The trickle down effect in procurement

Wednesday, April 08, 2009

A new report by the Office of Government Commerce
has found that the lack of vision and strategy by MoD procurement officials has ultimately hurt the department's ability to procure.

Major procurement programmes within the MoD lack strategic leadership, a broad vision and committed management who are engaged in the projects, a new report by the Office of Government Commerce (OGC) has found.

So much light has been shed recently on what the problems in defence procurement are and how they became as bad as they are, from cost overruns to severe delays to poor working relations between the MoD and industry. The OGC report on MoD procurement however provides insight into why the problems occur in the first place and why they are often ignored until glaring deficiencies occur such as multi-million pound cost increases.

Problems are often subtle such as junior MoD staff on a project team being inundated with work unrelated to the procurement programme, yet in the end they lead to and cause the larger more obvious problems such as delays and cost overruns.

At the heart of the problems however is a lack of leadership in procurement, the commercial sector, and in acquisition. This starts at the top with the Defence Commercial Director (DCD). Currently the position is vacant after Amyas Morse left for the National Audit Office. But during his tenure at the MoD he was charged with providing leadership across the commercial, procurement and acquisition sectors. The OGC report pins many of the procurement problems at the foot of the DCD, who at the time was Morse.

Although the report does not mention anyone by name, it can be assumed that the OGC was speaking about Morse. Officials found that he did not always carryout his job duties in an adequate fashion. Morse's role and position were unclear which led to confusion among junior staff about what he did and who he oversaw.

Confusion and non-clarity over Morse's position were not helped by the fact that he did not always exert leadership. There was no striking vision created to define his role or the role of commercial services. There was no five year plan or long term strategy on procurement and acquisition despite the clearly defined strategies in the Defence Industrial Strategy. As a result, staff and industry were dealing with numerous strategies in defence procurement, none of which ever seemed to connect.

Morse's job was to bring the entire purchasing process together and make it more functional, but according to the OGC, he and other procurement and commercial officials seemed to push it further apart. The report painted the Defence Board, Morse and other commercial and procurement officials as being obsessed with annual reports and reviews on major projects. They all had excellent knowledge of the exact contract terms of a given project but the underlying commercial strategies behind the programme were either unknown or ignored.

The different sections of the MoD involved in purchasing have led to confusion both internally and externally. Each procurement and commercial section of the MoD has a different strategy and visions. There is no cohesion between them which allows bureaucracy in the end to win out.
OGC officials were critical of Morse for being "distant" from the different commercial and procurement sections of the department. This led to staff being disengaged and unclear about what it was exactly that they were working on. Training was unclear and had "no functional central strategy." As a result, the report states that "large numbers of staff were engaged in non-value activities."

On the other end, Morse is also accused of being distant and disengaged from the Defence Board who have the final say in procurement strategy and the continuation of programmes. Likewise, the board was labelled as being uninterested in commercial strategy and activities. OGC officials called for Morse to attend board meetings more regularly and provide members with reports on commercial issues.

At first many of these issues appear to be more the problems of human resources than ones that the procurement arms need to address. Upon closer examination however it becomes evident that these shortcomings trickle down to into major procurement programmes, eventually adding costs and time to a project.

Uncertainty over the direction of the procurement arms led to an uncertain and often unstable relationship with industry in recent years. It seems according to the report that the relations depended largely on who was managing the MoD side of a given programme. A good manager may lead to positive interaction between industry and the procurement arm of the MoD. A bad manager may lead to non-existent communications. As a result strategic engagement by management was inconsistent with every team leader having a different approach to dealing with industry.

One industry official described working with the DCD and other MoD procurement and commercial officials as an "experiment" every time.

Industry officials claimed that this constant review process created uncertainty in their programmes which led to cost increases. Projects like the Type 45 Destroyer started out with the aim of procuring 12 ships but constant reviews and cuts reduced the programme to six ships but saw costs rise by £400m.

OGC found that the lack of cohesive strategies often leads to misunderstandings by the MoD on costs and the complexity of projects.

The end results are not encouraging. The Astute class submarine programme is
£1bn over budget. The Chinook helicopter conversion programme will be delayed by up to nine years and will cost an extra £200m. The FRES Utility vehicle contract cost the MoD £132m for the delivery of no vehicles. The Nimrod replacement programme, which may end up being cut, is already eight years late and a billion pounds over budget.

All of these programmes have suffered mitigating factors and all were in existence long before Morse and procurement reform entered the MoD. But none of them were helped either by a lack of vision and leadership according to the OGC report.

DIS and urgent operational requirements have brought industry and the purchasing arms of the MoD closer together. Given the results of the OGC report however, for reforms in procurement to take place, the MoD may in the future need to look at itself first before examining how to successfully deal with industry.