Lord Drayson's reform agenda

Friday, February 12, 2010

Lord Drayson has been introducing his plan for Strategic Acquisition Reform to the MoD, Defence Equipment and Support and now industry. Joel Shenton explores how Lord Drayson introduced the strategy to industry.

The recently published green paper alone can't get the Ministry of Defence's equipment programme out of the red. The launch of the paper at the end of January was an important milestone for government, marking the opening of discussions that will directly influence the next Strategic Defence Review, but it was primarily about defining Britain's military place on the world stage.

The launch of the green paper was accompanied by the release of the Strategy for Acquisition Reform – a document which could affect Britain's ability to adopt whatever stance the next Strategic Defence Review demands. The SAR deals with concrete pledges on how to deal with the problems that have blighted defence spending. Slippage, cost overruns and delays in defence procurement have cost billions of pounds, and some projects have been reduced in size and number, or launched less capable as a result.

But the SAR brings with it the hope of a better way of operating. Lord Drayson, Minister for Strategic Defence Acquisition Reform, has set out a plan to tackle the problems in acquisition, and critics of the current process seem to be able to agree with his plans. Since returning to a defence ministerial post last summer he has produced the reform strategy and promised to work hard towards smoothing out the unpredictable acquisition process for government and industry alike.

Introducing the Strategy for Acquisition Reform to industry, Lord Drayson said there was a need to "reset the equipment plan once we've completed the SDR", giving the MoD a clean slate and allowing it to aim for the balanced budgets his plans set out to achieve.

"The fundamental problem," Lord Drayson told ADS members, "is deep-seated cost pressures. The programme is overheated." His words mirrored those used by Bernard Gray in his damning report on MoD acquisition in October last year.

"We still have a planning system that isn't as rigorous or as transparent as it needs to be – with ongoing weaknesses in procurement decisions…The department must reach a point where the entire budget is back in balance, and short-term pressures no longer interfere with long-term priorities.

"Whether people define the new strategy as radical or evolutionary is frankly by the by. I'm only interested in it succeeding."

Drayson said there were three main problems that affected the planning of MoD acquisition. The first was the temptation to sacrifice science, innovation and technology spending when cuts need to be made, and Drayson promised no further research cuts would be made in the current planning round.

Second was the tendency to delay programmes in order to meet the current year's budget needs, increasing longer-term costs. Last year a National Audit Office examination of 15 major defence projects reported that in 2008/09 £1.2bn was added to costs by this method alone.

Drayson also criticised the incentives to make initial cost estimates which are unrealistically low so that projects make it into the programme – creating a false sense of affordability and storing up problems for the future. Bernard Gray wrote that 'vested interests' were aware that once a project makes it on the equipment programme it is unlikely to be cancelled, and that this assumption has led to the unrealistically low bids and cost inflation.

Drayson also explained changes to the management of the equipment programme would end service chiefs' focus on their own branch of the armed forces when calling for equipment. Defence equipment would be bought for the defence of the nation as a whole, in line with planned objectives.

A new committee comprising the permanent and 2nd permanent secretaries, the chief and vice chief of the defence staff and the finance director will oversee equipment and support. It will be responsible for reviewing strategic direction and affordability.

"The committee does not include the single service chiefs because we need to fix the counterproductive incentives within the system," said Drayson. "We need to make sure that the decisions made about capability are rigorously examined for their affordability and their requirement from the perspective of defence overall – and not a single viewpoint within defence."

"The purpose is to control more closely what projects go in and out of the programme, and to be more active in identifying and dealing with projects at risk of cost growth or delay. To stop making decisions to delay projects simply to meet in-year cost pressures."

If Lord Drayson's plans come to fruitition, the equipment programme will be created from scratch and cleared of single service bias. Once that has been achieved, Drayson plans for it to be more regularly examined by Parliament.

"We will publish annual assessment to Parliament concerning the overall affordability of our equipment and support plans as a whole," he said, adding that plans will be drawn against a 10-year planning horizon, with annual audits carried out by the NAO.

Drayson also promised to draft a second Defence Industrial Strategy as part of the Strategic Defence Review.

While the measures are undoubtedly positive, ambitious and radical in removing single-service interests from major equipment decisions and boosting scrutiny, their success hinges on the MoD's ability to deliver.

One audience member from a technology consultancy said that the MoD today was arguably a less intelligent customer today than it has been for years, perhaps since WWII. Drayson agreed that commercial skills from industry were needed, but did not appear to endorse the wider use of consultancy to boost this. Instead he called on people in industry to work in defence procurement, and promised £45m to train staff in the skills needed

"We need to see more people come from industry to work within defence procurement," he said. "We thought long and hard about how we can best develop the skills bases and the systems to manage this better and we need to do this in-house."

Defending the £45m extra spend on training over the next four years, Drayson said: "The investment that we make in improving the skills and the know-how of the people that do that work – the systems that they use, the project management - doing this in an organisation that is as complex as it needs to be to deliver the whole range of equipment means that it has to cost that amount of money. It is a very sensible investment of taxpayers' money."

With a long period of change ahead, right through to the next SDR, Drayson promised that efforts will be made to keep the MoD operating at something approaching normality.

The new acquisition plans are bold - they had to be following the Gray report. Lord Drayson's Acquisition reforms are an offshoot, rather than a complete adoption of Gray's principles, but they are attempting to tackle the central problems identified in a review which Drayson said "thoroughly pulled up the carpet" on problems with acquisition.

Lord Drayson has promised that results will be visible within a year of implementing the new strategy, but it remains to be seen whether this is the plan that will be able to balance the MoD's books once and for all.