Select Committee on Defence Tenth Report

Conclusions and recommendations

Progress made since the merger

1.  The merger of the Defence Procurement Agency and the Defence Logistics Organisation was a major undertaking made more challenging by the need to support two major operations. We commend the Chief of Defence Materiel and his staff for ensuring that the merger was achieved to the timetable set and for the progress achieved in the first year of operation of the Defence Equipment and Support organisation. (Paragraph 14)

2.   We note that the MoD considers that reasonable progress has been made in implementing the Defence Acquisition Change Programme. A key benefit expected to be delivered from this programme is to deliver defence capability more quickly. The former Minister for Defence Equipment and Support set a challenge of reducing the acquisition time for defence equipment by 50%. In its response to our report, we expect the MoD to set out what specific action it is taking to meet this challenge, how it is measuring its performance in reducing acquisition time, and when its expects to be acquiring equipment in a timescale which meets the challenge. Similarly, we expect the MoD to provide us with details of the progress it has made in producing an affordable and balanced budget and in creating a set of metrics by which through life acquisition performance can be judged. (Paragraph 20)

3.  We note that Through Life Capability Management should lead to the MoD getting the benefit from defence equipment more quickly by focusing attention on issues such as doctrine and training rather than just equipment and equipment support. We welcome the MoD's assurance that this approach should greatly reduce the chances of the sort of problems seen on the Apache helicopter programme. (Paragraph 27)

4.  We note that the MoD considers that the merger of the Defence Procurement Agency and the Defence Logistics Organisation should improve through life management planning and ensure that it becomes embedded in the new organisation. We agree. In its response to our report, we expect the MoD to set out what proportion of its equipment programmes currently have through life management plans of an acceptable standard and when it expects such plans to be in place for all its programmes. (Paragraph 30)

5.  It is crucial that DE&S has a highly skilled workforce, particularly in areas such as engineering, project management, logistics, finance and commerce. DE&S appears to have made some progress in upskilling staff in a number of these areas. However, its skills audit needs to be completed as soon as possible. We note that training and upskilling had not progressed as quickly as hoped because staff had been too busy to be released. We believe that it is probably the intention within DE&S that, once the current tempo of operations and the need to support them reduces, staff should be given adequate time to undertake the required training and upskilling. We are not satisfied that so important a programme can wait for such an eventuality. We consider that it is inexplicable for the MoD both to be reducing the numbers of staff and to be telling those that remain that there is no time to train them. Every week that passes without staff adequately skilled and equipped to do their vital jobs has the potential of damaging the work that they do and the projects they are running. We call on the MoD in its response to this report to set out what urgent actions it will put in train to overcome the constraints on training and upskilling caused by the high operational tempo. While we note that the Chief of Defence Materiel has ringfenced funding for training and upskilling, this is of little value if staff have insufficient time to take advantage of it. (Paragraph 42)

6.  The upskilling and training of DE&S staff in specialist skills, such as project management, will be crucial to the future effectiveness of DE&S. However, it will be some time before these staff will have the broad experience that can only be gained from using their training on a range of programmes. DE&S needs to identify the key posts where good experience in the various specialist skills is required now, and develop a strategy for drawing in such experienced staff from outside DE&S. (Paragraph 43)

7.  We were unable to visit DE&S at Abbey Wood, Bristol. We remain concerned about the skills mix made available to DE&S. We will want to explore further the whole question of skills generation and development in DE&S in a future report. (Paragraph 44)

8.  It is vitally important that DE&S can recruit and retain staff with the skills that match those in industry. To do so, DE&S has to have a reward structure that makes it an attractive employer to professionals in areas such as project management and systems engineering. In its response to our report, we expect the MoD to set out the progress it is making to introduce a more flexible reward structure and the barriers that are hindering its efforts to do so. (Paragraph 45)

9.  The UOR process has delivered substantial amounts of vital equipment to our Armed Forces operating in Afghanistan and Iraq. We commend DE&S for the speed at which it is getting urgently needed equipment into theatre, the procurement of Mastiff vehicles being a good example of this. (Paragraph 50)

