The Gray Report

By Bill Kincaid for RUSI.org

Bernard Gray's Review of Acquisition for the Secretary of State for Defence is the third important report on defence equipment acquisition in the last decade. The new findings contained in the report should be welcomed by all who care about equipping our Armed Forces with the right equipment, at the right time, within an affordable programme - and it is to be hoped that this includes both present defence ministers and their successors after the next election.

The Gray report's recommendations build on those from two previous acquisition initiatives, Smart Procurement of 1998 (later renamed Smart Acquisition) and the Defence Industrial Strategy of 2005. There is little disagreement between all three, but Gray makes clear that the work following on from these initiatives has not been fully followed through, and that some of the subsequent decisions have been counter-productive - for example, the removal of Agency status that was enjoyed by the former Defence Procurement Agency.

But Gray goes much further in some areas than previous study recommendations and this is particularly so in two areas, where he tackles issues that have been left alone until now. In previous studies, the organisation and culture at the very "top of the shop" in the Ministry of Defence was accepted as a "given", while the whole subject of the galloping unaffordability of the defence equipment programme was left alone - indeed one of the major contributors to this increasing array of costs arose through serious underfunding of the 1998 Strategic Defence Review. To Gray's credit, he hasn't dodged any of these issues.

But the report doesn't just address these top-level matters. It goes much wider and deeper than that.

Strategic Defence Reviews

Gray recommends that a Strategic Defence Review is held in the first session of each new parliament and that this is enshrined in law. These Reviews are to be fully costed and audited, with ten-year defence and twenty-year equipment budgets published to Parliament. PUS The Permanent Secretary is to be held legally accountable for the costings. A rolling ten-year budget is to be enshrined in law (as in France) and is to encompass manpower, estates, equipment and support funding.

It is widely understood, and has been for some years, that the defence strategic guidance based on the 1998 Review has become increasingly divorced from reality, having preceded 9/11, Iraq and Afghanistan - despite the New Chapter of 2002. The world has changed, but the high-level strategy has not.

A legal requirement to hold a full defence review every four or five years, together with presentation to Parliament of a rolling ten-year equipment budget, would ensure that a build-up of unaffordability was quickly exposed and dealt with in-year. This in turn would mean that repeated delays to programmes for affordability reasons would be reduced markedly. Gray shows that average delays on projects are five years, while average cost overruns add up to £35billion. This is considerably more than the figures used by the RUSI Acquisition Focus, which were stated by MoD as being unrealistically high. We now know that the RUSI figures were low.

The cost increases due to these delays are shown to be enormous by the report. Gray estimates that the 'frictional costs' to the MoD of these systematic delays are in the range of £900 million to £2.2 billion per year. The annual expenditure on the equipment programme is about £6 billion per year, "but the effect post-delay may be a level as low as £4 billion that will prove valuable, once unproductive costs across the system are taken into account".

No wonder the equipment programme proves to be unaffordable each year. The size of the delay costings, together with Gray's recommendations if accepted and implemented, should go some way to change the MoD culture of delay.

Formation of an Executive Committee

 The question, 'Who is in charge of acquisition in the MoD?' has been asked by many people. The answer, of course, is no one. There are plenty of people who have certain acquisition responsibilities, some of them quite onerous, but they do not have enough authority to carry them out. Gray recommends the formation of an Executive Committee of the Defence Board to be accountable for an affordable equipment programme. According to the report, the Permanent Secretary should chair this Committee, which should include the Chief of Defence Staff, the Director General of Finance,  the Second Permanent Secretary and the Vice Chief of Defence Staff. The Committee would meet at least quarterly, submitting the equipment programme to the Defence Board as part of the annual planning process. The Deputy Chief of Defence Staff (Capability) would be responsible for drawing the plan together, in consultation with the Director General of Strategy and the Director General of Finance. Finally, the programme would also be subject to independent audit, which would be published.

