The Committee also has an open inquiry on the Defence Equipment
Plan for which it took evidence on 14 March.
Transcript here.
REPORT SUMMARY
Non-competitive procurement
Around 50% of the Department’s procurement of equipment is not
subject to competition. We recognise that there are sometimes
valid reasons why procurement cannot be done competitively and
the Department must use a single supplier. Nevertheless, while
the Department should not introduce competition for the sake of
it, there is scope to do more to reduce levels of non-competitive
procurement in line with stated government policy.
The Single Source Contract Regulations, introduced in 2014, have
led to some improvements in transparency around contract costs.
However, there are still too many contracts which the Department
has not brought within the scope of the regulations, with some
suppliers still refusing to be subject to the regulations or
provide all the required information.
So far, the financial savings arising from application of the
Regulations are very limited, and the Department will need to
ramp up progress and have a clear strategy on increasing
competition if it is to achieve its 10-year savings target of
£1.7 billion.
We would also like to see stronger powers for the Single Source
Regulations Office.
Cannibalisation
The Department invests heavily in supporting its vessels, but
experienced problems when bringing into service the Type 45
destroyers and Astute-class submarines. In the Navy, the levels
of ‘cannibalisation’ (taking parts from one vessel to keep
another going) have increased 49% in five years overall, and
there has been a particular issue with the Type 45s and the
Astutes.
The Department does not have the data, controls and processes to
routinely monitor cannibalisation and its costs across the Navy.
The reasons behind the increase need to be better understood and
managed so as not to adversely affect operations and increase
costs.
Contingent liabilities
The Department has repeatedly failed to comply with long
established procedures when identifying a contingent liability in
a contract, denying both Parliament and the Treasury the means to
scrutinise the extent to which the taxpayer might be exposed to
potentially huge liabilities in the future.
Four cases were identified in 2016 and 2017 before a review was
undertaken, which identified 12 more cases within Defence
Equipment and Support.
The Committee’s full Conclusions and Recommendations are set
out in the attached Report.
COMMENT FROM PAC CHAIR MEG HILLIER MP
“This wide-ranging report highlights a need for the MoD to
toughen up oversight and scrutiny of the way it conducts aspects
of its business.
“In particular it is concerning that the Ministry still lacks a
clear strategy to drive competition in its procurement of
equipment – something that will be vital if it is to make planned
savings of £1.7 billion.
“Some suppliers are refusing to fall into line with contracting
regulations that have been in place since 2014. This is
unacceptable and Government must ensure the Single Source
Regulations Office has the teeth to do its job properly.
“We are also concerned about the potential impact of Brexit on
British defence contractors seeking to export their products or
form the international alliances that are essential to their
work.
“The Ministry must give serious thought to what it can do to
support UK suppliers while ensuring there is sufficient diversity
in the market to promote competitive procurement.”
