2 Handling large complex projects
11. One of the principles underpinning Smart Acquisition
is to invest more in the early project phases. Under the Smart
Acquisition lifecycle, projects progress through six stages: Concept,
Assessment, Demonstration, Manufacture, In-service, and Disposal.
The main investment decision, called Main Gate, occurs at the
end of the assessment phase. Performing sufficient work in the
assessment phase is essential to allow a fully-informed investment
decision to be made. The Department's own guidance says that up
to 15% of the overall procurement budget should be spent at this
phase, although the exact amount will depend upon the complexity
of the project.[14] For
example, the Department spent 4.7% on the assessment phase of
the Successor Identification Friend or Foe system and delivered
it within time and cost. Assessment phase spending should not
necessarily reach 15% for each project, but the Department accepted
that it ought to be significantly higher than current levels.
Historic levels have been as low as 1% on complex programmes such
as the Astute Class submarine and Nimrod MRA4 aircraft where significant
problems have arisen in the subsequent demonstration and manufacture
phases.[15]
12. The Department said it had now implemented procedures
to confirm that all projects seeking Main Gate approval from the
Investment Appraisals Board had undertaken sufficient assessment
phase work. For all business cases submitted to the Board, the
onus would be on the sponsors of the submission to demonstrate
how much assessment phase work had been done, and how that amount
of work had led to an informed business case for an investment
decision. The amount spent on the assessment phase as a percentage
of the total estimated procurement cost would be shown, and differences
from the 15% target would need to be explained.[16]
13. The Chief of Defence Procurement acknowledged
that too many inappropriate contracts for high technology projects
had been let in the past. Where projects were challenging, risky
or where requirements were hard to define from the outset, the
Department needed to explore new avenues such as different contracting
mechanisms or a different customer-industry relationship.[17]
14. The Department aims to match appropriate procurement
strategies to individual projects on a case-by-case basis. The
different strategies employed include Private Finance Initiative
/ Public Private Partnerships, leasing, multi-nation collaborative
programmes, partnering, and Alliancing. The decision to adopt
a particular strategy will be affected by factors such as affordability,
technological risk, and the possibilities of sharing technology,
risks or rewards with industry or other nations. But different
strategies carry different risks. The multi-nation collaborative
route, for example, has often led to delays while other partner
nations reach agreement on the Memorandum of Understanding or
the contract. This has happened on the Typhoon aircraft, Beyond
Visual Range Air-to-Air Missile (BVRAAM), and the A400M heavy
lift aircraft in each case resulting in significant time and cost
overruns.[18]
15. The Department plans to run the Future Aircraft
Carrier project under an Alliance strategy. Although Alliances
have been used by the Australian Ministry of Defence, and in the
oil and gas industries, this will be the first Departmental procurement
using this strategy. Alliancing allows the customer to pool the
best elements from different packages and different contractors
with a joint sharing of risks and rewards amongst the Alliance
members. For Alliancing to succeed, there must be a strong relationship
between the Alliance members. An independent review of the Future
Aircraft Carrier project by the Office of Government Commerce
concluded that for a project with this high level of risk, Alliancing
is an appropriate way of proceeding, and this view has been supported
by the Treasury. The Future Carrier Aircraft is further complicated
by the complexity of the project with high construction and integration
risk, and the role of Physical Integrator has been created to
specifically oversee this. Where the Department has reason to
believe that prospective members of an Alliance will not be able
to work smoothly with other Alliance members or stakeholders in
the project, it needs to exclude them from the arrangement.
[19]
16. Given the long timescales of defence procurements,
which can span 15 years from the main investment decision to delivery
of the equipment into service, planning for capabilities involves
making assumptions about the nature of future military operations.
The process starts with the Defence Strategic Guidance, which
considers what the world will look like in the timescale. The
Department then produces possible future scenarios based on the
Guidance, with illustrative campaign plans. It then undertakes
an audit of capability, produces a prioritised list of capabilities,
and undertakes work to understand how those capabilities might
be translated into platforms and equipment. It is important that
all relevant stakeholders (including industry) engage in this
early stage to ascertain the requirement and feasibility of projects,
as illustrated in Figure 3. Cost increases often occur
on projects where requirements are changed some way into the demonstration
and manufacture phase. Early and full discussion with the capability
customer and industry helps to minimise this risk.[20]
Figure 3: The key stakeholders in the Department's acquisition community
Source: National Audit Office
17. The setting of capability is further complicated
by the need to balance cost effectiveness with the complexity
of the project. Equipment which can fulfil more than one role
may be more effective than buying different types of equipment
which are single role. However, building more roles into a piece
of equipment will increase its complexity.[21]
Typhoon, for example, was originally designed to be an air-to-air
superiority fighter to combat the Soviet threat. Since it was
approved in 1988, the shape of the world and military operations
has changed, and there is now a greater need for aircraft which
can perform precision attack of surface targets. The updating
of capabilities on Typhoon has been designed to deliver a multi-role
capability with air-to-air and air-to-surface attack, but has
also resulted in some large cost overruns.[22]
18. The role of Senior Responsible Owner is another
mechanism designed to aid the running of large complex programmes.
The post has been created for projects which have novel elements,
high integration risk or cover an unusually large number of stakeholders.
The Carrier Strike capability, for example, comprises the Future
Aircraft Carrier, the Future Joint Combat Aircraft and the Maritime
Airborne Surveillance Control platform. Rotorcraft, similarly,
involves a number of different helicopters. The Department has
limited the number of Senior Responsible Owners to a few, to highlight
the extra level of complexity on the programme. On all other programmes,
there are single points of accountability. They perform the same
role filled by the directors of equipment capability who manage
clusters of project teams.[23]
14 C&AG's Report, paras 1.15-1.16 Back
15
Qq 74-76; C&AG's Report, Figure 8 Back
16
Q 77 Back
17
Q 72 Back
18
C&AG's Report, Figure 8 Back
19
Q 13 Back
20
Qq 32-33 Back
21
Qq 37-39 Back
22
C&AG's Report, Volume 2, HC 1159-II, p111 Back
23
Qq 109-112 Back
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