Select committee: Defence Committee

Ninth Report - It is broke — and it’s time to fix it: The UK’s defence procurement system

HC 1099 Published 16 July 2023

Defence Committee Report on parliament.uk ↗

At a glance1 recommendation and 24 conclusions · Government response published 20 September 2023 (deadline 16 September 2023)

The government's response

Summary written by Accountability Index from the government's response. It is not the government's own words.

The government does not agree that the procurement system is broken, but accepts "the need for reform" and sets out reform work already under way across Defence.

On the Committee's P75 recommendation, it agrees there is "a strong argument" for higher probability figures for schedule approval of complex programmes, and has issued guidance making P70 "the norm on schedule" for Government Major Projects Portfolio programmes. It says approval at a higher P value "will not improve project performance".
It agrees on the need for more consistent dialogue with industry and on "an increased emphasis on time", but says it "would therefore not be desirable" to use the Urgent Capability Requirements approach across the whole defence portfolio.
On accountability, it "recognises the need to clarify internal accountabilities", and says this will be addressed in the Defence Operating Model review. It says "active consideration" is being given to the CEO of DE&S joining the Defence Board.
On SRO tenure, it notes there is "no formal mechanism" to keep an individual in post for five years, but says it continues to explore how to use available levers such as performance pay and pivotal role allowances.

Read the government's response ↗ Report an error

What the committee recommended 25

1
The Ministry of Defence must finally admit, once and for all, that there is a... Conclusion · paragraph 33
2
We agree with Clive Sheldon KC that all personnel working on a programme should escalate... Recommendation · paragraph 60
3
The culture within the Ministry of Defence, Defence Equipment and Support (DE&S), and the Front... Conclusion · paragraph 90
4
By increasing P50 to P75, the procurement system would switch to estimates which are three... Conclusion · paragraph 91
5
It would however be iniquitous to impose this much greater discipline in forecasting for equipment... Conclusion · paragraph 92

See all 25 recommendations and conclusions

Sources

Ninth Report - It is broke — and it’s time to fix it: The UK’s defence procurement system ↗The committee's report, HC 1099, parliament.uk
Eighth Special Report - It is broke — and it’s time to fix it: The UK’s defence procurement system: Government response to the Committee’s Ninth report ↗The government's response, 20 September 2023, parliament.uk

