Procurement Bill [HL]

Baroness Smith of Newnham Excerpts

2nd reading
Wednesday 25th May 2022 Lords Chamber

[Baroness Smith of Newnham (LD)]

My Lords, speaking on defence matters, I am not used to having detailed legislative scrutiny. We rarely have legislation, and when it comes forward it is often like the Armed Forces Act (Continuation) Order, which is on half a side of A4, and the Explanatory Notes are equally short and, in most cases, rather unnecessary. The message is essentially: “We need this legislation in order to carry on having the Armed Forces”.

On this occasion, I rise to speak with some trepidation on the Procurement Bill, because as the noble Lord, Lord True, pointed out in his opening remarks, it is a very detailed Bill and not one to which I would normally put my name. On this occasion, therefore, I am extremely grateful for the Explanatory Notes. I will speak to the core part of the Bill that I welcome: the fact that if we are to have a single procurement regime, it should include defence. However much we might endorse Her Majesty’s Armed Forces and welcome what they do, it is very rare for anybody to stand up and say that the defence procurement regime works incredibly well and cannot be improved. So in that sense, this is a welcome Bill.

By way of preamble, I would very much like to welcome the comments of the noble Lord, Lord True, in introducing the Bill and in his response to a previous question from the noble Baroness, Lady Sugg—that this Bill could have relevance to genocide and modern slavery. I assume that my noble friend Lord Alton will raise this issue in his contribution. The opportunity for us to raise questions about values in procurement is hugely welcome. That the Government were willing to make some amendments to the then Health and Care Bill was also very welcome in this regard. If a single procurement regime were to lead to best practice, ensuring that contracts which could be seen as corrupt were not let, or that people’s What’s App groups were not relevant to procurement, this would all be very welcome.

The noble Lord, Lord Mendelsohn, has just pointed out that procurement is sometimes about trying to change the spec—maybe mending or meddling. In defence procurement, contracts regularly run over length and over budget. Many civilians, many of whom are not interested in defence, may not have noticed, for example, questions about the A400M or Ajax armoured vehicles. It is a bit similar to Crossrail, now welcomed as the Elizabeth line, being four years over time and over budget. In a whole series of reports, most recently in November 2021, the House of Commons Public Accounts Committee has pointed out some of the problems with defence procurement. Cumulatively, various pieces of defence equipment are running 21 years behind schedule—although one assumes that no single item is 21 years overdue.

The noble Lord, Lord West of Spithead—he is not in his place today, although he may appear at some later point in proceedings on the Bill—has on many occasions asked questions of the noble Baroness, Lady Goldie, about the number of ships and the procurement process, including when a certain class of ship will come on stream. We keep being told that this may be in the mid or late-2020s. Delay is a perennial problem in defence procurement. If this legislation is to offer a single approach to procurement, of which defence is part, that sounds very welcome.

As my noble friend Lord Fox pointed out, there are a number of exemptions in the legislation. A whole clause lists various exemptions, chief among them being those relating to defence. I would be grateful if the Minister, either today or in writing, or the noble Baroness, Lady Goldie, when preparing for the Bill Committee, could indicate to your Lordships the Government’s thinking on exemptions, particularly those linked to defence. Some would appear straightforward. If a tank or armoured vehicle is in another country, it would not necessarily be brought back to the United Kingdom to be repaired. If there are larger procurement issues to do with repairs, maybe we need to think about not exempting these provisions. What is Her Majesty’s Government’s thinking on exemptions?

As is so often the case, there are some weasel words in the schedules about national security, which is mentioned twice as an exclusion and as an exemption. Procurement might be exempted from this regime if there are national security reasons to do so. Who determines whether something is a matter of national security? Is it the National Security Council? Is it the Home Office if it is a domestic matter? Will it be the organisation seeking to procure—whether that be the MoD, the Home Office or some other body—who say: “This is a matter of national security, and therefore it should be exempt”? Is the legislation sufficiently clear on that? If not, then that is an area where perhaps we need to bring some amendments to tighten the legislation. Those who advocated Brexit would say that this new approach to procurement legislation gives us more control over procurement and allows this House and the other place to scrutinise legislation so we should be doing it properly. Exemptions in terms of national security are a concern.

