Examination of Witness (Questions 120-139)
SIR PETER
SPENCER KCB
10 OCTOBER 2006
Q120 Mr Jones: Oh, that is the first
time you have been passionate about anything before this Committee
but—
Sir Peter Spencer: That is not
true.
Q121 Mr Jones: Can I put to you something
that was put to me over the summer and it is coming from a number
of quarters—it is coming from both the MoD and it is certainly
coming from within industry—which is the fact that industry
and the MoD and others are signed up to both this merger and also
the Defence Industrial Strategy and that is being driven through
by a Minister, who I have got to say I do rate in terms of pushing
change against the bias of which is your organisation, but their
fear is that as soon as he has gone, yourself and the civil servants
will actually stop that change or somehow try to thwart that change.
I am not suggesting for one minute, by the way, that Lord Drayson
is going anywhere but that is a real fear that they have got?
How can you actually reassure them that you and all your civil
servants are truly signed up to this change and also the change
not just in this organisation but in the Defence Industrial Strategy
as well?
Sir Peter Spencer: I resent the
insinuation about civil servants, to be candid.
Q122 Mr Jones: It is out there. What
I am saying is not me, it is coming from people I have spoken
to over the summer and it is a widespread thing inside industry.
Sir Peter Spencer: Wherever it
is coming from I still resent it and I would rebut it. For the
record, I came into this job determined to confront the problem
and to do something about it; and I have. The extent to which
you can demonstrate that on the bottom line targets is to a certain
extent constrained by the legacy of some very big projects which
we still suffer from in terms of uncapped financial exposure.
We are doing damage limitation on that as best we can. We have
totally transformed the culture in defence procurement into one
which is obsessed with delivering results and where success and
failure matter. I have also worked increasingly closely first
with Malcolm Pledger and then with Kevin O'Donoghue on Defence
Logistics Organisation convergence with the DPA in an initiative
known as Joint Working, because it was very evident to both of
us that we were presiding over organisations which were increasingly
drifting apart, to the detriment of the people whom we are here
to serve which is the front-line forces. So none of what is happening
has been anything other than a natural extension of where we were
going but it has been greatly invigorated and accelerated by the
leadership of Lord Drayson.
Q123 Mr Jones: So if Lord Drayson
had not happened all this would have happened anyway? Is that
what you are saying?
Sir Peter Spencer: It would not
have happened at the same pace because I think what he has done
is to break the mould in terms of our relationship with industry,
and in earlier hearings we had discussions—
Q124 Mr Jones: I am sorry, I just
think that is complete rubbish, Sir Peter, and I think without
the dynamism of that Minister you lot you would not have shifted
on this.
Sir Peter Spencer: I am sorry,
I will not sit here and be publicly insulted by any member of
this Committee when I can demonstrate what I have achieved because
it is on record. It is on record in Hansard for a start; it is
on record in the NAO audits; and it is on record in comments that
have been made by not only by this Committee but also by the Public
Accounts Committee, so the fact that you say it would not have
happened without Lord Drayson I can disprove.
Q125 Mr Jones: I am sure he will
be pleased to hear that.
Sir Peter Spencer: It has been
accelerated and invigorated greatly—
Q126 Mr Jones: He has recognised
it himself actually.
Sir Peter Spencer: —by the
very bold line he took in dealing with the interaction with industry,
which to a degree was spelt out in the Defence Industrial Policy
but which we recognise until it was worked into more explicit
strategies for each sector of the defence industry tended to be
more a statement of good intent rather than something which changed
the way in which we procured.
Q127 Mr Jones: In terms of your agency
and the numbers of people employed since you have taken over,
are there more or fewer people since you took over?
Sir Peter Spencer: I need to look
up the numbers but fewer by a reasonable percentage.
Q128 Mr Jones: Can you provide us
with that?
Sir Peter Spencer: Of course.[2]
Q129 Chairman: In July David Gould
was in front of us and was asked whether he thought the new organisation
was going to be an agency or not. He said that the jury was still
out on that. Has a decision been taken on that?
Sir Peter Spencer: A decision
has been taken and it will not be an agency.
Q130 Chairman: It will not be an
agency and what will be the benefits that will flow from that?
