Forces personnel also face issues trying to find a home when they leave the service. The homelessness charity Homeless Link conducts the annual Survey Of Needs and Provision, which shows that the problem of ex-forces personnel sleeping rough, in hostels or in supported accommodation, is widespread. It reports that half the day centres in England say that they work with ex-service personnel and that those personnel face a high risk of falling into patterns of rough sleeping. We must acknowledge our responsibilities to the welfare of service personnel—regulars and reservists.

The Bill before us tackles job security for our reserves, opens the door to longer periods of deployment and promises to improve the incentives and compensation arrangements for employers. These are very good steps forward. However, if we are to attract the broad range of skills and people to greatly expand our Reserve Forces, we must have an answer for them on welfare issues such as their healthcare, their mental state and their family-life balance. Ensuring decent accommodation which is properly and regularly maintained for our regular forces should be seen as part and parcel of this approach.

5.33 pm

Lord Davies of Stamford (Lab): My Lords, I do not want to take up too much time, so will address only Part 1 and reserve my comments on Parts 2 and 3 for later stages in the Bill’s progress.

If anything can be said about the Government and defence—quite modestly and unexceptionably, because the points are so blatantly obvious—it is that this Government do not care much about defence and that their judgment in defence matters is pretty poor. In the course of three and a half years, they are well on their way to running the Army down from 100,000 to 82,000, they have abolished our carrier strike capability, they have abolished entirely our long-range maritime surveillance capability and they have reduced our capability in helicopters, in naval escorts—

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I think we are now down to 13 naval escorts from 22 when the previous Government left office—and in many other areas.

We are told all the time that that is due to a shortage of funds, but in fact the Government had a surplus in 2011-12, which was then entirely lost to the Treasury. There was then an extraordinary surplus of £2 billion, more or less, in the last financial year, ending in April 2013, some of which has been lost to the Treasury. The Government complacently say that a lot of it has been rolled over, but even this Government must realise that if you do that, at the very best you are delivering equipment a year later than it should have been delivered, and because of the time value of money, your money does not buy as much as it otherwise would do. That has been a disaster for defence—a completely self-made disaster.

On top of all that, we have had this extraordinary, monumental shambles today—something that in future years we will look back on as a memorable shambles—in which the Government, on the very day that they are introducing an important Bill at Second Reading, make a Statement a couple of hours beforehand saying that the first part of the Bill is inoperable and that they do not intend to take it forward in the foreseeable future. The Government have ended up with the worst of all possible worlds. That is the absolute obverse of good leadership and good management.

The Government are keeping both their feet on both sides of the fence. They are not taking a clear decision. Of course that will be damaging to the morale and momentum of DE&S-plus and of course it will be damaging to recruitment, particularly at higher levels. People going in at the higher level are precisely the sort of people who will be displaced in the event that, a few years down the line, the Government switch to the GOCO course and Bechtel or Boeing or Serco or someone comes in and puts its own staff in these senior decision-making posts. It is utterly naive not to suppose that there will be real damage from this continued indecision by the Government. We have had too much indecision already; we might at least have expected and been entitled to a clear decision at this stage.

The decision should be quite clear: we should junk the idea of the GOCO altogether. I totally agree with the points that have been made about GOCO by a lot of people whom I know well and who know an awful lot about defence: the noble Lord, Lord Levene, and the noble and gallant Lords, Lord Stirrup and Lord Craig, and others who have spoken in this debate.

Of course, the Government have run into a lot of problems with industry over the GOCO proposal, mostly about conflicts of interest and treatment of intellectual property. However, there are two much more fundamental reasons why the whole idea was completely misconceived from the beginning. The first is that defence procurement is and ought to be and ought always to be core business for the Ministry of Defence. It is exactly like recruitment or training; what we are talking about is producing the essential inputs into defence capability. The MoD must be in charge of that and must understand that.

