Defence Reform Bill — Second Reading

Part of the debate – in the House of Lords at 5:08 pm on 10th December 2013.

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Photo of Lord Craig of Radley Lord Craig of Radley Crossbench 5:08 pm, 10th December 2013

My Lords, I do not have much sympathy for GOCO defence procurement. My doubts have been strengthened by the lack of genuine competition and therefore interest from the private sector. The Government are right to pause this approach, but I remain sceptical that the pause and the changed approach announced by Ministers will resolve the fundamental problems affecting advanced platform and weapons systems procurement.

Those of your Lordships who have been involved with defence issues over the past 50 years and more will recall that this is but the latest of numerous attempts to solve difficulties in defence procurement. When the Ministry of Supply was abolished in 1959, defence procurement passed initially to the three single-service ministries until the Ministry of Defence took overall responsibility in 1964. Before that there had been some serious overspends on equipment.

In 1961, the Gibb-Zuckerman report recommended a common, improved process of milestones past which every major project would have to proceed. By the mid-1960s further spectacular cost overruns triggered the establishment of a development cost steering group, chaired by a Mr Downey. The group made further changes but few of these efforts were any more successful. At a time when the Warsaw Pact seemed at its most dangerous, the MoD was inevitably ambitious in its requirements. The three services, the research establishments and industry erroneously felt that technical and integration problems, only revealed during full development, could be resolved—maybe so, but at much increased cost and timescales; and occasionally never, leading to cancellation of a major programme after much time, effort and money had been spent. That is all too similar to experiences 50 years later in 2010, I fear. Cost-plus was much in vogue.

By the early 1980s, exasperated by what he felt was a too-close relationship between the services and their industrial suppliers, the then Defence Secretary, Michael Heseltine, now the noble Lord, Lord Heseltine, decreed that there must be no more fraternisation between the two sides. He also invited Peter Levene, now the noble Lord, Lord Levene, from private industry to fill a new appointment of Chief of Defence Procurement in 1985, as we know. Improvements came: cost-plus was out, competition was in, but initial better outcomes were not sustained after about 1991. More recently, we have seen and forgotten the smart procurement of 1998, which collapsed due to inadequate funding of defence, and was later renamed smart acquisition, but I fear was no better funded.

Concurrently, overambitious, rushed and disruptive reorganisation of procurement and logistics responsibilities and downsizing caused distortion, much frustration and dismay among staff involved. Mr Bernard Gray’s 2009 study of this generic problem recommended that 10-year rolling defence budgets and 20-year equipment budgets published to Parliament should be adopted—no signs of that. The nearest—and minimalist—has been the Prime Minister’s assurance that the equipment budget would increase by 1% after the next election. This is the basis for the affordable equipment programme announced last year for the period 2015-16 through to 2020-21 but, as the NAO has commented, this does not and will not offer a definitive view of the affordability of the equipment plan, as more time and experience will be required to assess its worth. Moreover, it is far from clear whether this raise for equipment is additional to the whole defence budget or will have to be offset by reductions elsewhere in MoD spending, as the Chancellor proposed only last week. Of course, there is a general election in 18 months so nothing can be definitive.

I have only briefly itemised some of the attempts to do better in procurement over the past 50 years. Much more could be said. Of course, it is right to try to do better, but sometimes the MoD seems to be the whipping boy of Whitehall over poor procurement, and cost and timescale overruns. Other departments with much less challenging requirements seem to suffer major cost and timescale overruns without being subject to such excoriating criticism—for example, the NHS’s repeated nationwide computing failures; the National Offender Management Service’s information system 400% over budget; the tenfold rise in the cost of the Scottish Parliament; Transport for London modernisation, with billions of pounds underestimated; the numerous PFI schemes that have left the taxpayer billions of pounds worse off than before these wheezes were introduced. The successful Olympics bid, which has already been mentioned, started off at £2.9 billion, only to finish close on £9 billion—and the hard-pressed Armed Forces saved the day for the whole enterprise when G4S messed up. Until—and do not hold your breath—Governments of the day, with opposition support, are prepared to approve the sort of decade-long, rolling budgets recommended by Bernard Gray, and to stick to them, I fear that budget aspiration rather than reality will remain the quicksand basis of government procurement planning and costing.

