TENTH REPORT
The Defence Committee has agreed to the following
Report:
MAJOR PROCUREMENT PROJECTS
BACKGROUND
1. Over the last two decades, successive Defence
Committees have monitored the MoD's performance in procuring equipment
and weapon systems, and have undertaken numerous inquiries on
specific programmes. The MoD's record over that time has been
less than glorious. An example of why there needs to be close
scrutiny of procurement projects is provided by the SA80 individual
and light support weapon. Our predecessors were strongly critical
of it in a report in 1993[8].
This month, the MoD announced an £80 million programme to
remedy the defects of the weapons which have now been officially
recognised[9].
Our other reports over the years, and successive Major Projects
Reports,[10]
have highlighted a pattern of frequent delays and cost escalation.
The MoD's 1998 Strategic Defence Review (SDR) made much of its
'smart procurement' initiative, designed to tackle these weaknesses,
which we examined in some detail in our report on the SDR.[11]
We have continued to monitor closely the progress of the major
projects within that new environment, as well as the key procurement
decisions produced by the SDR.
2. To continue that ongoing work, last year we initiated
an annual survey of major procurement projects.[12]
This annual review has to be read alongside our continuous review
of the MoD's annual reporting cycle, on which we last reported
in February.[13]
Our aim is to monitor, and report progress on, a selection of
the operationally more significant procurement programmes in a
way that can measure the success of the smart procurement initiative,
which will measure the implementation of projects which are keystones
of the SDR strategy, and which can inform the House's annual defence
equipment debate. The projects monitored currently comprise
- The new aircraft carriers
- The Future Carrier-Borne Aircraft
- The Common New Generation Frigate
- Additional sealift capability
- The Bowman communication system
- The Tactical Reconnaissance Armoured Combat Equipment
Requirement (TRACER)
- Eurofighter
- The Beyond Visual Range Air-to-Air Missile (BVRAAM)
- The Advanced Short Range Air-to-Air Missile (ASRAAM)
- The long-term and short-term airlift programmesthe
Hercules Rolling Replacement Aircraft tranche-2, and the Short
Term Strategic Aircraft
3. Last year our report could not be produced in
time to inform the defence equipment debateitself a recent
innovation[14]which
took place in April 1999. In that report we recommended that the
next debate should not take place before June 2000, to allow us
time beforehand to receive the MoD's latest memorandum (on the
position as at 1 April), to take evidence on it and report our
findings.[15]
We are grateful for the House's business managers for scheduling
this year's equipment debate in a way that allows us to inform
it. It would be useful if as far as possible this pattern could
be followed in future years.
4. As we did last year, we have again included the
MoD's memorandum on our monitored projects with this report.[16]
It addresses for each project a standard set of issues and information
under headings suggested by the Committee, and which we consider
provides a good synopsis of the important features of each programme.
We asked that it should be self-standingin other words
that it can be understood without reference to last year's memorandum.
The House will also soon have the National Audit Office's report
on the 1999 Major Projects Report, analysing the costs and progress
of the 25 financially most significant procurement programmes,
which overlap with the portfolio of programmes addressed in our
rolling inquiry.
5. Although the MoD's memorandum provides a comprehensive
picture of the full range of projects, our intention is each year
to focus our inquiry on investigating particular issues concerned
with a selection of them. Last year we dealt at some length with
the Common New Generation Frigate, because of the UK's decision
in April 1999 to withdraw from the 'Horizon'warship component
of that programme.[17]
In this brief inquiry, conducted as part of this year's report,
we have focussed on three currently topical areas
- Eurofighter armaments:
Last month, the government finally decided between two competing
bids for the Beyond Visual Range Air-to-Air Missile (BVRAAM) for
Eurofighter. At the same time, it announced that more Advanced
Medium-Range Air-to-Air Missiles (AMRAAM) would be procured for
use on the aircraft ahead of BVRAAM's introduction.[18]
Lastly, at the same time Ministers decided not to fit the Mauser
cannon on later batches of the aircraft for the RAF.[19]
- Strategic Lift: Also
last month,[20]
the government decided on its preferred suppliers for the long-term
and short-term transport aircraft requirements.
- Bowman: After concerns
over the availability of secure communications used by our troops
in Kosovo, a further delay in the expected in-service date of
the new Bowman digital communications system was announced last
December.[21]
Around that time the MoD sought proposals from alternative suppliers
for the Bowman system. The future direction of the programme is
at a critical juncture, as the MoD aims to place production contracts
later this year.
