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UK DEFENCE PROCUREMENT – DE&S REAL AND MEANINFUL PROGERSS ESTABLISHED. By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.

05 Jan 15. It may be a hard thing to say but if the UK defence establishment has got anything right since the SDSR 2010 defence review was published over four years ago it is the substantial and ongoing progress in the act of improving defence procurement. The road of change that is designed to lead to the achievement of excellence has so far been long and hard and those that have found themselves on the journey have experienced plenty of potholes along the way. Yes, there has been the odd ‘U’ turn in the huge process of change that surrounds defence procurement but overall there has been little room for compromise. There are those of course that will be disappointed that the journey of change has taken this long and that believe perhaps that they may not be a beneficiary. But be in no doubt that there is a larger element of those involved in the defence procurement process that really are pleased with the progress that they have witnessed.

bernardgreayBernard Gray, Chief of Defence Material has for the past four years presided over and sought to change the way that the UK does defence procurement. It was the Gray report, published at the behest of the last Labour Government in 2009 that had exposed the severity of weakness was UK defence procurement at the time. He has over the period that he has been in charge fought for change and in the process built a strong team of experienced management to oversee defence procurement. Gray has changed the whole structure and concept of how defence procurement is done and for that he deserves significant praise. It has been a change process that has required a significant slimming down of the defence procurement machine and one that some have been uncomfortable.

To effect change always required powerful intellect at the helm, someone who would neither take prisoners nor let obstacles to progress get in the way. Bernard Gray has been all of that and more and yet to suggest that he is universally popular would be a chronic overstatement but better someone at the top who takes no prisoners that one who relents and gives way to persuasion that this is the way it has always been done and thus it cannot be changed. Bernard Gray is currently half way through the overall challenge that he himself set. If he succeeds we will all benefit, if he fails then there is no-one else to blame. I am in no doubt that in less than four years from now UK defence procurement will be a world class act. Having built the team of professionals around him to achieve that aim and with the private sector about to take a far more significant role in the forward plan now is not the time for change at the top. I may hope that Bernard Gray will be given the second term of office that he both wants and deserves in order to complete the process of change. Industry and the people that are employed at DE&S require above all else continuity at the top just as industry also requires consistency.

None of this is to ignore the fact that there remains much work to be done before defence procurement as a whole may be regarded as fit for purpose let alone world class.

From the 1st April last year Defence Equipment & Support (DE&S) has been conducted within a bespoke trading entity at arm’s length from the Ministry of Defence. With an annual budget of £14 billion the DE&S organisation is responsible for the procurement and support of all equipment and services including urgent operational requirements that the Royal Navy, the Royal Air Force and the Army purchase. Of the total budget £1bn is allocated for DE&S operating costs and the organisation which is based near Bristol employs close to 12,500 personnel in the UK and overseas.

Amongst many objectives that had been set and met over the past year included the appointment of Paul Skinner as Non-Executive Chairman of the DE&S Board, agreement of the Transformation plan ahead of final detailing, a substantial amount of internal staff migration and re-motivation of those that DE&S wants to retain plus substantial work on the Corporate Plan which I believe is due to be completed in the first quarter of this year. In terms of main work, significant changes have occurred within project control and finance, industry management, customer relations, functional management, communications and human resources. As hinted above, developing careers is now considered to be a very important part of the forward DE&S plan ensuring that good staff members are retained and fully motivated plus also that there is proper process in place to compete to recruit additional people that have necessary skills and experience.

Improvement in supply chain management and inventory are some of the other areas within the DE&S process in which there has been much concentration along with making information more easily and widely available to all those within the organisation. Improving relations with defence contractors, suppliers and military stakeholders; having better access to commercial data and available rates are important aspirations that will create greater operational efficiency are other areas in which concentration has been apparent. Making better use of storage, servicing and transport are suspect all areas that will receive increasing attention as the change process continues.

The DE&S+ structure which has now been in place for nine months may be considered to be unique within the international defence procurement community. Designed to provide a boundary between the operation of procurement and the MOD. Having separate governance and oversight and with a board based structure similar to a commercial entity most that I have spoken too are very appreciative of the changes that they have witnessed already.

The addition of an independent non-executive chairman and non-executive members of the DE&S board are new and important factors in running the structure and with a chief executive (Chief of Defence Material) who is also the senior Accounting Officer means that Bernard Gray is in effect the key ‘duty holder’ and person who is accountable to Parliament for overall performance.

Management aspirations for the future DE&S are undoubtedly high, just as they should be, and all recognise that getting the organisation to where it wants to be will not all be plain sailing. Building better relationships with the defence industrial base, building on good relations that the military has established with industry and working as a team to provide best equipment and support capability at the best available price are an important part of the responsibility that DE&S has. Important in this change management process too will be the attitude that emerges to sovereign capability and critical technologies.

Another important aspect will be the attitude to maintenance of sovereign capability. That is not to suggest that there is insufficient realisation that UK defence equipment manufacturing and exports are hugely important to the UK economy but that often the easy way out is to buy of the shelf or worse, allow manufacturing and assembly facilities to be further run down. The ability of UK defence contractors and the many other companies including thousands of SME’s to engage in the industry may not be an automatic right but it must be taken in context with what our competitors do. The UK does things right and in terms of defence exports it always meets the very high standards that it has set itself and those laid down within international agreements to which the UK is a signatory. Defence exports play an important role within our foreign policy objectives as well just as they do within the whole sphere of defence diplomacy.

