Select Committee on Public Accounts Third Report

3  Whether the latest reform programme will succeed

19. The Defence Procurement Agency's programme of reform to reinvigorate Smart Acquisition, DPA Forward, has been rolling out since April 2004. The Chief of Defence procurement acknowledged that none of the principles of Smart Acquisition were intellectually difficult, but it was a "question of leadership and consistency across a very wide community".[24] DPA Forward is the latest of various attempts to improve defence procurement. The Chief of Defence Procurement explained that he was bringing pressure to bear in ensuring the consistent application of Smart Acquisition through the mechanisms set out in Figure 4.[25] The Chief of Defence Procurement has recognised that there is much to do to achieve this change. As he put it, there is a need to "win people's hearts and minds…and that is a major leadership challenge".[26]Figure 4: Measures in the reform programme - DPA Forward
Ensure that there is a Departmental-wide understanding of the importance of improving the procurement performance, and the importance of recommendations made by the Committee of Public Accounts
Frame the Key Targets in a way to challenge and motivate project teams to improve and force continued improvement
Measure Key Targets against the 'most likely' cost and time approvals from 2004-05, a more meaningful and challenging target
Key Targets will cover all projects in the demonstration and manufacture phase with a procurement value over £20 million. Some 65 projects will be included, in contrast to the current 20 projects, giving a more accurate and meaningful picture of the Department's performance and a more challenging overall target
Change the culture and behaviour in the Department by the establishment of a Ministerial group
Create good working relationships with internal and external stakeholders
Place greater emphasis on the need for realistic proposals and greater pragmatism
Strengthen the level of financial expertise. Financial Controllers have been placed on some of the more complex project teams such as Typhoon, Astute Class submarine, Nimrod MRA4 aircraft, and the Type 45 destroyer. Some of the larger, more complex projects are the size of large business enterprises, and did not have the appropriate level of senior financial control

Source: Ministry of Defence

20. In addition, in Autumn 2004, the Department established the Acquisition Policy Board to direct and drive forward acquisition and industrial policy. It is chaired by the Minister for Defence Procurement and includes the Vice Chief of the Defence Staff, Permanent Under Secretary of State, Second Permanent Under Secretary of State, Chief Scientific Advisor, Chief of Defence Logistics, Chief of Defence Procurement and Deputy Chief of the Defence Staff (Equipment Capability). The Board was established in recognition of the need to change behaviour and culture not just in the Defence Procurement Agency, but elsewhere in the Department.[27]

21. The Department considers that the Acquisition Policy Board will ensure that there is more realism in forecasting. There should be a better appreciation of the design and technical difficulty involved, more realistic and informed estimates of cost and time, and a better assessment of the competence, experience and financial viability of the supplier. There is to be more pragmatism in planning, and acceptance by the Department as a whole of not wanting a whole range of capabilities to be delivered in an unrealistically short timescale. The Board is currently redefining guidance on what constitutes a mature business case prior to the main investment decision.[28]

22. The Department has also changed the way in which it measures project performance, which now aligns with the Office of Government Commerce's guidelines. The Department and its project teams have measured performance against the 'highest and latest acceptable' parameters, rather than the 'most likely' targets. As a result, many projects have been too ready to allow their costs or in-service dates to slip towards the highest and latest acceptable, sometimes in order to enhance the capability. The Chief of Defence Procurement has now insisted that projects be measured against their 'most likely' forecasts. Costs or in-service dates should only move towards the upper limits if risks materialise.

23. In the past, project teams have placed emphasis on providing the best capability to the capability customer, who in turn has wanted to provide the best to the end user, often at the expense of realism.[29] For example, the Department was planning to bring into operational use the Type 45 destroyer before industry was contracted to deliver it. The original offer from industry had created an expectation that the Navy would be able to take beneficial use from the warship before it had completed all of the trials and testing of systems. The Department has since revised the programme to provide increased but more realistic estimates of time and cost.[30]

24. As part of a wider consideration of skills within the Agency, it has placed an increased focus on the right skills and training.[31] There may still be an absence of other skills needed for the delivery of successful procurement, especially with the use of innovative procurement strategies. The Agency will need to monitor its skills base to identify and fill gaps in areas such as project financing and relationship management.

24   Qq 20, 72 Back

25   Qq 64, 89-93 Back

26   Qq 20, 65 Back

27   Qq 24-28; Ev 15 Back

28   Q 59 Back

29   Qq 89-92 Back

30   Q 14 Back

31   Qq 67-68; C&AG's Report, Box 2, p18 Back

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Prepared 13 October 2005