What is more, if the Government give up that capability and that knowledge, they will not get it back. There are all sorts of people now in the MoD

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and DE&S—I know them well—who can negotiate a contract with a GOCO partner if you want one. But if you actually sign that contract and give up your role running defence procurement to some private sector partner, in five years’ time or whenever you renew the contract, you will be at a very considerable disadvantage, and in 10 years’ time you will not be able at all to have an intelligent or effective negotiation or to monitor intelligently what is going on. It is very important that this should remain a core function and a core expertise of any Ministry of Defence worthy of the name. That is true in this country and elsewhere; it always has been and I believe it always should be.

The second fundamental reason why the GOCO proposal was misconceived and a mistake in principle from the beginning is that an essential part of defence procurement is flexibility. The enemy has a vote in this. You have to take the enemy into account. The enemy may change; the enemy may change his tactics and you have to change your procurement policy accordingly.

When I was defence procurement Minister, I held a meeting in my office every month on counter-IED policy. I had the experts there from DE&S and of course our own capability people and people from PJHQ, and the absolute experts from the various research institutes that we have at Fort Halstead and so forth. They are brilliant; I want to pay tribute to them now. I am full of admiration, and always will be for the rest of my life, for their expertise and dedication. They get no public recognition at all for their role.

We also had the Americans there. I had negotiated an open-eyes agreement with my American counterpart, Ash Carter, on counter-IED. We had an American colonel and she always contributed very usefully to our meetings. In those meetings we quite frequently decided then and there, that afternoon, to change our procurement of some particular technology or item of equipment and switch it to something else, usually in the UOR programme but it sometimes involved adjusting a core programme as well. You needed to do that because the enemy was changing and the enemy’s tactics were changing, and we wanted to save lives and win operations. Those are the fundamental obligations of any Defence Minister, which must override any other consideration.

It is quite wrong to give up that flexibility. You need flexibility for other reasons. I made it a principle—I have no idea whether the Government continue with it, but I hope that they do—that before I authorised any major programme, I always investigated whether we could do it in collaboration with an ally. If you do that, not only do you share the research and development costs and the risks but you get longer production runs, and the very considerable fixed overheads then spread over a greater production run, which is highly desirable. I had a lot of successes in that, particularly with the French, where we did a lot of things. One example was in underwater programmes. I invited them into the Mantis UAV programme. We did the new turret for the Warrior and the Scout vehicle together. These were successful examples of international collaboration requiring great flexibility.

If you had an annual, biannual or five-year contract with a GOCO to procure things on your behalf, you would have to hold up the whole process. You would

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have to talk to them; you would have to negotiate with them; and it would take time. What is more, it would take money. Money is what motivates the private sector—quite rightly and understandably so—and it knows perfectly well that the way in which it makes the real money out of government is when the Government change their mind, change their specification and want to do something differently. That is always the great moment, when you get penalties and you can increase your prices. That is exactly the situation which we must not find ourselves in and why we must not go down the GOCO route. I hope that we hear no more about the GOCO. However, I am extremely disappointed: it is a fundamental failure of government not to reach a clear decision and to let the country and everybody involved in defence procurement, in industry and within the MoD, know exactly where we stand, and to maintain this uncertainty which they have created, quite gratuitously, in the coming months and years.

What is the solution? I do not want ever to be accused in this House of criticising without saying what I would like to do and what I believe is the right solution. I think that we should proceed with the DE&S as it currently is and make steady, incremental improvements to it. Any human institution, of course, can be improved, and that is true of the DE&S. The DE&S contains wonderful people of enormous ability and enormous dedication, enthusiasm and commitment. When I was putting together the Scout programme, I remember there being a big time factor there. We succeeded in getting the whole process, which would normally take about two years, done in about 13 weeks. People were working through the night and through the weekends. They are superb people. Of course, they do not have quite enough of certain types of expertise—some in the financial area and some in the project engineering area—and that must be remedied, as Kevin O’Donoghue and I were trying to do. We did so often by secondments from the private sector. You cannot bring in people to deal with contracts of their own companies, of course, but you can put them in other parts of the DE&S and they will learn a lot about government procurement and you will learn a lot from their particular expertise during those secondments.

