MINISTRY OF DEFENCE: MODIFYING DEFENCE
EQUIPMENT
THE FUTURE MANAGEMENT OF MODIFICATIONS
37. We asked the Department how the complex matrix
of responsibilities at each stage of the modification process
had developed and whether there were counter-productive competitive
tensions in the system. The Department told us that the arrangements
reflected the fact that responsibility for planning and undertaking
modifications rested in different parts of the Department and
that, traditionally, each of the armed services had been entirely
responsible for the budget for the support costs of their equipment.
They acknowledged that these arrangements meant that there was
no incentive for people to converge and or adopt common procedures
and that such cross-organisational processes had led to inefficiencies.[38]
38. We asked the Department what steps they were
taking to align managerial and financial responsibility to ensure
that modifications were progressed efficiently and cost effectively.
They replied that the first and biggest step was the Strategic
Defence Review decision to form Integrated Project Teams with
a through-life cost focus and which would move from the Procurement
Executive to the newly formed Defence Logistics Organisation once
the acquisition phase was complete and the equipment in-service.
The Teams would be headed by empowered team leaders and contain
representatives from industry, the Support Authority, the Operational
Requirements community and other interested stakeholders. The
Teams would thus bring together all of the people with budgetary
and management responsibility for an equipment and, in the Department's
view, would do a great deal to improve on the current situation
by providing an incentive for people to resolve differences of
view more efficiently. They did, however, agree that without suitable
computer systems it would not be a practical possibility for the
Integrated Project Teams to have an overview of the modification
process.[39]
The Department told us that ten pilot Integrated Project Teams
had already been established and that all of the Teams would be
in place by April 2000.[40]
39. The Department added that the Teams would be
tasked by clearly identifiable customers: Operational Requirements
staff for modifications in the early phases of an equipment project;
or the armed forces for equipments in service. It would be for
the customer to prioritise the various modifications which he
wished to see on his equipment and to provide funding to enable
the Integrated Project Team to deliver these. Resource allocation
would thus rest with those who would benefit from the modification.
The Department considered that this approach would begin to provide
quite a healthy system of incentives and improve the prioritisation
of modifications.[41]
40. We questioned the Department over whether the
Integrated Project Team model incorporated all of the advantages
of the United States equipment management system. The Department
responded that they had looked at the United States system very
carefully, had drawn as many strengths from it as seemed compatible
for the United Kingdom and would stay in close touch to ensure
they did not miss either lessons which had already been embodied
or ones which the United States would learn in future. The Department
also stated that they were keen to learn from commercial experience,
particularly their ability to record information and know exactly
what was happening with huge inventories of assets.[42]
41. We asked the Department whether they saw any
obstacles or problems introducing their new approach. They stated
that they did not see any fundamental difficulty of principle
but that they could see a few problems training people to work
in new ways.[43]
They recognised that such a culture change would be a lengthy
process and that, whilst they would have a very good programme
for training people and would provide the management incentives
by resource accounting, sensitive issues remained. For example,
they still had to tackle the need to physically re-locate staff
as responsibility transferred from the Procurement Executive to
the Defence Logistics Organisation. The Department assured us
that they did not dismiss such issues as mechanics but recognised
them as important to delivering the desired outcome from the initiatives.[44]
42. In answer to our questions about the extent of
industry involvement in the modifications process, the Department
told us that there certainly should be involvement from industry
not just in their role as design authority but also in managing
obsolescence, particularly of electrical components. The Department
said that this was becoming more and more of a serious issue and
one where they could not generate in-house the necessary expertise.
