Recommendations & Conclusions
14 items
2
Recommendation
Twenty-Second - Improving the performan…
Accepted
We are deeply concerned about departmental witnesses’ inability or unwillingness to answer basic questions and give a frank assessment of the state of its major programmes. The Department is not sufficiently open about programme progress and risks. A few weeks before our evidence session it considered initial operating capability on …
Read more
We are deeply concerned about departmental witnesses’ inability or unwillingness to answer basic questions and give a frank assessment of the state of its major programmes. The Department is not sufficiently open about programme progress and risks. A few weeks before our evidence session it considered initial operating capability on the Ajax programme achievable by the end of June 2021. That did not happen and now it has no timescale for when these armoured vehicles will be ready for service. While witnesses told us that investigations into noise and vibration issues are continuing, they could not explain the likely causes or remedial action necessary. So far, the Department plans to offer 310 service personnel hearing tests, but the potential long-term health implications of this failure remain unknown. In addition, the Department’s refusal to explain the magnitude of its financial exposure in the event of a contract termination demonstrates a disregard for Parliament and taxpayers. We were struck by witnesses’ reluctance to attribute problems with the Crowsnest and Ajax programmes to providers’ poor performance or project management, even though in both cases it is a matter of public record. In this situation it is essential to monitor robustly whether value for money is still 6 Improving the performance of major defence equipment contracts being achieved. But the Department admits that it does not routinely monitor value for money of programmes, nor have its Accounting Officer Assessments rendered sufficiently clear accounts of value for money. Recommendation: The committee expects the Department to develop a more transparent approach to assessing value for money. In particular, the Accounting Officer Assessments letters—which come to this committee when significant changes occur on major programmes—should include a more detailed and frank assessment of how the changes impact on the value for money case as defined at the start of the programme.
Show less
Government response AI summary
The government agrees with the Committee’s recommendation for greater transparency, committing to ensure future Accounting Officer Assessment letters include more detailed evidence on value for money and that the Permanent Secretary issues annual reminders to SROs by January 2022.
Read full response →
HM Treasury
3
Recommendation
Twenty-Second - Improving the performan…
Accepted
The Department does not make enough demands of its suppliers to share the financial risks as well as the rewards of contracting for major equipment capabilities. The Department is dependent on a limited supplier base to deliver its major equipment programmes. Of the 20 programmes examined by the NAO, 14 …
Read more
The Department does not make enough demands of its suppliers to share the financial risks as well as the rewards of contracting for major equipment capabilities. The Department is dependent on a limited supplier base to deliver its major equipment programmes. Of the 20 programmes examined by the NAO, 14 are being wholly or partly procured non-competitively, mainly through choice, rather than reasons of national security. Suppliers understand that poor performance on one contract will not stop them winning the next. We are concerned that the Department pours money into the developmental stages of programmes while suppliers are reluctant to accept more risk. Suppliers should contribute their fair share of development funding to equipment programmes so they are sufficiently incentivised to deliver. The Department told us that it has a range of contractual levers to encourage suppliers to deliver and that, for example, it was applying these in the case of the Ajax programme. Despite this, they are clearly not having the required effect. The Department has prioritised pursuing bespoke, ‘gold plated’ platforms—which are a source of considerable delay in the equipment portfolio— which then prove difficult and expensive to upgrade. It could reduce its exposure to risk and encourage more constructive attitudes from suppliers if it was more willing to buy proven equipment ‘off the shelf’, where the pain of development has already been borne by others. Recommendation: The Department should write to the Committee within six months with a clear plan on how it will ensure suppliers take on their fair share of the financial risk in contracts, and how it will take past performance into account when letting new contracts.
Show less
Government response AI summary
The government accepted the recommendation and committed to writing to the Committee by the end of May 2022. This letter will set out evidence of how it holds suppliers to account and fairly apportions risk and reward across its contracts.