10.  We note that the MoD has initiated a study to assess the impact of current operations on equipment, such as vehicles, and the subsequent costs of recuperation. We see the costs of recuperation as a cost of operation to be funded from the Reserve and not from the defence budget which is already under substantial pressure. In its response to our report, we expect the MoD to set out the terms of reference for this study and, once the study is completed, to provide us with a copy of it. (Paragraph 56)

Performance against Key Targets

11.  We are disappointed to learn that DE&S is unlikely to meet its Key Target relating to programme slippage in 2007-08. Seven of the largest equipment programmes which featured in the Major Projects Report 2007 have experienced in-service date slippage in 2007-08 totalling some 6.5 years. Once again, the MoD has failed to control slippage on key equipment programmes. In its response to our report, we look to the MoD to provide an explanation of the in-service date slippage on each of the major projects in terms of the three reasons for such slippage set out by the chief of materiel in evidence to us; and we expect the MoD to set out the specific actions being taken to limit further programme slippage. (Paragraph 64)

12.  We are concerned to hear that the MoD has little control over time slippage on international equipment programmes, given that many of the MoD's equipment programmes including Typhoon and the Joint Strike Fighter are international programmes. We call on the MoD to set out in its response to this report what conclusions it draws from this problem about the nature of international programmes, what steps it has taken in the past to limit these disadvantages and the extent to which these steps have been successful. (Paragraph 65)

13.  We note that in 2006-07 the MoD reduced the forecast costs of major equipment programmes by reducing quantities of equipments, reassessing requirements and by re-allocating expenditure to other equipment programmes or budget lines. In its Major Projects Report 2007 the NAO expressed concerns about this approach and did not expect to see "this level of re-allocation in existing projects in future reports". We share the NAO's concern. In reporting its performance against the Key Target relating to cost growth in 2007-08, we do not expect to see the MoD shifting expenditure between different budget lines to give the impression of good cost control on equipment programmes. We plan to follow this up to check that the MoD has not done so. (Paragraph 68)

Business Strategy 2008-12 and "Blueprint"

14.  We note that, as with the MoD Head Office, DE&S is to be streamlined with the loss of some 7,500 staff—27% of its workforce—by 2012. As with the streamlining of the MoD Head Office, we remain to be convinced that improved economy, agility and responsiveness will follow from the reduction in staff. We look to the MoD to provide adequate support for those DE&S staff who are to lose their jobs. The MoD must monitor closely staff morale during the streamlining of DE&S and ensure that it continues to deliver the services which our Armed Forces require. (Paragraph 77)

New approaches to contracting

15.  Military equipment acquired by DE&S must be reliable and available for use by our Armed Forces. We note that the MoD is seeking to push back onto the manufacturer the risk of unreliable equipment by contracting for availability. We consider this to be a promising approach and we look to the MoD to evaluate whether these new arrangements deliver the expected benefits in terms of improved availability and, if so, to consider how they might be used more widely. (Paragraph 82)

Comprehensive Spending Review 2007 and Planning Round

16.  In its response to our report, we expect the MoD to set out the reasons why the current Planning Round is so challenging given the real terms increases to defence expenditure set out in the Comprehensive Spending Review 2007. (Paragraph 89)

17.  We note that the MoD is preparing advice to Ministers about the defence budget for the three years 2008-09 to 2010-11 and that the MoD acknowledges that there are likely to be cuts or delays to projects in the Equipment Programme. The MoD needs to take the difficult decisions which will lead to a realistic and affordable Equipment Programme. This may well mean cutting whole equipment programmes, rather than just delaying orders or making cuts to the number of platforms ordered across a range of equipment programmes. While it is the natural inclination of all governments and departments to avoid bad news by "moving programmes to the right" rather than by cutting out an entire capability which has many supporters, such an approach can cause in the long run more financial and operational damage than confronting the perennial problem of an over-ambitious Equipment Programme. A realistic Equipment Programme will give confidence to our Armed Forces that the equipment programmes that remain will be delivered in the numbers and to the timescale required, and will also allow industry to make informed investment decisions. This is an issue we plan to return to. (Paragraph 94)

