New Clause 8 - Audit of waste in Ministry of Defence procurement

Procurement Bill [Lords] – in a Public Bill Committee at 10:00 am on 21 February 2023.

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“(1) The National Audit Office (NAO) must produce and publish a report setting out any instances of waste in Ministry of Defence procurement in the period of 5 years ending with the day on which this Act is passed.

(2) In this section, “waste in Ministry of Defence procurement” means—

(a) overspend on initially planned budgets,

(b) assets being withdrawn or scrapped or prepaid services terminated,

(c) a contract being cancelled,

(d) a contract being extended beyond the initially agreed timescale, or

(e) administrative errors which have had a negative financial impact.

(3) The report must include recommendations on how better management of contracts can reduce the loss of public money.

(4) Within one month of the publication of the report, the Secretary of State must report to Parliament on whether the NAO’s recommendations have been accepted or rejected, with reasoning in either case

This new clause would require the NAO to conduct an audit of waste in Ministry of Defence procurement and to make recommendations on how better management of contracts can reduce the loss of public money, and the Secretary of State to report to Parliament on whether its recommendations have been accepted.

Brought up, and read the First time.

Photo of Chris Evans Chris Evans Shadow Minister (Defence)

I beg to move, That the clause be read a Second time.

I must say this, given the shared interest that my friend the Minister and I have in boxing—I was going to stay away from the boxing metaphors, but I think this will be the last time I speak in this Bill Committee. We recently marked St Valentine’s Day, and he will remember the “St Valentine’s Day massacre”, when Jake LaMotta faced Ray Robinson, and after Ray Robinson trapped Jake LaMotta on the ropes and the fight was stopped, LaMotta ran after Robinson, shouting, “You didn’t knock me down, Ray! You didn’t knock me down!” Considering that the Government have won on all the new clauses, I feel like shouting at the Minister, “You didn’t knock me down! You didn’t knock me down!”

New clause 8 would require the NAO to conduct an audit of waste in Ministry of Defence procurement and to provide recommendations on how better contract management might minimise the loss of taxpayers’ money, and then require the Secretary of State to report to Parliament on whether the NAO’s recommendations had been accepted. I touched on the issue of waste in my previous speech, but I want to take this opportunity to re-examine the severe levels of waste in the Ministry of Defence. I speak not just as the shadow Minister but as one who was a member of the Public Accounts Committee for five years. I could give this Committee numerous examples of the permanent secretary sitting quite uncomfortably in his seat, answering questions mainly around the defence equipment plan and other such documents that came before the PAC. To be honest, it was embarrassing and uncomfortable, but that is where the Ministry of Defence has been for the last couple of years.

Labour’s “Dossier of waste in the Ministry of Defence 2010-2021”, published last year, confirmed that the MOD has wasted at least £15 billion of taxpayers’ money since 2010, with £5 billion since 2019, while the current Defence Secretary has been in post. Waste in the procurement system has become engrained. This needs to change urgently. I have alluded to the defence equipment plan; when mistakes were pointed out by the NAO, very often the Ministry of Defence response was a shrug of the shoulders and, “So what?” Very often the defence equipment plan was sent back because it was inaccurate and had been drawn up very sloppily, but again, the MOD just shrugged its shoulders. This is why we would commission the National Audit Office to conduct an audit of waste, setting out any instances of waste in Ministry of Defence procurement.

We have set out five definitions of “waste in procurement”, which can all be evidenced in the current procurement system. They are: overspend on initially planned budgets; assets being withdrawn or scrapped, or prepaid services terminated; a contract being cancelled; a contract being extended beyond the initially agreed timescale; and administrative errors that have had a negative financial impact. Everyone might be aware of the key examples of waste, but I feel that they should be mentioned again in order to truly depict the problem in defence procurement. They include £595 million written off with the cancellation of the Warrior armoured vehicle sustainment programme, £231 million wasted by writing off armoured vehicles such as Mastiffs, Ridgebacks and Wolfhounds earlier than planned, and £530 million on overspends relating to the Protector drone programme. The Labour party’s dossier of waste also found that £64 million was wasted on administrative errors.

A shiver goes up my spine and that of my hon. Friend the Member for Merthyr Tydfil and Rhymney when I mention the delayed Ajax project, which is based in our constituencies. I have been following this project. General Dynamics, which runs the Ajax programme, has its headquarters in my constituency, and it has a facility in Merthyr Tydfil and Rhymney. Ajax is a perfect example of waste in procurement. The initial planned budget was set at £5.5 billion, with 589 armoured vehicles ordered and expected to be delivered and in service by 2017. Now, in 2023—six years later—the MOD has spent £3.2 billion and only 26 vehicles have been delivered. There are also reports that Ajax will now cost an extra £1 billion or more if all 580 vehicles are still bought.The Ajax programme has been set back by delays, mismanagement and various design and development problems, all adding costs that are being paid for by the taxpayer.

