In December 2008, my predecessor asked Bernard Gray to undertake a review to identify improvements that we could make in the acquisition of defence equipment. On Thursday, I published Mr. Gray's report and placed a copy in the Library of the House in advance of our defence policy debate. I said then, and I repeat now, that I apologise that Members did not have longer to read and digest a report that is both lengthy and complex, and I therefore welcome the opportunity that you have provided today, Mr. Speaker, for a further discussion to take place on its contents. Indeed, I suspect that today will not mark the end of the conversation.
Mr. Gray's recommendations are far-reaching. We accept most of them and work is in hand, as part of a wider defence acquisition reform strategy, to implement the changes we agree are needed. Mr. Gray's report has got the debate well and truly started, which I warmly welcome. This is an important subject, which we very much wanted to surface. That is why we commissioned the report in the first place. I am very grateful to Bernard Gray for the effort he has devoted to this, the analysis he has produced, and his support in developing with the Department proposals to implement many of the recommendations.
This is not a new issue. As Bernard Gray's report highlights, all countries with significant defence capabilities face the same inherent complexities of military acquisition and have, over many decades, had to deal with cost and time overruns. Indeed, as the report says, many of our allies are complimentary about the UK's efforts to drive reform in this area and model their systems on ours. In the past 12 years, we have implemented a succession of initiatives to improve acquisition processes, including smart acquisition, the defence industrial strategy and, more recently, the defence acquisition change programme. These have had a significant impact on performance, as the National Audit Office has recognised in successive reports. At its best, the Ministry of Defence's project management is very good indeed. As the report observes, there are dedicated people at all levels in the MOD and among our suppliers, with a strong commitment to ensuring that the services have the equipment they need to deliver success on current operations and in the future.
The system works best when the need is most urgent. We have successfully provided £4.1 billion-worth of equipment to theatre in Iraq and Afghanistan through the urgent operational requirements system since those operations began. Our people, military and civilian, can be proud of that achievement, and the service chiefs have made it clear that our service personnel are never asked to undertake missions unless they are fully satisfied that they have the right equipment to do the job.
However, the Gray report also brings out, through analysis of a sample of individual projects, the problems that still persist. These include not only the tendency for programmes to cost more and to take longer to deliver than was initially estimated, but the further cost growth to which this gives rise and the pressure it places on limited resources-even in a period when the defence budget as a whole has grown substantially in real terms. It points to remaining skills gaps and to shortcomings in the existing arrangements for managing the equipment programme, and it argues for regular defence reviews to provide a strategic context for decisions on the equipment programme.
To some extent, the difficulties we and others face in estimating the cost and time to deliver projects reflect the fact that much modern defence equipment is at the leading edge of technology and is constantly having to adapt to meet evolving military requirements. Providing our armed forces with the best involves a degree of technical risk and uncertainty, but there are steps we can and must take in the light of the Gray report to build on earlier reform and to deliver a radical improvement in performance.
First, I have already announced that we will undertake a strategic defence review immediately after the general election. Preparatory work is already under way, and I intend to publish a Green Paper early in the new year. We will also examine legislative frameworks for implementing Bernard Gray's recommendation that a strategic defence review be conducted early in each new Parliament.
Secondly, we will work to adjust our equipment programme to bring it into balance with future requirements and the likely availability of resources through the current planning round and, in due course, the strategic defence review. Thirdly, we will plan equipment expenditure to a longer time frame, with a 10-year indicative planning horizon for equipment spending agreed with the Treasury; and we will increase transparency by publishing that planning horizon and an annual assessment of the affordability of our programme.
Fourthly, we have already strengthened board-level governance within the MOD by establishing a new sub-committee of the defence board, as recommended by Mr. Gray. It is chaired by the permanent secretary as accounting officer and charged with determining, for agreement by the board and Ministers, an equipment plan that is aligned with strategy and is affordable and realistic.
Fifthly, we will improve the way we cost projects in the equipment plan, using better and more sophisticated techniques applied more consistently, and ensuring that investment decisions are based on the most reliable available forecasts. We will also improve the management of risk across the programme. Sixthly, we will introduce stronger controls over the entry of new projects into the equipment programme, and over changes in performance, cost and timing of individual projects.
Seventhly, we will sharpen the business relationship between the Ministry of Defence head office and the Defence Equipment and Support organisation, and the service commands, by further clarifying roles and responsibilities, and by establishing new arrangements to provide greater visibility of project management and costs in the DE&S to the capability sponsor in head office. Finally, we will accelerate the improvement of key skills, including in cost forecasting and programme management, in the DE&S and the Ministry of Defence head office.
