Defence Committee’s Report on UK Defence Procurement: A Missed Opportunity

The House of Commons Defence Committee’s July report on UK defence procurement makes some valuable points but it does not consider the causes of problems, many of which lie in existing behavioural incentives. It underestimates the difficulty of the task of reform and reiterates long-established criticisms of projects being late and over budget. However, it does not provide an original examination of why projects overrun and overspend. While the report makes generally insightful observations, it does not assess faulty elements in the procurement process for their ease or difficulty of remedying.

This piece scrutinises just some of the issues covered by the Defence Committee’s report. The report states the value of having a single minister for defence procurement for ‘at least the bulk of a parliament’ (p. 47). This can be fixed by a determined prime minister. The report mentions that Defence Equipment & Support (DE&S) should give more attention to monitoring and promoting the health of industry, not least on its recruitment and training of apprentices (p. 35). It does not consider whether the DE&S should follow the example of its French counterpart, whose formal missions include ‘equip the armies in a sovereign way’ and ‘develop the French and European DTIB’. But the demands of the war in Ukraine have underlined the need for the DE&S to better understand the strengths and limits of its suppliers, which will require additional effort and reprioritisation for some commercial staff.

Perhaps the most common complaint in the services (and industry) is that the DE&S moves too slowly and the MPs’ claim that there is a need for greater urgency in procurement decision-making (p. 48) is a significantly tricky issue.

Speeding up Defence Acquisition

The report notes a lack of urgency in some parts of the DE&S and the Ministry of Defence (MoD) (unless there is a war on) (p. 45). But when a project meeting problems means the MoD is likely to come under criticism, there is pressure to ensure that all the extensive documentation required for a procurement is worded as well as possible and agreed across numerous stakeholders.

The operational and other dangers associated with taking longer to get a project on contract and into service tend to be neglected in DE&S and even government as a whole.

Urgent Capability Requirements

To enable faster acquisition, the report comes out much in favour of the techniques used for Urgent Capability Requirements (UCRs). Unexpected operations and developments in such campaigns always place new demands on armed forces and it is praiseworthy that the UK has the tools and financial flexibility to respond quickly. But even in Iraq and Afghanistan there were problems with some systems not working well and with the time taken for the generation of non-equipment Defence Lines of Development (DLODs) delaying effective use. The UK DLOD system has Training, Equipment, People, Infrastructure, Doctrine, Organisation, Information and Logistics as the central elements – Interoperability is also considered. But the importance of the Senior Responsible Owner (SRO) role stressed elsewhere in the report underlines that the UCR approach the report outlines does not deal with large and complex systems that require extensive training, maintenance and other factors to be arranged.

Spiral Acquisition

The report is rightly supportive of what is defined as spiral acquisition involving an initial basic system (p. 17). However, it does not explore the costs for, and challenges placed on, the original equipment manufacturer to deliver a core system that is capable of affordable improvement. Incremental additions in capability can also be very challenging and costly, as illustrated by the US difficulty in generating the Technology Refresh 3 and Block 4 version of the F-35.

On platforms, an ‘open architecture’ includes the capacity to accommodate the weight and dimensions of yet-to-be-developed effectors (including missiles). This is an obvious challenge that needs to be addressed in the initial design. The core power and propulsion system on a new platform should now be able to generate much more electricity than that needed for an initial version, given that directed energy weapons are becoming increasingly feasible and desirable. Novel sensors may be added which also require extra power. On logistics, can a platform fitted originally with guns and missiles (which need ammunition storage) be modified to accommodate directed energy weapons that require the sustained availability of electric power? The early and extra costs that the MoD should pay for building the foundations for further growth in a system’s capability merit specific attention.

Behavioural factors are also significant: commands may be reluctant to specify an adequate system for the immediate term because they fear that the future money for subsequent upgrades may be taken away. They may feel that approval for a new system may more easily be obtained if it includes the promise of a significant increase in capability over what is currently in service. These considerations made it difficult to implement earlier spiral (or ‘incremental’) procurement approaches.

The Requirements Dimension

The report correctly identifies the consequences of setting large numbers of over-demanding requirements (p. 36) but does not probe why this occurs. Some would see it as an inevitable feature of using formal systems engineering and requirements engineering techniques for multi-function platforms. A reluctance to opt for a spiral acquisition approach could also be relevant.

The report also complains about the incidence of requirements changes once a commitment has been made (pp. 36–37). However, at a time when technology is moving very quickly alongside drastic changes in world politics, it is unrealistic to think that militaries will remain happy with requirements fixed before development work gets underway. A more sensible approach, seemingly being pursued in the Global Combat Air Programme (GCAP), would be to set detailed requirements as late as possible in the light of detailed discussions between the military (with their expertise on threats and how to deal with them) and industry (with its knowledge of technology, engineering and cost). This is an argument for a close dialogue between the suppliers and the customers in which a big role for DE&S is not yet apparent. The report speaks of the MoD and the DE&S ‘needing to engage in a more constructive dialogue with industry’, including at the pre-procurement stage, (p. 47) but does not specifically mention the front-line commands’ involvement. Yet it is surely the military, with its awareness of emerging threats, that should be talking with industry and its technology and engineering expertise. It is noticeable that GCAP, while using some DE&S staff, is being run from London not Bristol and with the MoD GCAP team including the RAF.

