Select Committee on Defence Eighth Report


5  PROCUREMENT 'AGILITY'

Smart Acquisition

  86.  In this Part of our report we examine how Smart Acquisition (formerly 'Smart Procurement') stands up, five years after it was launched as part of the original SDR in 1998 and in the light of the recently published Defence Industrial Policy.

  87.  In our predecessors' inquiry on the original Strategic Defence Review in 1998, they described the main features of the then new arrangements, which included:

  88.  We welcomed the introduction of Smart Procurement, as it then was, concluding that—

    There are aspects of smart procurement…that are new and radical, and do appear to offer scope for genuine progress. In particular, the inclusion of industry in project teams will help engender a fundamental shift in culture towards a partnership approach. With properly delegated authority, and the steamlined procedures now envisaged, team leaders might also be able to make some progress in reducing the long delays and cost overruns many projects experience.

  89.  Since then, we have continued to monitor the initiative, including in 2001 when we examined what evidence the MoD had on its performance against each of the "faster, cheaper and better" objectives it had for the initiative.[208]

  90.  Another, and more detailed series of snap-shots of Smart Acquisition performance is provided in the NAO's annual inquiries on the Major Projects Reports, which examine the project management of the 20 largest projects having passed main gate, and the 10 largest projects still in their assessment phase. In its most recent report, published last December, the NAO noted that the MoD was "maintaining the trend of cost control established over the past few years".[209] Estimated costs for the projects covered again fell, although that subsumed an overall cost increase for newer projects introduced under the Smart Acquisition initiative.[210] The NAO's analysis also found that 98% of equipments' 'key user requirements'[211] were forecast by the MoD to be met,[212] and it was noteworthy that delays attributed to 'technical factors' had reduced by more than half over three years[213] (although since the period covered by the last Major Projects Report, Nimrod and Astute programmes have suffered further on the cost and time fronts).

  91.  In regard to risk management, which we discussed in Part 4, the NAO's most recent report on the 2002 Major Projects Report examined what progress was being made in the application of 'technology readiness levels' for projects in their assessment phase, which is now a requirement for all projects submitted for initial gate approval.[214] As CDP pointed out—

    You cannot retrospectively suddenly wave a magic wand over something which has been going since the late 1980s and turn it into what you think a Smart Procurement project would have out-turned. Unfortunately, we are still going to be saddled with the painful consequences of these things as they keep on registering slippage against the original agreed in-service date, and escalation over the original agreed cost… All of the measures we have at the moment point to the fact that the programmes which are being set up in a more enlightened way are making measurably better progress.[215]

  92.  We described above how under Smart Procurement up to 15% of procurement costs should be spent before reaching the main gate decision point, to reduce risk (paragraph 55). While money spent during that assessment phase of a project should pay dividends in terms of projects' overall cost and timeliness, however, the NAO analysis found most of these pre-main gate projects were taking longer than planned to complete that assessment work.[216] And particularly telling, an analysis in the NAO report shows that of the five projects which were given 'main gate' approval in 2000-01, three had already suffered slippages by the following year (Meteor, A400M and Type-45) and four had suffered increased costs (Eurofighter, Meteor, Type-45 and JSF).[217]

  93.  The NAO's analysis also shows that slippage continues to be a problem, particularly with older 'legacy' projects that pre-date the Smart Acquisition initiative. But three of the ten newer, post-Smart Acquisition, projects slipped during the year, by 31 months between them. [218]Even in regard to newer projects which should be able to be fully moulded according to Smart Acquisition principles, there remains a question about the agility of the Department's procurement systems. In our inquiry last year on Major Procurement Projects, Sir Jock Stirrup told us that—

    …Since the Cold War…we cannot afford to [have] hollow [forces] because we would not succeed. The changing strategic environment has had a significant impact. Equally, the pace of technological advance and the sort of technological advance that is available relatively easily to...potential adversaries has become quite widespread. The sort of asymmetric threats that we face are relatively easily available, and we need to be able to respond to those. That presents us with a particular challenge...[so] we need short term agility in terms of delivering equipment capability.[219]

  94.  In similar vein, the Defence Industrial Policy noted that "a manpower-intensive, platform-heavy and predictable doctrine [of the Cold War] has been replaced by the requirement for sophisticated, rapid and precise military solutions".[220] And looking to a future of network-centric warfare, it envisages—

    a further shift of emphasis away from platform-based acquisition, towards the development of sub-systems… This will require a high degree of cross-project working, and cooperation among defence suppliers… It will also amplify the need for international cooperation at defence industry level…to meet the need to network with coalition partners.[221]

Our report on the SDR New Chapter concluded that "the Committee has seen little evidence of the urgency that the MoD has claimed to be devoting to acquiring new capabilities".[222] One of our industry witnesses in this current inquiry, John Howe of Thales-UK, noted that "responsiveness, in terms of compressing the timescale of projects has been slower to respond" to Smart Acquisition than cost or performance aspects.[223]

