Better Defence Acquisition

Debate between Lord Hammond of Runnymede and Richard Fuller

Monday 10th June 2013 Commons Chamber

[Mr Hammond]

It is certainly our assessment that the frictional costs of inefficiencies within defence procurement are the biggest single challenge that we face and our biggest single opportunity. I was at Portsmouth the week before last and talked to the commander of the dockyard. He told me that once the Queen Elizabeth carriers are berthed there, he will be making provision for some 200,000 tonnes of fighting ships to be tied up in the harbour. That will be largest tonnage that he or his predecessors have had to make provision for since the 1960s.

[Richard Fuller (Bedford) (Con)]

I understood from my right hon. Friend’s thoughtful statement that the organisational merits underpinning the GoCo would be cultural change and skills enhancements to deliver efficiencies. Will he tell the House in more detail what missing skills he hopes to attract? Will he also reassure us by saying what steps he will take in the incentives scheme for the management company of the GoCo to avoid the perverse incentives that led to so many financial messes in public-private contracting under the last Government?

[Mr Hammond]

My hon. Friend is right in setting out the changes that are required. One he did not mention, but which is important, is creating a hard boundary between the customer and the provider organisation. At the moment, responsibilities across that boundary are not as clear cut as they should be, and that allows specification scope to drift on occasions. Let me give him a couple of examples. We currently spend in DE&S £400 million a year on external technical support because we cannot hire the people we need. Being unable to hire somebody at £50,000 a year means that we are paying a contractor £1,000 a day to do the work. We expect the GoCo contractor, if we go down that route, to make substantial early savings by hiring key technical capabilities into the organisation, rather than by bringing them in as technical contractors. He is absolutely right about perverse incentives. Our big challenge now in the assessment phase is to negotiate a set of key performance indicators and incentive payment structures that align a GoCo contractor with the priorities of the Ministry of Defence.