18.   We note that the merger of the DPA and DLO will contribute to generating annual net cash-releasing savings of some £250 million by 2010-11 and that there will be further savings in the future as most of DE&S business is collocated in the Bath and Bristol area. (Paragraph 98)

Measuring and reporting performance

19.  We are concerned to learn that the new performance targets for DE&S will not be validated by the NAO, as was the case for the Key Targets of the DPA, now merged with the DLO to form DE&S. Independent validation of reported performance against Key Targets provides Parliament with assurance that the reported performance is accurate. In its response to our report, we expect the MoD to set out the reasons why it has no plans for the targets to be validated by the NAO and how independent validation will be achieved. (Paragraph 102)

20.  We note that the MoD is benchmarking its performance against its allies in delivering equipment into theatre. We consider this to be a useful exercise and, given our on-going interest in current operations, look to the MoD to inform us of the results and the lessons identified. (Paragraph 103)

21.  We note that the Major Projects Report is to be revised to provide a broader view of equipment acquisition. However, we remain concerned that the revised Major Projects Report may not provide visibility of the performance of programmes against their acquisition targets covering time, cost and performance, and that poor performance against these targets might be difficult to identify within the broader view provided. In its response to our report, we expect the MoD to provide us with a summary of the key changes expected to the Major Projects Report, the categories of equipment programmes that will be covered, and when the revised format is likely to be approved. We also expect the MoD to continue to provide the key information in respect of the performance of individual programmes. (Paragraph 106)

Astute submarine

22.  We note that the MoD has identified key lessons from the problems experienced to date on the Astute submarine programme. We consider it vital that these lessons are taken into account when the MoD acquires the successor to the current Vanguard class submarines and look to the MoD, in its response to our report, to set out how it plans to ensure this is done. (Paragraph 120)

Type 45 destroyer

23.  The Type 45 destroyer programme experienced a further forecast cost increase of £354 million and a further 11 month time slippage during 2006-07. We note that the MoD did not change the specification for the Type 45 destroyer, so this was not the reason for the further forecast cost growth and time slippage. In its response to our report, we expect the MoD to set out the key lessons identified from this programme and to provide us with an update on how the programme is currently performing against its Approved Cost and In-Service Date. (Paragraph 123)

Nimrod MRA4

24.  Since the DE&S Chief Operating Officer, Mr Gould, told us that the problems being experienced on the Nimrod MRA4 programme were not considered unusual, that they had been experienced on the MRA2 programme and that "it was predictable", we are deeply concerned that they nevertheless seem to have come as such a surprise to the MoD. His comment that, until the prototype had been built, "that is the first time you can test it against reality" may be true, but for the MoD to have failed to have provided for the risk turning into reality cannot in the circumstance be excused by the suggestion that "it would have been a low probability". We accept his contention that, because of the long gap between the MRA2 conversion programme and the MRA4 programme, some 20 years, the experience from the earlier programme had been lost, but we are disappointed that this had not been recognised at a much earlier stage of the programme. (Paragraph 126)

25.  At the end of 2006-07, the Nimrod MRA4 programme had experienced a forecast cost increase of some £687 million, almost 25% greater than the approved cost, and has experienced further cost growth in 2007-08 of some £100 million. Given the huge cost growth seen on this programme, we are concerned that the MoD does not appear very alarmed by the additional cost growth in 2007-08, referring to it as "just a little less than three per cent of the total programme cost". The programme has also experienced further slippage in 2007-08 which now totals 92 months, some 7.5 years. (Paragraph 129)

26.  In our report on the Ministry of Defence Annual Report and Accounts 2006-07 we recommended that the MoD undertake a review of the Nimrod MRA4 programme in order to ensure that best value for money is achieved in maintaining this important capability, both in quality and quantity of platforms. This is a programme that has been beset by one problem after another and neither the MoD nor the contractor appears to be able to get a grip on it. We hope that the new Minister for Defence Equipment and Support will look closely at this programme and consider whether it is ever likely to deliver the capability our Armed Forces require in the timescale needed. If it is not the MoD should withdraw from the programme. (Paragraph 130)


