Procurement Bill [HL]

Baroness Goldie Excerpts

Report stage
Wednesday 30th November 2022 Lords Chamber

[Lord Alton of Liverpool (CB)]

My Lords, the noble Lord, Lord Wallace of Saltaire, is right to remind us not just of events in Victorian Britain but of what is happening at the moment and the impact that events in Ukraine and elsewhere will have on our procurement programmes.

I serve on your Lordships’ International Relations and Defence Committee. As the noble Baroness, Lady Goldie—it is wonderful to see her in her place—knows, throughout the whole of this year we have been conducting an inquiry into procurement and defence priorities, which the noble Lord, Lord Wallace, touched on. We began it before the second invasion of Ukraine in February. From my discussions with the noble Lord, Lord Coaker, who pressed this issue in Committee, I know how important this is, for all the reasons he described. He has a great sense of patriotism and cares for our Armed Forces, and I strongly associate myself with him and the desire for a probing amendment to test some of these questions.

One reason why I hope the noble Baroness, Lady Goldie, will be able to reply in terms to the noble Lord, Lord Coaker, on Ajax especially, is that the noble Baroness, Lady Anelay, who is chair of our Select Committee, was here during his speech—she was unable to stay—and said that I can tell the House that she strongly agrees with the questions he put. She hopes that the noble Baroness will be able to answer them because they will be part of the terms of our committee’s report, which we have to complete before the House rises for the Christmas Recess at the end of December. So it is important that, if the noble Baroness is not able to answer those probing questions this evening, we are given answers in due course.

One of the witnesses to the Select Committee inquiry was Professor John Louth, who was the director of defence, industries and society research at RUSI from 2011 to 2019. When we asked him directly about the way in which we should go about defence procurement, I asked him specifically about the Bill and whether it would be welcome. He said:

“I have tried to read as much of this as possible … It is hard to identify the end state that the Government are looking for”.


He said that there are

“lines and lines of rhetoric and legalistic reform”,

some of which is incomprehensible even for those of us who are academics.

I asked him specifically about Ajax, which the noble Lord, Lord Coaker, has been raising, and he replied that it has been a “disaster”. As we have heard, it was intended to be a state-of-the-art reconnaissance vehicle for the Army, and it has cost a staggering £3.2 billion to date, yet so far not a single deployable vehicle has been delivered—not one. It was of course supposed to enter service in 2017, but it has been subject to what the Commons committee called a “litany of failures”, including noise and vibration problems that injured the soldiers testing the vehicles. Can the Minister tell us whether those safety issues have been resolved, or whether they are ever likely to be?

The noble Lord, Lord Coaker, reminded us that the House of Lords Select Committee said the programme had been “flawed from the outset” and also that it was illustrative of a deeper failing, commenting that the Ministry of Defence

“once again made fundamental mistakes in its planning and management of a major defence programme.”

Pulling no punches, the Public Accounts Committee accused the department of failing to deliver vehicles which the Armed Forces need

“to better protect the nation and to meet our NATO commitments”.

In the current situation, with one eye eastwards to Ukraine, that is a very serious statement by a senior committee of Parliament—and this Bill, of course, is a Bill that will go down to the other place. It will go as a pristine Bill from the House of Lords, but the other place will be able to amend it, and I have no doubt that people from the Public Accounts Committee will want the answers that the noble Lord has gently been asking for this evening.

I will end by quoting Meg Hillier, who chaired the committee inquiry. She said:

“Enough is enough—the MoD must fix or fail this programme, before more risk to our national security and more billions of taxpayers’ money is wasted. These repeated failures … are putting strain on older capabilities which are overdue for replacement and are directly threatening the safety of our service people and their ability to protect the nation and meet NATO commitments.”


That is good enough reason alone, surely, for the Minister to give the House a comprehensive reply.

[The Minister of State, Ministry of Defence (Baroness Goldie) (Con)]

My Lords, I first thank noble Lords for their contributions. I understand fully that the proposed amendment is well intended, and I accept it in that spirit. I think it has certain implicit difficulties, which I shall move on to. I would never object to the Opposition Benches holding the Government’s feet to the fire—that is what the Opposition are there to do—but I hope they will be patient with me as I seek to explain why the precise terms of the amendment confront the MoD with difficulty.

