27 April 2009

The failings of Ministry of Defence procurement are rarely out of the headlines but, argues Thomas Harding, it looks as if it is finally overcoming some of its problems

UK defence procurement is nearly always a tale of delays and cost overruns. In any news piece just substitute the words "aircraft carriers", "Eurofighter" or "Nimrod MR4" and tweak the millions in price increase and years' delay for an in-service date.

But it could be time to update the story. Six years of fighting on two fronts has meant the introduction of a faster way of buying according to so-called Urgent Operational Requirements (UOR).

Buyers and suppliers agree this has radicalised purchasing at the MoD. It has compelled parties to work closer together to get equipment to the frontline. Some, however, believe this innovation has been at the expense of improving the procurement of longer-term projects. And both sides think more can still be done to improve buyer-supplier relations. Others take the view that the need to maintain a UK defence industry leaves the MoD paying for jobs instead of focusing on achieving value for money for the most appropriate piece of kit.

SPEEDIER SUPPLY Defence researcher Dr Richard North believes the MoD has been obsessed with a "gold-plating" search for perfection. He argues its rejection of 'good enough' could in some instances mean that projects "completely miss the war".

Lieutenant General Andrew Figgures, the most senior military officer responsible for defence procurement, tells SM that in the past the MoD has not been quick enough to adapt. He says purchasers now realise they must "tailor the requirement to money we have available to the means of supply".

The Deputy Chief of the Defence Staff for Equipment Capability says the military had "taken risk with performance" in getting desperately needed equipment UORs on to operations, but it was better to get a 50-60 per cent solution in six months than wait two years.

So how does this faster process work? UORs are funded by extra Treasury money to provide equipment quickly to meet frontline demands. A UOR is set in motion after a commander on the ground identifies a 'capability gap'. A request travels up the chain of command to the MoD Project Team and General Figgures takes advice from them when deciding if it can be considered 'urgent'. If given the go-ahead, it could be on the frontline within weeks or, in some cases, days.

The MoD has approved more than £3.6 billion of UORs since the 2003 invasion of Iraq. UORs have been used to provide troops with rations, boots, improved body armour, sophisticated anti-missile defence systems for aircraft.

An example of a successful UOR is the Mastiff vehicle protection programme to stop the high casualty rate from roadside bombs. The first of 280 vehicles were in Iraq and Afghanistan within 23 weeks of the order.

General Figgures adds: "If you need a lot of equipment quickly, everything does not have to be perfect. Build as you can afford so if you do change your submarines or air defence destroyer you need industry to provide the base for incremental improvement."

SERIOUS ISSUES But for some experts the use of UORs means the MoD occasionally sends unsuitable equipment. David Leslie, sales director for Global Combat Systems at BAE Systems, a major MoD supplier, served on several operational tours in the army. He says there are serious issues about the MoD buying off-the-shelf kit from non-established defence companies.

Dr North believes the strategy for fighting the war in Afghanistan is dictated by what is available - the equipment "tail" has been wagging the army "dog".

For example, the MoD has been criticised for not getting mine-resistant vehicles into Iraq while servicemen were being blown up in Snatch Land Rovers. (There have been 37 soldiers killed in the vehicles since 2003.) But North argues the problem isn't with the equipment, "but the thinking behind it - or lack of it".

He says: "The tactics, equipment and doctrines used in Northern Ireland were unsuited to the realities of the insurgency in Iraq."

Leslie and North also raise questions about the impact of UORs on long-term procurement. "UORs are about defeating the process, not making the system better," says Leslie. He believes the old procurement process has broken down because everything has now become UORs. "The wars have solved the immediate problem but they have given us another to deal with."

North adds: "Procurement appears to be overhauled by default by the UOR system. But will this have any effect on the longer term projects such as Carrier, Trident replacement, FRES (ships, submarines and new armoured vehicles)?"

SUPPLIER RELATIONS Buyers and suppliers agree on one thing - a focus on faster procurement has led the two to work more closely together.

QinetiQ, the former MoD research and development organisation, said urgent requirements were going straight out to industry and "in certain circumstances can be done in days or weeks".

For example, a communication system for helicopters went into operation within eight weeks. Normally this would have taken more than a year but it was completed rapidly because "UORs mean both parties are working together".

General Figgures agrees: "We work with the supplier, with Defence Equipment and Support, and with the government so we have clarity on what we want." Knowing what you want, and communicating it to industry, makes it much easier for suppliers to meet that need.

Ed Savage, a procurement expert at PA Consulting, and a former RAF officer who has advised the MoD on some major programmes, believes this closer working relationship has improved the success rate of equipment delivered to the frontline: "Whatever is procured this way has to work first time - and it invariably does because the MoD has developed a robust approach to capability development."

The MoD is now more focused on deciding precisely what equipment it wants. For the past four years it has been running defence acquisition workshops with suppliers. At these meetings everybody is able to say what they feel without fear of repercussions for their career or loss of contract.

"This has spawned a real sense of community and improvements to the acquisition process," says Savage. "There are now many engagements where the top team from the MoD is sharing information with its suppliers in a way it has never felt comfortable to do before. This results in a greater shared understanding and more effective matching of supply and demand."

The practice meant that suppliers were brought into the process and felt part of "Team Defence", he adds.

Another improvement is that civilian engineers now operate alongside armed forces in battle zones to get equipment working correctly. This has led to some useful joint working between armed forces personnel who can state what they need and why, and engineers who understand their requirements and can feed the information back home.

