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BATTLESPACE Talking Point – Defence Acquisition – competition, competence and capability

04 Jul 17. UK Defence Acquisition, and the MoD’s DE&S, based at Abbey Wood, Bristol, has undergone almost continuous change for years now, but the question remains have these changes addressed the root cause problems or merely served to cover up the same failings whilst adversely affecting morale without really getting on top of the issues?

Stories still emerge of major failings in the process, the most recent of which involves the Warrior upgrade programme (WCSP). This particular programme arguably shines a light on virtually all that is wrong with UK Defence Procurement, and which sadly remains to be addressed.

The previous DE&S Leadership favoured a Government-Owned, Contractor-Operated (GOCO), but (rightly, it can be argued) drew back from this, probably due to being unable to make such a massive change in one bound. However, the rationale for a GOCO, i.e. major change towards achieving greater professionalism, can be said to come down to two primary drivers:

1) Improving the overall quality of staff, which can only likely be secured through an industrial partner who is able to pay the requisite rates

2)   Solving the process problems of complex procurement and improving the DE&S’ ability to manage complex contracts

If the first of these is true then it almost certainly poses more serious questions about the structure and competence of Government-run businesses or the Civil Service, as a whole, than this paper can possibly consider.

The second is by no means exclusive to the UK MoD; very many major procurements, in many major defence powers, appears to go awry. There is no doubt that major defence solutions are complex, moreover, there are no prototypes. Design proving, development and manufacture are undertaken in parallel, which inevitably leads to emergent problems in the full glare of publicity. But it can be improved but only by addressing the root causes, most of which occur substantially earlier in the acquisition process but are unseen or latent. There are undoubtedly systemic issues throughout the procurement process which undermine its successful fulfilment, but the front-end activities (requirement determination) and the DE&S performance remain key drivers of failure.

One of the key truisms of acquisition, which seems to be consistently overlooked, is this issue of latency. Failures with the acquisition process only become evident during the delivery phase, virtually any causal issues up to this point become latent factors which only manifest themselves later.

If we consider Warrior then this is palpably true, but the issues were in fact clearly evident at the bid stage, just either down to inability to see them or worse, just ignored. Anticipation is the key to success in any project, and examples such as Crossrail demonstrate this in spades, the level of anticipation and contingency planning on Crossrail has been exemplary. Of course, in order to anticipate you must have the requisite competence, which comes with being totally familiar with the potential problems and the type of activity you are managing.  If the DE&S possessed such insights, familiarity and competence then arguably things would be better managed. There is no accountability, no consequences and as a result no real improvement.

Over the last thirty or so years there have been many large acquisitions, almost all characterised by some magnitude of overspend and/or delay. Many different industrial players have been involved, few have come through with a positive reputation, an observation which remains true to the present.

Superficial analysis of the nature and problems with acquisition often leads to point solutions or ‘initiatives’ in specific areas. These have been characterised over the years by parochialism, temporary enthusiasm, sub-optimisation and failure of long-term commitment to see them through. It is imperative therefore that an end-to-end, professional look at the problems which examines the causal influences and exposes the underlying systemic issues is undertaken before a high risk, point solution is implemented without understanding the full consequences.

The GOCO was a sledge hammer to crack a nut, albeit a tough nut. Moreover, it proved a distraction which took management attention away from the day to day running of the DE&S and deflected ministerial attention from solving the causal issues.

A Typical Major Platform Acquisition

By way of examining the overall problems with major acquisition a closer look at recent exemplars can provide much evidence. The systemic issues are all evident in very recent procurements and serve to show that end to end process is deficient in a plethora of areas, not just the DE&S.

Let us therefore consider a typical major platform acquisition, but in the generic. The overall process can be expressed relatively simply, albeit such simplicity belies the complexity of each stage, a fact we will return to in considering the failure points.

