Defence procurement: where has it all gone wrong?
In this guest article, Jag Patel examines the deep-seated problems that have plagued the existing, flawed defence procurement process which has been the cause of persistent delays and cost overruns on equipment acquisition programmes for as long as anyone can remember.
When it comes to procuring new equipment for the Armed Forces, the first and foremost question politicians always ask is, how much is it going to cost?
Any meaningful attempt at answering this question is hampered by the fact that, very few people in Whitehall understand and appreciate that the single most important factor that determines the ultimate whole life cost of any defence equipment programme is the maturity of the existing starting-point for the Technical Solution in the possession of Defence Contractors – the closer the developmental status of the starting-point to the Requirement, as described in the technical specification, the lower the cost the Exchequer will have to bear associated with completing the remaining work to bridge the shortfall.
Even more worryingly, those who do know, are not in decision-making or leadership positions.
The maturity of a starting-point for the Technical Solution can fall anywhere between two extremes, as shown in Figure 1. At one end, starting from a ‘blank sheet of paper’ amounts to a non-existent solution whereas at the other end, an off-the-shelf equipment corresponds to a readily available, fully engineered and supported Technical Solution which satisfies the totality of the Requirement at no additional cost or risk to MoD, that is to say, it does not require any development work laden with risk to be performed upon it.
Additionally, MoD does not possess the capability in the form of intelligent and experienced procurement officials who have an adequate understanding of what it takes (in terms of skill types, funding, tools, processes, materials, scheduled work plan, inter-business contractual agreements etc.) to advance an immature Technical Solution from its existing condition, to a point where it will satisfy the technical specification requirement, within a Private Sector setting driven by the profit motive and people who instinctively employ unethical business practices – leaving them susceptible to exploitation and manipulation by Defence Contractors.
So instead of simply telling the truth, some defence contractors are consciously engaged in an exercise in subterfuge to take advantage of the ignorance of procurement officials, by making exaggerated claims (depicted in Figure 2) about the maturity of their starting points for the Technical Solution – a scam which has led directly to initial programme costs being grossly underestimated by MoD Abbey Wood – a condition referred to as the conspiracy of optimism.
To add to this wanton act of deception, some contractors have also been deploying the old favourite of touting the so-called, minimal development solution – a commonly used ploy advanced to con procurement officials into believing that they have a nearly-ready Technical Solution on offer, when in reality, they probably have something in hand which is closer to starting from a ‘blank sheet of paper’!
This deceitful behaviour is a common trait in the defence manufacturing industry, beginning with the Select Few at the top, and extending right down the entire supply chain.
So what else has gone wrong with Defence Procurement?
Despite the countless reviews undertaken by MoD over the last several decades to identify shortcomings in its defence procurement process, there remain intractable problems which continue to hamper the achievement of acquisition goals. Key amongst these problems are:
- It is MoD’s long-standing policy of disclosing the total budgeted expenditure figure or associated year-on-year financial funding profile in the invitation to tender (ITT) that causes Defence Contractors to quote identical bottom-line Selling Prices on DEFFORM 47 – an entirely predictable result! It is not for MoD to tell the Private Sector what the price of a new equipment programme should be. Instead, it is very much the business of Defence Contractors to tell MoD how much each new equipment programme will cost, based upon the prevailing value of goods, services, labour and finance in the free market shaped, not by the interfering hand of people in the pay of the State who always get it wrong, but by competitive market forces.
- Frequent changes made to the technical specification requirement expressed in the System Requirements Document and elsewhere in the ITT have resulted in punitive increases in costs and massive delays being introduced into equipment acquisition programmes.
- Under the presently applied ‘sudden death’ competition (see Figure 3), MoD has allowed technical risks to accumulate towards the end of the equipment acquisition cycle where they suddenly morph into ‘show stopping’ risks and come to the fore immediately after the main investment decision has been taken (never before), forcing Abbey Wood Team Leader to raise Contract Amendments and/or let short-term, renewable Post Design Services contracts which, in turn, has led to MoD getting appallingly poor value for money these last several decades.
- MoD’s Competition Policy is further undermined by the ‘revolving door’ which continues to allow procurement team members to take up appointments with Bidders whilst the competition is still under way.
