Conclusions and recommendations
Progress made since the merger
1. The
merger of the Defence Procurement Agency and the Defence Logistics
Organisation was a major undertaking made more challenging by
the need to support two major operations. We commend the Chief
of Defence Materiel and his staff for ensuring that the merger
was achieved to the timetable set and for the progress achieved
in the first year of operation of the Defence Equipment and Support
organisation. (Paragraph 14)
2. We note that the
MoD considers that reasonable progress has been made in implementing
the Defence Acquisition Change Programme. A key benefit expected
to be delivered from this programme is to deliver defence capability
more quickly. The former Minister for Defence Equipment and Support
set a challenge of reducing the acquisition time for defence equipment
by 50%. In its response to our report, we expect the MoD to set
out what specific action it is taking to meet this challenge,
how it is measuring its performance in reducing acquisition time,
and when its expects to be acquiring equipment in a timescale
which meets the challenge. Similarly, we expect the MoD to provide
us with details of the progress it has made in producing an affordable
and balanced budget and in creating a set of metrics by which
through life acquisition performance can be judged. (Paragraph
20)
3. We note that Through
Life Capability Management should lead to the MoD getting the
benefit from defence equipment more quickly by focusing attention
on issues such as doctrine and training rather than just equipment
and equipment support. We welcome the MoD's assurance that this
approach should greatly reduce the chances of the sort of problems
seen on the Apache helicopter programme. (Paragraph 27)
4. We note that the
MoD considers that the merger of the Defence Procurement Agency
and the Defence Logistics Organisation should improve through
life management planning and ensure that it becomes embedded in
the new organisation. We agree. In its response to our report,
we expect the MoD to set out what proportion of its equipment
programmes currently have through life management plans of an
acceptable standard and when it expects such plans to be in place
for all its programmes. (Paragraph 30)
5. It is crucial that
DE&S has a highly skilled workforce, particularly in areas
such as engineering, project management, logistics, finance and
commerce. DE&S appears to have made some progress in upskilling
staff in a number of these areas. However, its skills audit needs
to be completed as soon as possible. We note that training and
upskilling had not progressed as quickly as hoped because staff
had been too busy to be released. We believe that it is probably
the intention within DE&S that, once the current tempo of
operations and the need to support them reduces, staff should
be given adequate time to undertake the required training and
upskilling. We are not satisfied that so important a programme
can wait for such an eventuality. We consider that it is inexplicable
for the MoD both to be reducing the numbers of staff and to be
telling those that remain that there is no time to train them.
Every week that passes without staff adequately skilled and equipped
to do their vital jobs has the potential of damaging the work
that they do and the projects they are running. We call on the
MoD in its response to this report to set out what urgent actions
it will put in train to overcome the constraints on training and
upskilling caused by the high operational tempo. While we note
that the Chief of Defence Materiel has ringfenced funding for
training and upskilling, this is of little value if staff have
insufficient time to take advantage of it. (Paragraph 42)
6. The upskilling
and training of DE&S staff in specialist skills, such as project
management, will be crucial to the future effectiveness of DE&S.
However, it will be some time before these staff will have the
broad experience that can only be gained from using their training
on a range of programmes. DE&S needs to identify the key posts
where good experience in the various specialist skills is required
now, and develop a strategy for drawing in such experienced staff
from outside DE&S. (Paragraph 43)
7. We were unable
to visit DE&S at Abbey Wood, Bristol. We remain concerned
about the skills mix made available to DE&S. We will want
to explore further the whole question of skills generation and
development in DE&S in a future report. (Paragraph 44)
8. It is vitally important
that DE&S can recruit and retain staff with the skills that
match those in industry. To do so, DE&S has to have a reward
structure that makes it an attractive employer to professionals
in areas such as project management and systems engineering. In
its response to our report, we expect the MoD to set out the progress
it is making to introduce a more flexible reward structure and
the barriers that are hindering its efforts to do so. (Paragraph
45)
9. The UOR process
has delivered substantial amounts of vital equipment to our Armed
Forces operating in Afghanistan and Iraq. We commend DE&S
for the speed at which it is getting urgently needed equipment
into theatre, the procurement of Mastiff vehicles being a good
example of this. (Paragraph 50)
10. We note that the
MoD has initiated a study to assess the impact of current operations
on equipment, such as vehicles, and the subsequent costs of recuperation.