You can also do something which I did not have the occasion to do but thought of doing on several occasions. Where you have a particularly complicated and difficult project, you could perhaps bring in a private sector partner to be alongside you in the negotiations. I would have done that on the future tanker programme, which had gone on for eight or nine years when I took over. Luckily, the people concerned came to a conclusion rather rapidly after I came on board and avoided that particular fate. That is something that we should look at.

Above all, I do not believe that the DE&S needs a new corporate structure. That creates barriers, inflexibilities and some of the problems to which I have already referred. I totally agree with the noble and gallant Lord, Lord Stirrup. He was quite right in what he just said about the international position. Of course, we have had big problems with cost and time overruns—you always have those in defence procurement if you are at the cutting edge of technology. By definition, nobody

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can predict exactly the time and costs involved in solving technical problems at the cutting edge—at the coal face. That is absolutely inevitable. If you look at how the French and the Americans do it—those are the only comparisons really worth making because other people are not normally at the cutting edge of technology—you will see that the position is very similar there. The Americans have far worse cost overruns. Their time overruns are not quite so bad because they throw enormous amounts of money at something when they run into a problem.

However, that is not a reason for complacency. There is enormous scope for improving the DE&S, and it should be steadily improved in the way that I have described, but we should in no circumstances destroy any of its enormous qualities. We should in no circumstances throw over this particular institution lightly and set up something else which we would live to regret.

Finally, I want to ask some specific questions of the Minister. If he does not have answers for me now, I ask him to write to me and place a copy of the letter in the House. First, was it by accident or design that the approximately £2 billion surplus was accumulated in the MoD in the last financial year? Secondly, are the Government providing for or expecting to make compensation to Bechtel for withdrawing the competition in which it was engaged and on which it would have spent a lot of money? Thirdly, what is the total cost of this GOCO exercise, including any compensation to contractors if that arises? Fourthly, what is the pay or total remuneration package for Bernard Gray in his new role? Fifthly—the matter has been raised this afternoon but nobody seems to have any clue to the answer—why was it that, extraordinarily in this case, the normal processes for open, public recruitment were overridden and a special deal was done with one particular nominated individual?

5.45 pm

Lord Tunnicliffe (Lab): My Lords, this has been a very interesting debate. One realised as one listened the extent of the knowledge of, and involvement in, defence over many years represented in the Chamber today. My credentials are somewhat modest. My noble friend Lady Cohen set out hers, but did not mention the role she handed on to me. I spent two very interesting years as a non-executive director of DLO, the defence procurement agency, and was involved in the merger that created DE&S.

I expected to be in the somewhat minority view, arguing for some respect and admiration for the quality of the people in DE&S, but I find that I follow the noble Lords, Lord Levene, Lord King and Lord Lee, the noble and gallant Lord, Lord Stirrup, and my noble friend Lord Davies in saying that these are good people doing a good job. As the noble Baroness, Lady Garden, pointed out, it is tremendously complex—a very big procurement job and one, as my noble friend Lord Davies said, in a constantly changing field. They are much underrated and I would certainly like to set down my name as one who admires them, as I admire the Armed Forces in general.

There has obviously been an ongoing challenge in defence procurement. We on this side accepted that general challenge and much of the direction the

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Government were going in. We were willing to see a GOCO option if, through a process of competition, it could be refined into something credible that would do substantially more than DE&S being developed in a favourable environment. However, that competition went away. Only one bidder was left. Reluctantly, I welcome the decision—someone has to welcome the Government at some point—to abandon the competition and concentrate on DE&S. DE&S has the fundamental talent, provided it is supplemented. The noble Lord, Lord Levene, made the point that it would take a relatively modest number of additional people in focused roles to rise to the DE&S-plus challenge and meet the objectives that we all have in mind, and the needs of the taxpayer and front-line people.