The proposed amendment would require the Ministry of Defence to commission and publish a report from the National Audit Office, setting out instances of procurement overspend, withdrawal or scrapping of assets, termination of prepaid services, cancellations or extensions of contracts, or administrative errors with negative financial impacts. The reason the MoD rejects the amendment is not because it is not in sympathy with what I have identified as a well-intended sentiment expressed by the noble Lord, Lord Coaker, but quite simply because existing processes already ensure robust scrutiny and accountability of Ministry of Defence procurements.

Before I move on to that more detailed exposition, let me deal with a very specific point the noble Lord raised about the defence equipment plan which was published yesterday. He is more ahead than I am because I have been preparing for this. I have referred it to my officials, and I am told that it is difficult to calculate an accurate figure of inflation at the moment, due to volatility. That is an inadequate response to give the noble Lord from the Dispatch Box, so I offer to write to him. We will do further research in the department, and I shall endeavour to expand on what these particular difficulties are.

[Lord Coaker (Lab)]

That is totally acceptable, and I am very appreciative of it. The reason I asked was because the National Audit Office, commenting on the 2022-23 equipment plan, said it was already out of date because of inflation, Ukraine, the economic situation, et cetera. So I very much appreciate the offer from the noble Baroness to write and put that in context for us. I think it would be helpful if that was put in the Library for other Members as well.

[Lord Fox (LD)]

I join the noble Lord in welcoming that and also ask that the Minister includes currency because, while inflation is important, currency is actually more important in some cases. It is absolutely clear that a lot of these purchases are made in dollars and the dollar/pound rate will determine quite substantially the rising costs of equipment.

[Baroness Goldie (Con)]

I hear both noble Lords. To put a little context around this, the MoD has not been sitting in some splendid ivory tower in isolation as volatile economic circumstances swirled around us. Actually, we have built protective measures into many of our contracts to deal with inflationary pressures—or, indeed, to deal with the currency fluctuations mentioned by the noble Lord, Lord Fox. I appreciate that more detail is sought and I shall certainly look at that, with my officials, and endeavour to return to both noble Lords with some more information.

I was going to explain in more detail what we already do and how the National Audit Office already plays a role in all this. The National Audit Office is independent—we should remember that—and it already conducts a yearly audit on the defence equipment plan and undertakes regular audits of defence programmes. Further scrutiny of the performance of defence programmes is undertaken by the Infrastructure and Projects Authority, which tracks the progress of projects currently in the government major projects portfolio, not just that of the MoD. The details of these are published in its annual report. As an independent statutory body, the National Audit Office decides, independently of government, where to focus its resources and determines what projects and public bodies it audits and when.

It is important to emphasise that the Government do not direct the NAO; nor should we, because an essential feature of the importance and value of the NAO is that independence. Although it may not intend to do so, I argue that the amendment would interfere with that statutory independence. In addition, it would force the NAO to use its limited resources on a specific examination each year, irrespective of changing priorities: something might be significant one year and of far less concern the following year. It might even not reflect the continuing value of such an examination to Parliament: this is where we have to be very careful.

To reassure noble Lords, as I indicated, the Ministry of Defence continues to take steps to control the rise in the price of defence goods and services over time, including through improving the communication of longer-term priorities and requirements, including, as noble Lords will be aware, through the publication of pipelines. That is an extremely important development and signals likely demand to industry far better. It lets industry reflect on preparedness, instead of what was before probably a rather stop-start process, with industry asking, “Do you need anything?” and us suddenly announcing, “Yes, we do,” and everybody trying to create the thing from new.

The Ministry of Defence is utilising a new approach to industrial strategy. This strengthens supply chains and is driving pace and agility into the acquisition system through a range of transformation initiatives. The department has implemented steps to estimate project costs more accurately, including improving our risk forecasts through the use of reference class forecasts; that is, trying to use procurement as it happens, to inform us—what can be learned from the process? We have risk-costing pilots and we use the analysis of systematic, strategic or operational problems to inform us how the contract is proceeding. The MoD is also driving evaluation into programmes through the use of monitoring and evaluation frameworks and creating a process to capture and share lessons learned.