There will also be exclusions on the basis of national security. That clearly sounds very sensible on the face of it. You would not seek to procure equipment—particularly defence equipment—from a provider which might jeopardise British security. That seems a no-brainer. But again, who is making that decision about providers potentially jeopardising national security? Will there be a register? Will companies be on a list of providers that cannot be used because they jeopardise national security? That might be an area where there could be some probing amendments.

In terms of defence, having some improved procurement mechanisms might be very welcome. In its November report, the Public Accounts Committee argued that:

“To meet the aspirations of the Integrated Review, the Department’s—


that is, the MoD’s—

“broken system for acquiring military equipment needs an urgent rethink, led by HM Treasury and the Cabinet Office.”

Is this Bill the Cabinet Office’s response to the need for the MoD to improve its behaviour and its procurement provisions? Personally, I think it would be quite good to keep Her Majesty’s Treasury out of these things because, while we might want value for money in defence procurement, we also need to ensure that we are procuring the right things, and the Treasury’s approach to the bottom line might not be the right way forward.

In defence procurement in particular, having the right legislation will matter, but so will scrutiny of the actual contracts that are being let. It will be vital not just to get this legislation right but to ensure that, in major complex procurements in the future, we do not allow the politicisation of procurement to allow Ministers and officials to keep going back asking, “Could we just amend this contract? Could we add a few more bells and whistles?” Every time that happens, the cost of a contract goes up and the overruns go on longer.

This legislation offers some opportunities, but it will still be incumbent on your Lordships’ House and the other place to ensure that, in defence procurement, we really scrutinise everything that the MoD is doing.

Procurement Bill [HL]

Baroness Smith of Newnham Excerpts

Committee stage
Monday 18th July 2022 Grand Committee

[Lord Scriven (LD)]

My Lords, I rise to speak to Amendment 105 in the names of my noble friends Lord Wallace of Saltaire and Lord Fox. I will come on to some of the points the noble Baroness, Lady Noakes, made, but before I start, I apologise for not being here at the start of the Committee. As my noble friend Lord Clement-Jones said, I was on a train for four hours. Actually, you can hear my croakiness: I am the healthiest one on our Front Bench today, so I am here—

[Baroness Smith of Newnham (LD)]

That is not quite true.

[Lord Scriven (LD)]

Well, the healthiest on the Procurement Bill and constitutional affairs Front-Bench team. I thank the Minister, I think, for passing on his cold of last week to me.

My noble friends’ Amendment 105 is also a probing amendment. Clause 19 uses the word “appropriate”, and this amendment is to see

“under what circumstances it may be considered ‘appropriate’ not to undergo an open tendering procedure.”

There are no criteria or guidelines about what may be appropriate. This is just a probing amendment to see if the Minister can explain why such a wide-ranging word as “appropriate” is in the clause. Who will decide whether it is appropriate, and what guidelines or criteria would the Government expect the authority to seek in determining whether the open tendering procedure should not go ahead?

With Amendment 96, yet again, the noble Baroness, Lady Noakes, raises some important points in Committee by changing just one word. I particularly point to what she described as the “Alice in Wonderland world”, in which you can be debarred from one part of tendering but not have been given a contract—or the other way round. The noble Baroness’s suggestion to include exclusion from the tendering process in the Bill makes eminent sense or we will be in the position in which people could, by law, tender but would be debarred from getting the contract, even if theirs was potentially the best tender around.

With those comments, I feel that, particularly on Amendment 105 in the name of my noble friends, some clear guidance from the Dispatch Box would be welcome.