27.  It is disappointing that the in-service date on the A400M transport aircraft programme has slipped a further nine months in 2007-08 and it is now expected to enter service some two years later than the original approved in-service date. As we recommended in our report on the Ministry of Defence Annual Report and Accounts 2006-07, we look to the MoD to work closely with the contractor for this programme to reduce the risk of any further delays and, where possible, to identify ways to recover some of the forecast slippage (Paragraph 135)

28.  We recommend that in its response to our report, the MoD sets out the key findings of the review of the A400M programme undertaken by the DE&S project rehabilitation unit (Paragraph 136)


29.  We note that the Army, as the front line user, has been closely involved in the process of identifying the preferred FRES Utility Vehicle design and that the design which has been recommended is the Army's preferred option. (Paragraph 142)

30.  We note that the FRES Utility Vehicle design which has been recommended is a "developmental vehicle" and that the MoD considers that this is the best option as it can be upgraded and its capability increased over time. We also note that the MoD considers that acquiring an "off-the-shelf" vehicle would not provide scope for increasing capability and would have a very limited life. While we recognise that these are strong arguments for acquiring a developmental vehicle for the FRES Utility Vehicle, such an option is also likely to involve higher costs and increased risks to the in-service date because of unforeseen problems during the further development. If the recommended design is approved, the MoD needs to ensure that it identifies the key risks on the programme and how these are to be managed. (Paragraph 144)

31.  We find it an issue of concern that the MoD appears to be at an advanced stage with regard to selecting the FRES Utility Vehicle design yet has still to clarify what the planned In-Service Date is. In its response to our report, we expect the MoD to provide clarification on this matter. (Paragraph 146)

32.  In its response to our report we expect the MoD to set out how many Mastiff vehicles are being procured for operations in Iraq and Afghanistan, how the acquisition of armoured vehicles for these two operations impacts on the FRES requirement, and how the MoD plans to use these vehicles when they return from current operations. (Paragraph 147)

Future Carrier and Joint Strike Fighter programmes

33.  When we held our oral evidence session on 29 January 2008, the Manufacture contract for the Future Carriers had yet to be signed. We find it a cause of concern that the MoD did not seem to know what was holding up the signing of the Manufacture contract. It appears that the formation of the Joint Venture between BAE Systems and VT was a factor behind the delay, but the MoD's view on why this had not happened did not appear to match that of industry (Paragraph 159)

34.  We note that the MoD expects the Manufacture contract for the Future Carriers to be signed by the end of March 2008. We found unsatisfactory the responses from the MoD on the reasons for delay in signing the contract. We think it likely that much of the cause relates to the current difficulties in the Planning Round, but there must come a point where delays in letting the contract will affect the programme schedule and the expected in-service dates of 2014 and 2016. Further delays are also likely to lead to increased costs on the programme. We plan to monitor this closely. (Paragraph 162)

35.  We also call on the MoD to set out what roles the two Future Carriers will perform when they come into service and what capabilities these expensive ships will give us that could not be provided in other ways. Since the 1998 Strategic Defence Review there have been reductions in the number of current and planned surface ships, such as the Type 45 destroyer. We therefore look to the MoD to confirm that the two new carriers will have sufficient protection to undertake the roles expected of them while not removing from other tasks the naval cover that the country will continue to need. (Paragraph 163)

36.  We note that the MoD expects the Future Carrier programme to be delivered below the approved cost of £3.9 billion as a result of the incentive arrangements that it plans to put in place. While it is important to acquire the two carriers within the Approved Cost, the MoD must also take account of the through-life costs of the carriers which will be many times greater than the acquisition costs. The MoD needs to make the necessary investment when acquiring the carriers so that substantial savings through-life will be delivered. In its response to our report, we expect the MoD to set out the forecast through-life costs of the two carriers and how its investment to date in the programme is expected to reduce the through-life costs. (Paragraph 166)