An important area, perhaps not widely understood, is that the MoD, like everyone else, can be hit by the quality and quantity of skills. That may be a significant impediment to us. Improvements are being delivered through the improved provision of training, initiatives to recruit and retain staff, and audits to identify and fill skills gaps.

The noble Lord, Lord Wallace of Saltaire, said that not much has changed. I think he started with the 1980s, then we seemed to regress further, into the Victorian age, when I am not sure we would recognise very much of what our procurement contracts are delivering. I respectfully disagree with him because, in addition to what I have previously mentioned, including the investment appraisal process, we have made other big changes. For example, all category A procurements, which are valued at £400 million or above, go through an extensive internal MoD process before they even get to the Cabinet Office, the Treasury or the Minister of Defence for approval.

Costs are now independently assured by the cost assurance and analysis team, tender and contract documentation is independently assured through the progressive assurance team, and direct award contracts are reviewed and monitored by the single-source adviser team. If that sounds like just verbiage, let me say that behind that are highly trained expert people who are there to identify the shoals, the reefs and the rocks, bring them to our attention, and make sure that we are not inadvertently drawn into areas of contract weakness where in the past we might very well have gone.

We are content that there are sufficient checks and balances in place to ensure that we achieve best value for money, learning from previous procurements. There are some good examples, and I was very struck by visiting Babcock at Rosyth, where it is building a Type 31 frigate. That really proceeded on a new basis of approach—it was born out of the national shipbuilding strategy. That programme was established in 2017, and following competition a contract was awarded to Babcock in November 2019 for the design and build of the five ships; it is currently under way, with the first ship scheduled for float-off in 2023. With barely three years passed since contract-award, the Type 31 build at Rosyth is well under way, with the first grand block now assembled in the Venturer assembly hall. The build programme is set to meet its deadlines of delivering all five ships off-contract by the end of 2028, and the build contract is on course to deliver the five ships at an average cost of £250 million per ship.

I use that as an example because it seems to me, having seen it at first hand, a very modern illustration of where we have moved to. When I say to the noble Lord, Lord Wallace of Saltaire, that I do not agree with his characterisation, I also try to illustrate that argument by pointing out that there are different practices at play, informed—I fully admit—by a number of sources like the national shipbuilding strategy, which was an innovative change of direction for how we procure ships within the UK. But we have also had a very good example with the Poseidon aircraft programme operating out of RAF Lossiemouth in the north of Scotland on the Moray coast. It is an absolutely fantastic facility. That fleet comprises nine aircraft, which were all achieved on time, within budget, and to a challenging timeline.

It is very easy to be sceptical, and I fully understand why your Lordships rightly have been sceptical of some pretty poor experiences in the past, but all that I am pointing out is that we have moved on to a better way of doing things, and I hope that your Lordships understand from what I have been explaining and describing that there is a far better structure within the MoD to deal with these complex procurement contracts. These defence contracts are often complex, they are required quite often at speed to meet emerging threats, and are often needed to provide much-needed support to our Armed Forces, to ensure that we maintain operational advantage and to reduce the risk to our nation.

The noble Lords, Lord Coaker, Lord Wallace of Saltaire, and Lord Alton, all raised the issue of Ajax, and I think I have said before from this Dispatch Box that it was certainly not one of our proudest moments. Intrinsically, it is actually a very good vehicle, and it will provide an important capability. Following agreement from the Ajax safety panel, work has led to resuming the user-validation trials which were paused earlier this year. Results from these trials are being analysed to ascertain whether it is possible to deliver a safe system of work under which to conduct reliability-growth trails. Your Lordships are aware that there were issues with vibration and hearing, and the one thing that we were very clear about was that we were not going to put people at risk; my former colleague as Minister for Defence Procurement, Jeremy Quin, was absolutely insistent. That is why, despite the embarrassment, we paused what was happening until we had a better understanding of what was going wrong; but I make it clear that the MoD will not accept a vehicle until it can be used safely for its intended purpose.

Your Lordships will be aware that Clive Sheldon KC is leading the Ajax lessons learned review, which is looking at ways in which the Ministry of Defence can best deliver major contracts more effectively in future. That is an important review and we await his analysis, conclusions and recommendations, but I emphasise that any delay to Ajax will not affect our commitments to NATO. That is an important point to observe.