Rather, the Department said that they no longer wanted to rely
on military specific components which were far too expensive and
which nobody wanted to make but that they wanted to contract with
the manufacturer to provide "black boxes" on a form,
fit and function basis. This would mean that it was the manufacturers
job to predict obsolescence, manage the repair loop and possibly
even own the equipments. The Department recognised that adopting
such an approach was a big change.[45]
43. Responsibility for the design integrity of modified
equipment is clouded with uncertainty.[46]
We therefore asked what steps the Department had taken to clarify
precisely where the balance of responsibility lay between the
Department and industry. The Department acknowledged that they
retained responsibility for the safety of the equipment because
they had a duty of care to the people who manned it and to the
general public and that they could not divest themselves of this
responsibility. They added that, as a general principle, the term
"Design Authority" did not have any meaning in law but
that for individual equipments the responsibilities placed on
industry would have been made clear in the specific contract.[47]
Conclusions
44. The current complex and fragmented approach to
modifications reflects the historical evolution of the Department
but has hampered flexibility and introduced inefficiencies into
the modification process. We welcome the steps the Department
are taking to review their modification arrangements, and in particular
their willingness to learn from United States and private sector
experience in addressing the shortcomings. We recommend that the
Department build on this encouraging start to ensure that all
of their management processes align closely with overseas and
commercial best practice.
45. It is clear to us that the Department regard
the setting up of Integrated Project Teams, comprising all relevant
stakeholders in the modification process, as the single most important
initiative to emerge from their review of their organisation and
procedures. We welcome the intention that each Team should be
managed by a single leader with authority to resolve the counter-productive
tensions and arguments which characterise the existing processes.
46. The Department explained that they were taking
steps to establish a clearly defined customer organisation to
help to prioritise potential modifications and to allocate funding
for these. Responsibility for delivering what the customer wants,
and hence for managing modification activity, will rest with Integrated
Project Teams. These developments place funding responsibility
with those who stand to benefit most from modification. We suggest
that the Department put in place mechanisms to quantify the benefits
achieved, disseminate best practice and set challenging targets
for the newly formed Integrated Project Teams and their customers
to achieve in progressing future modification activity.
47. The establishment of Integrated Project Teams
is a significant step in the direction of better modification
management. And the Department recognise that more needs to be
done to ensure real gains in process efficiency. It will be important
that the new computerised logistics Information Technology systems
meet the emerging needs of Integrated Project Teams. Additionally,
the Department need to ensure that they have suitable unified
business processes in place to enable these Teams to make best
use of the improved information as the systems come on stream.
We note that the creation of a single Defence Logistics organisation
was specifically aimed at unifying business processes. We will
look for evidence that this objective has been implemented successfully
and that the Department will be able to provide quantified examples
of the efficiencies and improved operational effectiveness achieved.
48. We are pleased that the Department recognise
that introducing the initiatives outlined represents a significant
cultural change and that the full achievement of this cultural
change will be a lengthy process. However, we note that several
of the initiatives comprising the overall change package have
already been implemented or are expected to be implemented in
the near future. For example, the WRAM logistics Information Technology
system is already operational and LITS soon will be; the first
resource based accounts will be produced for the financial year
1999-2000; and Integrated Project Teams will be fully in place
by April 2000. We therefore look to the Department to be able
to demonstrate to us that some of the expected benefits are realised
quickly.
49. The working relationships being established by
the Department and industry also provide an opportunity to reduce
both modification timescales and costs. We welcome the Department's
intention to work more closely with industry and commend the Department's
commitment to involve industry increasingly in managing aspects
of equipment support, and in particular electronic obsolescence.
We expect to see demonstrable benefits from industry's closer
involvement in equipment support activity and their membership
of Integrated Project Teams. In particular, we look to the Department
to ensure that industry's expertise is utilised in identifying
proposals for "economic" modifications drives down running
and maintenance costs.
50. Overall, we expect the Department to set clear
and quantifiable cost, timescale and operational benchmarks against
which they, and we, can assess their success in achieving their
aims of improving equipment management (including modifications)
as set out in the Strategic Defence Review. We observe that so
far there is an unquantified linkage between the specific initiatives
referred to and the beneficial impacts they are expected to deliver.
Where savings have already been factored into the Department's
future financial planning assumptions, as with the new logistics
Information Technology systems, we look to the Department separately
to identify the scale of the expected benefits and savings, and
to ensure that their management information reporting arrangements
can attribute quantifiable benefits and savings to the specific
actions they have taken.
38 Qs 50, 55, 125 Back
39
Qs 2, 49, 72 Back
40
Qs 51-52, 109 Back
41
Qs 3, 73 Back
42
Qs 75, 87 Back
43
Q106 Back
44
Qs 108-109 Back
45
Qs 48, 116 Back
46
C&AG's Report, para 2.20 Back
47
Q4 Back
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