Defence Reform Bill — Second Reading

Part of the debate – in the House of Lords at 3:39 pm on 10th December 2013.

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Photo of Lord Rosser Lord Rosser Shadow Spokesperson (Defence), Shadow Spokesperson (Home Affairs), Shadow Spokesperson (Transport) 3:39 pm, 10th December 2013

We nearly had an entire afternoon and evening disappear.

We wish to associate ourselves with the comments made by the Minister on the commitment and dedication of our Armed Forces.

We are in a remarkable situation today, in that we have the Second Reading of a Bill that provides, among other things, for major changes in procurement and support of defence equipment, yet just over two hours or so before this debate started the Secretary of State was making a Statement in the other place on defence procurement that significantly altered the Government’s position. That is a sign not of bad luck but of bad judgment, and an indication of the extent to which procurement policy now appears to be being made on the hoof. However, despite the Statement by the Secretary of State earlier this afternoon, much of which the Minister has reiterated, this Bill still has three main parts, including Part 1 on defence procurement.

Part 1 sets out the arrangements for changing Defence Equipment and Support and making it into a government-owned, contractor-operated organisation. Part 2 establishes a statutory framework for the governance of Ministry of Defence single-source contracts—that is, contracts that are not subject to a legal obligation to be advertised and competed for. Part 3 makes several amendments to the regulations governing the Reserve Forces in the light of the enhanced role our reserves will play in future.

The Government have been considering two options for the future operating model for Defence Equipment and Support; namely, the GOCO entity or the public sector comparator under which DE&S would remain entirely within the public sector. Legislation is required to pursue the former option and, even though it had not been the Government’s intention to make a final decision on whether to pursue the GOCO option until next summer, the relevant enabling legislation was included as part of this Bill. The Secretary of State has now announced that he has decided not to continue the present commercial competition, which was no longer a competition because there was only one bidder. Instead, the Government have decided to do what the Secretary of State describes as building on the DE&S-plus proposal. But his last-minute proposal is, as yet, only in outline.

In respect of our Reserve Forces, the Bill contains four key measures. These are renaming the Territorial Army, expanding the powers to call out the Reserve Forces, introducing new financial incentives for the employers of reservists, and exempting reservists from the statutory two-year qualifying period required to bring an unfair dismissal case to an employment tribunal. These measures, which require legislation, are part of the Government’s policy for reconfiguration of the Army into two distinct elements, a high readiness reaction force and an adaptable force. This change is associated with the reduction in the size of the Regular Army by 20,000 personnel by 2020, and also involves a greater integration of the Territorial Army into the Army structure with an expansion in the roles that the reserves will undertake and an increase, by 2018, in the number of trained reservists to 30,000.

Single-source contracting accounts for approximately 45% of all Ministry of Defence contracts and equates to £6 billion per annum. At present, such contracts are placed under a non-legally binding framework, which can be amended only on the basis of consensus. A review of the current arrangements has been undertaken, which has led to the proposals in Part 2 of this Bill for a new statutory framework for single-source contracts. There is also provision for a civil penalty regime to ensure compliance, and the creation of a Single Source Regulations Office, which is intended to ensure the regime is kept up to date, monitor the application of the regulations, and provide binding determinations in the event of disputes between the Ministry of Defence and single-source suppliers in its role as an independent expert in single-source procurement.

On the face of it, one would not now expect this Bill to be the subject of great controversy, and particularly so in the light of the Secretary of State’s announcement earlier today. We also hold the view that defence procurement and support is in need of reform. Any difference of view will come over how that reform should now be achieved in the light of recent developments. We share the view, recently expressed by the noble Lord, Lord Levene of Portsoken, that the review of materiel strategy, which has been going on for some time, needs to be brought to a conclusion in view of the uncertainty for the future it creates and the amount of time and effort that is being expended on it, and that the quickest and most straightforward solution is via DE&S-plus, subject to that embracing appropriate employment and pay freedoms.

That solution is also not as far removed as the GOCO option from the proposal we made for reform of defence procurement. However, it appears that the Government intend to leave Part 1 in the Bill, which, as it stands, would provide the necessary legislative powers to set up a GOCO, with little further ado, at a later date. Doing that will simply perpetuate the uncertainty over the future arrangements for reform of defence procurement, which will be of benefit to nobody, least of all our Armed Forces. It means that the change could be made to a GOCO without proper scrutiny, and leaves the suspicion that the announcement today by the Secretary of State represents little more, as far as the Government are concerned, than a stop-gap solution.

The Secretary of State’s Statement earlier today said that the change in government policy on procurement that he was announcing would allow the Ministry of Defence, “at a future date”, to retest the market’s appetite for a GOCO—a statement that will simply continue the uncertainty to which the noble Lord, Lord Levene, referred in his recent report. Perhaps the Minister could make the situation worse, or, alternatively, improve the situation in relation to future uncertainty for the proposed new DE&S organisation and its staff, by telling us what the phrase “at a future date” is meant to mean. Is it intended to mean not before the next general election, or is it a longer timescale than that?

It was the day before Report stage in the House of Commons last month that the Government announced that one of the two remaining consortia bidding for the government-owned, contractor-operated organisation had withdrawn from the competition, and that work was under way to determine whether it was in the public interest for the Ministry of Defence to proceed with only one commercial bidder and the public sector comparator, DE&S-plus. It had already been made clear before then that the Government’s strong preference was for the GOCO, and that they would be testing this proposition through a commercial competition and against that public sector comparator. The impression was certainly given, and remains after today’s announcement, that the DE&S option was in essence being undertaken to provide a benchmark to justify the GOCO rather than it ever being the option the Government would take if they could avoid it.