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[Lord Alton of Liverpool (CB)]

My Lords, the noble Lord, Lord Coaker, has made a telling and persuasive case. I hope it will convince the Committee to support the tenor of Amendment 485 in particular; I added my name to it on Friday last. I strongly agree with what the noble Lords, Lord Coaker and Lord Hunt of Kings Heath, and the noble Baroness, Lady Smith of Newnham, are arguing for in that amendment, specifically on the role of the National Audit Office; it is long overdue.

I want to develop the points made by the noble Lord, Lord Coaker, a little further for the Committee. Here are some headline points: £4.8 billion has been wasted on cancelled contracts since 2010. Some £5.6 billion has been overspent on MoD projects since 2010, and £71 million spent on unplanned life extensions. Some £2.6 billion has been wasted on write-offs: there are 20 cases of wastage by write-off in the report that was referred to, contributing to some £2.6 billion—or 20% of total wastage—since 2010. Some £64 million has been wasted on admin errors, including £32.6 million in HM Treasury fines almost uniquely imposed on the Ministry of Defence for poor accountancy practices.

The noble Lord, Lord Coaker, referred to the ongoing International Relations and Defence Select Committee inquiry into future defence policies, not least on procurement; indeed, I mentioned at Second Reading on this Bill. Last week, we heard from Professor John Louth, who was the director of RUSI’s defence, industries and society research programme from 2011 to 2019. Today, he is a private sector consultant. He shared several important insights into the peculiarities and particularities of defence procurement, not least the need to work with significant uncertainty, because of the speed with which technology moves, and how to strike a reasonable balance between insisting on value for money and having appropriate flexibility. The committee also explored associated issues, such as whether there is an optimal balance between indigenous development and off-the-shelf purchases in defence procurement; what considerations would have to be made; how the Government would intervene to prioritise them; how much of our defence capability needs to be supplied by the state itself, and what can and should be sourced from private suppliers; and who the legitimate partners are in the UK’s defence enterprise—manifestly not companies owned or controlled by countries such as Russia or China.

It was clear that there were other factors which distort procurement in the case of defence contracts. I think the noble Baroness, Lady Goldie, enjoys the sympathy and understanding of this Committee that it is not an easy world in which to operate. Professor Louth suggested to our Select Committee last week that there had been some successes, mainly around innovation. However, when asked about this Bill, specifically the measures before us now, he said:

“I tried to read as much into the Bill as possible. But it proved hard to identify the end state which the Government was looking for”—


the very point the noble Lord, Lord Coaker, just made. Professor Louth continued:

“Seeing the approach as an attempt to streamline is sensible but we need an Act that identifies the sharing of risk. There are lines and lines of rhetoric; lines and lines of legal reform—some of it incomprehensible even for those of us who are academics.”


He saw the Bill and its provisions as a missed opportunity, saying that

“quite often the private sector does things best and mixing it directly with what the state does would help enormously.”

He pointed to a high degree of private wealth that is funding our defence research and emerging capabilities but said we would get more value for money if a combined commitment was identifiable.

The noble Lord, Lord Coaker, referred to Ajax. During last week’s Select Committee proceedings, I asked Professor Louth about this, to which he replied,

“Ajax has been a disaster.”


As we heard from the noble Lord, in June the House of Commons Public Accounts Committee warned about the delays to Ajax, a programme which has already been running for 12 years, a point picked up in this admirable amendment about projects that overrun and the costs to the public purse. It said, and I am sure we all agree, that this risks national security and compromises the position of our defences.

Ajax was intended to produce a state-of-the-art reconnaissance vehicle for the Army. It has cost a staggering £3.2 billion to date and yet it has failed so far to deliver a single deployable vehicle—not one. The vehicles were supposed to enter service in 2017, but Ajax has been subject to what the Commons committee describes as “a litany of failures.” The failures included noise and vibration problems that injured soldiers who were testing the vehicles. As the MoD has been unable to say, even now, when Ajax will enter service, perhaps the noble Baroness can tell us whether she has any further information on that, whether the safety issues have been resolved and if it is likely that they will ever be resolved.