A further and often overlooked issue is the political, and sometimes party-political, pressures on Ministers to adjust programmes to sustain industrial capacity or employment. Should such additional costs be totally met from within the defence budget? Some form of Treasury contingency funding might be made available when such adjustments to programmes are not for military or technical reasons. Further costs, which are hard to quantify in advance, will arise within multilateral programmes and be beyond the control of the Ministry of Defence. In over 50 years the right answer has evaded all; no silver bullet has been found. It should be no surprise, unless the Government and Treasury adopt a totally different approach, if it were to remain unresolved in the next 50 years. Meanwhile, I shall watch with interest how the latest scheme matures.

There is much in the Bill about the Single Source Regulations Office, enough to emphasise its importance for obtaining value for money. It is said to be free of government but where does it stand with the Treasury, which also has authority and interest in value for money? Will the SSRO be free from Treasury second-guessing, or will it merely be a further bureaucratic stage when dealing with single-source contractors?

Turning to concerns expressed in your Lordships’ House and elsewhere about the legal erosion of our national fighting power, I fear that this may extend further than the battlefield and into the field of procurement and technical support. When I was flying Vulcan and Victor bombers, only the two pilots had ejection seats. The rear crew members had to rely on parachutes if their aircraft had to be abandoned in flight. Fitting ejection seats for all at the design stage was deemed technically very complex, with unacceptable time delays into service, and costly. At various times, following tragic fatal air accidents of these aircraft on training flights, the possibility of fitting ejection seats for all crew members was re-examined. Once again, cost, complexity and the loss of airframes from the front line while modifications were installed were deemed excessive in any attempt to reduce the relatively low-frequency risk of a similar future air disaster. Indeed, I am not aware that any claims by relatives were made in those days—probably Crown immunity then would have ruled them out—although the additional life insurance premium to cover flying risk was largely met by the ministry.

Today, when coroners and courts are keen to investigate the background to individual service deaths, there is a growing tendency to question why particular modifications or kit which could have been made available and might have averted the individual’s death were not available. Such an approach cannot take full and proper informed account of the complexities of the design or later modification, the downtime to carry out the necessary work and the remaining in-service life of the aircraft fleet or other equipment involved. Additional cost, too, of course arises. Is it better to pay that much to ameliorate one risk of catastrophe over, say, a few years of remaining in-service life, and not be able to afford to do more for other potentially higher and longer-lasting risks?

My fear is that this legal probing, basking in the certainty of 20:20 hindsight, will extend to questioning why original designs or modifications which subsequently proved unable to match the opposition’s capability were allowed to persist or be deployed or, alternatively, why additional steps had not been approved though the technical capability existed. Such concerns should be born in mind in any changes to responsibility for defence procurement. Indeed, they should add further stimulus to taking positive action to reinstate immunities in a field of activity where acceptance of risk to life has to be the norm if our forces are not to be gravely neutered by legal hindsight.

I turn to the reserves. There is nothing in the Bill that would expedite the call-out of individual or small cadres of reservists, whose earliest possible availability is essential to the preparation and mounting of an intended operation. With greater reliance on ready Reserve Forces, the current statutory requirement that ministerial approval has to be obtained before the call-out of any reservists needs to be reviewed. Delegated ministerial authority to service chiefs for small and key critical reserve elements would ensure that those individuals who are already at high readiness would be immediately on task when required. What assurance can the Minister give that such delegation is covered by current legislation, and perhaps by Clause 45, or should it be a matter for amendment? With a policy to rely more than ever on the employment of reservists alongside regular forces, their early availability is a key requirement and must be assured in all circumstances.