We have a little bit of a mix-up today, with a debate on a Statement and a debate on a Bill. I have a few questions about the Statement. I will repeat some of the questions put by my noble friend Lord Davies because I informed the Minister about mine and expect him to answer them today. First, does the new entity require any legislation? As far as I can see, it does not. This can be done administratively within the present law. There is mention in the Statement about the accounting officer’s budget. Will that budget be merely for the operation of DE&S, or is this the procurement budget of £8 billion or £10 billion, depending on how you look at it? That is very important because if the accounting officer holds the budget he can, in a sense, insist on that firmer line between the front-line commands and the DE&S providers. Could the Minister also set out in more detail the new freedoms when it comes to pay? In other appointments over the past months, there has been talk that no appointment should be made at a rate that exceeds the Prime Minister’s salary. That will clearly be too limiting in this case. Are the freedoms such that that sort of arbitrary limit is not there?

We also have the very important issue of how appointments to these roles will be made. I think that the Secretary of State referred in the Commons to something like an accelerated system. We have spent a lot of time in this country worrying about public appointments. We have a Commissioner for Public Appointments, so at least some regard has to be taken for the work of that commission and how the new appointment process may give us better, faster results yet still meet the tests of fairness and opportunity that the public appointments commission represents.

To be very specific: how was Bernard Gray appointed? The Government have to be responsible for that appointment, but can we at least know how the decision was made and what public appointments criteria were checked off before it was made? We should know what Bernard Gray is to be paid because that will illustrate whether the Government are serious about breaking free from constraints in payments. It was perfectly reasonable at the time of the appointment of the Governor of the Bank of England that his salary and conditions were openly presented, and it should happen now.

Finally, in the Statement, which I will come back to, there is the concept that we might go for a GOCO at some time. Can the Minister offer some clarity on that? Are we talking about it being before the next election, immediately after it or further in the future?

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Turning to the Bill, first, I join with other noble Lords in asking the Government most sincerely to withdraw Part 1. The intention of legislation must be to deliver a tangible outcome. You have to have a concept when you are working on creating it: what is it going to deliver? The legislation to create the GOCO is quite complicated—I will come to that—but at least there was something there. We had a White Paper about it and there had been some description and discussion of it. There was some background about the tangible thing that we were debating. We will not now be debating something that is going to happen in a near timescale. It will be a debate in a vacuum. It will almost be a philosophy seminar, as we will have to carry notions of “What if this?” and “What if that?”, and of how it fits together.

Finally, it will have the most undesirable effects on DE&S because it will be like a sword of Damocles. At the whim of a Minister, with no scrutiny from this House or the House of Commons, the whole issue relating to defence procurement can be transferred to a GOCO if we pass Part 1 of the Bill. I implore the Government to withdraw Part 1 and to let us spend our time concentrating on Parts 2 and 3. In the mean time, let us encourage DE&S to continue with its improvement programme, using its new freedoms. If the new freedoms need any legislation, of course that can be wound into it, but we should not have to contemplate or discuss a theoretical concept of such magnitude that it will have no impact within a near timescale.

Sadly, the Government will perhaps not listen to me and we will have to discuss the GOCO. As the noble and gallant Lord, Lord Stirrup, said, superficially it is not a magic bullet. We will have to work through a lot of questions. There are issues of conflicts of interest, the retention of sovereignty and the protection and supply of intellectual property. How will Chinese walls work within the various parts of the consortium that are also parts of larger firms? How will the civil and criminal penalties work in order to make these protections credible to the outside world? The concept was that it might go for nine years and then end. What will be done to require the GOCO company to protect skills, so that if those things are taken back into the public sector, the skills base will be retained?

