1.4 The Department has long wrestled with problems in defence acquisition. By 2010 poor performance had led to an 'overheated' equipment programme, where a gap of £38 billion emerged in the defence budget. Building on an independent report commissioned by the Department,4 DE&S estimated £1.5 billion was lost annually to defence, because of three systemic issues:5
• Overheated equipment programme
The Department often delayed or reduced the scope of major projects to find savings to tackle the overheated equipment programme. Too broad a range of tasks, too many types of equipment ordered, and at too high a specification, contributed to planned requirements significantly exceeding planned funding.
• Blurred roles and responsibilities
Difficulties in taking strategic investment decisions on defence equipment due to blurred roles and responsibilities between head office, the commands and DE&S. The Equipment Plan was dominated by a 'bottom up' approach, making it hard for 'top down' strategic guidance to control the balance of investment.
• Lack of skills and management freedoms
DE&S lacked skills and management freedoms to maximise the value of the funds allocated to buying equipment and managing these projects through their life. DE&S's business capabilities were assessed as minimal for an organisation managing complex programmes.
1.5 The Department prioritised having an affordable plan for defence equipment and has made progress in Departmental reform to improve defence acquisition.
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4 The Review of Acquisition for the Secretary of State for Defence (the Gray Review) 2009, p. 6, estimated those loses to be in the range of £900 million to £2.2 billion per annum. Based on this review, DE&S took a figure of £1.5 billion per annum as a working level assumption.
5 Materiel Strategy Outline Business Case, January 2013, paragraph 1.52.