  95.  The 2002 Spending Review, which was published at around the same time as the SDR New Chapter white paper, produced a financial settlement for the MoD for the three years beginning 2003-04. The MoD memorandum told us that the New Chapter focus on 'precision of control' (of which the 'Watchkeeper' programme, which we examine below, is a part) was likely to have the largest proportion of extra New Chapter spending.[224] Within the 'rapidity of effect' capability area, FRES—another project covered below—was likely to be the most significant component.[225]

  96.  However, the MoD's memorandum also suggests that the budget settlement of the Spending Review came before any detailed assessment of what the additional expenditure was for.[226] The SDR New Chapter will involve a rebalancing of equipment programmes to reflect what is "no longer necessary against the strategic context".[227] Indeed the MoD's memorandum noted that "we did not need to restructure our capabilities fundamentally in response to 11 September",[228] and the equipment measures identified by the New Chapter working groups were "essentially aspirational".[229] In our SDR New Chapter inquiry, Lt Gen Fulton told us last October that in auditing available capabilities "we are …reviewing all the equipment programmes".[230] One of his MoD colleagues quoted to us a letter written by the Secretary of State that the New Chapter "means being prepared to take a hard look at other areas which no longer add capability in the way they once did…"[231] and the MoD's Finance Management director indicated that such deliberations would feed into advice to be submitted to Ministers in January or February 2003.[232] We are now told that we will have to wait for the Defence Policy White Paper in the autumn before Ministers announce their decisions. We are disappointed that the MoD has so far been unwilling to share its thinking with us on where programmes may be subject to a "hard look".

Watchkeeper

  97.  Our report on the New Chapter noted the MoD's aim of accelerating Watchkeeper (to an in-service date of 2006), but that it would not be armed.[233] Despite the intention of the New Chapter White Paper to down-select from four to two consortia last summer, this only happened in February 2003. Thales and Northrop Grumman are now developing UAV designs in the period up to "early 2004", after which one firm will be selected for a production contract,[234] with an initial operational capability planned for "early 2006".[235] Sir Peter Spencer, from his position as a newly appointed CDP, owned up to us that he was "curious" as to why Watchkeeper will take three years.[236]

  98.  We expressed our concerns about the lack of urgency with the Watchkeeper programme in our report on the New Chapter,[237] and we need not repeat them here. We did however use the opportunity of this inquiry to ask the Minister why it would not be further speeded up. Lord Bach explained how Watchkeeper's in-service date had over recent months been brought forward, and then put back, as its assessment phase work progressed.[238] But whatever the date finally settled upon, the MoD see the preceding interval to be needed to develop a capability "to inflict military effects",[239] which goes beyond simply fielding a UAV platform. Lt Gen Fulton told us "we will be wasting our money if we do not get the product of this system directly into the hands of the right people, which is both down to the ground station and the ability to get that into a headquarters… What we are buying…is a generation on from Predator".[240]

Future Rapid Effects System

  99.  The MoD memorandum boasts that FRES, another project cited as a key component of the SDR New Chapter, "will be the first land combat vehicle able to exploit fully the capabilities of command and battlespace management" and will have network-enabled capability.[241] FRES is intended to be a suite of armoured vehicles lying between heavy armour and light forces, which can have some of the reach and endurance of heavy armour and the air-deployability of light forces.[242] In a recent speech touching on the need to rebalance force structures following the New Chapter and Iraq war, the Secretary of State singled out the importance of FRES for land forces operations, which would be part of a "more graduated and balanced structure of light, medium and heavy forces".[243]

  100.  The New Chapter White Paper puts the in-service date at 2009, and the MoD memorandum states that its in-service date will be finalised at its 'initial gate' approval which was due in "spring 2003".[244] Press reports had recently speculated that at that initial gate stage the MoD might opt for a UK consortium of Alvis-Vickers/BAE Systems/General Dynamics UK, rather than launch an international competition. Other reports now suggest that the assessment phase will be split into two components, each of 18 months, one before and one after the 'main gate' decision point. The first, it has been reported, would refine customer requirements, and the second would be focussed on risk reduction and trade-off studies, aimed at bringing forward the planned in-service date.[245]

  101.  We sought an up to date estimate of when the initial gate decision for FRES would be taken, given that the "spring 2003" target for the initial gate has been missed. CDP told us that he now expected the 'customer' for FRES to have to take stock of the lessons of Iraq before completing the FRES assessment phase.[246] Lord Bach emphasised the need to bring the sometimes "pretty cutting-edge technology" in FRES to a sufficient stage of maturity before it is applied, and "it is more important that we get it right than that we rush it in".[247] Indeed, Lt Gen Rob Fulton told us that—

    …there is a case which says that [a planned in-service date of] 2009 is actually almost too soon for some of those technologies because…it may well be that actually they cannot be delivered in that timescale.