Recommendations and conclusions 25

1
The Ministry of Defence must finally admit, once and for all, that there is a... Conclusion · paragraph 33 Conclusion (the committee's words)
The Ministry of Defence must finally admit, once and for all, that there is a real problem across UK defence procurement: the current system is indeed broken and multiple, successive reviews have not yet fixed it. With a major war now under way in Ukraine, now is the time to act.
2
We agree with Clive Sheldon KC that all personnel working on a programme should escalate... Recommendation · paragraph 60 Recommendation (the committee's words)
We agree with Clive Sheldon KC that all personnel working on a programme should escalate safety concerns where there are ‘seeds of doubt’ about a matter, even if not fully evidenced, but would go further. We recommend that the Army’s safety system should now be subject to a rigorous overhaul, incorporating the detailed lessons already learned and evidenced within the Sheldon Review, with the aim of redesigning the Army’s safety system in a timely manner, into one which is genuinely fit for purpose in the 21st century.
3
The culture within the Ministry of Defence, Defence Equipment and Support (DE&S), and the Front... Conclusion · paragraph 90 Conclusion (the committee's words)
The culture within the Ministry of Defence, Defence Equipment and Support (DE&S), and the Front Line Commands is often one of misplaced optimism when assessing project cost and schedule. The current standard confidence measure used throughout DE&S is P50, meaning that an estimate of cost or schedule is as equally likely to be wrong as it is right. DE&S should move from P50 confidence measures to P75, thereby ensuring much greater realism in project forecasting, at all levels.
4
By increasing P50 to P75, the procurement system would switch to estimates which are three... Conclusion · paragraph 91 Conclusion (the committee's words)
By increasing P50 to P75, the procurement system would switch to estimates which are three times less likely to be exceeded than not—as opposed to equally likely to be exceeded as not, at present.
5
It would however be iniquitous to impose this much greater discipline in forecasting for equipment... Conclusion · paragraph 92 Conclusion (the committee's words)
It would however be iniquitous to impose this much greater discipline in forecasting for equipment procurement just on DE&S. The new P75 benchmark for both cost and schedule estimates should also be extended across the wider procurement system, including the Front Line Commands (FLCs); the Joint Requirements Oversight Committee (JROC); the Investment Approvals Committee (IAC); and the Performance Management Reporting System (PMRS) which provides regular briefings to Ministers.
6
DE&S does not allocate enough resource to legal and commercial talent. Conclusion · paragraph 96 Conclusion (the committee's words)
DE&S does not allocate enough resource to legal and commercial talent. DE&S should have a greater appetite for, and access to, use of external specialist contract lawyers to support its work. We believe this would be money well spent to ensure that costly programmes (especially category A programmes) do not experience costly contractual disputes later in their life, to the taxpayer’s disadvantage.
7
There is a need for greater continuity in the critical portfolio of Minister for Defence... Conclusion · paragraph 102 Conclusion (the committee's words)
There is a need for greater continuity in the critical portfolio of Minister for Defence Procurement (MinDP) who is now in day to day charge of an equipment budget totalling almost a quarter of a trillion pounds of UK taxpayer’s money. Politicians need to play their part in reforming our procurement system and therefore we should address the longevity of this appointment. Given the very high importance of the role, the Prime Minister, who is ultimately responsible for Ministerial appointments, should be strongly encouraged to promote greater stability in the procurement system, with MinDP in future serving for at least the bulk of a Parliament.
8
Procurement is a highly specialised and complex subject, which requires expert scrutiny, including from Parliamentarians. Conclusion · paragraph 103 Conclusion (the committee's words)
Procurement is a highly specialised and complex subject, which requires expert scrutiny, including from Parliamentarians. Unlike in the United States, UK Parliamentary Committees do not have “line item power” to alter individual aspects of the Defence budget, including on procurement programmes, which makes their remaining scrutiny function arguably even more important. Given that equipment purchasing and support now accounts for almost half of the entire defence budget, our main Committee now intends to hold at least two formal ‘Acquisition hearings’ each year, to scrutinise major procurement programmes in detail and the Ministry of Defence should provide access to all relevant information (if necessary at a classified level) in order to facilitate this.
9
The Ministry of Defence’s relationship with industry leaves much to be desired. Conclusion · paragraph 111 Conclusion (the committee's words)
The Ministry of Defence’s relationship with industry leaves much to be desired. The Ministry of Defence and DE&S should engage in more consistent dialogue with industry. This should include a formalised pre-procurement stage (at appropriate classification levels) regarding future requirements and their feasibility.
10
There is a lack of skills in key areas. Conclusion · paragraph 112 Conclusion (the committee's words)
There is a lack of skills in key areas. Delays from the industry side are often due to a shortage of skilled workers. The Ministry of Defence should put forward a plan on how it intends to help develop and foster the defence workforce over the next 10 years, including what plans it has to increase the availability and uptake of apprenticeships within the defence industry.
11
The Ministry of Defence and the Treasury should provide a much clearer definition of ‘social... Conclusion · paragraph 113 Conclusion (the committee's words)
The Ministry of Defence and the Treasury should provide a much clearer definition of ‘social value’ in defence contracting and specify to bidders how these criteria will be applied in procurement competitions.
12
‘Exquisite procurement’ is the enemy of speed and time. Conclusion · paragraph 127 Conclusion (the committee's words)
‘Exquisite procurement’ is the enemy of speed and time. Over-specifying a piece of equipment creates delays and budget pressures. Exquisite procurement also generally leads to greater cost and therefore less mass. For the most part, exquisite procurement should be avoided. Instead, The Front Line Commands and DE&S should aim for a ‘spiral development’ model as a default. This should be enforced through the Joint Requirements Oversight Committee, the Investment Approvals Committee, and ultimately, Ministers.
13
Key trade offs between capability, cost, time, and technical complexity should be made much earlier... Conclusion · paragraph 128 Conclusion (the committee's words)
Key trade offs between capability, cost, time, and technical complexity should be made much earlier in the procurement process, when requirements are initially being set. As in the French system, DE&S should be involved at the outset of formulating requirements and disputes should be resolved, if necessary, by Ministers.
14
