Select Committee on Defence Written Evidence


Memorandum from the Ministry of Defence (10 February 2000)

SMART PROCUREMENT—MOD REORGANISATION

  1.  One of the first conclusions to emerge from the Strategic Defence Review (SDR) was the need for a radical reappraisal of the way in which we developed and procured major military systems. It also identified weaknesses in the arrangements for supporting equipment once it had entered service.

  2.  As a result, the then Secretary of State announced, in July 1997, the Smart Procurement Initiative (SPI), a revolutionary approach to improving and simplifying procurements processes, including adopting a coherent through-life approach to managing projects covering both acquisition and in-service support—Through Life Capability Management. The philosophy underpinning the SPI was subsequently set out in Cm 3999 (Chapter 8) and Supporting Essay 10 in the companion volume.

  3.  The SDR also announced two major organisational changes vital to the delivery of the Smart Procurement Initiative; the transformation of the MoD Procurement Executive into an Executive Agency, the Defence Procurement Agency (DPA), and the creation of the Defence Logistics Organisation (DLO) led by a Chief of Defence Logistics (CDL).

DEFENCE PROCUREMENT AGENCY

  4.  The DPA was launched on 1 April 1999. I believe copies of its Framework Document and 1999 Corporate Plan were placed in the House of Commons Library at the time. The Key Targets for the Agency for 1999-2000 were announced on 31 March 1999 (Hansard, Col 676).

  5.  At its launch, the Agency comprised some 5,400 staff, primarily at Abbey Wood, Bristol. (21 other locations, both in the UK and abroad, have more than 20 DPA staff.) The majority of those staff are Civil Servants or members of the Armed Forces. Secondees from industry, consultants and other temporary staff are also employed, consistent with the Smart Procurement Initiative principle of developing a stronger relationship with suppliers, and to gain the benefit from bringing in external expertise.

  6.  Since its launch, the DPA has radically reorganised its internal structures to meet the demands of the Smart Procurement Initiative. The Chief Executive/DPA and Chief of Defence Procurement, Sir Robert Walmsley, is now supported by an Executive Board whose purpose is to lead and develop the DPA as a high performing organisation which satisfies its customers, meets its business objectives, values its people and produces continuous improvement. The Board consists of the Chief Executive, Deputy Chief Executive, six Executive Directors, a part-time non-Executive Director (currently Mr Tom McGuffog of Nestlé), and a Secretary. The Board is supported by two Advisers, one concerned with aerospace matters and DPA integration, the other with engineering matters. The Deputy Chief of Defence Procurement (Operations) post will lapse at the end of July when the transition to the new structure is complete. The Board is responsible for formulating the Agency's Corporate Plan and more detailed Business Plan, and managing delivery of outputs, in particular the Agency's five Key Targets.

  7.  Executive Directors also have a number of cross-cutting responsibilities, which might include links with a country with whom we frequently collaborate, with a key supplier or with a major stakeholder elsewhere in MoD. One Executive Director has special responsibility for financial standards and systems, and another for commercial matters.

  8.  Integrated Project Teams (IPTs), responsible for delivering the customer's requirement for equipment to time and within budget, have been created. Each has an empowered leader, with direct responsibility and accountability for the Team's delivery of the customer requirement, who is supported by a multi-disciplinary team. About 90 IPTs will be hosted initially by the DPA. By April 2000, all major equipment acquisition will be undertaken by IPTs. The size of the IPTs and the rank/grade of each Leader varies according to the size and complexity of the project.

  9.  IPTs have also been established in the DLO—see below. In future, IPTs will transfer from the DPA to the Defence Logistics Organisation (at around the time the equipment begins to deliver an operational capability) to manage the equipment it has procured during its in-service life.

  10.  IPTs in both the DPA and DLO have been taken through a training and a "breakthrough" process, supported by a central change team reporting to the Team Leader Smart Procurement, to ensure full understanding of the Smart Procurement principles and a real break with the out-moded systems of the past. At the end of the breakthrough process, progress for each IPT is reviewed by the Deputy Chief of Defence Procurement (Operations), the Deputy Chief of Defence Logistics and the Deputy Chief of the Defence Staff (Equipment Capability). The IPTs were, following an initial pilot phase, grouped into three Waves; 72 IPTs have now been rolled out, the final Wave of 68 is currently being launched.

  11.  Each IPT Leader in the DPA is accountable to the Chief Executive, and IPTs are organised into Peer Groups, of about 10 projects, at a similar stage of maturity. Peer Groups have been created to facilitate the creation and dissemination of best practice. Each Group will have a shared responsibility for meeting targets and will help to ensure that IPT Leaders co-operate for the benefit of the DPA as a whole.

