APPENDIX 4
Supplementary memorandum submitted by
Sir Robert Walmsley, Chief of Defence Procurement, Defence Procurement
Agency (PAC00-01/124)
Thank you for your letter of 8 March 2001, enclosing
a note from Mr Tony Purton on my evidence before the Committee
on 17 January 2001[13].
Before commenting on the detail of Mr Purton's
note, I should note that he seems to miss the fundamental point
I was making in my evidence to the Committee, which is that there
is a difficulty in contracting directly for timely completion,
by comparison with the tautly specified terms for performance
and cost. This is reflected in the Major Projects Report. The
Department has therefore explored (and continues to develop) a
number of other methods to ensure that equipment is delivered
on time. Experience has shown that liquidated damages alone are
not always a sufficient incentive to achieve this. The Committee
has quite rightly focused in its examination of MPR 2000 on the
need for the Department to improve its performance on timely delivery.
Turning to the text of Mr Purton's note, in
his preamble he claims that I implied that some terms of MoD contracts
are punitive. This is incorrect. I said quite clearly in my evidence
(Q278 and again at Q299) that one could not in English law have
punitive contracts. Happily Mr Purton correctly reports the position
later in his note.
I did not imply that MoD contracts cannot be
enforced, even by the courts. I said (Q278) that you can contract
for performance and you can contract for price, and we constrain
those two aspects. But since under English law you cannot have
punitive contracts, this makes it more difficult to enforce delivery
timescale. What we can do is seek liquidated damages from the
contractor to ensure we are no worse off financially if he fails
to deliver on time.
I did not imply that MoD's contractors have
to be incentivised to fulfil their contractual obligations, I
did say that we needed to balance the sticks we have with a few
carrots, most importantly in order to tackle the problem of late
delivery.
Turning now to the detail of Mr Purton's note,
he covers four specific points. On "Punitive" Contracts
he correctly reports the position but as noted above this does
not affect the evidence I gave to the Committee, indeed it supports
it.
On contract enforcement, he refers to my speaking
about being put back in the position as if the contract had not
been placed, and he says he agrees with what he said was my evidence.
What I actually said (Q278) was "he has to put us back into
the financial position we would have been in if he had delivered
on time" and (Q299) "It is designed to put you back
in the position you would have been in if the article was delivered
as required".
On incentives to perform I did indeed refer
at the hearing (Q 278) to the need to balance sticks with carrots.
Without weakening our overall commercial stance with contractors,
we are continually looking at ways in which we can incorporate
greater flexibility into our interim payment arrangements as part
of our implementation of Smart Acquisition. Our aim is to offer
a carrot to the contractor to succeed in timely performance of
the contract, while retaining a stick for the Department in the
event that he does not.
Mr Purton covered remedies for breach of contract
at some length. I am glad to note that he says that these rights
provide the contractor with a powerful incentive to perform. I
have no difficulty with what Mr Purton says here, which supports
my evidence to the Committee, but I would add that it overlooks
that fact that experience shows that liquidated damages are not
always a sufficient incentive to ensure that a contractor delivers
equipment on time. That is why we are seeking additional ways
to resolve the problem of late delivery.
Mr Purton retired from the Department in 1993,
since when much has happened, including, importantly, the Smart
Procurement Initiative/Smart Acquisition. While, as noted above,
his comments do not always accurately reflect the evidence I gave,
I am happy to note that, in essence, Mr Purton seems to agree
with me. I ought to point out that the booklet "Legal Awareness",
for which he was responsible and from which he now quotes, contains
in its foreword the advice:
"This booklet is a guide, not an authority—do
not quote it as one".
The book is in a drawer of my desk.
Sir Robert Walmsley
Defence Procurement Agency
28 March 2001
13 See Evidence, Appendix 3 (Pac 00-01/181). Back
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