- Instead of asking Contractors to scope a fully costed Programme of Work to advance the developmental status of their existing starting-points for the Technical Solution during the follow-on Contract performance phase, MoD is requiring Contractors to submit a plethora of Management Plans as a response to the ITT, which has given them a chance to stuff these plans full of warm soothing words, pretty pictures and hollow statements of intent crafted in such a way as to allow them to rescind on work commitments later on.
- The talent pool from which appointees for acquisition roles are drawn has only succeeded in supplying a steady stream of people who are woefully ill-equipped to deal with the Private Sector – and yet they are put in charge of spending public money! This situation has, in turn, led to dramatically reduced confidence in any new policy initiatives advanced by MoD Abbey Wood amongst wider MoD stakeholders and interested observers, such as Members of Parliament and Treasury officials. Indeed, after years of mismanagement and false promises of improvement, MoD has forfeited its right to make independent purchasing decisions because the Treasury is no longer convinced that capital funds allocated for acquisition will be spent wisely. Sadly, the powers of a once Great Department of State have been reduced to a level where it has become subservient to the all-mighty Treasury – due to its own incompetence! Moreover, the responsibility for undertaking Strategic Defence and Security Reviews has been taken away from MoD and handed over to the Cabinet Office.
- New equipment commissioned into service with the Armed Forces continues to exhibit the same flaws and weaknesses as the equipment it replaces because Abbey Wood Team Leader has not undertaken a lessons-learned exercise to document these shortcomings and transmit them to Defence Contractors, with instructions to design them out.
- There is not a single person in the pay of the State who is equipped with the necessary blend of leadership/communication skills, specialist knowledge, cross-discipline expertise or prior experience to, not only correctly identify the deep-seated problems associated with the existing, flawed procurement process but also come up with simple, workable, easy-to-apply solutions which will tackle these shortcomings – yet, it is the responsibility of Government to shape, and then implement acquisition policy that will deliver equipment to the Armed Forces which is fit for purpose, adequately sustained in-service and constitutes value for money through-life, as tested in fair and open competition. This lack of leadership talent in Whitehall would explain why there is a massive void in equipment acquisition policy.
- The extended industrial Supply Chain remains infested by distortions and inefficiencies because lower-tier Subcontractors are continuing to mark-up goods and services without adding any value. In addition, competition is not being applied by ITT recipients to select first and lower-tier Contractors. Instead, they are chosen using the old boys’ network or during a gathering at the 19th Hole limited to the great-and-the-good from subsidiary companies wholly-owned by the ITT recipient, or some other favoured, old school-tie chums – which has, in itself, allowed the continuance of corrupt practices.
- The presently applied ‘sudden death’ competition has been rendered ineffective by Bidders who are quoting identical bottom-line Selling Prices against the same Requirement, which amounts to price-fixing on a grand scale, with the active connivance of the Secretary of State for Defence. Additionally Abbey Wood Team Leader is denied the opportunity to choose the single preferred Contractor on the basis of price competitiveness. Figure 4 illustrates this scenario.
- The predominance of the here-today-gone-tomorrow defence procurement official at Abbey Wood means that:
- Each individual is free to take procurement decisions and experiment with new acquisition procedures safe in the knowledge that if things go wrong, his successor will have to face the consequences of his actions.There is no consistency in the application of procurement policy nor are Defence Contractors provided with continuity of direction during the full period of the competition because of this constant turnover.
- Moreover, newly assigned procurement officials, almost always of the type intent on making a mark, will invariably insist on an immediate change in direction which has only succeeded in annoying counterparts on Contractors’ side.
- Instead of seeing it as a long-term career opportunity, newly assigned civil servants have demonstrated a lack of commitment and loyalty to furthering MoD Abbey Wood’s business interests – by preoccupying themselves with how they can get into the Private Sector as the next stop, yet at the same time, continuing to collect pay from the public purse!
- The probability of the pre-programmed schedule being ‘eroded’ during performance of the Contract is 100 percent, on account of Contractors at every tier of the Defence Industry enforcing a minimalist staffing policy of being just ‘one-man’ deep in many of their specialist core functions, with no slack or succession plan. Worse still, this practice has served to deny Defence Industry workers the opportunity to associate with like-minded people in the work environment, severely impeding their professional development.