We will need to look at the essence of why a GOCO is a good idea. When talking about GOCOs, the Government are tangentially talking about risk transfer; I believe that the Minister actually referred to it in the remarks that he made in opening the debate. Among my credentials is that I have been a client of Bechtel. I have to tell noble Lords that Riley Bechtel has never transferred one iota of risk. He is brilliant at running a firm that adds value—let us not get too upset about that—but the only thing that Riley Bechtel puts at risk is the size of his profit. He does not put Bechtel’s basic assets at risk. There will be no risk transfer if the Government’s target is someone like Bechtel. I am willing to be proved wrong on that, but if we must discuss Part 1 then we will be testing the Government on risk transfer.

We now come back to the question of added value. Sometimes when the Government talk about this, the added value seems to be solely about the ability to

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employ people. Suddenly, at a stroke, the Government seem to have solved the problem of employing people by getting new freedoms. But discussing the issue is very complicated without a tangible action in front of us.

I turn to Part 2 of the Bill. Superficially, single-source contracting is going to be pretty boring. However, anyone who has been involved in this area—not just the military but any area where de facto single-sourcing comes about—will know the value of getting this right. I will be interested in probing this and perhaps trying to get the Government to go somewhat further. At the moment the Bill seems to be written around a price mechanism, which will be a cost, an overhead and a profit. The mechanisms that are being brought forward to improve this are, principally—I think that this was in the Minister’s speech—transparency. The objective is to improve the balance between value for money for the taxpayer and reasonable profits for the supplier. We entirely accept that; we are not against suppliers making profits, as suppliers that do not do so do not continue to exist. There has to be that balance.

The process is to have the force of law in many areas. This is good. Indeed, the gains claimed for it are modest; they could be significantly higher. However, there will be questions about what transparency means and how confidentiality and IP are going to be protected. There is a real issue about information that flows about between groups, where one group is deemed to be a single-source supplier while another is perhaps trading in the international civil world.

We need to look carefully at the SSRO, and particularly at its independence. Creating independent bodies is a very difficult thing to do, as is actually creating some way of being sure that government influence is not there all the time. We will have to look at its independence, its balance and the reward structure for its directors—and, more importantly, at how we bring in the right talent. What is the appointment process going to be? What will be the quality of the people? What will its powers boil down to? I know that they are in the Bill, but they need to be picked over. Is it effectively an available arbitrator?

Should we go further? In my experience, people who have not been involved have a very silly idea about competition: they think that if you have real competition leading to a contract award, somehow you have solved the problem. Usually, 80% of the problem comes after the contract award. Things go wrong. Circumstances happen and change things. I have dealt with contracts for multiple hundreds of millions, and we have had so-called competition at the beginning; sometimes you are pushed to get two suppliers that are vaguely compliant in your bidding process, but you have your competition. However, you are then locked into a single-supplier situation. Can we think about how defence contracts that run on with a single-supplier situation can be brought into this area? What we need in this difficult area is more innovation so that we can go for more cost savings and can incentivise suppliers to improve—and they will feel that they are getting a fair deal and being properly rewarded.

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Finally, on the reserves, we, of course, support a greater and more integrated role for the reserves, and the change of name. We note the logic that my noble friend touched on earlier: there will be a 20,000 reduction in full-time Army personnel. We hear that this is now planned and cannot be changed. We accept it, but bringing up the total number of Reserve Forces to 30,000 does not appear, initially at least, to be going well. We need regular reports. We look forward to the amendment that the Minister will be bringing forward in this area, but these reports have to go quite a long way further. We need to know not just about gross numbers but about where the skills are, how the training is going and what reduction in planning assumptions will result if we fail to recruit. What is the realistic capability of the Army if this recruitment does not take place, or if some of the problems, referred to by noble Lords, that reservists have when faced with the onerous burden of being in the reserve come to pass and we have difficulties?

Parts 2 and 3 are sensible pieces of legislation. We will have to pick them over, but they have lots of potential. The Government have wisely stepped back from the GOCO competition. They should now step back from trying to prosecute Part 1.