Sir Peter Spencer: I think the
benefit which comes from it is that an agency, however hard it
tries, tends to develop over time a rather inward-looking culture.
You will recall that the purpose of agencies when they were initially
developed was as a staging post for something which was heading
towards trading fund status. The Government has no intention of
Defence Equipment and Support becoming a trading fund, and has
recognised that in order to achieve the better overall results
that we will need, we need a much more joined-up arrangement,
not only across the Ministry of Defence but with industry as well,
so we get a real concept of unity of purpose. In that respect,
a Top Level Budget arrangement, which is what the new organisation
will be, is now capable of being given the same precision in terms
of objectives that any agency would get, the same budgetary disciplines,
and to a large extent the same delegated powers to deal with its
personnel management issues.
Q131 Chairman: Does that not undermine
the entire rationale for agencies?
Sir Peter Spencer: I do not think
it does. I think what it recognises is that over time you get
a certain amount of benefit by agency status and you then have
to decide on your evaluation whether or not you are going to take
the next step into trading fund status, whether or not you are
going to remain as an agency, or whether or not, frankly, agency
status is beginning to be counter-productive. In the concept of
bringing together the Defence Procurement Agency with the Defence
Logistics Organisation, on balance it was believed that the advantage
lay with non-agency status. I have no difficulty with that. I
do not think it would have made that much difference one way or
the other.
Q132 Mr Hancock: What was the downside
that made people make that decision?
Sir Peter Spencer: Of the agency?
It was the point I made earlier, Mike, which is that people do
tend to think in terms of an agency almost being able to exist
by itself; and of course it does not. It is part of a very complicated
chain between the front-line and the factory, so anything which
reinforces a sense of separate identity when you need to be much
more flexible in the way in which you are operating has to be
of benefit in this area.
Q133 Chairman: Let us move on to
the report which you have mentioned—the Enabling Acquisition
Change report—which said that despite the best endeavours
of everyone involved and significant improvements in recent years,
agreeing with what you said Sir Peter we are simply not doing
as well as we could do. What did that mean?
Sir Peter Spencer: It meant that
we had achieved improvements in the DPA's performance against
its key targets, we had achieved improvements in how well the
Defence Logistics Organisation Procurement Reform was delivering
results, and we had gone some way through Joint Working to bridge
the gap, in the sense that all teams became automatically dual
accountable on formation so they were already responsible from
birth to the Chief the Defence Logistics for delivering the affordable
through-life capability management arrangements that were needed.
There were a number of project teams in the Defence Logistics
Organisation that actually delivered for me because they are doing
capital investment projects, which are best run inside the family
of projects which are already dealing with them because they are
so closely connected.
Q134 Chairman: These, Sir Peter,
are examples of how you are doing as well as you could have been.
Sir Peter Spencer: What I am saying
is that we were able to go so far with a rather ad hoc arrangement
between us called Joint Working but effectively it was beginning
to put a bandage on the problem as opposed to cure the problem.
Q135 Chairman: And the problem was?
Sir Peter Spencer: The problem
is that we do not have a single organisation which has got the
focus on through-life capability delivery ab initio. We
also do not have a financial planning system which recognises
the need to balance adequately the difference between capital
expenditure and operating cost, and we do not have the arrangements
with industry which are implementing the McKinsey principle of
having a more open relationship and having a more flexible relationship
which looks at more appropriate contracting strategies depending
on the degree of challenge of a project. So the conclusion which
was drawn was that so far so good, but we needed to go a whole
lot further and that the Defence Industrial Strategy had said
it would take a look internally at what was getting in the way
of implementing the Defence Industrial Strategy proposals which
were internal to the Ministry of Defence, shine a light on that
and do something about it, and that is precisely what the Ministry
of Defence has done. It has laid itself bare in terms of what
it has recognised as things that get in the way. Industry has
been involved in that. It reflects their views as well, and it
has set out a timetable for doing something about it.
