Memorandum by Humphry Crum Ewing, Chairman,
The Standish Group[8]
1. THE CURRENT,
STILL UNSATISFACTORY,
SITUATION
Procurement is, for purposes of financial analysis,
the least satisfactory and most complex component of the Defence
Budget and of Defence Finances generally.[9]
The process is also unsatisfactory for other, non-financial, reasons
relating to the provision of defence capability and an informed
understanding of this. There are numerous reasons why procurement
is so complex and (therefore) why its reporting to Parliament
is so unsatisfactory. Some of these reasons are well known and
generally understood, but they nevertheless merit brief repetition.
Others are less immediately apparent and merit illustration.
2. COMPLEXITY
OF THE
PROCUREMENT PROCESS
The six main difficulties appear to the writer
to be:
2.1 Equipment has become far more complex,
involving systems as distinct from items and requiring (time-consuming
and expensive) training and retraining if it is to be used to
best effect. The evidence seems to be that this trend, to ever
greater complexity, will continue and that there is no scope for
a pause to catch up. There are substantial problems in getting
systems to work together which go beyond the problems of getting
any given system to work of itself.
2.2 The procurement process, extending into
the in-service life of equipment procured, has several distinct
stages, each and all of such stages being a matter, usually, of
years. This results in diffusion of responsibility, not fully
met by the Integrated Project Team (IPT) concept and difficulties
in "tracking".
2.3 With this goes the fact that procurement
(and logistics) are increasingly a matter of providing supplies
and services rather than of stand-alone items of equipment. "Supplies"
have always been a main concern of the logistic function, but
increasingly they have become a matter of "contractor support",
(part of procurement) rather than of stocks of this, that and
the other, to be bought and held in bulk and subsequently distributed.
2.4 New technology is being developed more
rapidly than it can be embodied in equipment, with a result that
systems may well be obsolete before they enter into service.
2.5 While most equipment is procured for
a single service its actual use will be—or should be—largely
joint. Treating the battle-space management system Watchkeeper
as an exclusively "Army/Land" project rather than extending
it into the Maritime Contribution to Joint Operations (MCJO) is
an example of this which should be examined in detail.
2.6 The procurement control system is designed
to prevent things going wrong (ie to achieve "regularity")
rather than to ensure they go right, by rapid and timely delivery.
3. SOME CHANGES—FOR
THE BETTER?
3.1 The consolidation of the activities
of the Defence Procurement Agency (DPA) onto a single site (Abbey
Wood) near Bristol has enabled a tighter control system to be
put in place and has generated opportunities for coherence. This
consolidation was carried out by the previous Conservative Government,
at the end of its period in office. This enabled the present Government
to introduce Smart Procurement now renamed Smart Acquisition and
to establish the Integrated Project Teams (IPT) concept.
3.2 A further addition to this is the concept
of Incremental Acquisition. By this concept equipment and systems
to be brought into service by stages and (progressively and continuously?)
updated and enhanced when actually in service.
3.3 It is the writer's observation that
all these changes and developments have value and that each of
them can usefully pave the way for further developments and cost-efficient
improvements, but that none of them is as yet contributing as
fully as was hoped and as it should. There are for instance damaging
discontinuities in the personnel of IPTs. Important and constraining
problems of Intellectual Property Rights (IPR) follow from the
participation of commercial members in IPTs.
3.4 Most recently (1 April 2004) a new top
level budget (TLB) Corporate Science & Technology—has
been created bringing together the Major Customers' Research Budget
(a sub-set of the old Procurement TLB) and the Chief Scientific
Adviser's (CSA) Higher Level Budget. Where the functions and finances
of one of the successors to DERA, namely the Defence Science &
Technology Laboratories (DSTL) will fit in to this has not yet
been reported.
3.5 Much of the financial and working relationship
with QinetiQ, the other successor to DERA also remains ambiguous
and unclear, albeit essential to good procurement.
3.6 There is also now in place a (very
generalised) Defence Industrial Policy. This recognises some at
least of the problems of the UK's Defence Manufacturing and Supply
businesses, but does little to delineate a constructive path to
resolving those problems. I return briefly to one aspect of this
at 7.4 below.