Read full response →
HM Treasury
6
Recommendation
Twenty-Second - Improving the performan…
Accepted
The Department continues to be unclear about what additional capability the taxpayer will get from the extra £16.5 billion in the 2020 Spending Review. We remain to be convinced that the government’s substantial uplift to the Department’s budget will not simply be used to plug financial holes across its programmes. …
Read more
The Department continues to be unclear about what additional capability the taxpayer will get from the extra £16.5 billion in the 2020 Spending Review. We remain to be convinced that the government’s substantial uplift to the Department’s budget will not simply be used to plug financial holes across its programmes. We are struck in recent evidence sessions by how many departmental witnesses with differing responsibilities have pointed to the additional funding as a solution to their problems. We note that as well as addressing £7 billion affordability gap in the Department’s 2020–2030 Equipment Plan, the Department is spending £6.6 billion 8 Improving the performance of major defence equipment contracts on R&D, and additional funding for pension changes and enhancing childcare for service personnel. It had previously written to us to say that the money would be used for both new and existing capabilities. However, witnesses could not say whether truly additional capabilities will be delivered through the additional funding. In addition, the Permanent Secretary was unclear about the basis of the assumptions informing its calculations of funding over the next ten years, including what has and has not been approved. Recommendations: The Committee expects to see absolute clarity in the Equipment Plan 2021–2031 about what additional capability the Armed Forces is getting for the additional £16.5 billion and how it has secured the long-term affordability of the Plan. It should clearly distinguish between new capabilities and those already in development. Improving the performance of major defence equipment contracts 9 1 The system for delivering major equipment capabilities
Show less
Government response AI summary
The government accepted the recommendation, committing to provide further detail and a breakdown of the £16.5 billion funding in the upcoming Equipment Plan report in February 2022, clearly distinguishing between new capabilities and existing shortfalls.
Read full response →
HM Treasury
7
Conclusion
Twenty-Second - Improving the performan…
Accepted
Cost increases or cuts to funding on the Department’s programmes can have a profound impact on the level of military capability that can be achieved. For example, it is procuring considerably fewer Ajax armoured vehicles and Challenger 3 tanks than it identified it needed in earlier assessments, as well as …
Read more
Cost increases or cuts to funding on the Department’s programmes can have a profound impact on the level of military capability that can be achieved. For example, it is procuring considerably fewer Ajax armoured vehicles and Challenger 3 tanks than it identified it needed in earlier assessments, as well as fewer P-8A maritime patrol aircraft and Type 26 frigates. In addition, delaying the entry into service of new capabilities can 7 C&AG’s report, para 3.7 and Figure 6 8 Committee of Public Accounts, Defence capability and Equipment Plan, Tenth Report of Session 2019–21, 1 July
Show less
Government response AI summary
The government disagrees with the Committee's conclusion regarding the impact of cost increases on military capability, asserting new funding will address threats. It commits to providing further detail and a breakdown of this £16.5 billion in an upcoming equipment plan report for publication in February …
Read full response →
HM Treasury
10
Conclusion
Twenty-Second - Improving the performan…
Accepted
The Department has spent nearly £4 billion of its budget by March 2021—including payments to GDUK of £3.1 billion—out of budgeted whole-life costs of £5.5 billion.26 It has so far received 14 vehicles, 2% of its contractual fleet requirement.27 Witnesses told us they were not prepared to outline the magnitude …
Read more
The Department has spent nearly £4 billion of its budget by March 2021—including payments to GDUK of £3.1 billion—out of budgeted whole-life costs of £5.5 billion.26 It has so far received 14 vehicles, 2% of its contractual fleet requirement.27 Witnesses told us they were not prepared to outline the magnitude of potential losses to taxpayers in the event of contract termination, but told us that there are strong provisions in the contract and that it has imposed liquidated damages on GDUK for its failures.28 19 C&AG’s report, para 2.8 20 C&AG’s report, Figure 6 21 Qq 29–30 22 Minister for Defence Procurement, Statement on the Armoured Cavalry Programme (Ajax) Programme, 6 September 2021, HCWS260 23 Qq 37–47 24 Qq 37, 47 25 Minister for Defence Procurement, Statement on the Armoured Cavalry Programme (Ajax) Programme, 6 September 2021, HCWS260. 26 Qq 57–58 27 Q 5 28 Qq 56–57 12 Improving the performance of major defence equipment contracts Monitoring value for money
Show less
Government response AI summary
The government acknowledges the importance of managing supplier performance and risk, citing existing measures such as CAAS, firm price contracts, and liquidated damages. It commits to writing to the Committee by May 2022 to provide evidence of how it holds suppliers to account.