This goes a long way to tightening up accountability for acquisition in the MoD. There is, however, still one weakness, which Gray could do little about: ministers. Although the Permanent Secretary would be accountable to Parliament, and the Executive Committee would be accountable to the Defence Board, ministers would remain in a position to overrule elements of the programme - for example to slip, rather than cancel, programmes where there are jobs in marginal constituencies at stake.

Nevertheless, as far as the question 'Who is in charge of acquisition?' is concerned, the Gray report's recommendations go a long way to providing an answer.

 

Improving Delivery

Previous initiatives have also made extensive recommendations about changes to process, procedures, organisation and skills in the MoD. The Gray report also includes recommendations on how to improve the skills of the DE&S workforce, how to institute a regime of strict financial discipline, and how to improve accountability for project performance. But Gray's most far-reaching recommendations for improving programme delivery concern organisation.

According to these recommendations, the scope and structure of MoD management must be rationalised in order to focus on programme management of new equipment and support of in-service equipment. Other functions, such as dockyards, the Joint Support Chain and "certain aspects of communications" should be hived off. The three-star Chiefs of Material are to be abolished, and two three-star Chief Operating Officers are to handle Integrated Project Team workload.

But beyond this, Gray is not happy that the Agency status of the Defence Procurement Agency was lost when it amalgamated with the Defence Logistics Organisation. He recommends that the status of DE&S be the subject of further work, and that at minimum it should become a Trading Fund. To ensure that this is done, he states that: 'if a credible plan for the delivery of objectives set out in other recommendations within government ownership cannot be brought forward within 12 months, DE&S should be contractorised as a formal Government-owned, Contactor-operated (Go-Co) entity.'

This last proposal has proved to be the most controversial recommendation of all - and indeed was promptly rejected by the Government as soon as the report was published.

Assessment

The Gray report is a welcome overview of what is wrong with defence equipment acquisition and what needs to be done - from organisation and accountability at the very top, to detailed changes to improve delivery further down. Gray has not ducked the big issues, but neither has he skated over the detail, which in many places provides the analysis which has been lacking. Commentators, industry and other outsiders have not been able to get at much of the data and the MoD has provided very little in a way that has seemed to be deliberate obfuscation.

What of the report's weaknesses? It would be unrealistic to expect every aspect to be comprehensively covered, but in fact most are. However, while there are some recommended reforms of cultural problems (for example, the clear recommendation on costing of delay, which may well change the entire MoD mentality in this area) certain cultural aspects are not explicitly addressed, such as proper empowerment of individuals; clear rewards for improved delivery; overcoming risk-aversion; emphasis on maximising the upside rather than minimising the downside; instilling a 'time-to-market' mentality; and learning lessons rather than identifying and then forgetting them. These are important. And although Gray does recommend longer tours in acquisition, he does not mention the need for one man at the top to drive the culture change hard over a period of years - five or more.

There is also little about the MoD's relationship with industry. Exportability is acknowledged as important but there are no recommendations about the MoD-industry relationship in general. Presumably, Gray was not tasked to include this but there is now a risk that future work in implementing the Gray report will undermine the Defence Industrial Strategy (DIS), which in itself has only been partially implemented - in many areas implementation has been patchy or even non-existent. What is needed alongside Gray is DIS 2.

Professor Trevor Taylor has drawn attention to certain clashes between what Gray recommends and the findings of the Haddon-Cave report on the Nimrod disaster. These will not necessarily be hard to resolve but what is required is a coordinated approach to the implementation of Gray, Haddon-Cave and DIS 2. 

However, none of this detracts from the overall value of the Gray report. Previous acquisition reviews have been perceptive, but the MoD has failed to implement them properly even when early work has proved successful. So how will the Gray report be implemented? Gray says that his recommendations must be taken as a package, complete with no cherry-picking. But the Government has already rejected the recommendation to change DE&S to a Go-Co. What else will it reject? Whether this government or the next has the stomach for useful implementation of the majority of the recommendations must remain in doubt for the immediate future.  

 

The views expressed above are the author's own, and do not necessarily reflect those of RUSI