All those changes are consistent with Bernard Gray's main recommendations. I do not intend to take up his suggestion to establish the DE&S as a Government-owned, contractor-operated entity, and to put it more at arm's length from the rest of the Ministry of Defence. The Government have thought about this carefully, but we are not convinced that such a change would ultimately lead to better outcomes for the armed forces or for defence generally. Having the DE&S as fully part of defence ensures a close working relationship with the military.
Equipment acquisition is core business for the Department, and we have to get it right. Based on these proposals, I intend to publish a wider, more detailed strategy for acquisition reform in the new year, to contribute to the work of the strategic defence review. I am delighted that Bernard Gray has agreed to work with us on this, and we look forward to pressing ahead and to making the changes that are needed.
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I am grateful to the Secretary of State for his statement and for early sight of it. The handling of this report reflects much of the content of the report itself, in that there has been unnecessary delay, incompetence and an attempt to avoid responsibility. We could have had this report months ago. We could have given it time and thought over the summer recess. What did we get instead? Its publication barely an hour before the defence debate last week, with some poor excuses about how it had to be reviewed. Media management was about the only management skill that new Labour ever had, but now even that seems to have deserted it.
I, too, wish to thank Bernard Gray and his team for their hard work and for a job well done with this very substantial piece of work. To the credit of the Ministry of Defence, it is widely understood that it wanted to publish the report earlier, but No. 10 blocked that-we can see why it was blocked. It is because when he was Chancellor of the Exchequer, the current Prime Minister took little interest in defence, and we are now paying the price.
It is now clear that the Government have increasingly announced, and started, procurement programmes without ever considering whether any money would ever be made available. Children write letters to Santa Claus with comparable understanding between desirability and affordability. The procurement programme under Labour is becoming a wish list. The Secretary of State's statement today was a poor, undetailed and superficial response to this complex report. Perhaps the Government will hold a proper debate in Government time to give the whole House more time to discuss it.
Having read the report, I do not think I have ever seen such a damning set of indictments: average time overruns are five years; average cost overruns are 40 per cent. more than the original cost; the total overrun is £35 billion, when we only have a defence budget of £37 billion and an equipment budget of £16 billion. In fact, expected cost overruns in the next 10 years alone amount to £16 billion, which is roughly £4.4 million per day of unfunded liability. Those sums are so large, and the report is so damning, that the shock value has almost diminished. In the words of Bernard Gray, the equipment programme
"is unaffordable on any likely projection of future budgets."
We have too many types of equipment being ordered. There is a too large a range of tasks being covered by equipment. Equipment is being procured at too high a specification and with a built-in, sometimes purposeful, underestimation of likely cost. For example, the two-year delay to the future carriers-done on grounds that we can most charitably call utterly spurious by the unpaid Minister for procurement-will add £1 billion to the cost of the project, so to maintain the political fantasy that they are procuring the greatest amount of equipment in recent history, they stick £1 billion on to the taxpayers' bill for the future and cut funding elsewhere, such as through the brutal cuts to the Territorial Army. How perfectly consistent for a Government under whom the interest on our national debt next year will be greater than the defence budget.
The fact that we have not had a strategic defence review in almost 12 years is a big part of the problem, but the problem also lies in the fact that the Prime Minister, as Chancellor, was never willing fully to fund Tony Blair's wars. The consequence of both is that defence planning is not conducted in tandem with costings-perhaps the most devastating indictment of all. Again, in the words of Bernard Gray:
"In corporate life, no enterprise should persist with a 12 year old strategy without at least re-evaluating it fully on a regular basis. Few who would expect to prosper would even try to do so."
Yet what is the Government's response? First, to play catch-up with the Opposition. After 12 years we will get a Green Paper, perhaps eight weeks before Dissolution. What do they expect-gratitude that after 12 years the penny has finally dropped? We are to have regular defence reviews, too; the Opposition have proposed that for two years. And 10-year capital allocations; we proposed that, too.
When will the Secretary of State introduce his 10-year equipment budget plan? Will it be before the election, so that we can see it? He refers to improving the way the MOD costs projects using better and more sophisticated techniques. Can he tell us what he means? What practical measures will he take now to accelerate the improvement of key skills, including in cost forecasting and programme management, in the DE&S and the MOD head office?
The procurement process is broken and needs fundamental recasting. Many of its structures are upside down with cost control at the end and not the beginning. What does arm's length mean for DE&S and why are the Government ruling out the Government-owned contractor-operated option? Given the importance attached by Mr. Gray to research and development, why has the Secretary of State cut a further arbitrary £100 million from the defence research budget? Surely that one action stands in complete defiance of the core Gray analysis.