Last week, I reminded our Select Committee that the Public Accounts Committee says the programme has been “flawed from the outset”, but also said it was illustrative of a deeper failing, commenting that the MoD had

“once again made fundamental mistakes”

in the planning and management of a major defence programme. Pulling no punches, it accused the Ministry of Defence of “failing to deliver” vehicles which the Armed Forces need to

“better protect the nation and meet … NATO commitments.”

In the current situation, with one eye eastwards on Ukraine, this is a very serious statement by a senior committee of this Parliament.

Meg Hillier, who chairs the Public Accounts Committee, spelled it out in these terms:

“Enough is enough—the MoD must fix or fail this programme, before more risk to our national security and more billions of taxpayers’ money 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.”


Some 324 hulls for Ajax-family vehicles have been built, along with 74 turrets, and 26 vehicles have been handed over to the Army for training purposes. The PAC report points to “operational compromises” which the Army has been forced to make, which include the prolonging of the use of ageing Warrior armoured vehicles which came into service back in 1987 and are expensive to maintain.

In total, the contract with General Dynamics is worth £5.5 billion, and the PAC says that it doubts whether the programme can be delivered within existing arrangements. We have a duty to make a forensic examination of what Professor Louth told us in the International Relations and Defence Committee last week has been a “disaster” and what lessons might be applied via this Bill, especially lessons about poor project management and inadequate contract performance, soaring costs and lengthy delays even before contacts were signed.

As we heard from the noble Lord, Lord Coaker, the same issues have been raised again and again in various attempts to reform procurement. This has all been at great cost to the public purse and, as I have argued, at a risk to our national security. This Bill should be much clearer about how it intends to put flesh on the bones of a strategic relationship with industry, focusing on delivery within the budget and on time. What a pity it is that this Bill is not in draft before both Houses, being examined by parliamentarians during pre-legislative scrutiny, rather than being placed in the context of the many other diverse issues that we have been considering.

In conclusion, Ajax was a heroic figure from Homer’s Iliad. Apart from Agamemnon, he was the only principal character who received no substantial assistance from any of the gods—perhaps they will come to the aid of the Minister today. She can at least be heartened that Poseidon struck Ajax with his staff, renewed his strength and joined in Ajax’s prayer to Zeus to remove the fog of battle to see more clearly the light of day. I have no doubt that the amendments in the names of the noble Lords, Lord Coaker and Lord Hunt, and the noble Baroness, Lady Smith of Newnham, will do precisely that. I hope we will lift the fog and support these amendments.

[Baroness Smith of Newnham (LD)]

My Lords, I support Amendment 485. I will also speak to Amendment 101, which was not signed by noble Lords on the Liberal Democrat Benches, although there is clearly some interest in the issue of whether we use British suppliers for defence. There were some reservations from the trade team, the international team and the business team about whether we should be focusing solely on looking at British suppliers for defence contracts.

One particular question I would like the Minister to consider, which may be something on which the Labour Front Bench also has view, links to the point made by the noble Lord, Lord Alton, about whether it is more appropriate to have bespoke defence contracts or whether sometimes it is better to have off-the-shelf procurement. In that context, I would very much like to hear the Minister’s response to Amendment 101.

The reason for not signing this amendment was not that we do not support British industry; clearly there are a huge number of opportunities in particular where we might be looking for small and medium-sized enterprises to be very closely involved in the delivery of defence contracts. Most of the high-level contracts we have talking about—the catastrophe of Ajax, the major extensions, the cost and time overruns and the failures of defence procurement—are about the high-level programmes, but there will be many subcontracts within them. Trying to support our small and medium-sized enterprises is clearly desirable. If there is a way of doing that, alongside ensuring best value for money, there could be some interest in this amendment. However, it needs a lot more exploration and perhaps, as the noble Lord, Lord Alton, said, it would have been better having pre-legislative scrutiny to explore how we look at procurement.