- There exists no corporate repository of domain knowledge, experience or cross-discipline expertise within each equipment procurement team – making it more likely that mistakes of the past will be repeated again and again and again.
- Investment made repeatedly in training newly assigned procurement officials is lost the moment they leave MoD to join the Private Sector.
- There is no evidence of MoD’s long-standing policy of securing input of Private Sector capital into defence programmes being applied, which means that projects continue to be funded exclusively by the taxpayer – yet, the Intellectual Property Rights for the resultant fully engineered equipment, which rightly belongs to the Exchequer, is simply handed over to the main Contractor for nothing in return.
- The widespread practice of digging out old ITTs from the archives, dusting them off, searching & replacing the project name and despatching them off to Industry has resulted in the highly prescriptive practice of mandating adherence to a whole raft of Defence Standards and Data Item Descriptions for documentation deliverables (which has stifled innovative approaches being put forward by Bidders) being continued.
- Because there exists no clear, auditable link between the Programme of Work intended to be performed by Contractors and the bottom-line Selling Price quoted on DEFFORM 47, they are free to engage in anti-competitive practices, such as predatory pricing which has had the effect of denying market entry to potential new suppliers (particularly SMEs) whilst strengthening the market position of the Select Few – thereby hampering competitiveness.
- Instead of directing all their effort onto advancing the developmental status of the starting-point for the Technical Solution during the follow-on Contract performance phase, Bidders are preoccupied with trying to contrive situations which will entice acquisition officials into partaking in detailed design decisions relating to the evolving Technical Solution, and then using this involvement to coerce acquisition officials into raising and processing Contract Amendments much later on, when things go wrong.
- Tacit acquiescence for Contractors’ people to lie, cheat and distort has prevented Abbey Wood Team Leader from establishing the true picture on the ground which has, in turn, resulted in ‘show stopping’ risks coming to the fore and surprising everyone after down-selection to the single Contractor has been made.
- The market in defence equipment which MoD says is open to all and sundry, is not working at all – it is broken, and has been for several decades because the existing procurement process is skewed in favour of the Select Few thereby excluding the many, in particular, highly innovative small and medium-sized enterprises, as well as, COTS & MOTS equipment manufacturers.
- Project Management has become confused with Personnel Management in the minds of both, procurement officials at MoD Abbey Wood and Defence Industry workers, with disastrous consequences – because it has led to people on overheads ending up specialising in the latter discipline which is easier to master, as it involves simple things like conducting annual performance assessments, hiring new or replacement staff, negotiating pay & conditions, obtaining security clearances and signing holiday cards. Worse still, these same people have been assigned to fill roles in the former discipline!
- Fresh talent with innovative ideas, particularly young people with degrees in STEM subjects are shunning a career in the Defence Industry because of its negative image in the press & media, persistent failure to deliver military equipment within time, cost and performance boundaries and a complete absence of professional, ethical and moral leadership. Older, wiser defence workers will be familiar with having to perform under a brutally repressive management regime, put up with poor work conditions and have their work-life balance destroyed by excessive workloads.
- Inherent in the existing, flawed defence procurement process is an extremely high risk that intellectual property owned by first and lower-tier Defence Contractors, which includes SMEs, will be misappropriated by ITT recipients (most notably the Select Few) because the practice of submitting Management Plans requires them to provide a full description of the composition and detailed functioning of their sub-system Technical Solutions, in their responses to ITT recipients.
- The existing defence procurement process which subsidises failure instead of rewarding success has encouraged Defence Contractors (right down the extended Supply Chain) to design poorly engineered products which are not only seriously uncompetitive in the domestic market, but also in export markets. Only a genuinely open and competitive market can incentivise Contractors to deliver innovative products which will satisfy the requirements of the Armed Forces as well as export customers, at a price they are willing to pay.
It is hard not to conclude that the existing procurement process was created to serve the career interests of people in the pay of the State than for the purpose of procuring equipment for the Armed Forces which is fit for purpose, adequately sustained in-service and constitutes value for money through-life.