  The Executive Board facilitates the work of the IPTs, undertaking a programme of quarterly reviews with each IPT Leader, acts as mentors to IPT Leaders, and responds to requests for assistance from them. Each Executive Director looks after the IPTs in one or more Peer Groups.

  12.  Seven support Directors have been created to provide financial and secretariat advice to IPT Leaders and Peer Groups and to facilitate the Peer Group machinery. They also represent an important source of assistance to the Board in ensuring that the MOD and DPA's financial standards are maintained.

  13.  Seventeen Support Groups provide a range of services to the Board and IPTs and external stakeholders. Those range from the provision of senior commercial staff to assist in complex commercial negotiations, through advice on ordnance safety issues, to contracting for site facilities and management. Each Group will be output and client focused, and each Leader is accountable to a member of the Executive Board.

  14.  A wall chart showing the DPA organisational structure is enclosed.

DEFENCE LOGISTICS ORGANISATION

  15.  General Sir Sam Cowan assumed the post of Chief of Defence Logistics on 1 April 1999, and took full budgetary and management responsibility for the three single service support organisations led by the Chief of Fleet Support, the Quartermaster General and the Air Member for Logistics. General Cowan has been directed to create a unified Defence Logistics Organisation by 1 April 2000. The new organisation is forming progressively. The key characteristics of the new organisation were set out in Cm 4446 (paragraphs 104-106). The new structure for the HQ and the rest of the Defence Logistics Organisation will come into effect on1 April 2000. The new organisation, in outline, is at Annex A. CDL has been added to the membership of the Equipment Approvals Committee (EAC), where support and a Whole Life Cost approach are now recognised as important factors in acquisition decisions.

  16.  The creation of Integrated Project Teams (IPTs) as part of the Smart Procurement Initiative (SPI)—initially about 50 in the DLO—requires a new relationship between the IPT leaders and their senior management. IPTs are forming within three Equipment Support Business Units, organised on an environmental basis—Maritime, Land and Air—to provide outputs to each of their main customers: Commanders-in-Chief Fleet, Land and Strike. The Business Units are essentially "decider" organisations, directing timely and effective engineering and material support, in conjunction with industry, to their customers, to fulfil their Customer Supplier Agreements.

  17.  The general structure of all three organisations is similar. Equipment Support Sea has been formed from the existing Ships Support Agency and is based around the key building blocks of Front Line Customer-focused Platform-based IPTs, supported by Systems and Equipment IPTs. Those IPTs are supported by specialist Directorates responsible for the provision of corporate services and guidance including Commercial, Resources, Business Development, Engineering, Support Chain and Operations. The last of these is responsible for co-ordinating and facilitating relationships between IPTs and their Customers.

  18.  Equipment Support Land has been formed from the DG Equipment Support (Army) organisation, although less emphasis is placed on platform based IPTs, given the greater numbers of smaller equipments for which they are responsible.

  19.  Equipment Support Air has been formed by combining the DG Support Management (RAF) and DG Aircraft (Navy) organisations, with responsibility for the support of all fixed and rotary wing aircraft in service.

  20.  Two other major support groupings have also been established in the DLO, headed at 2* level, the Naval Bases and Supply Agency (NBSA) and the Defence Logistics Support organisation. Following a major study by the Royal Navy and the DLO to establish the best way to provide naval base services, engineering and support facilities to ships and submarines outside of refit periods, and to store and supply spares, fuels and munitions, we are examining the disaggregation of the current tasks of the NBSA to other business elements of the DLO, so that all tasks associated with engineering support for ships and submarines will be the responsibility of one Agency.

  21.  The Defence Logistics Support organisation is being formed, with overall responsibility for the Defence material supply chain. Within it are several existing smaller agencies "inherited" by the DLO, and some corporate resources including Technical Services and the Defence Fuels Group.

  22.  The other major Agencies in the DLO—the Ships Support Agency (which forms the ES Maritime Business Unit, described above), the Defence Aviation and Repair Agency, and the Army Base Repair Organisation—are stand alone. (The last two Agencies are working towards Trading Fund status.)

  23.  Work continues, in conjunction with other MoD stakeholders, on the design of the Command, Control, Communications, Computing and Information Systems Grouping. It will include the Defence Communication Services Agency, which will transfer to the DLO from the Centre TLB on 1 April 2000.

  24.  The disciplines of Resource Accounting and Budgeting (RAB) and SPI have required detailed work on a better defined relationship between the DLO and its customers, particularly for IPTs whose outputs are to equipment end users, mainly the Front Line Commands. This relationship formalises previous arrangements developed under the New Management Strategy via Customer Supplier Agreements (CSAs) to ensure a better understanding by both customer and supplier of what is actually required to be delivered. This work is already producing benefits as IPTs seek to find ways of reducing the cost of ownership of equipments whilst meeting the real needs of their customers.

