Part of a Memorandum submitted by Mr Tony
Purton
This memorandum addresses MoD's execution of
its professional buying function, as distinct from the associated
planning and budgeting function. A number of dossiers placed with
the Clerk of the Committee provide detailed expositions of the
points made.
The NAO's Major Projects Report 1997, and previous
MPRs, confuse these two functions which makes it difficult to
isolate and deal effectively with the causes of MoD's apparently
abysmal procurement performance. In an article in RUSI NEWSBRIEF
last October I suggested that the NAO's reports start at the wrong
place and draw the wrong conclusions. Long serving Committee members
have in the past expressed their exasperation at the task of trying
to examine the MoD on this subject in just two hours once a year,
and the format of the NAO's report does not help—see Dossier
1.[1]
To put the two functions in perspective, planning
and budgeting is the guessing game that is essential to overall
planning. It is notoriously difficult to get right, but provides
a measure of MoD's corporate planning and decision-making ability.
Despite the assertions of the C&AG and the Treasury at the
Committee's examination of MoD on the Appropriation Account on
30 March that MoD's problems are no greater than those of other
departments in this regard, defence procurement professionals
believe they are and demand greater flexibility than the impact
of the annuality of government financing procedures should be
properly explained and examined.
Having decided to buy something, the efficiency
with which that decision is implemented is the professional "raison
d'etre" of the MoD(PE), and can be measured in its own
right.
The Secretary of State for Defence has promised
to cure all MoD's ills by adopting "smart" procurement
to achieve "faster, cheaper, better" procurement. Since
the past is a window on the future it will be essential for the
Committee to assure itself that MoD identifies and deals the causes
of its past failures and does not build old faults into any new
system—see Dossier 2.[2]
MoD's "systemic" procurement failures:
(a) The influence of the Defence Exports
Support Organisation (DESO), whose only function (with the support
and encouragement of the DTI) is to help British industry secure
MoD orders and export the resulting products, is inconsistent
with MoD(PE)'s remit to buy the best available equipment for the
UK armed forces—Dossier 3.[3]
(b) Failing to place comprehensive, taut
and enforceable contracts by employing standard procedures which
undermine that objective:
— announcing the winners of competitive
tender competitions before all the contract terms and price have
been unequivocally secured—Dossier 4;[4]
— failing to place risk squarely on
contractors by accepting their proposals unconditionally, but
instead re-offering a bidder his own proposal for him to accept
from the MoD—Dossier 5.[5]
(c) Granting contractors indemnities against
the consequences of their own performance failures:
— by insisting on contractual liquidated
damages provisions for late delivery thereby encouraging and excusing
late delivery and preventing MoD from securing adequate compensation
for the real cost of the contractor's default—Dossier 6;
— granting blanket product liability
indemnities to British industry such as the "Hedger Smeeton"
indemnity relating to aerospace products against the consequences
of "crashings and groundings" and other specific indemnities
such as the flight risks indemnity—Dossier 7.[6]
(d) Failing to take full advantage of the
"buyer's law" nature of the Sale of Goods Act in relation
to "fitness for purpose" and reliability "durability"
of equipment delivered under MoD contracts by accepting, and often
paying extra for, specific warranties which reduce MoD's rights
in law—Dossier 8.[7]
(e) Failing to enforce MoD's contractual
rights by withholding payment for breaches of contract and rejecting
equipment which does not meet the contract—Dossier 9.[8]
Examples of these failures are found in the
following projects:
Challenger II tank—2½ years late and
technically unsatisfactory—potential claim for extra costs
of £38 million to MoD sacrificed in a £3 million liquidated
damages indemnity—Dossier 10.[9]
Rapier 2000—Late in development but contractual
provision for the recovery of £85 million progress milestone
payments foregone granting BAe a £23 million "interest
holiday at public expense—Dossier 11.[10]
Tornado 25 F1—A £5 million contract
that cost £25 million to complete two years late, and after
recovering £5 million from the contractor for default left
MoD with £15 million unrecovered extra costs—Dossier
12.
Dossier 13[11]
contains a collection of published articles. Dossier 14[12]
contains a series of unpublished "Legal Awareness" articles.
Mr Tony Purton
Former MoD Director of Contracts
20 May 1998
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