2 Improving DE&S's skills to deliver
the Equipment Plan to cost and time
11. The Department has long wrestled with problems
in defence acquisition. The need for change has been widely acknowledged
and made in a number of our reports and those of the Department.
Department-wide changes to ensure the affordability and stability
of equipment projects depend on tackling long-standing skills
gaps in DE&S, including airworthiness, engineering roles,
commercial, logistics and project and programme management. Skills
gaps had emerged primarily because DE&S could not recruit
and retain enough skilled staff.[14]
12. The Department's preferred option for securing
change in DE&S was through a Government-owned, Contractor-operated
(GoCo) model—a company where the government controls the
assets, but that would be operated on a for-profit basis by a
private company. However, this model proved undeliverable, and
was halted in 2013, by which point the Department had spent £33
million and two and a half years trying to implement reform at
DE&S. In April 2014 the Department changed DE&S into a
bespoke trading entity. Under this concept, DE&S remains in
the public sector but with freedoms from and flexibilities over
civil service pay rules.[15]
13. The National Audit Office found that DE&S
had reduced permanent staff numbers by nearly half between 2007
and 2014 to try to reduce operating costs. Potential savings,
however, had been offset by employing contractors who, on average,
cost between three and four times more than permanent DE&S
staff. The overall costs of DE&S's permanent staff and contractors
fell by £9 million between 2008-09 (£1,290 million)
and 2013-14 (£1,281 million) (Figure 3). The National Audit
Office estimated that in 2013-14 contractors' costs comprised
37% (£481 million) of overall operating costs.[16]
14. The Department told us that the freedoms that
DE&S now enjoyed as a bespoke trading entity enabled it to
offer higher salaries and set its own bonus arrangements to attract
and retain skilled staff and to mirror the private sector in how
it develops its people. The Department noted that DE&S spent
about £550 million a year on civilian staff and £450
million a year on contractors which it considered was the wrong
balance, which was why it was trying to push down the amount spent
on contractors. However, there was not yet a detailed plan on
how the secured freedoms will be used to deliver the skills needed,
whilst reducing overall costs.[17]
15. DE&S has contracted with Bechtel and CH2M
Hill at a cost of £215 million to strengthen project and
programme management and with PWC at a cost of £43 million
to determine appropriate human resource structures for DE&S.
The Department told us that these managed service provider contracts,
each lasting some three and a half years were expected to save
some £400 million to £450 million over this period.
The Department also told us that it expected these large companies
to introduce better processes and systems into DE&S, thus
reducing its reliance on contractors to deliver equipment projects.[18]
16. The Department noted that it had agreed with
the Treasury that the costs of running DE&S which were £1,290
million in 2014-15 would reduce to £1,079 million by 2017-18,
including the cost of the managed service providers. Overall,
the Department expected cumulative savings of £392 million
over the period, including savings measures devised and delivered
by the managed service providers. The Department had set initial
performance milestones for the providers to achieve over the first
six months of the contract, but had not yet set detailed plans
on how it expected them to deliver the savings agreed with the
Treasury, nor how it intended to ensure skills were transferred
from contractors to permanent staff.[19]
14 C&AG's report, Reforming defence acquisition, paras 1.4, 2.1, 2.2 Back
15
C&AG's report, Reforming defence acquisition, paras 1.15-1.21 Back
16
Q 90; C&AG's report, Reforming defence acquisition, para 1.3, 2.4, 2.2 Back
17
Qq 67, 113; C&AG's Report, Reforming defence acquisition, para 2.7 Back
18
Qq 75, 79, 85; C&AG's Report, Reforming defence acquisition, paras 2.8, 2.13 Back
19
Qq 85, 89; C&AG's Report, Reforming defence acquisition, paras 2.8, 2.13 Back
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