The Secretary of State tried the old cop-out that these problems have occurred for many decades. Of course, after the Government have been in office for 12 years, the problems are not really their fault at all. However, the report clearly points out that not only has it been quantitatively worse under this Government but that problems are growing-and at an accelerating rate.
The Secretary of State is right about perhaps just one thing-yes, there are skilled and dedicated people working in his Department in procurement. Some of them are my constituents. However, they are stuck in a Department where there have been four Secretaries of State in four years. No one is driving-no one is in control-yet the country is at war. What more damning conclusions could there be in any report to any Government?
The hon. Gentleman is quite wrong on the issue of the report's handling. He cannot have his cake and eat it. I am not suggesting that the time was adequate, and I apologise to him and to the House for the fact that it was not, although it should have been, but he had the report for a lot more than an hour-
He had the report for two hours- [ Interruption. ] I am not saying that that is long enough, so he does not need to gild the lily. He had the report for long enough for the Chairman of the Select Committee, his right hon. Friend Mr. Arbuthnot, to be able to say that there were changes to the report from the version that we had seen earlier, which was leaked to a newspaper. The hon. Gentleman cannot have it both ways. Either the report was finished months ago and it should have been available to the House months ago, or changes were made, but he cannot have it both ways. The draft that was available in the summer was a draft and we have continued to work with Bernard Gray. The hon. Gentleman would have been the first to complain if I had put this report out during the recess, having missed the opportunity to put it out because we had not finished the work in the summer. I sought to put it in the public domain at the first opportunity after the House had returned.
The hon. Gentleman referred to the defence procurement programme as a Santa's wish list, but why on earth does he not tell us what he thinks ought not to be in there? He is reluctant to tell us-
Absolutely, but I am trying to cast a little light in his direction and to try to get a little bit of clarity. Again, he cannot have it both ways. If it is a Santa's wish list of unaffordable projects, he ought to be prepared to say what he thinks ought not to be in there if he wants to have any credit for the criticism that he is throwing at us.
The hon. Gentleman tries to suggest that this is a damning report that says that the system is broken. Bernard Gray says the quite reverse. He says in terms that
"this report dwells on areas where there are problems, not with the intention of saying that everything is broken or that the system as a whole is bad".
That is a direct quote from the Gray report. On the issue of whether the Department is as good as others, I am not going to try to say that the problems have been going on for decades, although I am certain that they have. What the report says, again in terms, is that all nations with advanced defence capabilities, and therefore acquisition processes, suffer from exactly the same difficulties. We know more than many countries, and indeed other countries look to our process as a beacon showing the way to reform.
On the details of taking the programme forward, that is exactly what Lord Drayson is doing, and we will report in the new year to put flesh on the bones and explain exactly how we are going to take forward acquisition reform. The hon. Gentleman talked about the carrier, and he claimed that there was no good reason for a delay to the reprofiling of the carrier programme, but he knows that it was delayed to make way for a higher priority requirement-the Lynx Mk 9 helicopter, which is needed for current operations. These things will always happen. As things develop, and as military priorities emerge, from time to time, despite the fact that there is a cost involved-and I do not deny that there is a cost involved, which is why we commissioned the report-it makes sense to reprioritise, because other priorities become more important at a particular time.
Listening to the silken prose of the Secretary of State as he read his statement, one could barely believe that what he was describing was the report that we have all seen, and that stands as a damning indictment of procurement processes. One would hardly recognise it. I congratulate his wordsmiths-I think that he has secured better value for money on that budget than he has on procurement.
What the report actually tells us about is a gaping £35 billion black hole; too many types of equipment being ordered for too large a range of tasks at too high a specification; average overruns of five years or 40 per cent. financially; and frictional costs to the Department of £1 billion to £2 billion a year. The Secretary of State may not have chosen to say that the problems go back for decades, but I will do so, because some of the things that are coming on stream now were signed off decades ago-in one instance, by John Nott, when he was Defence Secretary. I do not think that the present generation of Ministers are, in all fairness, to blame for all this. In fact, on urgent operational requirement procurements, some ministerial decisions in the past couple of years were brave and commendable.
We need a radical shake-up, and some of the solutions that we have heard in this statement sound altogether far too familiar, which is more than can be said of the explanation from the Secretary of State about the justification for delaying the carrier programme, as it bears absolutely no resemblance to what we were told at the time. I thought that the logic that was squeezed out at the time was to get the programme to dovetail with the availability of the joint strike fighter, and certainly nothing to do with helicopters.