37.  We note that the MoD is content with how the restructuring of the UK surface ship sector is progressing. This is an issue which we plan to monitor closely. (Paragraph 167)

38.  We note that a contract to upgrade Rosyth dockyard, where the final assembly of the two aircraft carriers will take place, has been signed. (Paragraph 168)

39.  We acknowledge that cost has to be a factor in determining the procurement of major equipment, but we would expect the number of JSF aircraft to be primarily determined by what the UK needs for its defence capability. In its response to our report, we look to the MoD to set out the different roles which JSF aircraft will be required to undertake and how many aircraft will be required to fulfil each of these roles. (Paragraph 174)

40.  We note that the MoD considers that one of the benefits of the JSF programme is that it does not have to decide on the number of JSF aircraft it will acquire "at the start". While we acknowledge that UK participation in the programme provides this flexibility, we are surprised that the MoD does not consider it an issue that it does not know how many JSF aircraft it requires because it is "at an early stage in the programme". We take issue with the term "early stage", as the MoD has already spent in the order of £1 billion on the JSF programme and the first aircraft carrier, which the JSF aircraft will operate from, is expected to enter service in 2014—just six years away. (Paragraph 175)

41.  The acquisition of two new aircraft carriers and Joint Strike Fighter (JSF) aircraft to operate from them will provide the core elements of the MoD's 'Carrier Strike' capability. We are disappointed and concerned to learn that JSF aircraft will not be available to operate from the first new aircraft carrier which, on current plans, is expected to enter service in 2014. We recommend that, in its response to our report, the MoD sets out the reasons why JSF aircraft will not be available to operate from the first new aircraft carrier when it enters service and the latest estimate of when sufficient JSF aircraft will be available to operate from both carriers. (Paragraph 178)

42.  We note that Harrier GR9 aircraft are to be operated from the first new aircraft carrier and that these aircraft will remain in-service until around 2018. We look to the MoD to undertake an assessment of how the 'Carrier Strike' capability would be maintained if JSF aircraft were not available to operate from the two aircraft carriers in 2018 when the Harrier GR9 goes out of service. (Paragraph 179)

Wider lessons

43.  We consider that there is a strong case for having a general procurement contingency held centrally by the Equipment Capability customer rather than at the individual equipment project level. We look to the MoD, in its response to our report, to set out what consideration it has given to a general procurement contingency and whether and how it plans to introduce such a system. (Paragraph 182)

44.  Substantial in-service date slippage on major equipment programmes has often been a result of over-optimistic estimates by contractors of the likely programme schedule. It is, therefore, worrying to learn that the MoD only now acknowledges that it needs to include in the project management skills of its staff the ability to examine a contractor's programme schedule and consider whether it is credible. In its response to our report, we look to the MoD to set out how it plans to up-skill its staff working in defence acquisition, so that they are able to examine critically the estimates provided by contractors both in relation to a programme's schedule and cost (Paragraph 185)

45.  We note that the MoD is introducing techniques, such as Earned Value Management, to improve its visibility of the progress on equipment programmes and to identify potential problems as early as possible. We look to the MoD to assess whether the expected benefits are delivered by such techniques and, where they have been, to ensure that they are adopted on other programmes. We also expect the MoD to learn from the experience of the US Department of Defense in using Earned Value Management, such as on the Joint Strike Fighter programme. (Paragraph 188)

46.  We note that the MoD is paying more attention to the date at which equipment can deliver initial and full operating capability, rather than just the in-service date. Starting the training of the users of equipment, even where there is some further development work to be completed on an equipment programme, should allow the equipment to enter operational service more quickly. (Paragraph 190)

47.  Cost increases on equipment programmes have often arisen from 'requirement creep'—additions and changes to the specification of equipment already ordered. We note that the MoD is seeking to address this by acquiring equipment which meets the vast majority—around 80%—of the military customer's requirement, but which also has an 'open architecture' allowing incremental upgrading and innovation to be added later. This appears to be a sensible approach, but DE&S must ensure that staff who work in project management have sufficient training in key skills such as good change control. (Paragraph 193)

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