4. SHORTCOMINGS
IN THE
REPORTING PROCESS
4.1 The chief official source of collected
information about Procurement is the Annual Major Projects
Report (MPR). This is prepared by the National Audit Office
(NAO) and includes some tabulations and observations by the NAO
but the great bulk of the document is in the form of directly
re-produced MoD Project Summary Sheets. While the MPR is indispensable,
is improving year on year and is often helpful as far as it goes,
it suffers from serious limitations of scope and from a production
timetable of its own that means that, by the time of publication,
events have often moved on from the state as at 31st March, the
cut-off date. The information which it does contain is of uneven
quality. The MPR really requires a whole submission of its own.
The illustrations described at 5 below and shown in the Annexes
to this paper are no more than "tasters".
4.2 Other publications
There is a wide range of other publications
relating to Defence Procurement, in hard copy and on the Internet.
Some of this is official, much is generated ex parte by Contractors,
and much again is in the nature of informed commentary. There
is thus no shortage of information, but it does not emerge in
context, is invariably selective and designed to "make a
case" rather than to inform.
4.3 Evasion of Parliamentary Questions
Organised attempts to establish facts by way
of Parliamentary Questions are usually evaded by the MoD. Again
this is a matter which would merit a whole submission of its own.
The work being done on Ministerial Accountability by the
Public Administration Committee is helpful, but does yet go to
the heart of the Defence Information problem, which is essentially
a matter of providing information in adequate detail in a fully
timely and consistent fashion, rather than one of withholding
specific detail.
4.4 Reports of the NAO and the Public
Accounts Committee
These (going beyond the MPR) generate useful
information, both generally and in relation to specific issues,
but their concentration has been, to date, on where things have
gone wrong rather than on the procurement process as a whole.
Two current NAO enquiries would seem calculated to probe into
this gap. The first, reported as The Management of Defence Research
& Technology (HC 360) is a good analysis of problems, but
largely a "Don't yet know" on answers. The other, Tracking
the Progress of Major Defence Projects, is still in the enquiry
stage.
5. SOME ILLUSTRATIONS
There are set out in Annexes 1 and 2 to this
Memorandum two illustrations of the shortcomings and inconsistencies
of the MPR as mentioned above. Both reproduce from the MPR the
pages of MoD project sheets setting out Key User Requirements
(KURs) for the Project concerned.
5.1 (Annex 1) KURs for the Astor (Advanced
Stand Off Radar) Project as given on p.60 of MPR `03. It is difficult
to believe that any serious purpose is served by continuing to
"x- out" all the material information. The contrary
is in fact true.
5.2 (Annex 2) KURs for the A400M and the
CI7—formerly Short Term Strategic Airlift (SATA). These
are two legs of the same (heavy Airlift) project. Taken together
they pose the question as to why it is thought right to tell Parliament
and the public so little about what the A400M can/will do, but
at the same time such specific and detailed information is made
readily available for the C17?
6. SOME REAL
DIFFICULTIES
6.1 National security
Genuine concerns of a national security do restrict
what can be disclosed, but this reason is assigned, sometimes
at least, for withholding information that would be harmless in
this respect, although possibly tiresome in other ways.
6.2 Commercial Confidentiality
This cuts in at least two different ways. The
first is when MoD, as purchaser, has an interest in keeping to
itself knowledge of prices at which goods and services are being
offered. The second is when would be contractors wish to keep
to themselves the terms on which they are offering or providing
services.
It is understandable and broadly acceptable
that such information should be kept in Commercial Confidence
while negotiations are in progress. When contractual terms for
the expenditure of public money have been agreed then prices should
be brought automatically into the public domain.
There is also a similar set of arguments about
disclosure of what exactly a system should do and (looked at otherwise)
exactly what capabilities are being bought for the Armed Forces
with taxpayers' money. Here again the balance needs to be changed
in favour of disclosure.
6.3 Lack of cash figures
The Committee will already be well aware of
the transition of financial accounting and reporting by the MoD
from cash to "Resource" terms following the coming into
effect of Resource Accounting and Budgeting (RAB). Proper prior
consideration was not given to extent to which RAB would make
it impracticable for Parliament to probe into what the MoD does
with taxpayers' money each year.
