Once again, the annual National Audit Office – Improving the Performance of Major Equipment Contracts -performance report published yesterday makes grim reading for those involved in and across the defence procurement system – detail of which can be found on the following link: https://www.nao.org.uk/wp-content/uploads/2021/06/Improving-the-performance-of-major-equipment-contracts.pdf
The NAO says that there are recurring underlying causes of the persistent delays and cost increases that have affected MOD major contracts and, surely not for the first time, suggests that in order to improve its performance and deliver value for taxpayers it [the MOD] must embed good practice in its relationships with its suppliers.
In a list of what it suggests are root causes I note that the NAO includes a lack of MOD skills in areas such as project management, a lack of technical availability and that the MOD sometimes causes these problems by changing its requirements during the contract or by failing to meet its own contractual obligations and goes on to remind that the Department has historically struggled to manage programmes and oversee suppliers effectively.
Importantly, the NAO rightly suggests that short-t financial planning by the MOD within its equipment portfolio has also affected supplier’s ability to deliver contracts effectively and that the focus on short term cost savings means that suppliers lose skills and are reluctant to take on risk when contracts are let.
The highlighted conclusions of the report are:
That the MOD has regularly experienced difficulties in effectively managing its major equipment contracts, with frequent delays and cost increases. These stem from supplier under-performance; weaknesses in departmental contract management; the Department and suppliers underestimating the scope and technical complexity; and the Department prioritising short-term solutions given its affordability challenges. Consequently, the Department has not been able to optimise value for money from the contracts for its largest, most complex equipment programmes.
To improve value for money the Department must follow through on its initial efforts to embed wider good practice in its commercial relationships and project delivery. Strong leadership and sustained resources will be needed to fully embed these changes and deliver real benefits. A key part of the Department’s agenda must also be to learn lessons routinely across the portfolio, including being honest in acknowledging and learning from examples of poor value for money when they occur.
The report was not entirely without positive news –the forecast for achieving the in-service date of the Type 26 frigate (ship 1 – HMS Glasgow) which is being constructed by BAE Systems in Glasgow are now twelve months sooner than at the time of going to contract and those for achieving Initial Operating Capability of the have been brought forward by 14 months.
Procuring bespoke defence equipment is without doubt extremely complex. Delays can be caused by single or combination of problems – some being attributable to the MOD, some to suppliers and some to a combination of both.
Problems on the A400M which are noted in the report and put down to severe delays on the part of the Airbus supplier of aircraft to all partner countries and that led to a six-year delay in UK entry into service is the worst example on the list of programme delays. However, it should also be noted that although not listed in the report as a delay, in the case of the Skynet 6 satellite programme, the NAO notes that the MOD delayed this by three years as a savings measure. As a result, the MOD had to develop a sub-project within the Skynet programme in order to maintain existing Skynet 5 capability during the three-year delay period until the planned introduction of Skynet 6.
The NAO Report also highlights that delaying entry into service of new capabilities requires that the MOD needs to maintain equipment that is in some cases obsolete.
As an example of this it cites the ‘Protector’ unmanned aerial vehicle which had originally been planned to enter service in 2018 – this to coincide with planned retirement of the Reaper predecessor capability. In this case the MOD forecast date for achievement of Initial Operating Capability (IOC) was July 2021 BUT that by the time the decision was taken to delay the programme because of budgetary pressures.20 (IOC is now expected in November 2023) required that an extension of Reaper capability was required at an additional cost of £50 million.
I will leave the specifics of the NAO report there and concentrate on one specific issue of concern that impacts on procurement programme delays that I have written on several times – the role of the ‘Senior Responsible Office’ (SRO) within each procurement programme and in particular, the current status that the median time that an SRO allocated to a specific programme is just 22 months while the actual running time of programmes examined by the NAO was 77 months.
Lack of skills, competence and capabilities on the part of the MOD and that are required in order to properly and effectively manage defence procurement programmes reasons, in my view, a very large part of why the relationship between the MOD customer and supplier is made so much more difficult.
The NAO tells us in the report that the median time that Project Managers within DE&S have been in post was just 13 months and that the high rate of turnover (uniformed) reflects career path requirements of the armed forces personnel of which most postholders are members. The problem is compounded by the antiquated promotion system used by all sections of the military. This is a problem that is not just restricted to the military procurement process and those working at DE&S in Bristol or in Main Building – it is a problem rife across the whole of the military and one that in my view, adds significantly to the overall cost of defence as a whole.
It seems to me quite ridiculous that the time, effort and cost required to be put in to training military personnel for crucial roles such as procurement and in that case, to build proper relationships with all those involved – those within the DE&S process and industry supplier let alone learning and understanding all aspects of a complex procurement process allow that by the time they might be sufficiently trained and ready to take on project management of a specific procurement they can find themselves moved on or promoted.
Another problem that manifested itself as an outcome following the 2009 independent ‘Review of Acquisition’ report written by Bernard Gray for the last Labour Government in 2009, is the military decision-making process that lies behind who gets moved sideways, down or maybe, promoted up into the DE&S process.
Twelve years on, I believe that it is time for another report – one that can encompass the best elements of the Gray Report including implementation of a competitive salary-based system and rewards for performance and one that looks at the whole process along with specific concerns raised by the NAO.
Whilst making what I hope are to be seen as relevant forward thinking points of concern in relation to the procurement process, I would also like to see a separate report being done that could erase the huge damage done to the relationship between the MOD customer and industry supplier of the SSRO (Single Source Regulations Office).
CHW (London – 25th June 2021)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
M: +44 7710 779785