If we are talking about a "Santa's wish list" model of procurement, not only must Ministers get on top of procurement, but so must the defence chiefs, because sometimes their unrealistic expectations of procurement cause the pursuit of something absolutely perfect to get in the way of the achievement of something that would really be very good. The armed forces themselves must be more realistic about their expectations in future.
In today's statement from the Secretary of State, there are references to transparency. If those can become a reality, that will be very welcome and not a moment too soon. One of the impediments to proper scrutiny of procurement processes in recent years has been the extraordinary extent to which those processes are opaque by comparison with anything that goes on in other countries. What is the time frame for the implementation of the changes that he spoke about today? I hope they will not all be put off to a strategic defence review. I understand that that is imperative, but how many of these changes can we look forward to in the forthcoming Green Paper?
The hon. Gentleman castigates us, but fails to mention the fact that we commissioned the report in the first place. We did that knowing that it would not be a glowing exposition of a Department that got everything right. The reason for the report was that it was needed. I wonder whether any Liberal Democrat Government whom the country might ever have imposed upon it would dare to commission such a report.
The hon. Gentleman says that a £35 billion hole in the budget is exposed by the report. That is not true. That is not what the report says. From an extrapolation from some projects, the point being made is that there is the potential for a £35 billion growth from the original estimation to the final delivery, which is why forecasting is an absolute skill that needs to be upgraded within the Department. It is an extrapolation from a few samples and it does not try to say that there is such a gap in the budget. I think the hon. Gentleman has read that wrong.
However, I agree-the hon. Gentleman is right, and it is an issue that we have to grapple with-that in this area the best often becomes the enemy of the good. That is a major problem that we ought to tackle. It is far better dealt with in the urgent operational requirement process. Bernard Gray says that, although he did not look into the UOR process in any detail. Where there is urgency, for current operations, we get a better balance between what is needed, timeliness, and what is good enough to do the job that is badly needed by our armed forces.
On time scale, we will look to publish something in line with the Green Paper in January that brings forward a number of acquisition reform issues. We have not yet bottomed out a legislative process for dealing with the recommendation that a strategic defence review should be scheduled for the start of every Parliament. I should not have thought that that was beyond the wit of man. Working together, I think we could achieve it. We certainly could if there were cross-party agreement to do so.
Order. May I emphasise, as usual, that I would like to accommodate as many right hon. and hon. Members who wish to contribute to these exchanges as possible, but there is important business to follow in the form of a full-length Opposition day debate, so I am looking for single, short supplementary questions and to the Secretary of State for pithy replies?
I have been in the House for 30 years, and every time defence procurement has been discussed, we have described it as a shambles. Perhaps we ought to grow up and recognise that it is intrinsically very difficult to get defence procurement right and that it is always likely to go fairly wrong, for two or three simple reasons. The military, from experience in the field, ask for changes in the specification; technological change may bring about changes in the specification; and we have to try and buy British, even if the British are not necessarily the best suppliers.
I am grateful. I think that is the question mark.
My right hon. Friend says a great deal that is true, but that is not to say that we cannot do better. There is the issue of always trying to get the best, and the issue of responding to changing military requirements. Those must be balanced with time scale and getting what is good enough into being as quickly, as effectively and as cost effectively as possible.
This excellent report sets out a state of affairs that, as the Secretary of State rightly says, is not new, but it may have led to events such as the Nimrod crash of
An annual and transparent reporting process, coupled with the 10-year indicative budget, is a big step in the right direction. On Nimrod, we are in the hands of Mr. Haddon-Cave QC, who I believe may be giving his report in the near future. However, I have no control over that process or time scale.
Bernard Gray's report is eminently readable, and he should be congratulated on that. In looking at some of the success stories that he finds, such as urgent operational requirements, possibly through-life capability and contracting for capability, I note that he points us in a direction that needs urgent work. I hope that some of the work strands for the Green Paper will draw them out. Can my right hon. Friend confirm that they will?
We commissioned the report, knowing that some of the findings would be painful, to try to address those issues, and now that we have it we have no intention of not learning the lessons that it identifies. Of course we will use the Green Paper process as part of bringing forward ideas on how we deal with those issues.
On the Secretary of State's answer to my right hon. Friend Mr. Arbuthnot, the Chairman of the Select Committee on Defence, and on the Secretary of State's point when he said that "we will work to adjust our equipment programme to bring it into balance with future requirements and the likely availability of resources," I must say that that is a great step back to the past. We used to do that in the mid-1990s. The long-term costings programme was fought over inside the Department and then reported on annually in the Defence White Paper, when the consequences of the scheme became clear. We would never end up in a situation where we had a £35 billion overrun, so when did we stop doing that second point exactly?