There are essentially seven key stages, beginning with an articulation of an identified need, the typical drivers of the need arise through a number of emergent factors inclsuing: obsolescence, a strategic change, a technology improvement, a combat imperative or cost saving. This is followed by stages comprising the specification, the competition, the bid, the tender and the contract. The final stage, the delivery, is where all the problems of the previous stages manifest themselves, unfortunately compounded by the problems in the delivery itself (due to more emergent issues and contractor failures)

Let us examine each stage:

1) Need. The need is expressed through a capability gap which can be met across the Lines of Development, with a Major Platform in this case representing a key part of meeting the gap. A statement of User Need takes the form of a User Requirement, drawn up by those who will ultimately be expected to use the resulting equipment in anger.

2) Specification. The System requirement is a development of the User Need into a specification which defines the attributes of the solution sometimes based on previous solutions but extrapolated to meet tomorrow’s scenarios.  The System Requirement specification provides the basis for procurement.

3) Competition. The competition process begins with a selection of potential providers who can form the basis of an effective eventual supply competition. Once the viable providers have been reduced to a small and credible number the chosen industrial players are then invited to bid their solutions.

4)  Bid. Each down-selected industrial provider now prepares a tender which demonstrates uniquely how their proposed solution will provide performance compatibility with the specification at the best value for money.

5) Tender Adjudication. Each bid is now considered against a consistent marking scheme and set of parameters. The most viable (not necessarily the cheapest) and best value for money provider is then chosen as the preferred contractor

6) Contract. Specific terms, supply issues and conditions are agreed and locked into a taut contract for delivery.

7) Delivery. The chosen contractor takes on fulfilment of the terms of the contract in terms of cost, time and performance.

Now let us look at the frailties and the latent problems built in at each stage of this process.

Stage 1:  The need presents an opportunity to gain military combat advantage, but to do this the eventual solution will have to be a significant step forward. The temptation therefore is to aim high. The User Requirement becomes heavy on demand, detail and challenge in an attempt to make the most of the opportunity and ensure that key features are built in. Often quite unrealistic aims or parameters are set. This will later emerge as a difficult problem, but post contract it is unlikely that sensible trades can be made.

Problems at this stage usually emanate from defining a need in terms of how the gap would be filled in the present. It is vital that the User Requirement is kept at a level of abstraction from the current and future solutions. Also consultation with industry on the art (and risk) of the possible should be undertaken. The difficulty comes in a viable process to do this and getting honest answers.

Often latent problems at this stage are time-based. The temptation to refine, refine, iterate, seek re-approval, over-stipulate etc are compounded by long command chains and an unfamiliarity with the art-of –the-possible. BOWMAN, FRES and, more recently, Type 26 would be typical examples of this.

Stage 2: The System Requirement should be, by its nature, a high-level definition. Sadly, that is not often case and attention to detail now takes over with a vengeance. What should be a High-Level Statement of the way in which the capability gap can be closed becomes an over-detailed ‘solution requirement’ in the false belief that this is the best way to make the later suppliers perform to a clear level. In practice this approach severely limits degrees of freedom and constrains the eventual range and effectiveness of supply. It also, perversely, gives the contractor a much easier time as they don’t have to really grasp the fundamental nature of the problem, only the solution. As a result, it removes any incentive or desire to innovate, worse still in today’s era of rapid technology evolution it is a complete contradiction to second guess in a detailed way the specifics of the solution.

The System Requirement too often defines a unique answer, moreover with a high degree of difficulty because of over expectation. The temptation is to be highly descriptive with hundreds of lines of compliant detail in the belief that this makes the adjudication and acceptance phases easier – the ‘tick box’ approach. Ironically in practice it serves to de-skill it, by negating the need for deep and serious understanding. In reality, the best approach here is through high level acceptance criteria, but this entails a degree of ‘letting go’. It takes a confident, competent and knowledgeable assessor to adopt this approach coupled with deep expertise to understand the trade-offs and acceptable impacts.

Stage 3: Competition. This is arguably the simplest yet most fraught part of the whole process and the basis of selection is influenced by many factors, not all of which are objective. The result is a preferred supplier, based on a best fit to the performance specification and ability to deliver ‘best value for money’. The latter factor itself is so subjective as to be meaningless: it is in the eyes of the beholder.

Latent problems at this stage are often caused by parameters which cannot be met. No supplier will however usually admit this as it means instant exclusion. The sheer cost of this stage can be staggering, usually driven by the need for far too much detail. Proof of competence should already be evident, if it is not a bid is a very poor way to demonstrate it.