We see the costs of recuperation as a cost of operation to be
funded from the Reserve and not from the defence budget which
is already under substantial pressure. In its response to our
report, we expect the MoD to set out the terms of reference for
this study and, once the study is completed, to provide us with
a copy of it. (Paragraph 56)
Performance against Key Targets
11. We
are disappointed to learn that DE&S is unlikely to meet its
Key Target relating to programme slippage in 2007-08. Seven of
the largest equipment programmes which featured in the Major Projects
Report 2007 have experienced in-service date slippage in 2007-08
totalling some 6.5 years. Once again, the MoD has failed to control
slippage on key equipment programmes. In its response to our report,
we look to the MoD to provide an explanation of the in-service
date slippage on each of the major projects in terms of the three
reasons for such slippage set out by the chief of materiel in
evidence to us; and we expect the MoD to set out the specific
actions being taken to limit further programme slippage. (Paragraph
64)
12. We are concerned
to hear that the MoD has little control over time slippage on
international equipment programmes, given that many of the MoD's
equipment programmes including Typhoon and the Joint Strike Fighter
are international programmes. We call on the MoD to set out in
its response to this report what conclusions it draws from this
problem about the nature of international programmes, what steps
it has taken in the past to limit these disadvantages and the
extent to which these steps have been successful. (Paragraph 65)
13. We note that in
2006-07 the MoD reduced the forecast costs of major equipment
programmes by reducing quantities of equipments, reassessing requirements
and by re-allocating expenditure to other equipment programmes
or budget lines. In its Major Projects Report 2007 the NAO expressed
concerns about this approach and did not expect to see "this
level of re-allocation in existing projects in future reports".
We share the NAO's concern. In reporting its performance against
the Key Target relating to cost growth in 2007-08, we do not expect
to see the MoD shifting expenditure between different budget lines
to give the impression of good cost control on equipment programmes.
We plan to follow this up to check that the MoD has not done so.
(Paragraph 68)
Business Strategy 2008-12 and "Blueprint"
14. We
note that, as with the MoD Head Office, DE&S is to be streamlined
with the loss of some 7,500 staff—27% of its workforce—by
2012. As with the streamlining of the MoD Head Office, we remain
to be convinced that improved economy, agility and responsiveness
will follow from the reduction in staff. We look to the MoD to
provide adequate support for those DE&S staff who are to lose
their jobs. The MoD must monitor closely staff morale during the
streamlining of DE&S and ensure that it continues to deliver
the services which our Armed Forces require. (Paragraph 77)
New approaches to contracting
15. Military
equipment acquired by DE&S must be reliable and available
for use by our Armed Forces. We note that the MoD is seeking to
push back onto the manufacturer the risk of unreliable equipment
by contracting for availability. We consider this to be a promising
approach and we look to the MoD to evaluate whether these new
arrangements deliver the expected benefits in terms of improved
availability and, if so, to consider how they might be used more
widely. (Paragraph 82)
Comprehensive Spending Review 2007 and Planning
Round
16. In
its response to our report, we expect the MoD to set out the reasons
why the current Planning Round is so challenging given the real
terms increases to defence expenditure set out in the Comprehensive
Spending Review 2007. (Paragraph 89)
17. We note that the
MoD is preparing advice to Ministers about the defence budget
for the three years 2008-09 to 2010-11 and that the MoD acknowledges
that there are likely to be cuts or delays to projects in the
Equipment Programme. The MoD needs to take the difficult decisions
which will lead to a realistic and affordable Equipment Programme.
This may well mean cutting whole equipment programmes, rather
than just delaying orders or making cuts to the number of platforms
ordered across a range of equipment programmes. While it is the
natural inclination of all governments and departments to avoid
bad news by "moving programmes to the right" rather
than by cutting out an entire capability which has many supporters,
such an approach can cause in the long run more financial and
operational damage than confronting the perennial problem of an
over-ambitious Equipment Programme. A realistic Equipment Programme
will give confidence to our Armed Forces that the equipment programmes
that remain will be delivered in the numbers and to the timescale
required, and will also allow industry to make informed investment
decisions. This is an issue we plan to return to. (Paragraph 94)
18. We note that
the merger of the DPA and DLO will contribute to generating annual
net cash-releasing savings of some £250 million by 2010-11
and that there will be further savings in the future as most of
DE&S business is collocated in the Bath and Bristol area.