We have never stopped having annual planning rounds; we still have them. Let me repeat what I said to Nick Harvey, the Liberal Democrat spokesman: Bernard Gray does not say that there is a £35 billion hole in the defence budget; he talks about the gap between the original estimates and extrapolates that across the whole programme to the final costs.
The issue is not just about changes in military requirements, is it? It is about technological advances, too. The military want the latest and the best. The latest and the best, as the Secretary of State said, is at the leading edge of technology; and the leading edge of technology now changes every 18 months, not 18 years, therefore the military re-specify. May I suggest to the Secretary of State that it is good to distance the procurement process from immediate demands, to ask the military to shape and identify the final product that it wants and then to hand the product over to a contractual basis that is as separate from the Ministry of Defence as it possibly can be?
That is Bernard Gray's proposal, and we are not taking it up, but we will explore whether we can put the appropriate distance between the different parts of the organisation, DE&S, the main building and the services themselves, by perhaps establishing a trading fund. That might be the way in which we can achieve the appropriate distance without losing effective control. That idea is being looked at as part of the process, and we will come back to the House.
Sadly, service personnel whom I know, and, indeed, their families, will probably not be too surprised by the report's findings. Bernard Gray found that a staggering £2.2 billion a year is spent on managing delays and overruns. When our Territorial Army is suffering training cuts, do not we need an MOD that is focused on our soldiers on the front line?
Again, the hon. Gentleman misreads the report. He has had the weekend, but perhaps he wants to take a little longer to look at it. On the TA, as I said the other day, I make no apologies for shifting the focus towards Afghanistan and making absolutely certain that, in every sense, support for Afghanistan is the main effort. Nobody in the TA will lose out on the training that is necessary for deployments to Afghanistan.
The Secretary of State has seen this outstanding report, but it addresses merely equipment. Given the number of wounded coming back from Afghanistan, and the appalling nonsense in the training mechanisms to get the troops through the system, when is he going to produce a similar report on the awful state of recruiting, particularly to the combat arms?
I have had conversations with the hon. Gentleman in the past, on and off the record, to try to capture his views on what we should be doing on training and recruitment. He knows that in the past year the Army has made huge steps in the right direction as regards recruiting, and I would have thought that he was happy with that. I do not see the same issues applying to recruitment as apply in DE&S. That is why the report was procured in the first place-to try to identify the lessons that we badly need to learn and address.
In the spirit of transparency referred to in the report, will the Secretary of State clear up the reason for the two-year delay to the carriers-was it the Lynx helicopter or the JSF? Can he guarantee that there will be no further delays to the carriers?
There were other pressing requirements for current operations that we needed to get into the programme-most significantly, the Lynx Mk 9. I would have thought that Members in all corners of the House recognised that we urgently needed that upgrade to our helicopter capability for current operations, which was a greater priority than keeping the then profile of the carrier. Yes, of course there were cost increases in stripping the carrier, but was it the right thing to do? I believe that it was, and that the helicopters were important enough for us to make those adjustments.
The Government are to be commended for commissioning this report; the report itself is commendable and the Secretary of State has said nothing unreasonable in response to it. However, I sense a lack of urgency. The report says nothing that the Defence Committee has not been saying for a great many years about the unaffordability of the existing programme, and we need to make decisions now. What are we going to do to prevent a period of paralysis from gripping the Government until a general election?
With fast-changing technology and military requirements, there will always be cost and delivery overruns, whatever Government are in control-it is not a political issue but just a matter of fact. We know that the Trident project is already unaffordable; in the light of the Gray report, will the Secretary of State now abandon it?
No. Our position was set out in the White Paper of two years ago, and it has not changed. We should not-I say this to the hon. Gentleman with the greatest respect-look at the UK's deterrence policy off the back of short-term financial issues. This is a strategic decision to be taken by the nation, and it should be considered and taken in that light.
I welcome the report, as do many Members. However, having served on the Public Accounts Committee for four years, I remember the projects that were running then and the legacy of overruns in costs and delivery times. Where do we find someone brave or foolish enough to say no to the defence chiefs?
Getting the strengthened system of governance in the Department so that projects are not allowed, in any circumstances, to enter the programme without realistic costings, and having the skills in order to make those costings, will bring the appropriate focus at the start of the process instead of halfway down the line, as I am afraid often happens with very long projects. Some of these projects take 20 years to come to fruition. People are focused on the capability improvement at the start of the process; only part-way through it do the costs begin to kick in to the full extent. We have to get that balance right.