmes. It seems no matter who we ask across the
Ministry, whatever their particular responsibilities, they all
point to this same additional funding as a solution to their
problems.
“MoD senior management appears to have made the calculation that,
at the cost of a few uncomfortable hours in front of a select
committee, they can get away with leaving one of the largest
financial holes in any government departments’ budget, not just
for now, but year after year. This committee is determined that
this state of affairs cannot, and will not, continue.”
PAC report conclusions and recommendations
-
The Department’s system for delivering major equipment
capabilities is broken and is repeatedly wasting taxpayers’
money. As the external environment becomes more
dangerous, the nation depends on the Department to deliver
equipment capabilities on time in preparedness for conflict.
However, the Department is currently forecasting net delays to
entry into service of 21 years across 13 of the programmes
examined by the NAO. We were surprised with the Department’s
apparent complacency given that senior responsible owners
(SROs) reported delivery confidence as ‘amber/ red’ or ‘red’
ratings for 8 out of 19 programmes in March
2021. We were not assured by witnesses
that the Department will not simply throw good money after bad,
given the Department’s willingness, for example, to
incur hundreds of millions of pounds
of additional cost on the Protector
programme to address
affordability challenges. The Department points
to complexity in
programmes after they have gone wrong to
excuse the fact that it, and its
suppliers, failed to produce more realistic costings
and schedules. The forecast costs of
nine out of 12 programmes increased between early business
cases and the main investment decision – three by more
than 50%. DE&S’s failure
to control its suppliers on many
programmes means that the Department’s system for
procuring equipment and managing suppliers needs an
urgent rethink by the centre of
government.
Recommendation: HM Treasury and the Cabinet Office –
with experienced external input – should review the Department’s
model for delivering equipment capabilities, including
assessing:
- how the Department holds suppliers to account for
their performance;
- the culture and relationships between Senior Responsible
Owners, end-users and delivery agents; and
- how the Department undertakes technical risk assessments to
arrive at cost and schedule estimates.
-
We are deeply concerned
about departmental witnesses’ inability or
unwillingness to answer basic questions and give a frank
assessment of the state of its major
programmes. The Department is
not sufficiently open about programme
progress and risks. A few weeks before our
evidence session it considered initial operating
capability on the Ajax programme achievable by
the end of June 2021. That did not happen and now
it has no timescale for when these armoured vehicles will
be ready for service. While witnesses told us that
investigations into noise and vibration issues are
continuing, they could
not explain the likely causes
or remedial action necessary. So far, the Department plans
to offer 310 service personnel hearing tests, but the potential
long-term health implications of this failure remain unknown.
In addition, the Department’s refusal to explain the magnitude
of its financial exposure in the event of a contract
termination demonstrates a disregard for Parliament and
taxpayers. We were struck by witnesses’ reluctance to attribute
problems with the Crowsnest and Ajax programmes to providers’
poor performance or project management, even though in both
cases it is a matter of public record. In this situation it is
essential to monitor robustly whether value for money is still
being achieved. But the Department admits that it does not
routinely monitor value for money of programmes, nor have its
Accounting Officer Assessments rendered sufficiently clear
accounts of value for money.
Recommendation: The committee expects the Department
to develop a more transparent approach to assessing value for
money. In particular,
the Accounting Officer Assessments letters – which
come to this committee when significant changes occur on major
programmes – should include a more detailed and frank assessment
of how the changes impact on the value for
money case as defined at the start of the programme.
-
The Department does not make enough demands of its
suppliers to share the financial risks as well as the rewards
of contracting for major equipment
capabilities. The Department is
dependent on a limited supplier base to deliver its major
equipment programmes. Of the 20
programmes examined by the NAO, 14 are being wholly or partly
procured non-competitively, mainly through choice, rather
than reasons of national security. Suppliers understand
that poor performance on one contract will not stop them
winning the next. We are concerned that the
Department pours money into the developmental stages of
programmes while suppliers are reluctant
to accept more risk. Suppliers should
contribute their fair share of development funding to
equipment programmes so they
are sufficiently incentivised to deliver. The
Department told us that it has a range of contractual levers to
encourage suppliers to deliver and that, for example, it
was applying these in the case of the Ajax
programme. Despite this, they are clearly not having the
required effect. The Department has
prioritised pursuing bespoke, ‘gold plated’
platforms - which are a source of considerable delay
in the equipment portfolio - which then prove
difficult and expensive to upgrade. It could reduce its
exposure to risk and encourage more constructive attitudes
from suppliers if it was more willing to
buy proven equipment ‘off the shelf’, where the
pain of development has already been borne by
others.
Recommendation: The Department should write to the
Committee within six months with a clear plan on how it will
ensure suppliers take on their fair share of the financial risk
in contracts, and how it will take past performance into account
when letting new contracts.