DEPUTY CHIEF OF THE DEFENCE STAFF (EQUIPMENT CAPABILITY)

  25.  The separation of the role of customer and supplier is a fundamental tenet of the Smart Procurement Initiative. Work during the SDR suggested that the lack of a clear "customer" in the Central Staff, with both equipment programming and budgeting responsibilities to make effective trade-offs across equipment and capabilities, had resulted in poor balance of investment decisions. A lack of accountability to a single end customer at each phase of the project's life, able to reach clear, unambiguous agreement with each IPT as to what the latter should provide, also limited the effectiveness of performance management. To enable the customer to take a holistic approach, with a view to ensuring better balance of investment decisions, achieving fast procurement, avoiding cost overruns, and delivering an improved capability to front-line users—thereby improving operation capability and use of resources, it was decided that a customer organisation responsible for both the Equipment Plan and for advice on the balance between competing demands within the overall resources allocated to that Plan was required. It would also have an authoritative voice in the overall departmental corporate planning process. That represented a fundamental change to the responsibilities previously held by the Deputy Chief of Defence Staff (Systems) (DCDS(Sys)) for defining operational requirements, the Deputy Chief of Defence Staff (Programme and Personnel) (DCDS(P&P)) for advice on military priorities, and the Principal Finance Officer (PFO) for planning and requirement scrutiny. Responsibilities within the Central Staff, which is jointly headed by the Vice Chief of the Defence Staff (VCDS) and the Second Permanent Under Secretary (2nd PUS), are now divided between the Equipment Programme on the one hand and operating costs (as captured in the Short Term Plan) on the other. The Principal Finance Officer remains responsible for the overall corporate planning function.

  26.  The Deputy Chief of Defence Staff (Equipment Capability) (DCDS(EC)) was, therefore, established on 4 October 1999, with staff from the former DCDS(Sys), DCDS(P&P) and the PFO, to:

    —  develop a balanced coherent and affordable Equipment Plan and programme based on capability need, rather than replacement of existing equipment;

    —  address balance of investment decisions across the Equipment Programme to deliver the maximum level of military capability achievable within the Equipment Plan;

    —  manage the equipment approvals process;

    —  construct the Applied Research Programme;

    —  maintain oversight of extant capabilities after equipment has entered service—the through-life capability management approach.

  27.  It was also decided that the Equipment Programme should, in future, be managed by capability area rather than, as previously, by service for resource allocation and by environment for operational requirements. DCDS(EC) is, therefore, supported by four Capability Managers (at 2-Star level)—for Strategic Deployment, Strike, Manoeuvre and Information Superiority. They in turn are supported by 15 Directors of Equipment Capability (DECs), with an integrated military and scientific staff. Each capability area is designed to offer some clear potential for balance of investment trade-offs, and each aggregation of capability area reporting to a Capability Manager is intended to maximise the opportunity for higher level balance of investment trade-offs. Each Director is responsible to the respective Capability Manager for the development of a coherent and affordable capability area plan. To achieve that, they must consult widely, primarily through the formation of Capability Working Groups involving all key stakeholders within the Department. The structure of the capability management areas is at Annex B.

  28.  A civilian Director General Equipment (DGE) (again a 2-Star level appointment) provides programming and strategic Balance of Investment advice and support to DCDS(EC) and the Capability Managers. He also manages the equipment approvals process and is responsible to the Accounting Officer for requirement scrutiny. He is supported by:

    —  the Director of Equipment Plan (DEP) (a military 1-Star) who constructs the Equipment Plan and the Applied Research Programme;

    —  the Director Capability Resources and Scrutiny (DCRS) (a 1-Star civilian) who is responsible for the scrutiny of requirements and programming support to the Capability Managers;

    —  and the Director Equipment Secretariat (DES) (a 1-Star civilian) who is responsible for the approvals process and other secretariat roles.

  29.  The Director General (Research & Technology) (DG(R&T)) is DCDS(EC)'s senior scientific adviser. He reports jointly to the Chief Scientific Adviser (CSA) and DCDS(EC).

  30.  Together, DCDS(EC) and the six 2-Star level appointments constitute the Joint Capabilities Board (JCB) responsible for conducting strategic thinking, shaping the overall Equipment Programme, making high level Balance of Investment decisions, and driving the implementation of the new structure.