Q136 Mr Jones: Is that not a massive
cultural change for yourself, and I am sorry if you feel insulted
by my comments on the Civil Service, but cultural change in the
sense that if you push a lot of these things out to industry—and
I agree with that in terms of saying through life should be looked
at in terms of what their role is in that—but does that
not necessarily therefore mean that your organisation is going
to get smaller and that control over it and some day-to-day decisions
are going to be left to industry? How do you get that through
psychologically to civil servants whose vested interest is to
keep themselves employed in an organisation such as yours?
Sir Peter Spencer: I think you
put your finger on one of the key issues and in fact it is one
of the 10 work streams which accompanies the delivery of the EAC.
We are going to address it in a number of ways. I have done quite
a lot to bring new blood into the DPA. In open competition we
have got two non-executive directors out of the three on the Board,
one operations director, the finance director and the current
interim commercial director. There will be further competitions
to fill some new posts in the Defence Equipment and Support Organisation,
so there is ample scope for bringing people in, not only to do
the work but also to explain and bring people with them to do
things in a totally different way than they have been used to.
In that context you will remember that Amyas Morse was appointed
as the defence commercial director in a separate post from one
which had been a dual function post when it was DG Commercial
and the commercial director of the DPA, with that very aim in
mind. We have made it clear through publication of the Defence
Acquisition Values that we will be assessing people quite explicitly
on the way in which they represent those values in their day-to-day
work and their day-to-day decisions. One of the big cultural changes,
which I would say we were leading on in the Defence Procurement
Agency, is holding people accountable for their results. This
is not yet fully embedded across the whole of the public sector,
but we are starting both in the DPA and now in the Defence Equipment
and Support Organisation to put real focus on the outcomes because
the new organisation is not an end in itself; it is a way of delivering
the end result, which is demonstrable, publicly auditable improvements
in the way in which we deliver capability to the Armed Forces.
Chairman: Moving on to the training for
this change, John Smith.
Q137 John Smith: In fact, in one
sense training is absolutely key to the success of this cultural
transformation, this organisational transformation, and the Committee
has expressed concern in the past with the introduction of long-term
partnering, PFIs, and much greater involvement for longer periods
with the private sector. Are your civil servants adequately trained
to carry out this role in this changed environment? You yourself
have expressed concern about the training levels and the need
for training in project management and commercial activity. Has
that training programme started? When will it start and have you
committed the investment to pay for that training?
Sir Peter Spencer: At present
we have not done enough training. We are beginning to open up
and recover the deficit. It is a fundamental strand of the work
which we are doing which is to up-skill and re-skill people as
and when appropriate. Each of the major professional groupings
has got a senior person who is charged with identifying what the
needs of that particular professional specialisation are, what
its current levels of capability are, and therefore identifying
what the deficit is and to put in place training programmes in
order to increase the ability of the workforce—and this
applies not only to civil servants, it applies just as much to
the military members of staff who work in both organisations.
The major strands are finance and commercial project management,
engineering and logistics. The intention is to ensure that we
use the Defence Academy to be the lead in delivering this training.
It will not do all of it itself. It will in many cases act as
the portal to direct people into the best training they can find
that is value for money within the UK, and we are also seeking
to ensure that the way in which people are then identified at
the various levels is related to accreditation with organisations
that have international recognition, so that we are giving people
real skills which they will value and we are investing in them.
So, for example, the Association of Project Managers has three
levels of expertise and we are now looking towards ensuring that
all those who are involved in project management, and certainly
those in project leadership will over time, amongst other things,
have to demonstrate the right level of professional accreditation
in order to be entrusted with the work which they do.
Q138 John Smith: Thank you. Has the
commitment to do that been identified and how much over what period
of time?
Sir Peter Spencer: I do not have
a complete answer to that at the moment because I do not have
a complete answer to the gap analysis. If your sense is that there
is a risk that we will not earmark enough, I would agree with
you and therefore that is the risk which we are going to need
to manage. Have we done anything to demonstrate we are taking
seriously? Yes, we have. Both I initially and then the CDL of
the day earmarked additional funds to sustain the direct entry
graduate recruitment of engineers. We have a direct entry graduate
scheme now for accountants.
Q139 Chairman: Do you think you could
write to us with an answer.
Sir Peter Spencer: What we have
done so far and what we plan to do?
2 See Ev 54 Back
| 