The current procurement system does not place sufficient emphasis on the value of time. Conclusion · paragraph 133 Conclusion (the committee's words)
The current procurement system does not place sufficient emphasis on the value of time. Indeed, as the Permanent Under Secretary (PUS) himself said in summarising the problems with the system: “we should place more value on time and less on money, so [on] the pace of decision-making and pace of delivery.” We strongly concur with PUS’ emphasis on the value of time.
15
The Ministry of Defence must develop a much greater sense of urgency in its procurement... Conclusion · paragraph 134 Conclusion (the committee's words)
The Ministry of Defence must develop a much greater sense of urgency in its procurement methodologies. At present, the system is far too ponderous and bureaucratic. There must be a much greater emphasis and value on time. The Ministry of Defence should make greater use of the Urgent Capability Requirements (UCR) method in getting the UK Armed Forces prepared for the immediate future and potential near-term conflicts with peer adversaries.
16
The Ministry of Defence, the Front Line Commands—and DE&S in particular—should adopt a ‘UCR mindset’... Conclusion · paragraph 135 Conclusion (the committee's words)
The Ministry of Defence, the Front Line Commands—and DE&S in particular—should adopt a ‘UCR mindset’ which seeks to deliver equipment with much less bureaucracy in a far timelier manner and with a greater emphasis on early operational benefit.
17
In the longer term, the Ministry of Defence and DE&S should also review whether the... Conclusion · paragraph 136 Conclusion (the committee's words)
In the longer term, the Ministry of Defence and DE&S should also review whether the standard processes avoided by use of the UCR method could be removed altogether from all defence procurements.
18
The funding cycle and a lack of a fixed long-term budget exacerbates many of the... Conclusion · paragraph 142 Conclusion (the committee's words)
The funding cycle and a lack of a fixed long-term budget exacerbates many of the issues that already exist. Programmes are often delayed (or ‘slipped to the right’ in Ministry of Defence parlance) in order to spread out the cost. However, this is frequently short-sighted as it generally leads to greater overall costs. This goes hand in hand with the issues posed by annuality. The Ministry of Defence should ensure that it is using the funding flexibilities offered by HM Treasury to the full extent necessary, such as through Budget Exchange mechanisms. If this remains insufficient, it should explore with Treasury what additional flexibilities may be permitted to ensure that major procurement programmes can be managed much more efficiently in the future. In short, the obsession with annuality has to change.
19
The Ministry of Defence must stop rewarding failure. Conclusion · paragraph 143 Conclusion (the committee's words)
The Ministry of Defence must stop rewarding failure. On too many occasions, industry have been able to delay programmes with no financial sanctions. There is a reluctance from every part of the procurement system to cancel a failing programme. This also allows the Front Line Commands to spend irresponsibly and for industry to increase their profits, through multiple change orders. The Ministry of Defence should take, if necessary, a more robust attitude towards its contractors if programmes get into serious difficulty. Allied to this, Ministers should be prepared to cancel programmes that are obviously failing, rather than exercising constant ‘optimism bias’ to the detriment of the UK taxpayer.
20
Accountability and responsibility are not aligned. Conclusion · paragraph 149 Conclusion (the committee's words)
Accountability and responsibility are not aligned. As Clive Sheldon KC noted, the Senior Responsible Owner (SRO) for a programme often lacks the levers to take or even influence decisions for which they are accountable. It is right that the SRO sits within the Front Line Command due to the multifaceted nature of integrating new equipment. However, SROs should be given significantly more powers to affect change within a programme, including greater budgetary and commercial control over their DE&S counterparts.
21
Senior Responsible Owners (SROs) are a critical part of a successful programme. Conclusion · paragraph 150 Conclusion (the committee's words)
Senior Responsible Owners (SROs) are a critical part of a successful programme. Their knowledge of a programme and the relationships they build theoretically enable issues to be resolved sooner and more effectively. Crucially, via their formal letters of appointment, SROs are accountable to Parliament, including its specialist Committees, such as Defence and Public Accounts, for the successful delivery of the programme in their charge. However, the turnover and frequent ‘multiple hatting’ of SROs can negatively impacts their programmes. The Ministry of Defence should endeavour to keep SROs in post for a minimum of five years to ensure continuity. Whilst it may not be possible to mandate the length of the position, the Ministry of Defence should provide incentives to reward length of service e.g. through renumeration packages and subsequent promotion. The Ministry of Defence should also ensure that SROs for category A programmes (i.e. those over £400 million) should have 100% of their time doing that specific job, as opposed to balancing a number of programmes or other roles in one appointment.
22
In addition, in order to better align accountability (including to Parliament) with responsibility, SROs, who... Conclusion · paragraph 151 Conclusion (the committee's words)
In addition, in order to better align accountability (including to Parliament) with responsibility, SROs, who are often at one or two star level, should be able to exercise direct access to the CEO of DE&S (and if necessary to the Minister for Defence Procurement) in the event of a programme for which they are responsible experiencing serious difficulties, which they are unable to resolve on their own.
23
Procurement is seen as a step down within many of the Services. Conclusion · paragraph 152 Conclusion (the committee's words)
Procurement is seen as a step down within many of the Services. Leaving to work in ‘Main Building’ or ‘Head Office’ is seen to be leaving the ‘warrior race’. The Ministry of Defence should develop a professional career path within the military that enables Officers to specialise in procurement, as a dedicated cadre, at a much earlier stage of their career. If the Ministry of Defence is unable to ensure that military personnel are forthcoming to take on SRO roles, it should consider the greater use of civilian SROs in the long term.
24
In furthering clear accountability, the CEO of DE&S should become the accounting officer to Parliament... Conclusion · paragraph 153 Conclusion (the committee's words)
In furthering clear accountability, the CEO of DE&S should become the accounting officer to Parliament for the overall budget for procuring and maintaining equipment. This responsibility currently sits with the MoD Permanent Secretary, who should remain accounting officer for all other matters.
25
In a reversion to past practice, the CEO of DE&S (who would now be responsible... Conclusion · paragraph 154 Conclusion (the committee's words)
In a reversion to past practice, the CEO of DE&S (who would now be responsible for spending approximately half of the Department’s budget) should again be given a seat on the Defence Board, chaired by the Secretary of State.