-
The Department continually fails to learn from its
mistakes. The Department has been delivering
equipment programmes for decades and has overseen many
expensive failures. There have been at least 13 formal reviews
of defence procurement policy over the last 35 years which
have provided the Department with opportunities to take stock
and learn from experience. We were therefore shocked
to learn that the Department had only established a central
register of learning from experience (LFE) in
December 2020. Experience shows that there is a need
for reflection and openness earlier in the
process to avoid further catastrophes like Ajax. This does
not convince us that the Department aspires to
achieve a radical step-change in performance. We are
encouraged by the Department’s Strategic Partnering
Programme (SPP) initiative launched in 2018 to
transform its relationships with industry. We
recognise its strategic intent, but are
disappointed with its lack of ambition in forecasting
only £160 million in savings over the next ten
years - less than 0.1% of its forecast Equipment Plan
spend. The Department told us that it expects efficiencies to
amount to hundreds of millions of pounds as the programme
matures, but until it develops scalable plans and can
clearly attribute improvements to its interventions, it is
cautious about the scale of potential success.
Recommendation: The Department should provide
the committee with a clear plan on how it will draw on
LFE and how its SPP and
associated initiatives will generate the level of
savings that would be expected from
work that is intended to transform the
procurement of hundreds of billions of pounds of
equipment.
-
The Department will not secure a step-change in
performance until it can recruit and retain the highly skilled
staff that it requires. The Department continues
to suffer from skills shortages in
key areas critical to effective contract and
programme management. It relies on expensive temporary
contractors to deliver many of its
programmes. We note that the cost of staff is small in
comparison to the cost of the programmes the Department
delivers. It pointed to constraints on its ability to
recruit the right people who would help to
deliver programmes to time and budget,
but acknowledges that the question of
paying people appropriately for their skills is being
considered across government. However, we were surprised
that the Department was so relaxed about losing
skilled people to the private sector. We are
concerned about the deliberate
policy of regularly changing SROs and other
senior staff working in programme teams, with individuals in
post for a fraction of the contract lifecycle. Retaining and
developing talent over substantive programme phases would help
to stabilise delivery, with promotion linked to
performance. The Department is still not doing enough
to make sure that the armed forces treat the role of SRO
as seriously as operational deployments. Examples of
‘double touring’ SROs on major
programmes are welcome, but the
Department needs to do more to prioritise and
incentivise programme delivery among this cadre of
senior officers.
Recommendation: The Department and HM Treasury should
write to the committee within the next six months setting out how
together they will address the gap in skills that it needs for
effective contract and supplier management; making the Department
competitive in specialist labour markets; and improving
retention. In its letter, the Department should also set
out what more it will do to get greater continuity in the SRO
role, including where feasible a single SRO for the lifetime of a
project, and to recognise the role’s fundamental importance to
delivering military capabilities effectively. The Department
should specifically be clearer for military SROs about the scope
and ambition for more back-to-back tours, and about how
performance in the SRO role will be assessed and is relevant to
career paths. For civilian SROs the Department should include
specific comment on the scope for more use of fixed-term
assignments to ensure that SROs are suitably invested for in the
long-term.
-
The Department continues to be unclear about what
additional capability the taxpayer will get from the extra
£16.5 billion in the 2020 Spending Review. We
remain to be convinced that the government’s substantial
uplift to the Department’s budget will not simply be
used to plug financial holes across its
programmes. We are struck in recent evidence
sessions by how many departmental witnesses with
differing responsibilities have pointed to the additional
funding as a solution to their problems. We note that as well
as addressing £7 billion affordability gap in the Department’s
2020 – 2030 Equipment Plan, the Department is spending £6.6
billion on R&D, and additional funding for pension changes
and enhancing childcare for service personnel. It had
previously written to us to say that the money would be used
for both new and existing capabilities. However, witnesses
could not say whether truly additional capabilities will be
delivered through the additional funding. In
addition, the Permanent Secretary was unclear
about the basis of the assumptions informing its calculations
of funding over the next ten years, including what has and has
not been approved.
Recommendations: The Committee expects to see
absolute clarity in the Equipment Plan 2021 – 2031 about what
additional capability the Armed Forces is getting for
the additional £16.5 billion and how it has secured the
long-term affordability of the Plan. It should clearly
distinguish between new capabilities and those already in
development. /ENDS
Notes:
Full inquiry details including evidence received: https://committees.parliament.uk/work/1302/improving-the-performance-of-defence-contracts/
Previous report on “funding black hole” at centre of MoD
equipment plans: https://committees.parliament.uk/committee/127/public-accounts-committee/news/152776/new-defence-money-potentially-lost-in-funding-black-hole-at-centre-of-uk-defence-equipment-plan/