6.01 pm

Lord Astor of Hever: My Lords, we have had a constructive and well informed debate on the Bill. I share the generous thoughts of the noble Baroness, Lady Dean, about Lord Gilbert. The debate has shown that there is a large degree of consensus on the need to reform the way in which we manage and deliver our defence capabilities. It is important that we provide our Armed Forces with the equipment and support they need and that we take the appropriate measures to ensure that the Reserve Forces can be used as part of the integrated Future Force structure with individual reserves appropriately protected in their role and their employers better rewarded for the contribution they make in supporting the Reserve Forces.

The measures set out in the Bill represent a real change to how the Ministry of Defence will conduct its business in future. They will allow us to ensure that equipment and capabilities are delivered on time, on budget and to the right specification.

At this point, I am going to cut short my speech as I have been bombarded with questions, and I will try to answer as many as I can tonight. There is no way I will be able to answer all of them, so I will write to all noble Lords who asked questions and copy in other speakers.

The noble Lord, Lord Rosser, and other noble Lords asked why Part 1 should remain if we are no longer proceeding with the GOCO. I am well aware of the mood of the House on this issue. We believe that a GOCO remains a potential future solution for transforming DE&S once we have put in place a more robust baseline from which to contract with a GOCO partner. It would therefore be prudent to have Part 1 in place should a future Administration decide to go the GOCO route. We very much hope that the new DE&S-plus organisation will be robust and successful. We should not be afraid of the competition that potentially testing the market for a GOCO in three to

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five years’ time would provide. Keeping the possibility of a GOCO would provide an incentive for a new organisation to maximise its performance.

The noble Lord also asked what “at a future date” means in relation to a possible future GOCO. We do not envisage reopening the GOCO option for at least two to three years, certainly not before the next election.

The noble Lord asked how much money has been spent on the GOCO commercial process and whether the Bechtel consortium will now make a claim against the MoD for the money it has spent on the bid. This was also asked by the noble Lord, Lord Davies. We have spent £7.4 million on supporting our work on the GOCO option. The money is not wasted. We have gained valuable insights from this work that have not only helped us understand the commercial landscape but will stand us in good stead for the new organisation. On Bechtel, we have always made it clear that we will not pay bid costs.

The noble Lord asked about the draw-down of regulars prior to build-up of reserves. We have had no choice but to reduce regulars to stay within the budget. The cost of 20,000 regulars is £1 billion a year. In line with the SDSR, there is a drawing down in some areas to build up in others, such as cyber, as the noble Lord knows. This is about doing defence differently.

Lord Lee of Trafford: My noble friend has just given an indication of the cost of the GOCO option so far. I draw his attention to a reply to a Written Question I had tabled:

“The Materiel Strategy programme is currently in the Assessment Phase and is considering two options … The Concept Phase of the programme started in May 2011 and analysed a number of different operating models. It concluded with the approval of the Initial Gate Business Case in April 2013 and cost £12 million. The Assessment Phase is currently developing both DE&S+ and GOCO options”.—[Official Report, 18/11/13; col. WA135.]

Perhaps my noble friend might like to look at that.

Lord Astor of Hever: My Lords, when I come to answer my noble friend’s questions, I will touch on the assessment phase and come up with some figures which may be helpful to him.

The noble Lord, Lord Rosser, asked for the latest update on recruiting. The quarterly personnel report of 14 November had trained and untrained strength of reserves, inflow and outflow. The Secretary of State will publish recruitment targets before the end of the year. The noble Lord asked about Capita recruitment. We have been very open about the fact that there have been teething problems. The Army and Capita are fixing these. The new website will be up and running in January, and there will be a faster recruitment pipeline. Temporary adjustments have been made to applications to ensure that we continue to progress new recruits. We want to cut out any blockages there.

The noble Lord, Lord Levene, suggested that we stop running down the abilities of civil servants. I agree with the noble Lord and pay tribute to those civil servants in the MoD, who certainly give me excellent advice. The noble Lord asked for a definition of the difference between DE&S and DE&S-plus. This is quite complicated, and I will write to the noble Lord and make sure that all other speakers get a copy of that.

