Part 11: Acquisition

11.1  This section sets out how acquisition fits into our broader model. Acquisition is one of the major building blocks of Defence, and addressing the over-heated equipment and support programme is a major strategic challenge for the Department. The Department has been seeking to address this challenge through a combination of the programme of reforms initiated in response to Bernard Gray's 2009 review of acquisition and decisions taken in last year's Strategic Defence and Security Review and the subsequent departmental planning round. Our work under Defence Reform has focused on:

•  aspects of the way Defence is run which have a significant impact on the strategic alignment, affordability and delivery of the equipment and support programme - as perceived 'acquisition' problems are often symptomatic of deeper underlying causes;

•  the role, responsibilities and accountabilities of the CDM within the overall operating model; and,

•  some other activities which are related to acquisition, but which go beyond the current responsibilities of DE&S or have wider ramifications for the operating model - in particular support, science and technology, test and evaluation, logistics and exports.

11.2  We have deliberately not sought to offer views on the cross-Government work (which pre-dated Defence Reform) on a Equipment, Support and Technology for UK Defence and Security White Paper, which will help shape the Department's approach to procurement and relationship with industry. Nor have we sought to make proposals on the future functions, structure and size of DE&S, since Bernard Gray was recruited as CDM late last year with a remit to do that, building on his previous review. We note that CDM has already reorganised the DE&S operating centres into four groups, one each to face the three Services and a joint group. We support this change, which fits well with our model.

We also note that CDM has put the single Service Chiefs of Materiel in charge of the three groups that face the Services. It will be important to our model that a clear customer- supplier divide is maintained in this new arrangement. We understand that CDM is aiming to report later this year on his broader plans to transform DE&S. CDM and DE&S should be supported in these endeavours, which will need to be coordinated closely with the implementation of the reforms to the overall operating model that we are recommending.

11.3  Parts 4 on strengthened top-level decision-making and 8 on a new model for capability planning and financial management are deliberately designed to tackle some of the underlying issues behind the over-heated equipment and support programme. We support the work the Department has in hand to improve cost estimation and ensure that realistic costs with sufficient contingency are reflected in programme and project plans, to better control the emergence of new projects, and to provide to Parliament an assessment of the affordability of the forward equipment plan, audited by the NAO. In particular, we see value in mandating the broader use of the independent costing expertise being built up in DE&S's Cost Assurance and Analysis Service, for example in developing Command plans and in supporting the Head Office in its development of the overall departmental plan.

11.4  Clearly though, as CDM's primary responsibility is to deliver an equipment and support programme that meets military users' requirements, to time and within budget, he has a crucial role to play personally in managing through the consequences of the current, overheated programme and helping to ensure that it is kept under control in the future. We examined whether CDM had the necessary authority to discharge his role effectively, concluding that:

•  CDM should be a member of the Defence Board, as set out in Part 4, reflecting his responsibility for a major part of the Department's business, and the immediate priority of ensuring that the equipment and support programme is affordable and deliverable;

•  reflecting DE&S's role as the Department's primary interface with industry and owner of the vast majority of the Department's commercial risk, the CDM should have the lead responsibility for Defence industrial and commercial policy and functions. Until recently, these responsibilities rested with the 3 star Director General Commercial in Head Office, reporting to PUS, which led to duplication and friction with DE&S, but the Department has now ended the DG Commercial post and transferred the responsibilities to CDM. We support that decision;

•  there needs to be a robust and disciplined interface between DE&S and its customers. It is for the customers - the Commands - to decide on their requirements, in line with the Command Plan they will have agreed with the Defence Board. But in reaching these decisions the Command TLBs should be closely advised by DE&S, and other delivery bodies, so as to ensure a properly deliverable programme. DE&S should only take responsibility for delivering projects that it judges are technically feasible and properly resourced. This has been fudged in the past, as Bernard Gray's acquisition review set out. Making the CDM an additional Accounting Officer for spending on equipment and support could help bring clarity to this area. It could reinforce the duty of CDM to accept only projects that DE&S can deliver within the available budget, and it would strengthen his accountability for then delivering them. It would not detract from PUS's responsibilities as the Department's Accounting Officer, nor should it detract from the Services' ans JFC role to set requirements, produce an affordable Command plan and hold the CDM to account. It should, however, increase the likelihood of those plans and subsequent changes to them proving robust, and would provide a useful control on a more delegated model. This would provide institutional force to what should be the status quo; as such there were differing views on the Steering Group as to whether it is necessary. There were also some concerns that it may inadvertently undermine the responsibility of the Service Chiefs or their ability to hold CDM to account. The PUS, as Accounting Officer, will want to consider the case carefully.

Our proposals on these and CDM's other main responsibilities and accountabilities, are summarised in the table at Annex E.

11.5 Wider work under Defence Reform has examined some more specific issues relating to the Department's acquisition model and process - on the support industry provides, the role of science and technology and test and evaluation, logistics and exports - with a focus on developing clear organisational responsibilities, improved support to decision-making and ways of reducing costs. The emerging conclusions of the work are:

•  on support, there is the potential to build on the trend over the last decade and move towards the greater involvement of industry in supporting military capabilities both at home and on operations and new models for contracting. The Department has developed a new vision for Defence support, which highlights, for example, the scope for a more fluid and flexible mix of military, contractor and civilian staff in support roles and for integrated bases on which a range of functions are brought together to realise effciencies. The options for implementing such an approach, including the benefits and risks, should now be examined more fully;

•  on science and technology, such advice plays a very important role in supporting acquisition decision-making, and should be factored in to the process from an early enough stage. Science and technology advice should also be used more widely in support of decision-making across Defence;

•  on test and evaluation, such activity should also be seen as an integral part of the acquisition process and again, should be undertaken from an early stage, not least because the evidence suggests that this helps to keep costs under control later in the process;

•  on logistics, the question of whether logistics support to the Armed Forces at home and on operations is best carried out by DE&S, or elsewhere in Defence - including the case for transferring operational logistics, in particular the Defence Supply Chain Operations and Movement unit, to the JFC - should be examined as part of the detailed design of the JFC, working closely with CDM; and,

•  on exports, we understand that current MOD and cross departmental organisational structures do not allow for the optimal delivery of Government support to defence exports to achieve its political intent and the tangible economic benefits for the UK economy and tax-payer and to maximise the tangible benefits to the Department from supporting Defence export campaigns. Further work on this is needed. We note that broader issues around exports will be covered in more detail in the White Paper, following on from last year's Green Paper on Equipment, Support and Technology for UK Defence and Security.