(Paragraph 98)
Measuring and reporting performance
19. We
are concerned to learn that the new performance targets for DE&S
will not be validated by the NAO, as was the case for the Key
Targets of the DPA, now merged with the DLO to form DE&S.
Independent validation of reported performance against Key Targets
provides Parliament with assurance that the reported performance
is accurate. In its response to our report, we expect the MoD
to set out the reasons why it has no plans for the targets to
be validated by the NAO and how independent validation will be
achieved. (Paragraph 102)
20. We note that the
MoD is benchmarking its performance against its allies in delivering
equipment into theatre. We consider this to be a useful exercise
and, given our on-going interest in current operations, look to
the MoD to inform us of the results and the lessons identified.
(Paragraph 103)
21. We note that the
Major Projects Report is to be revised to provide a broader view
of equipment acquisition. However, we remain concerned that the
revised Major Projects Report may not provide visibility of the
performance of programmes against their acquisition targets covering
time, cost and performance, and that poor performance against
these targets might be difficult to identify within the broader
view provided. In its response to our report, we expect the MoD
to provide us with a summary of the key changes expected to the
Major Projects Report, the categories of equipment programmes
that will be covered, and when the revised format is likely to
be approved. We also expect the MoD to continue to provide the
key information in respect of the performance of individual programmes.
(Paragraph 106)
Astute submarine
22. We
note that the MoD has identified key lessons from the problems
experienced to date on the Astute submarine programme. We consider
it vital that these lessons are taken into account when the MoD
acquires the successor to the current Vanguard class submarines
and look to the MoD, in its response to our report, to set out
how it plans to ensure this is done. (Paragraph 120)
Type 45 destroyer
23. The
Type 45 destroyer programme experienced a further forecast cost
increase of £354 million and a further 11 month time slippage
during 2006-07. We note that the MoD did not change the specification
for the Type 45 destroyer, so this was not the reason for the
further forecast cost growth and time slippage. In its response
to our report, we expect the MoD to set out the key lessons identified
from this programme and to provide us with an update on how the
programme is currently performing against its Approved Cost and
In-Service Date. (Paragraph 123)
Nimrod MRA4
24. Since
the DE&S Chief Operating Officer, Mr Gould, told us that the
problems being experienced on the Nimrod MRA4 programme were not
considered unusual, that they had been experienced on the MRA2
programme and that "it was predictable", we are deeply
concerned that they nevertheless seem to have come as such a surprise
to the MoD. His comment that, until the prototype had been built,
"that is the first time you can test it against reality"
may be true, but for the MoD to have failed to have provided for
the risk turning into reality cannot in the circumstance be excused
by the suggestion that "it would have been a low probability".