This is the subject of ongoing probing by the
Official Opposition, in which the writer is directly engaged.
This probing is as much in respect of Parliamentary accountability
generally as it is a matter of Opposition business. It has been
undertaken by correspondence, parliamentary questions and further
correspondence, often generated in the course of Answers to questions.
This latter correspondence includes letters from Ministers, often
delayed, and usually (noted as to be) "placed in the Library."
The present situation may be summarised as the
MoD saying "the Treasury does not require us to report in
cash terms and indeed only authorises us to report in Resource
terms" and the Treasury saying "how the MoD reports
is up to the MoD".
Issues of cash and resources are particularly
pertinent to procurement in that (a) the procurement process,
certainly in the early stages of each project, is much more a
matter of attributed overheads than of direct costs; (b) depreciation
and carrying cost charges (as expressions of RAB) are large (and
distorting?) elements in the cost of projects.
This issue, so far as the present writer is
concerned, is an ongoing one, which cannot be fairly summarised
at this particular moment. He would welcome the opportunity of
submitting an updating supplementary note at a later point in
the course of the Committee's Inquiry.
6.4 Mass and complexity of material and
difficulties of Formatting
Compared with the information available a few
years ago there can be no complaint today about the volume of
available information. The problem continues to lie in its incoherence.
This is aggravated by the way source documents are formatted for
the Internet, involving much time in down-loading and re-formatting
them. This is made worse by selectivity and delays as to which
documents are provided on which sites.
6.5 Information "in the form requested"
There is a general problem arising in connection
with Parliamentary questions, carefully drafted to elicit how
much money is being spent on which projects and to support and
sustain which capabilities. The corpus of information is collected
by the MoD (to the extent that it is actually collected and collated,
rather than just being allowed to happen) for "management"
rather than "monitoring" purposes. It therefore shows
outcomes and (sometimes) outputs. It does not show inputs, ie
money spent and resources engaged. Answers to Questions directed
to ascertaining the latter are all too often met by the statement
that the Information is not collected in the form requested. The
cash figures issue (6.3 above) is an extreme form of this.
6.6 Inadequacy of statistics
The Defence Analytical & Statistics Agency
(DASA) compiles a considerable volume of data. While all of this
has some value, there is less than there needs to be about Procurement
and much less than there should be about Logistics. DASA is conducting
an internal enquiry on how to improve statistic on Logistics to
which the writer has been invited to contribute and has contributed,
but no results have yet emerged.
6.7 General Culture of Secrecy
All the foregoing exemplify the "culture
of secrecy" that still infects Government generally and the
MoD in particular. However often it may be enunciated as policy,
that everything should be disclosed unless there are good, considered
and specific reasons why it should not be, the inclination is
hold it back unless the case for disclosure is made. That is to
say the opposite presumption is applied in practice to the one
that should be applied in theory.
7. SOME HELPFUL
STEPS THAT
COULD BE
TAKEN
7.1 Publication of the equipment plan
A "Ten Year Forward" Equipment Plan
is already prepared for internal use within the MoD with the status
of Advice to Ministers. This should be published, notwithstanding
the entrenched arguments against doing so. This would assist Parliament
and the general public to understand for themselves what is intended
and when and how the costs will fit into and shape the Defence
Budgets of future years.
7.2 Through life management and costs
MPR (and the NAO more generally) has sought
to address these. Although they are "taken into account"
there is no clear and practicable process for estimating them.
They are well recognised as a necessary yardstick for measuring
and monitoring procurement but, in reality they do not (yet) exist.
7.3 Systematic and ongoing improvement
of statistics
including, but not restricted to, comprehensive
cash figures [See 6.3 and 6.6 above, but (much) more could be
said]
7.4 Greater and earlier openness with
Industry
Much easier to call for—as many representatives
of industry do—than to achieve. It is a double chicken and
egg situation.
(a)
The Armed Forces are uncertain about specifying their
desiderata and requirements until they know what industry can
offer. Industry feels it is excluded from knowing what to offer
until the Armed forces have explained and discussed their desiderata
and requirements. It really comes down to the extent to which
desiderata should be crystallised into requirements and the extent
to which equipment concepts can be firmed up into practicable
projects.