An NAO audit of waste would evaluate programmes like Ajax, analyse at which points in the programme issues start to arise, and identify whether they are trends in procurement programmes across the MOD. The recommendations from the NAO audit would be vital to minimise wasted public money. Ajax is the perfect example of how the costs of delays become built into the procurement process. I have been told by members of the Business Services Association that delays in the system cause the biggest cost, and that their potential impact on the length of procurement contracts actually puts off many from bidding on defence contracts. It is wrong that our system has become a deterrent for British businesses instead of an incentive.

Waste in procurement is also about transparency and accountability for public money. At the moment, it feels as though scandal after scandal revolves around procurement. Taxpayers are constantly paying for the mistakes of this system, and defence procurement is no different. As highlighted in our dossier, the 2014-15 accounts revealed that £21 million was lost due to the

“incorrect recording of Merlin aircraft component lives”,

that it remained

“unclear exactly how this data entry error resulted in a £21 million fruitless payment”,

and that, despite further inquiry, little explanation was given. Just think of the charities in our constituencies that are crying out for money, and what they could do and how many lives they could improve with £21 million. In addition, the fleet solid support ships award is shrouded in mystery as to why other bidders were not informed of their non-compliance.

Tackling waste helps to improve transparency, and our new clause would help to solidify the principles set out in the national procurement policy statement by,

“acting openly to underpin accountability for public money”.

Value for money and transparency are at the heart of this Bill, and the waste in the MOD clearly juxtaposes those principles. Taxpayers simply deserve better, and our armed services deserve equipment that arrives on time. When discussing legislation, it is easy to forget the people on whom it will have the biggest effect day to day; in defence procurement, that is our armed services, on whom we rely to keep the nation safe and who rely on us to supply the equipment that will keep them safe. The current capabilities gap caused by continuous delays and mismanagement threatens our ability to keep our service personnel and our country safe.

It is time for a proper system of accountability. New clause 8 would ensure that a proper audit of waste is conducted. The first step in tackling this issue is to understand its scale. We will not truly see what needs to be changed until we see waste reviewed in one singular audit, which brings me to the second crucial element of the proposal. New clause 8(4) outlines that:

“Within one month of the publication of the report, the Secretary of State must report to Parliament on whether the NAO’s recommendations have been accepted or rejected, with reasoning in either case.”

Parliamentary sovereignty is paramount in this country, which is why the Secretary of State must report to Parliament. We need to be able to hold the Department accountable for the waste of taxpayers’ money. I hope that the Minister will see this as an opportunity to make the MOD more accountable for public money and ensure that the system as a whole is more transparent.

Photo of Alex Burghart Alex Burghart The Parliamentary Secretary, Cabinet Office 10:15, 21 February 2023

I am very happy to play Ray Robinson to the hon. Gentleman’s LaMotta. He will remember fondly, as I do, that Jake LaMotta said, “I fought Sugar Ray Robinson so many times, it is a wonder I don’t have diabetes.” I will cease the boxing chat there, Mr Mundell, lest you get up and bite off my ear, as Mike Tyson did to Evander Holyfield in their second fight.

I am pleased to hear the hon. Member for Islwyn say that value for money and transparency lie at the heart of the Bill, because they do, and it is because of those principles that we feel the new clause is unnecessary. However, it is also unnecessary because the National Audit Office already conducts a yearly audit of the defence equipment plan and undertakes regular audits on defence programmes. Further scrutiny of the performance of defence programmes is undertaken by the Infrastructure and Projects Authority, which tracks the progress of projects currently in the Government major projects portfolio, the details of which are published in its annual review. As an independent statutory body, the NAO decides independently of Government where to focus its resources, and determines what projects and public bodies it audits at what point in time. The new clause would interfere with its statutory independence.

At the heart of the proposal is a desire to see defence procurement improve—an objective the Government share—but I encourage the Committee to follow closely the implementation of the Government’s defence and security industrial strategy, published in March 2021, which will increase the pace, agility and management of the Ministry of Defence’s acquisition process. We respectfully request that the new clause be withdrawn.

Photo of David Mundell David Mundell Conservative, Dumfriesshire, Clydesdale and Tweeddale

I do not know much about boxing, but I know that when there is no knockout, the judges decide.

Question put, That the clause be read a Second time.

Division number 36 Procurement Bill [Lords] — New Clause 8 - Audit of waste in Ministry of Defence procurement

Aye: 5 MPs

No: 7 MPs

Aye: A-Z by last name

No: A-Z by last name

The Committee divided: Ayes 5, Noes 7.

Question accordingly negatived.