The noble Lord, Lord Coaker, stole many of my lines, including many of the notes I made during, and the points I raised at, Second Reading, to which the Minister did not have the opportunity to reply, because her colleague, the noble Lord, Lord True, was responding instead. In line with the noble Lord, Lord Coaker, I am very much looking forward to hearing a series of answers from the Minister which will enable us to understand in what way this Bill is intended to help defence procurement. In many ways, the idea of having a single Bill that deals with all types of procurement is superficially very attractive, yet, as the Grand Committee has already heard, it is not clear in any way, shape or form how this Bill is going to improve defence procurement.

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[Baroness Goldie (Con)]

What I think is important is that we accord the National Audit Office the absolutely critical character of independence, which is necessary for it to do the job it does. I think that part of that independence is that it is quite separate from government departments, and, with the greatest respect, I think that is what the MoD should not be doing. The National Audit Office should be saying, “If we think you’ve got dirt lying under the carpet, we’re going to rip the carpet up and have a look at the dirt”, and I think that is the freedom we expect the National Audit Office to have and that is the freedom it has got. As I say, everyone, I think, will understand that the Ministry of Defence knows well the feeling of being on the receiving end of a National Audit Office report which makes uncomfortable reading.

[Baroness Smith of Newnham (LD)]

My Lords, the Minister has spoken about the legislation giving the MoD greater flexibility, but following up from her response to the noble Lord, Lord Alton, to what extent does it enhance accountability, which is at the crux of what we have all been asking about?

[Baroness Goldie (Con)]

As the noble Baroness will be aware, the National Audit Office reports not to the MoD; it reports to Parliament. It is a very powerful line of accountability that introduces the legitimacy in any democratic society for elected parliamentarians—or Members of this House—to ask on the basis of a report what the department has been doing. It has never inhibited Members of the other place or Members of this House from doing just that, as your Lordships are very well aware.

The noble Lords, Lord Alton and Lord Coaker, raised particularly the very legitimate question of what we are doing within the MoD to try to improve our procurement performance. I think your Lordships will understand that, probably more than any other department, the Ministry of Defence carries out massive procurement contracts. Then again, that is a very justifiable reason for asking us to demonstrate that we are doing that effectively and efficiently, being fair to the taxpayer and to our industry partners.

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[Baroness Smith of Newnham (LD)]

My Lords, when the noble Baroness is writing to the noble Lord, Lord Coaker, could she undertake to clarify which point of this Bill deals with the issue, so that Members can look and assess whether we believe it is adequate, or whether a further set of amendments might need to be brought forward on Report?

[Baroness Goldie (Con)]

There is a part of the Bill that allows the Secretary of State to exclude a supplier; that is a specific provision in the Bill. Where defence and security contracts are concerned, I think these are powerful provisions. I am very happy to take the advice of my officials and see if I can clarify the position further for your Lordships’ Committee.

Moving on, government Amendments 520 to 526, to which I referred earlier, are what I would describe roughly as Schedule 10 amendments. Schedule 10 amends the Defence Reform Act 2014 principally to enable reforms to the Single Source Contract Regulations 2014. The regulations are working well to deliver their objectives of ensuring value for money for the taxpayer and a fair price for industry. That is the balance against which we always have to work. Delivering the Defence and Security Industrial Strategy and building on experience since 2014 means that some reforms are needed. This will ensure that the regulations continue to deliver in traditional defence contracts and can be applied across the breadth of single-source defence work in the future, providing value for money for the taxpayer while ensuring that the UK defence sector remains an attractive place in which to invest.

We are making two government amendments to Schedule 10 which will clarify the wording and deliver the full policy intent. The first relates to paragraphs 3(2) and 3(8) of Schedule 10, where we are increasing the flexibility of the regime by taking a power to enable contracts to be considered in distinct components—this is an important development—allowing different profit rates to be applied to different parts of a contract where that makes sense. Secondly, we are simplifying the contract negotiation process by an amendment to paragraph 8(3)(a) of Schedule 10, which ensures that the contract better reflects the financial risks involved, and in paragraph 8(3)(c) of Schedule 10, taking a power that will clarify how the incentive adjustments should be applied. We are clarifying the wording currently in paragraph 8(3)(c), which will become paragraph 8(3)(ea)—I am sorry that is a little complicated; it is just to achieve accuracy of reference—by government amendment in Committee to ensure that the schedule fully delivers the policy intent.