Read full response →
HM Treasury
11
Recommendation
Twenty-Second - Improving the performan…
Accepted
HM Treasury directs that Accounting Officers should confirm to Parliament that procurements remain value for money (VFM) where there are significant changes to costs and schedules. The Accounting Officer had assessed eight of the projects examined by the NAO for this reason, yet did not find that VFM had been …
Read more
HM Treasury directs that Accounting Officers should confirm to Parliament that procurements remain value for money (VFM) where there are significant changes to costs and schedules. The Accounting Officer had assessed eight of the projects examined by the NAO for this reason, yet did not find that VFM had been undermined in any case. For example, in upgrading the Warrior armoured vehicle, the Department never reached a view on whether its proposed approach constituted value for money, despite spending over £580 million on it by the time of its cancellation in 2021.29
Show less
Government response AI summary
The government accepted the recommendation, committing to ensure future letters to the Committee contain more detailed evidence for value for money assessments and that the Permanent Secretary will remind SROs of their obligations by January 31, 2022.
Read full response →
HM Treasury
12
Conclusion
Twenty-Second - Improving the performan…
Accepted
We asked witnesses about the process for determining value for money and whether it monitors whether programmes remain so. The Department told us that there are routine ‘touchpoints’ through a capability’s life, but acknowledged that it does not routinely take a step back and evaluate whether VFM has been achieved. …
Read more
We asked witnesses about the process for determining value for money and whether it monitors whether programmes remain so. The Department told us that there are routine ‘touchpoints’ through a capability’s life, but acknowledged that it does not routinely take a step back and evaluate whether VFM has been achieved. It believes more regular evaluation of VFM is ‘worth thinking through’.30 29 C&AG’s report para 5.9 and Figure 8 30 Q 87 Improving the performance of major defence equipment contracts 13 2 Managing suppliers and learning from mistakes
Show less
Government response AI summary
The government, while disagreeing with the Committee's conclusion on VFM evaluation, agrees with the implied recommendation for transparency and commits to ensuring future letters to the Committee contain more detailed evidence and that the Permanent Secretary issues annual reminders by 31 January 2022.
Read full response →
HM Treasury
14
Conclusion
Twenty-Second - Improving the performan…
Accepted
The Department spends significant sums on the developmental stages of programmes while suppliers may not be paying their fair share. The Department argued that it is standard practice to pay for work against agreed milestones across areas such as development, demonstration, training and manufacture.33 However, given the number of programmes …
Read more
The Department spends significant sums on the developmental stages of programmes while suppliers may not be paying their fair share. The Department argued that it is standard practice to pay for work against agreed milestones across areas such as development, demonstration, training and manufacture.33 However, given the number of programmes that have encountered problems, better incentivisation of suppliers could be sought through securing more substantial private investment up-front. For example, on Ajax, the Department has paid out £3.1 billion to GDUK, while GDUK has told the Defence Committee that it has invested £40 million on manufacturing facilities and jobs: a ratio of 99:1.34 The Department has reduced its exposure to risk in some cases by buying proven equipment ‘off the shelf’, such as the Boxer armoured vehicle, Poseidon P8-A maritime patrol aircraft and Protector unmanned aerial vehicle.35 The Department told us that this approach is typically suitable for lower-value programmes but that from experience, off the shelf acquisitions with UK-specific modifications may be better than a full development programme, such as the Crowsnest radar system.36
Show less
Government response AI summary
The government acknowledged the Committee's concerns regarding supplier contributions and risk apportionment. While disagreeing with the specific conclusion, it committed to writing to the Committee by May 2022 to provide evidence on how it manages supplier accountability and risk.
Read full response →
HM Treasury
17
Conclusion
Twenty-Second - Improving the performan…
Accepted
The Department’s willingness and ability to systematically record its learning from existing programmes is critical to securing improvements in the future. There have been at least 13 formal reviews of defence procurement policy over the last 35 years, which have provided the Department with opportunities to take stock and learn …
Read more
The Department’s willingness and ability to systematically record its learning from existing programmes is critical to securing improvements in the future. There have been at least 13 formal reviews of defence procurement policy over the last 35 years, which have provided the Department with opportunities to take stock and learn from experience.41 While existing guidance in the Department is clear on the importance and benefits of recording and sharing learning from experience (LFE), the Department has not systematically gathered and distributed LFE from programmes.42 While most programmes have identified lessons, some have done so more systematically than others. For example, the Warrior armoured vehicle upgrade programme identified that they would have benefited from better collaboration within the programme team, and between themselves and the Ajax armoured vehicle team.