  31.  The Head of Finance and Secretariat (Science & Technology) provides budgetary and financial support to DCDS(EC) and to the Deputy Under Secretary (Science & Technology) (DUS(S&T)).

  32.  A small change team, working through Capability Manager (Strategic Development) to DCDS(EC), has been created to support implementation of the new organisation, including the skill development and training and capture and sharing of best practice necessary to embed new working practices.

  33.  Over a hundred posts from the former DCDS(Sys) area are being transferred to the DPA and DLO to provide Requirements Managers within the multi-disciplinary IPTs.

PRINCIPAL FINANCE OFFICER

  34.  The Principal Finance Officer (PFO) is, amongst other things, responsible for the coherence and integrity of the corporate planning process as a whole. As a result of the decision to split responsibilities for the Equipment Plan and the Departmental Short Term Plan, he now has sole responsibility for the latter supported by:

    —  the Assistant Chief of the Defence Staff (Resources and Plans), a 2-Star military officer, who is responsible for military advice on the balance of priorities between defence output and between the Short Term Plan and the Equipment Plan. (He formerly reported to DCDS(P&P);

    —  a 2-Star civilian Director General Resources and Plans who is responsible for managing the corporate planning process as a whole, the affordability of the Defence Programme and the public expenditure round.

  35.  Those appointments are jointly supported by six new integrated military/civilian divisions, abolishing the previous parallel military/civilian hierarchies who reported to DCDS(P&P) and the PFO respectively. They are:

    —  the Directors Navy Resources and Plans, Army Resources and Plans, and Air Resources and Plans—military officers supported by civilian deputies—responsible for the Short Term Plans for the single Service Top Level Budgets;

    —  the Director Resources and Plans (Centre) (a civilian with a military deputy), responsible for the Short Term Plans for the Centre TLB, the DPA, the DLO and the PJHQ;

    —  the Director Defence Resources and Plans (D Def RP), responsible for the management of departmental planning and programming processes, including the overall size and shape of the defence programme;

    —  and the Director Performance and Analysis (D P&A) established to improve our capacity for performance review and analysis. He is developing a new performance management regime to align planning and resource allocation and financial and non-financial targets within the Department to support the Finance, Planning and Management Group (FPMG) and give it a clearer focus on the delivery of results. A new system will be trialled in 2000/01.

DEPUTY CHIEF OF DEFENCE STAFF (PERSONNEL)

  36.  The reorganisation of Systems, Programme and Planning staff to create the DCDS(EC) and new corporate planning organisations, created the opportunity to refocus the previous Deputy Chief of Defence Staff (Programme and Personnel) (DCDS(P&P)) post onto Service personnel issues alone. That had been recommended in the 1995 "Independent Review of the Armed Forces' Manpower, Career and Remuneration Structures: Managing People in Tomorrow's Armed Forces" (the Bett Review), but had not been accepted. The Strategic Defence Review's Policy for People reinforced the need for a strong, empowered central Service personnel focus at a high level. The resulting development of the Armed Forces Overarching Personnel Strategy (AFOPS) gave a new impetus to producing a more central, coherent Service personnel strategy which needs strong, dedicated leadership.

  37.  A Deputy Chief of Defence Staff (Personnel) (DCDS(Pers)) has, therefore, been established to provide co-ordinated advice on Service personnel issues to the Chiefs of Staff (COS) Committee and the Finance, Planning and Management Group. He chairs the Service Personnel Board (SPB), which includes the three Service Principal Personnel Officers (PPOs) (Second Sea Lord, Adjutant General and Air Member for Personnel), reporting as appropriate to the Finance, Planning and Management Group (Service Personnel), which was established as a result of the Bett Review.

  38.  He is also responsible for considering and providing advice to senior management on the implications for Service personnel of the annual resource allocation round (Short Term Plan) and for liaison with the Deputy Under Secretary of State (Civilian Management) (DUS(CM)) to promote the greater coherence of Service and civilian personnel policies, where this would offer benefits.

  39.  DCDS(Pers) is supported at 2-Star level by the Assistant Under Secretary of State (Service Personnel Policy) (AUS SP Pol) and the Defence Services Secretary (DS Sec), who constitute the central Service Personnel staffs. (They have not been changed.) He also continues to own the Defence Housing Executive (DHE) and the Armed Forces Personnel Administration Agency (AFPAA), and has budgetary authority over the Royal College of Defence Studies (RCDS) and Joint Service Command and Staff College (JSCSC).

  40.  The single Service PPOs continue to have responsibility for key policy areas of career structures, career management, manpower structures and mobility, and for recruiting and the delivery of individual training and implementation of the AFOPS within each Service. DCDS(Pers) works closely with them to deliver coherent Service personnel policies.


 
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