    …What gives me confidence that we are not dragging our feet is the very, very close link that we have with the American [Future Combat System] programme which is asking precisely the same questions at precisely the same time, and there are other countries doing the same, for example Sweden's CEP programme… We, in conjunction with the Americans and the Swedes, clearly have an interest in producing something that is very, very similar...The FCS programme is a very close one and the American team are in the country at the moment and I have a session with them this afternoon [25 June].[248]

  102.  Nevertheless, CDP told us that he sees it as one of his priorities to address how agility in procurement can be improved.[249] He wants the MoD to use as benchmarks "equally complex projects" in the civil sector "in order to find out…why it is that they are so much faster than we are".[250] Part of the solution lay in greater use of 'incremental acquisition', to reduce project slippage—

    …if you allow yourself to be driven towards meeting very, very demanding bits of requirement, and actually spend far too long meeting the last little bit of requirement…you will overrun and you will waste a lot of time.

    … it is absolutely fundamental to me that we stop the slippage, and that we may need to be more pragmatic than we have been in the past about precise definitions. So long as something has an initial operational capability…and the scope to be improved economically through an incremental acquisition process, then we should be driving to meet those dates.[251]

  103.  We are impressed with Sir Peter's determination to make Smart Acquisition truly agile and responsive to equipment customers' needs. He appears to share Sir Richard Evans' view, and our own, that "we need to be prepared periodically to refresh Smart Procurement",[252] telling us that he saw it as one of his short term goals to do what he called "a sort of 'policy evaluation'…on the extent to which the Smart Acquisition changes are actually delivering…asking how far we have come and where we go now."[253] In that context, however, the Watchkeeper and FRES programmes are instructive. They are interesting case studies, beyond their increased relevance following the New Chapter, on two counts. First, they both exemplify the MoD's efforts to explore opportunities to bring important new capabilities into service more quickly. Second, and to some extent in conflict with that desire to speed up their progress, the MoD has maintained a cautious approach in both with a view to reducing project risks. In the case of Watchkeeper, the caution has been directed at reducing the likelihood of fielding a UAV platform unable to contribute fully to 'networked' capabilities; and in the case of FRES, to deal with the "cutting edge" technologies involved and to explore opportunities to take advantage of US experience in developing very similar capabilities in a similar timeframe. As such, these programmes demonstrate that the MoD is still finding some difficulty in balancing increased agility against decreased risk, and it may continue to do so unless, to pave the way, it facilitates greater investment in technology demonstration research.


207   Eighth Report, Session 1997-98, The Strategic Defence Review, HC 138-I, paragraphs 346-351 Back

208   Eighth Report, Session 2000-01, The MoD's Annual Reporting Cycle 2000-01, HC 144, paragraphs 80-93 Back

209   Comptroller and Auditors General's Report, HC 91, paragraph 1.5 Back

210   Comptroller and Auditors General's Report, HC 91, paragraph 1.6 and figures 2 & 3 Back

211   Usually up to about 10 aspects of operational performance required of the particular equipment-eg payloads, accuracy, or lethality. Back

212   Comptroller and Auditors General's Report, HC 91, paragraph 1.14 Back

213   Comptroller and Auditors General's Report, HC 91, figure 9 Back

214   Comptroller and Auditors General's Report, HC 91, paragraphs 2.6-2.8 Back

215   Q 194 Back

216   Comptroller and Auditors General's Report, HC 91, figure 16 Back

217   Comptroller and Auditors General's Report, HC 91, figure 17 Back

218   Comptroller and Auditors General's Report, HC 91, figure 6 Back

219   HC (2001-02) 779, paragraph 129 Back

220   Defence Industrial Policy, paragraph 1 Back

221   Defence Industrial Policy, paragraph 58 Back

222   Sixth Report, Session 2002-03, A New Chapter to the Strategic Defence Review, HC 93-I, paragraph 113 Back

223   Q 102 Back

224   Ev 64 Back

225   Ev 65 Back

226   Ev 63-64 Back

227   HC (2002-03) 93, paragraph 113 [Sir Michael Boyce, former Chief of Defence Staff] Back

228   Ev 63 Back

229   Ibid Back

230   HC (2002-03) 93-II, Q116 Back

231   Ibid, Q 40 Back

232   Ibid, Q 108 Back

233   HC (2002-03) 93, paragraphs 109-112 Back

234   Ev 86 Back

235   Ibid Back

236   Q 206 Back

237   HC (2002-03) 93, para 113 Back

238   Q 246 Back

239   HC (2002-03) 93, para 110 Back

240   Qq 248, 250 (see also Q 208) Back

241   Ev 83 Back

242   Ibid Back

243   Britain's Armed Forces for Tomorrow's Defence, speech by the Secretary of State at the Royal United Services Institute, 26 June 2003. Back

244   Ev 83 Back

245   Janes' Defence Weekly, 2 July 2003 Back

246   Q 211 Back

247   Q 255 Back

248   Qq 256-257 Back

249   Q 111 Back

250   Q 111 (see also Q 264) Back

251   Q 112 Back

252   Q 102 Back

253   Q 111 Back


 
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