Select Committee on Defence Minutes of Evidence

Examination of Witness (Questions 480 - 499)



Mr Howarth

  480. Sir Malcolm, the Strategic Plan has a target for "a supplier base optimised by December 2004". Can you tell us what that means and how will you know when you have achieved it? It is page 19 of your bible.
  (Air Chief Marshal Sir Malcolm Pledger) One of the products, shall we say, of the McKinsey review was an observation that we could leverage much more value out of reducing the supplier base and concentrating our efforts more efficiently not only across the DLO but also with the DPA. That makes obvious sense having heard earlier about the through life regime initial procurement coming across with a contract to logistic support or whatever.

  481. For "optimise" read "reduce"?
  (Air Chief Marshal Sir Malcolm Pledger) For us it will be reduced but it will also give us what I will call the tools then to exploit and manage and measure the performance of that supplier base better.

  482. All the stuff you procure is pretty small component stuff.
  (Air Chief Marshal Sir Malcolm Pledger) Okay. If I may, in commodity and general use items, we already have a solution called the Non-Project Procurement Organisation which, again, the individual IPTs use to procure those broad based commodities. This is much more orientation of the larger aspects of maintainability, capital spares and so on and so forth.

  483. You might optimise your supplier base but you also talked a moment ago about leveraging the MoD's position. If you were to reduce that supplier base you might find yourself in a rather difficult situation in terms of security of supply. How are you going to balance that out? Can you answer my question about when you think you will achieve this key target?
  (Air Chief Marshal Sir Malcolm Pledger) In terms of optimise we must not then compromise subsequent secure arrangements, what I will call industry opportunities in this country but also reduce the opportunity for competition. We are setting off on this deliberately with certain outcomes in mind, it is not just reduce to whatever. We are going to decide where that supply base should lie and, as I say, then create a different relationship with that supply base, to come back to one of my difficulties, which management consultants tell me is a very good way of leveraging value across not only my organisation, spending those large numbers, but also the Defence Procurement Agency.

  484. I am sure they have valuable advice to offer but I hope your people will not forget the lessons of the past from practical experience in terms of ensuring that you maintain competition and maintain security of supply.
  (Air Chief Marshal Sir Malcolm Pledger) If I may respond to that, some of the examples I was talking about earlier, legacy arrangements, already provide us difficult choices in the supplier base.

  485. In December 2005 how will you know when you have "all procurement activity aligned with a strategic framework for procurement"? I have to confess I do not know what it means, so perhaps you can tell me what it means first. This is the key target three, page 19.
  (Air Chief Marshal Sir Malcolm Pledger) Again, what we have learned, if you like, in the early years of Smart acquisition and the empowerment of the IPTs is that whilst there are great gains, unless you set that framework properly you get one IPT dealing next to another IPT in a completely different way and if you put the two together you can, of course, create better opportunities. What we also have to do is change the competencies and the experience and the skill levels of our commercial staff such that they can better exploit the size and shape of, again, our very large expenditure. These are more intelligent, better focused, broader responsibilities for those commercial staff in place against that new policy.

  486. Do you accept that if you are going to reduce your role as a provider and increase your role as a decider, and you said earlier that you would be much more a decider than a provider, you are going to have some pretty bright people in your team who are going to be able to monitor the actual providers who themselves will not be doing anything within your organisation and could be seen to be supernumerary when actually they are going to be critical in monitoring the suppliers?
  (Air Chief Marshal Sir Malcolm Pledger) I do not think they will be supernumerary at all.

  487. They could be perceived to be supernumerary.
  (Air Chief Marshal Sir Malcolm Pledger) Again this is educational, but I think you will also see in here what I call the people strand and the development requirements and the different competencies. Deliberately this looks at five areas and it is not just process, people are in there and information management is in there. We recognise that those people are going to have to have different competencies. The development plan, the subordinate HR strategy, puts that very definitely in place. Those discussions are already going on with some of those organisations that may help us do that—the Defence Academy for example.

  488. The National Audit Office might be able to help. Sir John Bourn is coming to talk to us in January so hopefully we will be able to take the weight of his advice into consideration at that stage.
  (Air Chief Marshal Sir Malcolm Pledger) I think the other thing that we are going to have to do of course is create greater secondment and employment of some of these people into industry such that they can come back understanding the modus operandi and motivation and therefore help us make those intelligent decisions. So, yes, there is going to be a different way of developing these people and we are going to have to be able to retain them, but also to go to this diversity I have talked about across the smart acquisition community.

