Defence Equipment and Support

Alison Seabeck Excerpts

Tuesday 17th July 2012 Commons Chamber

[Alison Seabeck (Plymouth, Moor View) (Lab)]

(Urgent Question): To ask the Secretary of State to make a statement on the future of Defence Equipment and Support.

[The Minister for the Armed Forces (Nick Harvey)]

A key element in the transformation process under way in the Ministry of Defence is that of its equipment and support activities through the matériel strategy. Reforming the acquisition system to drive better value from the defence budget is a core element of the process. This will require changes to Defence Equipment and Support to ensure that the organisation has the structures, management and skills it needs to provide the right equipment to our armed forces at the right time and at the right cost. Change is essential to tackle the legacy problems in defence acquisition that have historically led to cost and schedule overruns and have resisted previous attempts at reform.

The current system does not help or support DE&S properly, and it is not delivering value for money for the taxpayer. Bernard Gray’s analysis reveals the following root causes: first, an historically overheated equipment programme in which far more projects were planned than could be paid for; secondly, a weak interface between DE&S and the wider Ministry of Defence, with poor discipline and change control between those setting requirements for equipment and those delivering the programmes; and, thirdly, insufficient levels of business capability at DE&S for the scale and complexity of the portfolio it is asked to deliver. The result of these combined issues has been significant additional costs in the defence budget in the order of hundreds of millions of pounds each year.

Earlier this year, MOD officials were asked to focus their efforts on considering the comparative benefits that could be derived from changing DE&S into an Executive non-departmental public body with a strategic partner from the private sector or a Government-owned, contractor-operated entity. The work done to date suggests that the strategic case for the GOCO option is stronger than that for the ENDPB option. Further value-for-money work is under way to confirm this assessment. In the meantime, as resources and commercial appetite constrain our ability to pursue these two options simultaneously to the next stage, we have decided that the Department should focus its effort on further developing and testing the GOCO option.

The work to determine value for money between the options will take place over the next few months. In parallel, we will begin to develop a commercial strategy, engaging with industry to hone our requirement. This work will support decisions later this year on whether to proceed with the GOCO option and whether to launch a competition for a private sector management company to run the organisation. Provided that the further work demonstrates that the value-for-money case for GOCO over ENDPB is conclusive, this will be followed by an investment appraisal that will test the GOCO against a public sector comparator. Ultimately, this would be followed by a decision on whether to proceed.

[Alison Seabeck]

Let me be clear that there is massive consensus across this House that defence procurement must be tackled to ensure that some of the issues that plagued successive Governments are not repeated. We understand the budgetary challenges faced by the MOD and agree that procurement reform is essential to ensure financial sustainability.

It was therefore a huge surprise when yesterday the Secretary of State revealed in Defence questions that a decision had been made on the future of DE&S, but that no oral statement was planned and, indeed, that it was to be slipped out on the last day of Parliament. It was a bigger surprise, therefore, to read in the written statement that in their third year of government, no decision has yet been made by Ministers. The delay is as worrying as it is inexplicable. With the Gray review, the previous Government began the process of reform. It is now unclear when it will be completed. Will the Minister comment on the timing and confirm that primary legislation will be required for a GOCO?

The Government prefer the Government-owned, contractor-operated model, but it is unclear why. Will the Minister explain precisely why a GOCO is preferable to an NDPB? Are his Treasury colleagues content that the GOCO model offers value for money? Will he make a commitment to publish the full reasoning for the rejection of other models?

We fear that privatisation could weaken the public accountability and transparency of multi-billion-pound defence decision making. How would a GOCO be held publicly accountable? Who would be responsible for ensuring that contracts were delivered to time and to cost? We have seen recently with G4S that outsourcing does not guarantee efficiency or effectiveness, and can increase risk. Indeed, even with the London Organising Committee of the Olympic Games and Paralympic Games model, problems have arisen because Ministers have been distanced from the decision-making process and the lines of responsibility have been blurred. Such issues would be unacceptable when dealing with our armed forces.

Will the Minister say what will happen to existing contracts under the GOCO model? Crucially, those include the nuclear deterrent. Finally, what will the military’s role be in procurement under these plans? What guarantee can he give to the 20,000 people who are employed by DE&S that their jobs are not under threat?

The future of DE&S is not only about tens of thousands of highly skilled jobs in our defence industry, but, crucially, about the security of our nation. Getting it wrong would put lives at risk. It is vital that Parliament has a full opportunity to scrutinise these decisions.

[Nick Harvey]

May I correct the hon. Lady’s first proposition? It is clear that no decision has been made. A study is being carried out, which involves value-for-money work. If, when that appraisal is completed, we take this option forward, that is the point at which the decision will be made. Only when the model had been worked up and thoroughly tested would we finally take the decision to go ahead. Of course, we would come back to the House at that point.

The hon. Lady suggested that we had slipped this announcement out. I would say that the contrary is true. If the House had not been about to go into several weeks of recess, we would not necessarily have made a statement yet. We have done so to give the House the greatest possible transparency about what is going on and to send the clearest possible signal to the potential commercial partners that we are serious about this matter and are taking it forward. I stress that the decision about timings will be taken towards the end of this year. The commercial partner would be sought in a competition during the course of next year and a decision on whether to go ahead would be taken early in 2014.

The hon. Lady asked whether this model would include the nuclear component of defence. I remind her that the Atomic Weapons Establishment at Aldermaston is a Government-owned, contractor-operated organisation, and that it works extremely well. The last Labour Government and previous Governments have made extensive use of the private sector in providing critical elements of our defence and other public services. I see no reason to believe that it would be any less capable of doing so in this area.

The GOCO option has looked better in the early explorations because if we stuck with an ENDPB, the work force and the management would remain in the public sector, and the greatest possible private sector involvement would be the use of a consultant. If we go for the GOCO option, the entity will have all the freedoms of a private sector operator: it will recruit people on private sector terms and conditions, and will have an incentive to make the thing work in a way that an ENDPB would not.