(b)
Industry wants to know, firmly, available budgets.
The MoD wants to receive offered prices before it comes up with
indications of funds available.
SUMMARY AND
CONCLUSION
— The decision of the Committee to
enquire into Procurement is welcome and timely. The timeliness
arises from the fact that defence expenditure as a whole is under
critical political scrutiny and there is a considerable risk of
easy-looking decisions being made which would in fact be false
economies.
— Procurement is a large and lumpy
element in defence expenditure overall and specific items—particularly
the "big ticket" ones—are nearly all optional
and merit reasoned justification as well as careful scrutiny.
— Changes in the procurement process
have been made, many of them for the better, but the overall position
remains far from satisfactory.
— It is difficult for Parliament, representing
the taxpayer as paymaster, to see where the money is going.
— It is also difficult to see what
is intended to come out and when. The "Ten Year Forward"
Equipment Plan as already prepared for internal use within the
MoD should be published—see 7.1 above.
— A essential step in effective monitoring
by Parliament of Defence Budgets, Defence expenditure generally
and Procurement expenditure and commitments in particular, is
that all costs should be collected and reported in cash, for monitoring
purposes, as well as in Resource terms for management purposes.
— It is much to be hoped that the Committee's
Inquiry will result in some specific suggestions for further improvement
in the Procurement processes and greater accountability for their
financial management.
It is impracticable to cover fully in this brief
memorandum (and within the time available) all the issues concerned
with procurement, but the writer would be pleased to amplify these
observations and thoughts in Oral evidence if the Committee wishes.
April 2004
Annex 1
ASTOR KEY USER REQUIREMENTS
1. Endurance Minimum of x hrs, within which
x hrs at best endurance speed above x ft above mean sea level.
x hrs at best cruise height and speed.
2. Altitude and Range : x ft and xkm3
3. Ground Station Transportability : C130
4. Ground Station Responsiveness : Pre-planned
tasks within x hrs of sortie closure
5. Radar Range : Radar Range bracket xkm
(Min far range—xkm (Max near radar range)
6. Air Platform Reaction Time : Turnaround
> x hrs
7. Air Segment Battlefield Mission : Moving
Target Indicator scan rate x per min
8. Air Segment Battlefield Mission (1):
x Synthetic Aperture Radar Spot xkms4
9. Air Segment Battlefield Mission (2):
x Swathe Images per mission
10. Ground Segment Battlefield Mission:
x days crisis and x days war
Source: MPR '03, as printed there p 60
Annex 2
A 400M KEY USER REQUIREMENTS (MPR '03 p 39)
No details specified but all simply reported
as "met".
Compare with those for the C 17s and note how
much less specific
1. Deployment Capability.
2. Payload.
3. Environmental Operating Envelope.
4. Tactical Operations.
5. Navigation Performance.
6. Communication System.
7. Defensive Aids Suite.
8. Aerial Delivery.
9. Crew Composition.
C.17 Key User Requirements (MPR `03
p 90)
[All met and performed]
1. Deployment Capability: The [Short Term
Strategic Airlift] STSA fleet must be capable of the deployment
of 1,400 tonnes of freight over 3,200 nms in a seven day period.
2. Payload Requirements: STSA must be capable
of carrying a payload of 32,000 kg.
3. Environmental Conditions: STSA is to
be capable of operating in temperatures which equate to sea level
figures -40 to +49 deg C.
4. Airfield Operations: STSA is to be capable
of landing on airfields with paved surfaces of a minimum length
of 4,000 ft.
5. Navigation: STSA is to be capable of
world-wide navigation.
6. Communications: STSA is to meet current
interoperability requirements for communications.
8 The Standish Group is an independent think-tank focusing
mainly on Defence and Security issues. The writer was a Specialist
Adviser to the Committee in the Parliament of 1997-2001 on the
subject of Defence Related Information to Parliament and has been,
since 2001 an Asociate Fellow of the Royal United Services Institute
for Defence & Security Studies (RUSI). Back
9
The writer advises, in a personal capacity, the Shadow Secretary
of State for Defence, Hon Nicholas Soames MP, on Defence Budgets
and Finances. The views he expresses in this Memorandum are his
own, not those of the Official Opposition or of RUSI. Back
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