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The noble Lord and my noble friend Lord Lee asked why there was no competition for the chief executive post. The simple fact is that the CDM has an extant contract that takes us past 1 April, when the new trading entity will stand up. His post as CDM will morph into the chief executive role. Furthermore, realistically, there would have been no chance of selecting and appointing anyone else in time for them to stand up the new organisation on 1 April. He will also provide a vital thread of continuity from the Gray report into the continuing reform agenda.

Going back to the note that I said that I would write to the noble Lord, I will undertake to do that before the Bill moves into Committee. The note will set out the different models.

The DE&S civilian staff will remain civil servants—a point that the noble Lord raised. Their status will not change. Members of the Armed Forces will continue to make a valuable contribution in DE&S as they do today. We will be able to create a more businesslike organisation which is better able to recruit, reward, retain and manage its staff. In terms of recruiting, we will be using private sector expertise to help DE&S-plus get match-fit, including in terms of its HR transformation.

My noble friend Lord King mentioned the deferral of mobilisation. It is already possible for a reservist or their employer to ask for mobilisation to be deferred. For an employer, one of the criteria for deferral is the impact that mobilisation would have on the business.

I am glad that my noble friend Lady Garden mentioned the cadet debate of a couple of weeks ago. I listened to some of the speeches in this Chamber and was most impressed. I will write to my noble friend about careers advice for cadets. She asked whether there was any skills audit of current DE&S staff. The answer is no, but we undertook a detailed assessment of DE&S business capabilities in the early part of the materiel strategy, which looked at the issue of skills.

The noble and gallant Lord, Lord Stirrup, pointed out that we must focus not just on a single factor as we reform DE&S. We recognise the complexity of defence acquisition, and will continue to do so.

The noble Baroness, Lady Dean, asked about the proportion of regulars recruited to reserves. There are incentives for ex-regulars to join reserves. Those who leave the Army through redundancy are being encouraged to consider a part-time military career in the reserves. For the Army, ex-regulars who enlist into the Army Reserve within three years of leaving regular service can enjoy a number of incentives and benefits, such as reduced Army Reserve commitment and training requirements or, alternatively, a commitment bonus worth £5,000 paid over four years. There is a comprehensive information campaign to ensure that all service leavers, not just redundees, are aware of the opportunities and benefits of joining the reserves.

The noble Baroness asked who is running recruitment; it is Capita, which is working closely with the Army to fix the teething problems. She asked whether tranche 4 redundancies were to be paused. No final decision has been taken on that. Also on the regular to reserve transfer, 459 applications have been made to the commitment bonus scheme, of which 316 were from ex-regular other ranks, 35 from ex-regular junior officers and 108 from direct entry—that is, not ex-regular—junior officers.

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I understand that this is quite complicated, and I shall write to the noble Baroness and set it all out, copying in other noble Lords.

The noble Baroness asked whether having the legislation in Part 1 would not be a sword of Damocles over the DE&S-plus option. No, we do not see it like that at all. We are constantly striving to improve performance. The innovative structure will move us forward, but the underpinning rationale for a GOCO remains in place and could represent a further evolutionary step. Part 1 being in place will not mean that we have to proceed with a GOCO in future, but it will keep the option open.

My noble friend Lord Lee asked a number of questions. He asked whether a GOCO was the department’s favoured option. When the Secretary of State announced the materiel strategy proposals in June, he was explicit in saying,

“we have not yet accepted the GoCo concept as the chosen outcome; we are conducting an assessment”.—[

Official Report

, Commons, 10/6/13; col. 54.]

My noble friend asked, as did the noble Lord, Lord West, whether Bernard Gray would resign. No, there is no need for that; what matters is that we drive forward the reform of DE&S. Bernard Gray will do that as chief executive of the new organisation.