  489. Do you second a lot of people at the moment into your supplier base?
  (Air Chief Marshal Sir Malcolm Pledger) We do some.

  490. You envisage doing more?
  (Air Chief Marshal Sir Malcolm Pledger) We envisage definitely doing more. Interestingly, we have a couple of our major suppliers sitting on our decision-making fora.

  491. To make sure you make the right decision in their favour?
  (Air Chief Marshal Sir Malcolm Pledger) No, I said they were sitting on our fora, they did not take part in the decisions.

  492. I was being a bit facetious. Air Marshal, a couple of quick ones if I may. Again going to your key targets on page 19, the first one is that you should define your core activities and your industrial logistics footprint by March next near. That is just three or four months away. How is that work shaping up? Are you finding particular areas that will no longer be considered "core activities" of the MoD?
  (Air Chief Marshal Sir Malcolm Pledger) The work is on-going. Part of that you will see farther on is to develop strategies for DARA and ABRO as trading funds.

  493. We are coming to that in a moment I think.
  (Air Chief Marshal Sir Malcolm Pledger) They are currently in existence and we are hoping for a decision in January so that we can then develop that particular area. We are already engaged with the front-line commands not only on CSAs but to discover what, in their view, are core activities where we must remain as providers. We must be ready, I am afraid, such is the next step in terms of urgency and momentum to publish the answers to those questions by 1 March. As I say, the exchanges are going on as we speak.

  494. So you will let us know the outcome of that by one mechanism or other?
  (Air Chief Marshal Sir Malcolm Pledger) If you would like me to.

  Mr Howarth: I think that would be helpful.

Jim Knight

  495. We have got very little time to quickly kick around issues on ABRO and DARA. Can you start off by giving us your vision for the long-term future role and status of those two trading funds?
  (Air Chief Marshal Sir Malcolm Pledger) Again, if I can constrain my statements to a DLO view. I have said already that we need to move to different contractual arrangements that deal with outputs and availability. I have said that we want to maintain competition wherever possible and practicable as a means to show value for money, but we also have to recognise some of the constraints that I described earlier about earlier procurement decisions which do give considerable advantage already to some aspects of the private sector. My bottom line in this is that I obviously have to come back to you and show you the benchmarks that will support my value for money decisions and in especially the air environment I think I am going to need some opportunity into the future for DARA to be able to show that not only are they competitive but they can win in that new environment and that will also help me drive down the costs associated with some of those monopoly providers.

  Jim Knight: We had a very impressive visit to ABRO at Bovington a week or so ago. As providers of maintenance support for land and air equipments, what is the rationale for their current MoD ownership when those undertaking sea systems maintenance—the dockyards—are in private hands?

Mr Howarth

  496. It is a good question, is it not?
  (Air Chief Marshal Sir Malcolm Pledger) I think it is so good a question that I have to take note of it because it is something that I inherit, shall we say, rather than was involved in that decision. I would only say that of course it is relatively recent that both DARA and ABRO moved to trading funds.

Jim Knight

  497. Eighteen months and six months respectively.
  (Air Chief Marshal Sir Malcolm Pledger) Before that, of course, DARA was already an agency. The dockyards have been privatised for a considerable length of time.

  498. I would hazard a guess that the answer is somewhere around the competitive nature of the number of private sector contractors that can effectively provide that service in land and air are not the same as in sea and the industry needs to develop. My question that follows is whether you are going to be able to give those two trading funds the space and the time to be able to develop with industry so that the MoD in the end has the choice about whether or not they move from trading fund status into privatisation.
  (Air Chief Marshal Sir Malcolm Pledger) There is a deliberate answer to that in that the time lines of our support, and there is currently MoD support to the development of those trading funds, are set and at that stage we have to determine whether or not they are still a strategic asset directly to the Ministry of Defence or whether or not their purpose is in that competitive environment and we would be prepared to see that be removed by virtue of—

  499. Within that time are you going to increase the amount of freedoms that they have? For example, with ABRO their shop floor workforce can negotiate variations on standard terms and conditions but it is not the same for their office staff where they are dictated to on MoD contracts.
  (Air Chief Marshal Sir Malcolm Pledger) Again, the transitions are going on, and DARA is more mature in this, and DARA already has many more of those delegations by virtue of its maturity over time.

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