Recognising the need to maintain sovereign capability in many aspects of defence equipment manufacturing may be somewhat at odds when it can appear easier in terms of UK procurement to buy-off-the-shelf. Recognising aspects such as this will no doubt become harder for a more commercially minded DE&S process but it is important to stress that there should be no further weakening of the UK defence industrial base at the behest penny pinching.

That singular reservation said, I believe that what has been established in the new DE&S process may be considered to be a strong set of foundations that provide scope and opportunity for the organisation to eventually become a world-class procurement and support operation. Clearly DE&S needed to raise its game considerably and I am content that within the process of change laid out and already started it knows where it wants to be. Industry is very prepared to be flexible and it too has long wanted to see change greater efficiencies in defence procurement.

Defence manufacturing is a very complex business and one that because the overall procurement process is complicated and often protracted, sometimes due to programme cost and affordability and sometimes due to political considerations plus also because decisions cannot be made until all parties are content the need for flexibility within procurement operation will remain important. Industry has long recognised this fact and has played its part in responding to change requirements of the customer. Achieving greater efficiency in defence procurement has long been an aim and we all recognise past failings. Industry has made itself more efficient and continues to do on a day to day basis. In the past there have been too many vested interests within the MOD procurement structure allowed to have a say in equipment design.

Translated what the structural changes to DE&S are intended to mean is that the new organisation can reinforce the customer/supplier interface between the military command and procurement operator. Changes will also allow the organisation to acquire private sector input through a series of support contracts aimed at delivering key changes to the overall procurement system and process. These are also aimed at strengthening programme management along with bringing in qualified personnel with engineering and technical qualifications and key commercial skills that had been glaring omissions within the previous DE&S structure.

An underlying aim within the new structure is to achieve further big reductions in procurement spend without impacting on military capability requirement. This would manifest itself not only in the removal of layers of bureaucracy but also in the attempt to seriously reduce the one half of the current procurement budget spent on service and support as opposed to purchase of equipment. Nevertheless, better methods of equipment purchase and particularly on major projects was also envisaged.

The past year has been one of substantial progress for DE&S particularly in terms of strengthening quality of personnel and various elements of the procurement process but on major projects too. Merlin Mk 2 Helicopter upgrade plus Chinook Mk 6 and Voyager procurements all passed important milestones in 2014 either on or ahead of time and on budget. Other examples of major project milestones reached over the past year include the naming and floating of the first of two new aircraft carriers, HMS Queen Elizabeth and the substantial progress being made on the second carrier, HMS Prince of Wales. Other large scale procurement programmes include Typhoon fast jet acquisition and implementation agreement for capability upgrade including precision weapon enhancements for the Royal Air Force, ongoing work of Astute class submarine build, beginnings of work on three Offshore Patrol Vessels for the Royal Navy and entry into service of the first Airbus A400M by the Royal air Force. Design work and procurement planning continued on the next generation of Type 26 Frigates to be built by BAE Systems for the Royal Navy. Trials work on Warrior Capability Sustainment by Lockheed Martin at Ampthill has continued ahead of the rebuild process beginning and in September DE&S signed procurement contracts with General Dynamics for the new generation of armoured Scout SV (Specialist Vehicle) for the Army.

Recruitment of the numbers of professional staff required by DE&S to improve its missions has and will be hindered by shortage of skills available. While there is universal recognition that the education system needs to push more students through STEM (science, technology, engineering and mathematics) subjects that will not help the current serious shortage in the UK skills bases such as engineers. These are problems that will need to be faced but in terms of the positive angle DE&S will no longer be the preserve of inflexible civil servants or members of the armed forces despatched to Bristol because there is no other place for them to go. That is not to taint the military involvement within the DE&S structure in any way and the role that they play within procurement is vitally important. But above all else DE&S requires commitment from its people and long term involvement. The future is about those who are employed in defence procurement wanting to be a part of the process as opposed to be forced to be there. The future is about having a motivated workforce that is not restricted in terms of reward by civil service practice. Of course an element of this will need to remain but through buying into commercial expertise and by slowly growing numbers of qualified personnel in key positions DE&S the transformation of DE&S will become increasing apparent to those that use its services.

What are being called Managed Service providers will from now on play a key role in how DE&S works with the individual stakeholders. The process has already started and no doubt when the 150 managed service personnel that will be engaged for project delivery work and the seventy destined for Human resources tasks have learned all that they need to know about the specifics, breadth and complexity of defence procurement they will make their mark. The work of the Project Delivery MSP’s will primarily be to ensure that programmes are delivered on time, on cost and against milestones set and they will be incentivised to achieve these objectives.

Summing up, when Bernard Gray was appointed by the Coalition Government to head the oversized DE&S procurement structure in 2010 defence procurement had reached a very dangerous and very low state. More than four years on into the process of transformation that will enable the organisation to be considered as world class huge progress has been made. The support of industry is crucial but equally important in the process has been the way that the military has, by being part of the top team, made a significant difference.

Clearly, there is still a long way to go yet before DE&S may be regarded by all of the various stakeholders and those engaged as being it for purpose across all of the many areas but there really is ample evidence to show that the organisation is already far more efficient and cost effective in terms of achieving outputs. To a large extent progress is evident due to the strengthening of quality of staff meaning the process of employing experience. To achieve this significant structural change would require that DE&S pay structure would need to be aligned so that is was far more competitive with the private sector. It may seem unfair to say that in the past DE&S was full of the wrong people with little experience or knowledge of the complexities involved but it is true. To get the right people in place and to rid from the organisation those that are better suited elsewhere has been a major challenge and it is one that is not over yet. Progress made then but still a long way to go yet.

hwheeldon@wheeldonstrategic.com

Tel: 07710 7779785

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