Stage 4. The Bid. The bid submissions take the form of a proposal. The proposal tendered will go to great lengths to satisfy every detail, which loses sight of the capability and by virtually specifying the solution in the specification the necessity for the potential contractor to really understanding the need is considerably reduced. In the case of new entrants this is of particular concern – it is possible that previous contractors have more knowledge than is good for them, because to declare it will almost certainly lead to their being labelled ‘negative and trying to increase the cost.’

Stage 5. Tender Adjudication. As down-selection of the bidding contractors is often a foregone conclusion (as for each major platform so few exist), the supply base is very limited. However, and for no valid substantive reason, new entrants are often considered better than current suppliers, because previous suppliers will have been tarnished by past failings. This is dangerous as new entrants rarely know enough about the problems of supply in reality, or the issues with current kit. This weakness leads to a degree of naivety about the ease with which they can supply. Moreover, if they do win the subsequent bid (because full compliance is critical – any supplier saying that they cannot meet a parameter, results in that box not ‘being ticked’ and elimination) their lack of real understanding will be cruelly exposed in delivery. If the adjudicators were ‘content rich’ i.e. had sufficient knowledge that they could really judge the issues more intelligently, then this would not be a problem: but too often the word of the compliant contractor is accepted at face value, even if they are a relatively new entrant with scant experience of what compliance means. The ‘boxes’ get ticked, adjudication is reduced to the trivial.

Adjudication is thus a content-free, ‘tick-box’ and highly vulnerable process, it desperately needs to be professionalised with competent content-rich expertise. There are many instances of poor adjudication such as were cruelly exposed with the East Coast Main Line bid a couple of years ago. The difference in Defence is that no major contractor will take on the Government as Richard Branson did because of fear of future consequences in a monopsony market. The solutions offered need to be expertly and critically evaluated and this takes knowledge which is not available within the MoD. It is an unfortunate fact that this knowledge generally only exists within the supply base but it is never accessed because of competition dogma.

Stage 6. Contracting.  It has often been said, and recently repeated, that what is needed is ‘a stiffer and tighter contract with industry, one that holds their feet to the fire’. So, at this stage the MoD commercial staff, who also rarely understand the real need or the problems of supply, try and lock down a ‘taut contract.’ Industry commercial staff are often better trained, have better understanding and are better able to negotiate. The taut contract is rarely what it seems or purports to deliver.

Problems baked in here stem from the total misconception that a stiffer contract is what is needed. The biggest enemy of a major procurement is that of emergent problems. The tighter the contract the less degrees of freedom exist and the harder it is to work around problems. This is compounded by an often flat refusal to negotiate on key parameters, even if it could result in little or no loss of capability and a decrease in cost and time. Such negotiation requires a deep understanding of the nature of problem and solution: it is rarely evident.

Stage 7. The Delivery. Sadly, in providing a state-of-the-art solution, or even one which is any significant advance on the previous offering, there will be risk, it is an inevitability. Given that the likelihood of a prototype is nil (unless the contractor has invested in this at considerable financial risk, which is less and less likely in today’s marketplace) there is no certainty and no obvious way to anticipate future problems. Anticipation, examination and trade-off are the key factors in successful project delivery, allied with incremental or iterative approaches where possible (e.g. at the sub-component level). There are no certainties.  Risk means ‘stuff happens’ that you don’t want and often fail to anticipate. Of course, this situation becomes even more absurd if the selected new contractor is new to the territory. As a new entrant, they will be forced to recruit capable and knowledgeable staff (ironically from the unsuccessful contractors, building a team on the fly when timescales are already tight). Delay inevitably results, but at this stage fear of exposure prevents admitting this, compounding the problem.  The result of all this is now locked in to the forward supply phase and the seeds of failure are well and truly growing heartily. After the honeymoon period realisation of problems at the contractor are slow to emerge, for obvious reasons. When they do come out the situation is often dire – huge delay, problems with meeting an always challenging (detailed) specification and recriminations. People get fired, no one wants to talk to the eliminated contractors who probably could offer advice, meanwhile at the DE&S the team will feel a need to distance themselves from the failures: blame surfaces. All the while the contractor continues to get further into serious difficulties. The problem gets escalated inside the company, if it’s a UK supplier with an overseas base then the parent gets called in. When all parties realise the seriousness of the situation reality finally dawns and, wishing to keep matters as covered as possible, the only alternative is to negotiate, but the contract really doesn’t allow for this. Eventually the lack of options leads to de-scoping the requirement, which of course makes utter nonsense of the competition – especially for those eliminated because they knew and admitted the parameters could not be met. What a pity that this option was not examined at the bid stage to recognise that some parameters were simply not achievable such as reliability vs performance? But then who knew? Where was the prototype? Who had the ability or the authority to engage in such a process or indeed the right expertise?