6. We took oral evidence from Sir Robert Walmsley,
Chief of Defence Procurement (CDP) and Chief Executive of the
Defence Procurement Agency, and from Vice-Admiral Sir Jeremy Blackham,
Deputy Chief of the Defence Staff (Equipment Capability), heading
the MoD's internal 'supplier' and 'customer' organisations respectively.[22]
The decision clearly to separate these roles was one of the changes
implemented as part of the MoD's smart procurement initiative,
and the creation of Sir Jeremy's organisation in particular was
intended to address the previous lack of a 'customer' focus at
the centre of the MoD, with both equipment programming and budgeting
responsibilities brought together.[23]
Admiral Blackham's organisation focusses on broad areas of generic
military capability, such as strike, manoeuvre or strategic deployment,
and is now responsible for considering trade-offs between technical
solutions to satisfy capability requirements within these broad
fields, as well as between cost and capability.[24]
Informed by such considerations, the Defence Procurement Agency
seeks to provide cost-effectively the equipment capability sought
by the 'customer'. With Sir Jeremy and Sir Robert sitting at either
end of this customer/supplier chain, it was possible to obtain
both perspectives during our hearings. This is an approach we
intend to follow in future.
7. In this inquiry we also briefly examined the secondment
of Sir Robert's deputy, Mr John Howe, to Thomson-CSF. Two of the
procurement programmes that we cover in this report involve Thomson-CSFBowman
(paragraphs 41-59) and the Carrier programme where the firm leads
one of two competing consortia (paragraphs 65-68). We therefore
took the opportunity to question the benefits to the MoD of Mr
Howe's secondment to this French-owned firm, which has a significant
government shareholding,[25]
and which is in the process of acquiring major UK firms.
8. The chief factor in the MoD's decision to loan
Mr Howe to Thompson-CSF was, Sir Robert Walmsley told us, to help
the firm to establish itself as a credible competitor in the UK
where the defence electronics industry was increasingly dominated
by BAE Systems. CDP explained the Department's thinking
It is very important ...
that we continue to derive as much benefit from competition as
possible. Thomson-CSF have not so far been a prime contractor
in the United Kingdom in a very big way. Their acquisition of
Racal puts them in a position where ... they are potentially able
to... take on prime contracting for ships like the carrier ...
The company has to understand how the MoD works as a prime contractor.
That is the first thing that Mr Howe will be able to explain very
clearly to Thomson. ... The second point is security. When you
have an owner who is centred in a foreign country, ... the confidence
with which other allies and the Ministry of Defence look to that
company to operate security procedures is fundamentally important
... Mr Howe will take a very close interest in those aspects to
ensure that we do not have any stumbles there ... I want to build
up an alternative competent prospective prime contractor. If we
do not do that we will lose competition, and all the benefits
that we get from that, in defence electronics.[26]
9. CDP explained that this was a unilateral initiative,
without any reciprocal move by the French government to help UK
firms competing for French MoD orders.[27]
The aim, he assured us, was to develop Thomson-CSF's competence
in the UK,[28]
where it would continue to be an important part of the "British"
defence electronics industry.[29]
The test of the success of this at first sight risky decision
to loan a senior civil servant to a foreign-owned competitor for
UK defence contracts will be whether the competitive pressures
are in fact maintained, and whether there are identifiable consequential
benefits in terms of price and innovative technical solutions,
in the Carrier, Bowman and other programmes. These gains
will have to be significant if this act of apparent altruism is
to be shown to be actually self-interested. The MoD's case would
be more persuasive had it been able to secure a reciprocal arrangement
with the French defence department.
10. We now turn to an examination of this year's
spotlighted projects.
8 Third Report, Session 1992-93, The SA80 Rifle and
Light Support Weapon, HC 728 Back
9 HC
Deb., 23 June 2000, cc 318-319 w Back
10 Published
each year by the National Audit Office Back
11 Seventh
Report, Session 1998-99, The Strategic Defence Review,
HC 447 Back
12 Eighth
Report, Session 1998-99, Major Procurement Projects Survey:
The Common New Generation Frigate Programme, HC 544 Back
13 Second
Report, 1999-2000, Ministry of Defence Annual Reporting Cycle,
HC 158 Back
14 From
the 1998-99 Session, the Government has replaced the three separate
debates on the Royal Navy, Army and Royal Air Force with debates
on defence equipment, armed forces personnel and defence in the
world Back
15 Eighth
Report, Session 1998-99, op cit, para 2 Back
16 Ev
pp 49-88 Back
17 Eighth
Report, Session 1998-99, op cit, para 3 Back
18 HC
Deb., 16 May 2000 cc 149-151 Back
19 HC
Deb., 16 May 2000, cc 95-96w Back
20 HC
Deb., 16 May 2000, cc 149-151 Back
21 HC
Deb., 21 December 1999, c468w Back
22 The
'customer' role for equipment programmes is shared between Sir
Jeremy Blackham's Equipment Capability organisation and the relevant
front-line commands who will use the equipment. Back
23 Ev
p 43, para 25 Back
24 Ev
p 43, paras 25-33 Back
25
A third of Thomson-CSF's shares are held by 100% state-owned firms,
although another third of its shares are traded on stock exchanges Back
26 QQ
291, 292 Back
27 QQ
295, 296 Back
28 Q
295 Back
29 Q
298 Back
|