We accept his contention that, because of the long gap between
the MRA2 conversion programme and the MRA4 programme, some 20
years, the experience from the earlier programme had been lost,
but we are disappointed that this had not been recognised at a
much earlier stage of the programme. (Paragraph 126)
25. At the end of
2006-07, the Nimrod MRA4 programme had experienced a forecast
cost increase of some £687 million, almost 25% greater than
the approved cost, and has experienced further cost growth in
2007-08 of some £100 million. Given the huge cost growth
seen on this programme, we are concerned that the MoD does not
appear very alarmed by the additional cost growth in 2007-08,
referring to it as "just a little less than three per cent
of the total programme cost". The programme has also experienced
further slippage in 2007-08 which now totals 92 months, some 7.5
years. (Paragraph 129)
26. In our report
on the Ministry of Defence Annual Report and Accounts 2006-07
we recommended that the MoD undertake a review of the Nimrod MRA4
programme in order to ensure that best value for money is achieved
in maintaining this important capability, both in quality and
quantity of platforms. This is a programme that has been beset
by one problem after another and neither the MoD nor the contractor
appears to be able to get a grip on it. We hope that the new Minister
for Defence Equipment and Support will look closely at this programme
and consider whether it is ever likely to deliver the capability
our Armed Forces require in the timescale needed. If it is not
the MoD should withdraw from the programme. (Paragraph 130)
A400M
27. It
is disappointing that the in-service date on the A400M transport
aircraft programme has slipped a further nine months in 2007-08
and it is now expected to enter service some two years later than
the original approved in-service date. As we recommended in our
report on the Ministry of Defence Annual Report and Accounts 2006-07,
we look to the MoD to work closely with the contractor for this
programme to reduce the risk of any further delays and, where
possible, to identify ways to recover some of the forecast slippage
(Paragraph 135)
28. We recommend that
in its response to our report, the MoD sets out the key findings
of the review of the A400M programme undertaken by the DE&S
project rehabilitation unit (Paragraph 136)
FRES
29. We
note that the Army, as the front line user, has been closely involved
in the process of identifying the preferred FRES Utility Vehicle
design and that the design which has been recommended is the Army's
preferred option. (Paragraph 142)
30. We note that the
FRES Utility Vehicle design which has been recommended is a "developmental
vehicle" and that the MoD considers that this is the best
option as it can be upgraded and its capability increased over
time. We also note that the MoD considers that acquiring an "off-the-shelf"
vehicle would not provide scope for increasing capability and
would have a very limited life. While we recognise that these
are strong arguments for acquiring a developmental vehicle for
the FRES Utility Vehicle, such an option is also likely to involve
higher costs and increased risks to the in-service date because
of unforeseen problems during the further development. If the
recommended design is approved, the MoD needs to ensure that it
identifies the key risks on the programme and how these are to
be managed. (Paragraph 144)
31. We find it an
issue of concern that the MoD appears to be at an advanced stage
with regard to selecting the FRES Utility Vehicle design yet has
still to clarify what the planned In-Service Date is. In its response
to our report, we expect the MoD to provide clarification on this
matter. (Paragraph 146)
32. In its response
to our report we expect the MoD to set out how many Mastiff vehicles
are being procured for operations in Iraq and Afghanistan, how
the acquisition of armoured vehicles for these two operations
impacts on the FRES requirement, and how the MoD plans to use
these vehicles when they return from current operations. (Paragraph
147)
Future Carrier and Joint Strike Fighter programmes
33. When
we held our oral evidence session on 29 January 2008, the Manufacture
contract for the Future Carriers had yet to be signed. We find
it a cause of concern that the MoD did not seem to know what was
holding up the signing of the Manufacture contract. It appears
that the formation of the Joint Venture between BAE Systems and
VT was a factor behind the delay, but the MoD's view on why this
had not happened did not appear to match that of industry (Paragraph
159)
34. We note that the
MoD expects the Manufacture contract for the Future Carriers to
be signed by the end of March 2008. We found unsatisfactory the
responses from the MoD on the reasons for delay in signing the
contract. We think it likely that much of the cause relates to
the current difficulties in the Planning Round, but there must
come a point where delays in letting the contract will affect
the programme schedule and the expected in-service dates of 2014
and 2016. Further delays are also likely to lead to increased
costs on the programme. We plan to monitor this closely. (Paragraph
162)
35. We also call on
the MoD to set out what roles the two Future Carriers will perform
when they come into service and what capabilities these expensive
ships will give us that could not be provided in other ways. Since
the 1998 Strategic Defence Review there have been reductions in
the number of current and planned surface ships, such as the Type
45 destroyer. We therefore look to the MoD to confirm that the
two new carriers will have sufficient protection to undertake
the roles expected of them while not removing from other tasks
the naval cover that the country will continue to need. (Paragraph
163)
36. We note that the
MoD expects the Future Carrier programme to be delivered below
the approved cost of £3.9 billion as a result of the incentive
arrangements that it plans to put in place. While it is important
to acquire the two carriers within the Approved Cost, the MoD
must also take account of the through-life costs of the carriers
which will be many times greater than the acquisition costs. The
MoD needs to make the necessary investment when acquiring the
carriers so that substantial savings through-life will be delivered.