My noble friend asked whether the chairman of the new organisation’s board would be executive or non-executive. The answer is non-executive; we will have strong oversight of the new organisation. We were asked how we would recruit the new people. We will use the private sector expertise that we plan to bring in through business partner contracts to help us to deliver a transformed HR. This will include getting the best out of freedoms that we have agreed with Her Majesty’s Treasury and the Cabinet Office, which are necessary for the new DE&S.

My noble friend mentioned Her Majesty’s Treasury. We have agreed with the Treasury and, indeed, the Cabinet Office that we must have freedom to be able to operate effectively. We are confident that we will get these. It is one of the reasons that we are setting this up as a bespoke entity. How much have we spent so far on this? I gave the figure of £7.4 million to the noble Lord, Lord Rosser. We have spent some £17.8 million on the assessment phase of this complex change programme to determine the best way to deliver what we need. This investment, which excludes the cost of MoD staff, has included work on the GOCO, the DE&S-plus option, and on the necessary changes to the customer.

My noble friend asked how much we have spent on consultants. The MoD spent £68 million on consultants in 2012-13. Going back to the freedoms, we do not yet know details of these, but they will be significant. Her Majesty’s Treasury recognises the need for significant freedoms around salary for DE&S-plus. I will write to my noble friend when I have more information. This is obviously a very important issue and I will copy in other noble Lords on it.

My noble friend asked about Bernard Gray’s salary, as did the noble Lord, Lord Davies. I understand that Bernard Gray will continue on his existing terms, but I cannot confirm that today. His current salary is around

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£220,000 per annum. My noble friend asked whether the potential GOCO competition would make it harder to recruit from the private sector. This is simply not the case. Those we are trying to recruit would see GOCO as an opportunity, not a threat.

The noble and gallant Lord, Lord Craig, asked about ministerial notification and early availability. It is important that Ministers oversee a call-out. We will seek to provide employers with as much notice as possible and arrangements already exist for high-readiness reserves who can be mobilised at short notice. I will write to the noble and gallant Lord on this issue.

My noble friend Lady Doocey asked about mental health and housing. I have very detailed answers but, rather than test the patience of the House tonight, I will write to my noble friend on those matters. I have a very full answer that I think she will be happy with.

The noble Lord, Lord Davies, made a very political speech and asked whether the potential GOCO contract would make it hard to recruit from the private sector, as did my noble friend Lord Lee. We do not believe that is the case. The people we are trying to recruit would see GOCO as an opportunity, not a threat. The noble Lord asked whether there was a special deal for Bernard Gray. His role will continue beyond 1 April on his existing terms and conditions. He provides a vital link between the work done so far and the new organisation.

The noble Lord, Lord Tunnicliffe, gave me sight of his questions. I can confirm that legislation is not required to establish the bespoke entity that we announced today. However, legislation is required to establish an effective GOCO and that remains a possible future option. If we do not have the legislation in place then, that could inhibit a future competition.

We still have to work out the detail of specific freedoms and authorities. However, as I said, the Treasury and the Cabinet Office have been working with us to ensure that this innovative structure will be permitted significant freedoms and flexibilities. I have already undertaken to write to noble Lords on this very important issue.

DE&S civilian staff will remain civil servants—their status will not change—and members of the Armed Forces will continue to make a contribution to DE&S, as they do today. We will be able to create a more businesslike organisation which is better able to recruit, reward, retain and manage its staff.

The Bill provides the legislation we need to make far-reaching changes to the way in which we deliver our defence capabilities. The changes set out will not only improve the support we give to our Armed Forces but make specific improvements for reservists and their employers, who are an integral partner in enabling the Reserve Forces. The measures in the Bill will also help to ensure that the taxpayer gets value for money. We must not miss this opportunity to make essential changes to the way we manage and deliver defence in the future. I therefore commend the Bill to the House.

Bill read a second time and committed to a Grand Committee.

House adjourned at 6.20 pm.