There are serious doubts about the affordability of the Ministry of Defence’s equipment plan and the Department’s ability to generate the savings required to deliver it, according to the Defence Committee Report, Gambling on ‘Efficiency’: Defence Acquisition and Procurement.

Defence Committee Press Notice – 17 December 2017

The affordability of the equipment plan (to design, build or buy new ships, aircraft and combat vehicles) rests on a presumption of £7.3 billion of ‘efficiency savings’ that have yet to be achieved. This is in addition to a total of £7.1 billion of previously announced savings.

In the Strategic Defence and Security Review (SDSR) 2015, and as further detailed by the Equipment Plan 2016, the Government pledged to spend £178 billion during the next ten years on defence equipment and support, including eight Type 26 Global Combat ships, new mechanised infantry vehicles and nine new Boeing P–8A Maritime Patrol aircraft. Delivering these commitments will inevitably rely on an effective and reliable acquisition process.

However, in the past, the MoD has proven incapable of making savings on the scale it is predicting and, even if all the ‘efficiencies’ are realised, there will be little room for manoeuvre in the absence of sufficient financial ‘headroom’ and contingency funding. This is not an adequate basis for delivering major projects at the heart of the UK's defence capability.

Committee Chairman, Dr Julian Lewis MP, says:

“It is extremely doubtful that the MoD can generate even more efficiencies from within its already stretched budget on the scale required to deliver its equipment plan. This will inevitably lead either to a reduction in the numbers of ships, aircraft and vehicles or to even greater delays in their acquisition.”

Since 2010, the MoD has been undertaking a programme of changes to defence acquisition and procurement. The Committee report examines the extent to which these changes – which include the devolution of responsibilities to the front line commands, a transformation programme within DE&S and the creation of a Single Source Regulations Office (SSRO) as a statutory regulator for single source contracts – have been successful.

While there is much talk of reform and transformation of defence acquisition and procurement, an explanation is needed of the criteria for assessing such progress and a timetable is needed for the achievement of clearly specified goals. The Committee also calls for greater clarity about the difference between genuine improvements and efficiency, on the one hand, and cuts in personnel, equipment and capability, on the other.

The report examines the work of the Single Source Regulations Office which encourages efficiency and scrutinises value for money in cases where there is only one possible supplier of equipment. Though the SSRO has helped the MoD to realise some savings for the taxpayer, its limited scope and powers, and the lack of clarity regarding its relationship with the MoD, all serve to restrict the SSRO's ability to be an effective regulator. The Committee recommends that the SSRO be given the ability to inspect all single source contracts, save under exceptional circumstances.

The Committee makes a number of recommendations on the way in which acquisition concerns should be dealt with in a revised defence industrial policy and a new industrial strategy. It calls for a broader definition of ‘value for money’ that incorporates the positive impact of major defence projects on local economies, skills and employment levels. New Government procurement guidelines should be adopted, so that ‘local value’ can be taken into account.

The report also calls for an emphasis on the importance of sustained production in UK defence manufacturing, in order to maintain a successful and high-skilled workforce and to preserve our sovereign defence manufacturing capabilities.

Finally, the Committee encourages the MOD to invest more in research and development, with a commitment by the Government to spend at least 2% of the MoD's budget on science and technology.

[To read the full Report, click here.]

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REPORT SUMMARY

In the Strategic Defence and Security Review (SDSR) 2015, and as further detailed by the Equipment Plan 2016, the Government pledged to spend £178 billion over the next ten years on defence equipment and support, including eight Type 26 Global Combat ships, new mechanised infantry vehicles and nine new Boeing P–8A Maritime Patrol aircraft. Delivering these commitments will inevitably rely on an effective and reliable acquisition process.

Since 2010, the MoD has been undertaking a programme of changes to defence acquisition and procurement. Our report examines the extent to which these changes, which include the devolution of responsibilities to the front line commands, a transformation programme within DE&S and the creation of a Single Source Regulations Office (SSRO)as a statutory regulator for single source contracts, have been successful. In particular, our report expresses concerns that:

• While there is much talk of reform and transformation of defence acquisition and procurement, an explanation is required of the criteria for assessing such progress and a timetable is needed for the achievement of clearly specified goals.
• The affordability of the equipment plan rests on £7.3 billion of theoretical ‘efficiency savings’, in addition to the realisation of £7.1 billion of previously announced savings, but it is extremely doubtful that the MoD can generate efficiencies on the scale required to deliver the equipment plan or detail how it would proceed to do so;
• Though the SSRO has helped the MoD to realise some savings for the taxpayer, its limited scope and powers and the lack of clarity regarding its relationship with the MoD, all serve to restrict the SSRO’s ability to be an effective regulator. We recommend that the SSRO be given the ability to inspect all single source contracts, save for exceptional circumstances.

Our report also explores the way in which acquisition concerns should be dealt with in a revised defence industrial policy and a new industrial strategy. We recommend that a new defence industrial policy should be underpinned by the following:

• A broader definition of ‘value for money’ that incorporates the positive impact of major defence projects on local economies, skills and employment levels by adopting new Government procurement guidelines so that ‘local value’ can be taken into account;
• An emphasis on the importance of a regular drumbeat of activity [i.e. a sustained production line of defence manufacturing in the UK] to sustaining a successful and high-skilled workforce and to maintain the UK’s sovereign defence manufacturing capabilities; and
• Increased investment in research and development, with a commitment by the Government to spend at least 2% of the MoD’s budget on science and technology.