The noble Lord, Lord Coaker, asked about the “Prince of Wales” carrier. Rosyth on the Forth is where good things happen: as well as building the Type 31, that is where the Prince of Wales carrier is currently reposing. She is a state-of-the-art aircraft carrier. She has already proved her capabilities in a number of exercises, but there was an issue concerning the propulsion shaft and investigations are now under way. She is a huge vessel, and it was necessary to take her into dock to have the facilities properly to examine what was going wrong. Timelines for the repair of the shaft are being investigated and further updates will be provided in due course. We want her to return to operations as soon as possible. My understanding is that we have brought forward some routine maintenance anyway, so that can be attended to while she is at Rosyth. I have no more specific information at this time, but I expect we will get a further report when more is known about the underlying condition and how long it will take to rectify.

The noble Lord, Lord Coaker, raised the Type 26, which is a first-class ship. I have visited the programme in the yard at Govan being operated by British Aerospace. It is a fantastic piece of maritime equipment and it will be pivotal for the Royal Navy. It is proceeding very well. We have just awarded the batch 22 contract to the yard because we were absolutely satisfied about the professionalism, commitment and effectiveness of what British Aerospace was doing with the first batch. It is true that there has been a delay, but there are two reasons for that. Covid was one factor; it has created delays for our defence industry partners and their supply chain. I understand that there were also issues with locating the necessary corps of skills, but it now seems well under control and we hope that the new timeline can be adhered to. British Aerospace is certainly very keen to demonstrate that and to commit to making it happen.

The noble Lord, Lord Wallace of Saltaire, raised the issue of levels of munitions. He is quite right that particular demands have fallen on that area due to the conflict in Ukraine. Those of us who listened to the extraordinary, courageous address by Madam Zelenska yesterday—I was among those privileged to be there—could not help but feel huge admiration for her, her husband and the people of Ukraine, as well as a sense of pride that we have been able to come to their assistance. We have been able not just to support them in what they have been looking for but, I hope, to give them the reassurance of optimism and hope for the future; Madam Zelenska referred to that. I reassure your Lordships that, in our supply of anything we have provided to the Ukrainian armed forces, we have never compromised our own levels of stocks in relation to meeting our national security obligations.

The noble Lord, Lord Alton, referred to someone—that sounds rather disrespectful; it was someone very eminent—who used to be in RUSI who had certain challenges with the Bill. As a former lawyer, I would say in response that I think the Bill is a welcome clarification and consolidation of procurement law in the United Kingdom. For the MoD, there has been carefully researched tailoring of the Bill to meet the unique requirements of defence. Our industry partners have been positive, so I think the Bill has the potential to introduce far greater clarity to industry—both primes and smaller contractors—and give them a much clearer sense of how they engage, what they can do and what the rules are. That is absolutely to be commended.

In conclusion, I am under no illusions about the challenges the MoD faces in relation to large-scale procurement. We recognise these challenges, and that is why we continue constantly to explore additional actions to mitigate the effects of cost escalation and cost growth. I hope I have been able to explain in sufficient detail what we do already—particularly the very specific character of the National Audit Office, which is independent of government—to enable your Lordships to understand why the MoD is unable to accept this amendment, while it does identify with the sentiment with which it was put forward. I ask the noble Lord, Lord Coaker, to withdraw the amendment.

[Lord Coaker (Lab)]

I thank the noble Baroness for her reply and her offer of a letter. I stress how important that letter is, given the quote I am about to read, which summarises the National Audit Office’s assessment of the equipment plan that the Government published:

“The equipment plan is based on data submitted by the end of March this year and does not take account of the impact of exchange rate changes, rampant inflation, fuel costs and the Russian invasion of the Ukraine.”


It would be helpful to your Lordships’ House if the noble Baroness would respond in a letter and put it in the Library. It would be very useful to hear what the Government are saying about the National Audit Office’s comments.

I know that there are problems with Ajax; we look forward to continuing discussions on that. We have raised a number of other difficulties. I think all noble Lords here recognised that there are significant successes alongside that and we should recognise those—I certainly do. We all want our Armed Forces to succeed. The noble Baroness is quite right to remind us of the support we have given to Ukraine and the bravery of the Ukrainian people. We are right to recognise that once again this evening. With those brief comments, I beg leave to withdraw the amendment.