Many concerns have been raised in a number of quarters about the proposal to transfer the whole of defence acquisition and support to a private contractor. Those concerns have related to potential conflicts of interest, the length of the contract, how ministerial and parliamentary oversight will be provided, what financial risks would actually transfer to the GOCO, how a GOCO would make money while also saving the Ministry of Defence money, what the implications would be for our international partners and what their reaction would be to the change.

A further key question, though, is why it has taken three weeks from the day before Report stage in the House of Commons to today for the Government to decide that their declared key objective for ensuring a rigorous evaluation process of the GOCO option—namely, a commercial competition—was no longer valid or achievable when the competition was somewhat diminished in rigour once the number of competitors had been reduced to one. The suspicion must be that the Government were in reality so wedded to the GOCO option as their vehicle for achieving the reform of defence procurement—a reform that we also agree is needed—that they were prepared to contemplate proceeding without a commercial competition; in other words, a form of single-source contract. That is a further reason why there are question marks over why Part 1 remains in the Bill despite today’s announcement, and a feeling that if the Government were prepared to contemplate proceeding with the GOCO option without any commercial competition, that is what they may be tempted to do at a later date if Part 1 remains in the Bill.

The position should be that if a Government decide that they want to achieve reform of defence procurement at some stage in the future through the GOCO route, they should be required to do so through means of a parliamentary Bill at the time to justify their stance and their new proposal, and not be able to do so without proper scrutiny using a parliamentary Bill that had been passed some time previously and during the course of which, before it had even been discussed in this House, the Government announced they no longer intended to proceed with the now non-existent competition and its single proposal or bid. We will certainly be pursuing the question of why Part 1 remains in this Bill, since no satisfactory explanation has been given as to why it should remain, rather than be brought back for full scrutiny in a further Bill if a Government decided to go down the GOCO route at a future date. I should like to ask the Minister how much public money has been spent on this competition exercise so far, and whether it is anticipated that there will be claims from any of the consortia—not least the one that was still left standing, which must also have invested a considerable amount of time and effort in preparing and submitting a proposal that the Government have said ran to more than 1,200 pages.

The other area where the Government have run up against problems is in relation to the increase in our Reserve Forces I want to make it clear that we have previously expressed our support for the expansion of our Reserve Forces, and that remains our position. However, there needs to be transparency and openness about the progress being made on applications, recruitment and trained strength of our Reserve Forces. The UK Statistics Authority has said that some aspects of the Government’s figures are not robust enough. The Secretary of State has said that he will publish before the end of this year the targets to which the Government are working. On 20 November in the House of Commons the Secretary of State said that he was minded to accept in principle—as the Minister has said—a new clause that provided for an annual report by an external scrutiny group of Reserve Forces and cadets associations, and indicated that he would introduce an amendment in your Lordships’ House that reflected that new clause. We await it to see whether the new clause will provide for the transparency and openness needed in the Government’s plans for our Reserve Forces.

One aspect on which we have still not received an answer is over the apparent change of policy from that announced by the previous Secretary of State that the reduction in the number of regulars would not take place until we had seen the necessary improvements in training, equipping and numbers in the reserves. Is that still the Government’s policy, and if it has changed—and there may well be good reasons for a change—what are those reasons and what is the policy now? Can the Minister say whether it is the Government’s view that it would be consistent with the SDSR to proceed with a further tranche of redundancies for our Regular Forces irrespective of the progress made in the recruitment of additional Reserve Forces? If to do so is judged to be inconsistent with the SDSR, what part of the SDSR planning assumptions would be changed to keep the contraction in our forces in line with the SDSR?

In the light of the Secretary of State’s statement that he will publish before the end of this year the targets on reserves to which the Government are working, can the Minister say whether those targets will indicate not just overall numbers but the targets for the different types of skills and roles for which the additional members of our Reserve Forces are being recruited? Will any assessment be given of the overall quality of personnel being recruited?

Perhaps the Minister can also give us the latest update on progress on recruitment to our reserves. Is the recruitment being done by Capita or have others been called in to either supplement what it is doing on recruitment of reserves, take over from Capita, or advise and monitor it on what it is doing. As has been said, the attitude of employers is crucial. Employers in the fields of, for example, cybersecurity and the medical world may well be more enthusiastic than others in seeing their staff join the reserves as the knowledge and experience they will gain in those fields as members of the Reserve Forces may well be of direct benefit to their employers. On the other side of the coin, if such staff were called up due to a major military operation, it might just be the time when their companies or organisations also needed them most.

There will be much to discuss in Committee: why the need for Part 1 of the Bill to remain; how the just announced to be transformed DE&S-plus organisation within the public sector will function and operate; and why the Government are still willing to perpetuate uncertainty over future defence procurement in their apparent determination to try to introduce a GOCO at a future unspecified date. Part 2 of the Bill on single-source contracts will need close consideration. We support the concept and the intentions, but this part of the Bill received only limited consideration in the other place and, once again, this House will have to do what the other place was unable to do. The proposals on our Reserve Forces will, I am sure, be the subject of much detailed consideration and debate, and we wait with interest to see the amendment that the Secretary of State told the other place he would bring forward in this House.

Government policy on defence procurement is in a mess and now bears all the hallmarks of being made up as we go along—not least because the prospect that there might be only one commercial bidder apparently never occurred to the Government. What is needed now is a period of stability and certainty on defence procurement and, in the light of the breakdown of the commercial competition for a GOCO—for the new, just announced, but as yet unclear, variation of a DE&S-plus organisation in the public sector—to be given every chance and every encouragement to deliver the reform in defence procurement and support which nearly everyone believes is needed and necessary.