So, in the end something gets delivered, late, below specification and with many corners cut which will probably come back to haunt later. Or it gets delivered very late with the problems solved at huge overspends for contractor and MOD: a difficult balance to contemplate in a taut contract situation.

Does any of this sound depressingly familiar?

In all of the above failings the lack of professionalism, the pressures and the incentives combine to cause behaviour which sows the seeds of failure at every stage, and all latent until the final delivery, when of course the contractor and the DE&S can be fully blamed.

It’s difficult to defend the actions of any of the participants in this process but as a former Defence Procurement Head observed, ‘ the MOD gets the contractors it creates’ which is very different from some observers who have said, ‘the contractors it deserves.’ A sobering thought.

Can Anyone Sort Out This Sorry Situation?

So back to the question, can anyone sort out this sorry situation? More taut contracts, with little or no increase in relevant knowledge of the problem-solution domains it will simply incur the same problems as above, but bury the risk or any means of dealing with it. By definition, it will be the victim of latent problems about which it can do nothing.

The key to resolving most issues is to make ‘trades’, but trades require the attributes of competence, knowledge, understanding and ability to consider the differing dimensions of cost, performance, time and real need. Ironically a process much better undertaken on UORs.

When it does all go awry, usually, the MoD has to pick up a large chunk of the bill and Industry gets another bash to its reputation. Problems get buried due to embarrassment along with it the root causes and any ability to do anything about it. The buck stops with the MoD, it always will, better to clean up the causes of latent problems than kid yourself that there is a simple, magic cure-all.

A monopsony will always run the risk of unknowingly shaping its contractors, solving complex procurement problems means having an open dialogue on the root causes with Industry and avoiding recrimination.

This brings us back to the overall process, if the MoD can’t get to grips with the need to ‘trade,’ deal effectively with the systemic weaknesses in the process, if it can’t handle the risk, alter the competitive process, improve its ability to adjudicate effectively or modify the procurement ‘rules,’ then how can it resolve the inevitable disasters that will continue to follow?

Pathfinder Programmes

Some years ago, two Pathfinder programmes were set up to address many of the above issues in using practical, live needs, and real projects, i.e. change in an on-line situation, not the abstract. One on Armoured Vehicles, one on Surface Combatants. They brought Industry together with the MoD in a unique way, sponsored by the DCDS EC of the day, which was particularly brave, as many said it wouldn’t work and getting industry to work together would be impossible.

It worked. The results were well beyond expectation. They were subsequently largely ignored and the exercise was never repeated, the lessons not really learnt. The MoD is not a learning organisation. Call in another consultant, that’s the answer!

The issue of better specifications has a ready-made collaborative vehicle in Niteworks to test and develop this process, but too little use has been made of it, instead the commercial side of the MoD picks away at Niteworks’ operating options and fails to recognise the gem it has created (ironically Niteworks was originally sponsored also by the same DCDS EC that sponsored the Pathfinders).

Ask several past DCDS EC leaders (who have moved into industry what the issues in procurement are and they can see them quite clearly in hindsight.

They can see the arguments made above: maybe it would help to engage them and perhaps really start to make change from a position of real understanding, or we can just look for who to blame.

Summary

In summary Defence Procurement needs to get more professional, to do that it needs to understand the dynamics of major procurement, work better with industry, set better, realistic expectations and start learning from the past. The knowledge is out there, but someone needs to take the problem seriously and be prepared to challenge the givens.

 

 

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