Show less
Government response AI summary
The government states that systems are already in place to identify and share lessons, with ongoing efforts to standardise LfE information. It highlights existing Strategic Partnering and Category Management Programmes and an Acquisition and Approvals Transformation Programme aimed at embedding continuous improvement.
Read full response →
HM Treasury
18
Conclusion
Twenty-Second - Improving the performan…
Accepted
The same lessons have been identified again and again across programmes, including underestimation of programme complexity at the design stage, users being unclear about their requirements, the need to have sufficient resources and skills in place, and shortcomings in delivering GFA.43 The Department only established a central register of LFE …
Read more
The same lessons have been identified again and again across programmes, including underestimation of programme complexity at the design stage, users being unclear about their requirements, the need to have sufficient resources and skills in place, and shortcomings in delivering GFA.43 The Department only established a central register of LFE for the first time in December 2020. The Department told us that it recognises LFE as an area for improvement and pointed to the complexity of the landscape, which spans four Commands, three delivery agents and several operating centres.44 Initiatives to improve delivery
Show less
Government response AI summary
The government states that systems are in place to identify and share lessons, with ongoing work to standardise LfE information. It also points to existing Strategic Partnering and Category Management Programmes and an Acquisition and Approvals Transformation Programme for improving delivery.
Read full response →
HM Treasury
19
Conclusion
Twenty-Second - Improving the performan…
Accepted
In 2018, the Department established a Strategic Partnering Programme (SPP) to maximise commercial leverage with its 19 most important suppliers by improving contract performance and managing strategic risks.45 The Department told us that the 38 C&AG’s report, para 3.16 39 C&AG’s report, para 3.8 40 C&AG’s report, paras 3.4–3.5 41 …
Read more
In 2018, the Department established a Strategic Partnering Programme (SPP) to maximise commercial leverage with its 19 most important suppliers by improving contract performance and managing strategic risks.45 The Department told us that the 38 C&AG’s report, para 3.16 39 C&AG’s report, para 3.8 40 C&AG’s report, paras 3.4–3.5 41 Q 3 42 C&AG’s report para 5.12 43 C&AG’s report para 5.13 44 Q 3 45 C&AG’s report, paras 3.17–3.18 Improving the performance of major defence equipment contracts 15 programme is now embedded across 14 suppliers and emphasised its vision to achieve a single view of suppliers’ contracts with the Department and suppliers’ performance under contracts. Witnesses cited ongoing detailed work looking at dockside support for ships and submarines as an example of how its ‘workstreams’ will improve efficiency.46 Its current savings target for the programme is £160 million—less than 0.1% of its forecast Equipment Plan spend of £163 billion, though its intention is to scale up its savings targets by ‘hundreds of millions’ of pounds.47 The Department told us that attributing savings to the programme’s interventions is challenging and it was worried about double counting of savings because of overlaps with DE&S’s ongoing efficiency programme work.48
Show less
Government response AI summary
The government responded by describing its existing Strategic Partnering Programme (SPP) and Category Management, stating these are based on good practice and are already in place to deliver cashable savings.
Read full response →
HM Treasury
20
Conclusion
Twenty-Second - Improving the performan…
Accepted
The Department has relatively more ambitious savings targets of £628 million over the next 10 years for its ‘category management’ programme. Category management involves grouping together related products and services into market ‘segments’ to generate efficiencies. The Department’s earlier attempt at introducing the practice in 2004 achieved significant efficiencies, but …
Read more
The Department has relatively more ambitious savings targets of £628 million over the next 10 years for its ‘category management’ programme. Category management involves grouping together related products and services into market ‘segments’ to generate efficiencies. The Department’s earlier attempt at introducing the practice in 2004 achieved significant efficiencies, but ultimately failed because the processes required to embed the programme were not established by the time start-up funding was withdrawn. 46 Q 73 47 Q 77 48 Qq 77–78 16 Improving the performance of major defence equipment contracts 3 Securing skilled staff and additional funding The Department’s reliance on temporary contractors
Show less
Government response AI summary
The government confirms that category management is in place to deliver £628 million in savings through more efficient ways of working. It also mentions existing systems for learning from experience and the implementation of an Acquisition and Approvals Transformation Programme.
