Select Committee on Public Accounts Appendices to the Minutes of Evidence

Copy of a letter from the Comptroller and Auditor General to the Director of Air Foyle Ltd


  Thank you for your correspondence on the Short Term Strategic Airlift procurement. As you know, we have been following up the issues you raised in your letters of 7 September last and 23 January. Tim Banfield, the NAO Director responsible for defence equipment issues, and his team have completed a rigorous investigation into the conduct of this procurement and he has already spoken to you about the results of this work.

  The final decision on the Short Term Strategic Airlift procurement was finely balanced and taken by Ministers. Our enquiries focused on whether the Department followed best practice in conducting the procurement and providing Ministers with complete information on which to base their decision.

  In this context, Tim Banfield and his team have had detailed discussions with the Defence Procurement Agency Integrated Project Team and the Department's Customer (Director of Equipment Capability (Deploy, Sustain and Recover)), and they have reviewed key documents supporting the procurement. These investigations have focused around four criteria to assess the Department's conduct of the procurement. The criteria used were based on the Department's own recommended best practice and covered:

    —  was Air Foyle's proposal considered as a serious alternative;

    —  were the Department's criteria for evaluating proposals explicit;

    —  were all the costs and risks fully evaluated through a Combined Operational Effectiveness and Investment Appraisal (COEIA); and

    —  was the basis for the decision transparent.

  My detailed findings under each of the above criteria are set out in the attached Annex. My overall conclusion is that the Department has not fully followed its own preferred practice in evaluating the Short Term Strategic Airlift proposals, but there is no evidence of illegality. The Department's exceptional approach reflected what it saw as the unusual circumstances and challenges of the procurement.

  In summary, the Air Foyle proposal was considered as a serious alternative as the Department accepted the An-124 100 assured charter as a viable option to meet the Short Term Strategic Airlift requirement. There was significant dialogue between the Department and Air Foyle during the procurement. However, the Department was not explicit in setting criteria for how the proposals submitted in the competitive environment were to be evaluated and did not conduct a full Combined Operational Effectiveness and Investment Appraisal because it could not quantify all of the risks involved. Therefore, the information put to Ministers by the Department, although comprehensive in identifying the costs and risks associated with the options, lacked quantification of some of the key risks and was inconclusive, leaving the decision very open. This has led to lack of clarity concerning the basis on which the decision was made, which has been added to by the inconsistent picture given by the Department to industry and others more widely on the determining factors.

  Tim Banfield has raised our concerns with the Department over the process weaknesses in this case. The Department has recognised these and other lessons raised during your debrief and has fed them back into its procurement practices through its Learning From Experience Cell.

  I hope that you find this reply helpful in explaining the Department's conduct of the Short Term Strategic Airlift procurement. I will continue to monitor the progress of the Short Term Strategic Airlift project through the Major Projects Report, which it will feature in from 2002.

Sir John Bourn
Comptroller and Auditor General

10 October 2001

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