Matt Fincham is a former officer in the Royal Logistics Corps with operational tours in Iraq and Afghanistan and now a communications adviser for the Defence Industries Council. He believes the MoD and industry have become "incredibly integrated".

An example of this, he says, is Thales engineers based in Helmand with responsibility for getting Hermes 450 UAVs (Unmanned Aerial Vehicles) off the ground. "They hand it over to Royal Artillery personnel for missions and when it is over they hand it back for maintenance."

Another issue is improved long-term planning.

Savage argues the much-lauded Defence Industrial Strategy (DIS), which resulted from the early defence acquisition workshops, made a significant contribution to relationships with industry and spawned alliances between key suppliers and the MoD to protect key capabilities for the UK.

Introduced in 2006, the DIS sets out a 10-year buying plan for the UK military.

For the first time, it gave a policy framework for how government and industry should meet frontline needs as well as a strategic view of each sector of the defence industry. It recognised that with fewer units being built and greater time between programmes you cannot expect there to be a submarine industry the next time you come to build a new boat. It also acknowledged the need to keep a large chunk of industry in Britain so equipment could be maintained and upgraded.

A review of the MoD's procurement capability by the OGC, published earlier this month, found the MoD has come along way since the DIS. But North is worried defence procurement has become as much about providing local employment as getting the right hardware for soldiers. "Hence you get the Future Lynx, ordered mainly to keep a helicopter manufacturing capability in the UK," he says.

A sum of £1.9 billion was approved for 60 helicopters - more than £30 million each, continues North. But the Blackhawk - the mainstay of the US battlefield fleet - cost £3-4 million, has greater capacity, proven performance and was available off-the-shelf; whereas the Lynx will not be delivered before 2014.

However, with its base in Yeovil, Somerset, the order guaranteed 3,000 jobs for Britain's last helicopter manufacturer.

Lewis Page, author of Lions, Donkeys and Dinosaurs, the bestselling critique of MoD spending, said the biggest problem was the existence of a "significant but badly limited onshore UK arms industry".

He adds: "If this industry can make any given piece of kit, it will be permitted to almost regardless of price. This means British forces usually have to pay most of the development costs, and buy early on from small production runs. As a result, prices are very high for capability delivered.

"The UK pays three to 10 times more than it needs to for anything," argues Page, a former Royal Navy underwater bomb disposal officer, who believes the real reason for the Britain's "military-industrial protectionism" is jobs.

"In a typical UK/European project, one could buy a better American product off the shelf, give every sacked/not-hired UK worker a million pounds, and still save hundreds of millions for the Treasury."

The way Labour MP Bruce George - chairman of the Commons' Defence Committee from 1997 to 2005 - sees it, poor defence procurement is not a modern ailment.

Addressing fellow MPs last year, he said: "Every single war in which our Armed Forces have engaged was either just about won, or even lost, not just because of poor leadership but because of poor procurement.

"Poor equipment has existed as long as warfare. The best minds and organisations, with the best will in the world, have not yet led us to produce the weapons and the equipment required for our Armed Forces within the original budget that actually works.

"Despite all our efforts, defence procurement is an attempt to do the undoable. Other countries have failed equally miserably, and some far worse."

The OGC review says while significant progress has been made in terms of skills and commercial practice, long-term behavioural change was needed to "deliver consistent procurement excellence". It concluded the commercial function was "underpowered at a senior level to deliver change"; and while work defining some key processes has begun there is as yet "no comprehensive procurement systems strategy."

Although improvements have been made - with better communication between buyers and suppliers and spockets of excellence - problems look likely to persist for some time.

* Thomas Harding is defence correspondent at The Daily Telegraph

For the latest legal rulings and developments go to www.supplymanagement.com and type 'court report' into the search function for case law or 'law update' for other changes. Major defence projects around the world have become very complex. Therefore they are subject to delays and cost overruns with few countries getting the right balance of price, timeframe and relevant or reliable equipment.

Russia Produced some world-beating arms such as the AK47, rocket-propelled grenade, the Su-27 and MiG 29 fighters. But elsewhere the work is patchy with a lack of money to maintain current equipment or develop for the future. The Georgia invasion last year showed how far behind Russia was in high-tech warfare.

France The situation in France is similar to Britain: some good, some bad, some indifferent. The Leclerc main battle tank has proved to be complicated, expensive, under-armed and with a weak engine. The same could be said for the Rafale fighter, which will struggle to find many foreign buyers. But the French are doing well at shipbuilding.

China Outside the small arms industry it is difficult to see how well China is placed because of immense secrecy. It does occasionally surprise the world by wheeling out supposedly advanced projects but these tend to be mock-ups such as the JXX fighter that was meant to be on a par with USAF's highly advanced F22 Raptor. The latter is in service the former is not. There are talks of an aircraft carrier fleet but this is some years off, 2020 or later. What is clear is that Chinese defence spending has increased markedly while the fat of the military has been trimmed.

India Has a growing defence economy, which is on a par with China, but there is still a considerable amount of waste. It has yet to develop an exportable fighter and its main battle tank project is a disaster. It has to import much of its equipment from Russia, America and, to a lesser extent, Britain.

America With the luxury of a £350 billion defence budget - six times bigger that the next nation's spend - the Americans can afford to throw enormous amounts of money at a project until it works well or they can just walk away. It is very wasteful but does tend to produce weapons that have no equal. Some would say Britain does more with less cash. America also has the advantage of mass-production, which reduces the unit price.

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