Read full response →
HM Treasury
23
Recommendation
Twenty-Second - Improving the performan…
Accepted
Senior responsible owners (SROs) have responsibility for ensuring a programme meets its objectives. SROs oversee governance of programmes and steer them through key decision points, assisted by a delivery team. The NAO’s analysis showed that the median time in post for an SRO was 22 months, against median programme length …
Read more
Senior responsible owners (SROs) have responsibility for ensuring a programme meets its objectives. SROs oversee governance of programmes and steer them through key decision points, assisted by a delivery team. The NAO’s analysis showed that the median time in post for an SRO was 22 months, against median programme length of 77 months, reflecting the career path requirements of the senior officers who fill most SRO roles. A recent departmental survey found that many SROs did not feel empowered to carry out their roles, while some felt least competent in areas important to the effective management of suppliers.54 We asked the Department what it is doing to ensure that the role of SRO becomes an important part of the CV for military officers. The Department claims it has a good record of putting SROs through Major Projects Leadership Academy 49 C&AG’s report, para 17 and Figure 7 50 C&AG’s report, paras 4.6–4.7 51 Qq 83–84 52 Qq 85–86 53 Q 103 54 C&AG’s report, para 4.11 Improving the performance of major defence equipment contracts 17 training,55 but some of its own survey respondents reported difficulty in accessing it.56 The Department was non-committal on the actions it plans to take, but said that it is looking at personnel policy to ensure project and programme delivery are recognised as military trades in their own right. It also aspires to ensure that SROs spend at least 50% of their time on programmes and said it has experience of some personnel staying on programmes for longer than a traditional military appointment (‘double touring’).57 We also asked whether, for military SROs, the Department had thought about moving towards a model whereby the SRO stays in post throughout the term of a particular contract, and promotion is dependent on the successful delivery of that contract. The Department said it had experience of “double-touring” people to get longer terms in office, and that there were examples where it would be happy to see military SROs promoted ‘in
Show less
Government response AI summary
The government accepted the recommendation, committing to build on existing leadership training, introduce specific talent and career management for MOD SROs, and investigate options to reduce SRO turnover, including minimum tour lengths.
Read full response →
HM Treasury
24
Conclusion
Twenty-Second - Improving the performan…
Accepted
The Department secured an additional £16.5 billion in funding over the next four years in the 2020 Spending Review. Given the Department’s track record of short-term financial management, and schedule delays and cost growth across its programmes, we asked the Department whether it is certain that the additional money will …
Read more
The Department secured an additional £16.5 billion in funding over the next four years in the 2020 Spending Review. Given the Department’s track record of short-term financial management, and schedule delays and cost growth across its programmes, we asked the Department whether it is certain that the additional money will not just be used to plug existing financial holes and fund existing projects.59 It has already acknowledged in previous evidence sessions that part of the additional money will be used to plug its estimated £7 billion Equipment Plan shortfall.60 The Department could not provide a clear account of the extent to which the money will secure genuinely new equipment and capabilities. It had previously written to us to say that the money would be used to fund both new and existing capabilities. However, in our oral evidence session, the Department could not clearly explain the basis of its longer-term projections or point to what has and what has not been approved.61 The Department’s letter to us also set out other spending commitments using the new money, such as spending £6.6 billion on R&D, and additional funding for pension changes and enhancing childcare for service personnel.62 55 Q 86 56 C&AG’s report, para 4.11 57 Q 86 58 Q107 59 Q 96 60 Committee of Public Accounts, Oral Evidence: Defence Equipment Plan 2020–2030, HC 693, 4 February 2021, Q 24 61 Qq 94–99 62 Correspondence from David Williams, CB to Dame Meg Hillier, MP, Follow up to 4 February PAC oral evidence session: Defence Equipment Plan 2020–2030, 22 June 2021. 18 Improving the performance of major defence equipment contracts
Show less
Government response AI summary
The government acknowledged the Committee's observation regarding the lack of clarity on the £16.5 billion funding. While disagreeing with the Committee's conclusion, it committed to providing a detailed breakdown in the February 2022 equipment plan report, distinguishing between new capabilities and existing shortfalls.
Read full response →
HM Treasury