The Powers of the Senior Responsible Owners

The material in the report on empowering SROs (p. 42) does not refer to their original function which was to monitor whether all the non-equipment DLODs were in place on a timely basis when the equipment line was arriving. They are supposed to oversee the transformation of equipment into usable capability, which is why it was seen originally as a uniformed role. However, they do not have powers to command those responsible for other DLODs such as people and training, and they do not control the funds needed for DLOD delivery. In principle, if they were properly to be held accountable before Parliament for their work, as the Defence Committee argues, they should have financial and directing powers, but this would disrupt the system embodied in the Levene Reforms of empowering the heads of frontline commands and of the Defence Infrastructure Organisation (which do control budgets and can give orders).

SROs are seen primarily as having a monitoring, nudging and reporting function, to report upwards on how an equipment-centred capability programme across all DLODs was advancing. But it is optimistic to expect a one-star officer to point to someone more senior for their failure to, for instance, recruit and train the right sort of people to operate an innovative system. Such a step, especially if a more senior service officer was highlighted, is unlikely to be viewed as career-enhancing by a more junior SRO. Thus, the MoD’s appointment of a civil servant as the SRO for the Ajax programme has the advantage of having someone in post whose career is largely independent of any single service interest and who should not be reluctant to tell the truth to power.

The MoD and Intellectual Property

The current head of DE&S is quoted in the report as preferring access to competition for upgrades (p. 38) and there may be cases where this is feasible and central. However, aside from the consideration that competitions take more time than sole-source contracting, this would often require the original supplier to hand over large amounts of intellectual property (IP) so that the MoD itself or another agent could effectively and safely improve a system. There would be three stumbling blocks to this practice with a major system. The first is that, while the MoD may have paid most of the development costs of a project, a company may have invested some of its own money for specific development challenges. In the case of GCAP, a condition of the progress of the project was that companies should commit hundreds of millions of pounds of their own money. Trying to sort out which IP was generated with MoD money and which with corporate funding is a task lawyers would relish. Second, the MoD may have a claim for the technology advances made within a programme (foreground rights) which it paid for, but responsibility for the expertise that enabled a contractor to be a credible deliverer of a project (background rights) cannot easily be claimed by MoD. Third, a contractor will have one appetite for handing IP to the MoD and quite another if it thinks that the MoD will want to pass it to another company. The challenges of the MoD securing a capacity to select a supplier to change a system that another firm has developed should not be underestimated.

Competitive Tendering

The Defence Committee complains about cost and time overruns but, to an external observer, some of these are linked to competitive tendering and cash shortages at the MoD. Businesses are incentivised to make optimistic forecasts for a major project if they know there will not be another comparable contract for at least a decade and rightly suspect that, in most cases, the lowest cost offer prevails.

For some businesses, their survival in a sector may depend on winning a particular bid. Projects are of existential importance for some suppliers, as is now being recognised in DE&S. Struggling companies feel the most pressure to make over-optimistic offers. The author admits here to having devoted much of this written evidence to the inquiry to pointing to the potential negative consequences of competitive tendering. On the government side, officials in the MoD may be driven to accept what they can see as unrealistic tenders and to maximise the passing of financial risk to suppliers because the MoD is so stretched for cash to meet its ambitious policy goals.

At a time when many in the MoD and government recognise the need for government defence to have a closer and more cooperative relationship with industry (see most recently Chapter 3 of the Defence Command Paper Refresh) the Defence Committee (and perhaps many in DE&S) appear oriented to continue to rely entirely on contract terms rather than a positive relationship with a contractor to get what the MoD wants. This sentiment is captured by the Defence Committee in its recommendation ‘that DE&S should have a greater appetite for, and access to, use of external specialist contract lawyers to support its work’ (p. 30).

Conclusion

Defence acquisition is complex in terms of both risks and range of benefits. The reality is that prescriptions have second- and third-order implications that should be considered. The Defence Committee did not give much attention to such complexities.

Clearly Parliamentary committees have limited research capabilities at their disposal and their members have multiple calls on their time. Defence acquisition activities have had problems of affordability, time and cost overruns that have survived multiple attempted remedies and it would be unrealistic to expect an inquiry such as this recent one to develop multiple credible prescriptions. However, it would not have required much extra effort to recognise a wider evidence base and inquiring a little deeper into issues. Its effort to generate international comparisons, apparently relying on London briefings from the French and Israeli defence attachés and a Pentagon briefing in Washington, seems particularly weak. Had it devoted some attention to Government Accountability Office reports on US programmes, the Defence Committee might have concluded that the US system is more broken than the UK’s. Yet, the US system has still generated multiple systems that UK forces want to buy. The Committee might also have reported that the Cours des Comptes publishes much less on defence procurement than the National Audit Office and could have assessed whether all projects planned in the Loi de Programmation get delivered on time.

Despite what the Committee says, the DE&S is not broken, delivering well on three quarters of its highest value projects. But it does need improvement including increasing awareness of the needs of its UK suppliers if Government aspirations for operational independence are to be met.

Overall, there is need for recognition that first, defence buys a huge variety of goods and services from different market structures and that selection of the best procurement strategy will greatly depend on what is being bought. Second, the most demanding purchases which involve extensive development work and advanced manufacturing techniques are extremely difficult and have multiple risks. There is likely more need for expectation management.

The views expressed in this Commentary are the authors’, and do not represent those of RUSI or any other institution.

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