Source · Select Committees · Public Accounts Committee
Recommendation 17
17
Accepted
MoD shifts contracting approach, bearing more inflation risk due to volatile economic conditions.
Conclusion
Because of high and volatile inflation, the MoD has changed its approach to contracting with suppliers. Formerly, around 25% of contracts were ‘firm price’, whereby the supplier bore the inflation risk.51 However, the MoD said that the cost of such firm price contracts has now become too great, and that it was not getting good value for money offers when 42 Q 112 43 Q 31; C&AG’s Report, para 2.20 44 Qq 130, 132; C&AG’s Report, para 2.20 45 Q 113 46 Qq 118, 119 47 Q 83 48 Q 108 49 Qq 128, 129 50 Q 108 51 Q 21; C&AG’s Report, para 2.4 MoD Equipment Plan 2023–2033 13 trying to get suppliers to bear the cost of inflation through new contracts.52 Instead, the MoD has decided to take on more inflation risk itself by linking cost increases in contracts to appropriate indices.53
Government Response Summary
The government agrees with the implied recommendation to foster good industry relations, committing to improve visibility of long-term planning and form a new alliance with industry through the Integrated Procurement Model by Spring 2025, thereby supporting industry's ability to plan and invest.
Government Response
Accepted
HM Government
Accepted
4.1 The government agrees with the Committee’s recommendation. Target implementation date: Spring 2025 4.2 The department agrees with the need to provide a clearer signal to industry on future demand. Greater transparency of the future pipeline is an important element of the new Integrated Procurement Model, building on earlier commitments in the Defence and Security Industrial Strategy (DSIS) and Defence Command Paper Refresh. 4.3 Since publication of the DSIS, the Defence Capability Framework, the Acquisition Pipeline, a number of sector specific strategies and most recently the Science and Technology Collaboration and Engagement Strategy all mark significant progress on this commitment and allow industry to plan ahead. 4.4 Under the Integrated Procurement Model, the department is continuing to improve visibility of long-term planning processes to inform industry’s future plans and investment. The department is forming a new alliance with industry, moving beyond the traditional customer-supplier relationship, developing long-term strategic alignment that not only delivers the capabilities required now, but binds the department and industry into a joint endeavour that can sustain the nation in times of conflict. 4.5 The department is also bringing industry into the fold much sooner, from the conception and development of ideas through to the final stages of delivery and are involving industry at all levels earlier in the military capability development processes. The department is working to ensure there is a collaborative technical environment, operating at secret levels of classification, to share information with industry in a much more dynamic way. 4.6 The department continues to publish the Acquisition Pipeline twice yearly, in April and October.