In its response to our report, we expect the MoD to set out the
forecast through-life costs of the two carriers and how its investment
to date in the programme is expected to reduce the through-life
costs. (Paragraph 166)
37. We note that the
MoD is content with how the restructuring of the UK surface ship
sector is progressing. This is an issue which we plan to monitor
closely. (Paragraph 167)
38. We note that a
contract to upgrade Rosyth dockyard, where the final assembly
of the two aircraft carriers will take place, has been signed.
(Paragraph 168)
39. We acknowledge
that cost has to be a factor in determining the procurement of
major equipment, but we would expect the number of JSF aircraft
to be primarily determined by what the UK needs for its defence
capability. In its response to our report, we look to the MoD
to set out the different roles which JSF aircraft will be required
to undertake and how many aircraft will be required to fulfil
each of these roles. (Paragraph 174)
40. We note that the
MoD considers that one of the benefits of the JSF programme is
that it does not have to decide on the number of JSF aircraft
it will acquire "at the start". While we acknowledge
that UK participation in the programme provides this flexibility,
we are surprised that the MoD does not consider it an issue that
it does not know how many JSF aircraft it requires because it
is "at an early stage in the programme". We take issue
with the term "early stage", as the MoD has already
spent in the order of £1 billion on the JSF programme and
the first aircraft carrier, which the JSF aircraft will operate
from, is expected to enter service in 2014—just six years
away. (Paragraph 175)
41. The acquisition
of two new aircraft carriers and Joint Strike Fighter (JSF) aircraft
to operate from them will provide the core elements of the MoD's
'Carrier Strike' capability. We are disappointed and concerned
to learn that JSF aircraft will not be available to operate from
the first new aircraft carrier which, on current plans, is expected
to enter service in 2014. We recommend that, in its response to
our report, the MoD sets out the reasons why JSF aircraft will
not be available to operate from the first new aircraft carrier
when it enters service and the latest estimate of when sufficient
JSF aircraft will be available to operate from both carriers.
(Paragraph 178)
42. We note that Harrier
GR9 aircraft are to be operated from the first new aircraft carrier
and that these aircraft will remain in-service until around 2018.
We look to the MoD to undertake an assessment of how the 'Carrier
Strike' capability would be maintained if JSF aircraft were not
available to operate from the two aircraft carriers in 2018 when
the Harrier GR9 goes out of service. (Paragraph 179)
Wider lessons
43. We
consider that there is a strong case for having a general procurement
contingency held centrally by the Equipment Capability customer
rather than at the individual equipment project level. We look
to the MoD, in its response to our report, to set out what consideration
it has given to a general procurement contingency and whether
and how it plans to introduce such a system. (Paragraph 182)
44. Substantial in-service
date slippage on major equipment programmes has often been a result
of over-optimistic estimates by contractors of the likely programme
schedule. It is, therefore, worrying to learn that the MoD only
now acknowledges that it needs to include in the project management
skills of its staff the ability to examine a contractor's programme
schedule and consider whether it is credible. In its response
to our report, we look to the MoD to set out how it plans to up-skill
its staff working in defence acquisition, so that they are able
to examine critically the estimates provided by contractors both
in relation to a programme's schedule and cost (Paragraph 185)
45. We note that the
MoD is introducing techniques, such as Earned Value Management,
to improve its visibility of the progress on equipment programmes
and to identify potential problems as early as possible. We look
to the MoD to assess whether the expected benefits are delivered
by such techniques and, where they have been, to ensure that they
are adopted on other programmes. We also expect the MoD to learn
from the experience of the US Department of Defense in using Earned
Value Management, such as on the Joint Strike Fighter programme.
(Paragraph 188)
46. We note that the
MoD is paying more attention to the date at which equipment can
deliver initial and full operating capability, rather than just
the in-service date. Starting the training of the users of equipment,
even where there is some further development work to be completed
on an equipment programme, should allow the equipment to enter
operational service more quickly. (Paragraph 190)
47. Cost increases
on equipment programmes have often arisen from 'requirement creep'—additions
and changes to the specification of equipment already ordered.
We note that the MoD is seeking to address this by acquiring equipment
which meets the vast majority—around 80%—of the military
customer's requirement, but which also has an 'open architecture'
allowing incremental upgrading and innovation to be added later.
This appears to be a sensible approach, but DE&S must ensure
that staff who work in project management have sufficient training
in key skills such as good change control. (Paragraph 193)
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