In short, these government amendments provide improved clarity and greater flexibility in the defence procurement process, and I hope your Lordships will be minded to support them.

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[Baroness Noakes (Con)]

My Lords, I have two small amendments in this group, Amendments 330 and 332. I must say that this group contains far too many issues to be debated effectively. My own are minor, so I did not degroup them, but I hope that in future other noble Lords will exercise their right to degroup so that we have sensible groupings to enable a proper Committee debate. I will probably get into trouble with my Chief Whip for encouraging noble Lords in this direction, because I think there is a view that large groupings are more efficient. However, I do not believe that; I believe in effective scrutiny in your Lordships’ House.

Amendment 330 probes the relationship between the mandatory exclusion of suppliers for improper behaviour in Clause 30 and the discretionary exclusion found in paragraph 14 of Schedule 7. I do not understand why the Bill has to have improper behaviour as an exclusion ground dealt with in two places. The definition of “improper behaviour” is virtually identical in each case, and they certainly seem to be aimed at the same behaviour. The processes are very similar, with rights given to suppliers in both cases, and they are both aimed at exclusion decisions. There are wording differences between the two parts of the Bill, but I cannot see anything of substance involved. It just looks as if two parliamentary draftsmen have been involved in different bits of the Bill and they have not known what was going on in the other bit.

Schedule 7 requires only that the decision-maker—which is usually the contracting authority, as in Clause 30—“considers” that there is improper behaviour, while Clause 30 requires a determination. However, in this context, I cannot believe that that is a distinction with any real difference attached to it. The main difference of substance is that Clause 30 results in mandatory exclusion, while paragraph 14 of Schedule 7 does not necessarily lead to exclusion. I hope that my noble friend the Minister can explain the subtleties of why improper behaviour has been dealt with in this way. My own view is that it would be easier to understand if Clause 30 were placed in the Schedules 6 and 7 structure of the Bill, since it deals with exclusion, and could have options of mandatory or discretionary exclusion. I certainly look forward to hearing what my noble friend the Minister has to say on that.

Amendment 332 is slightly different; it concerns paragraph 16 of Schedule 7, which itself sets out exclusions from the discretionary exclusions in Schedule 7. Under paragraph 16(4), there are four exclusions from some of the Schedule 7 things which have happened before the schedule came into force. It is my understanding that the existing procurement rules already contain three of the grounds for exclusion. So it does not seem logical that, when we shift to this new Procurement Bill, we disregard things that happened in the past that were exclusion grounds because they happened before the Act came into force—it seems to be an unnecessary discontinuity.

I believe that the new ground is “national security”, under paragraph 16(4)(d). For that, it is probably reasonable to disregard behaviour that occurred prior to the Act coming into force. I invite my noble friend the Minister to explain the logic behind paragraph 16(4).

[Baroness Smith of Newnham (LD)]

I will speak to Amendment 353, to which I am a co-signatory, and in passing to Amendment 331. Perhaps surprisingly, my first comment will be to agree with the noble Baroness, Lady Noakes. As we were listening to the various interventions and the introduction of various amendments, my sense was that we were trying to debate too many things in one group. In particular, when I listened to the noble Baroness, Lady Boycott, I thought that hers were very interesting amendments but that they were not really related to some of the issues associated with modern slavery, genocide and human rights that we were thinking about. I would also like to the irritate the Whips by suggesting that a little more degrouping might be beneficial in future.

The noble Baroness, Lady Stroud, introduced Amendment 353 in considerable detail, and my friend, the noble Lord, Lord Alton, then elaborated on it further. At this point, I do not want to go into further detail but to press the Minister on whether the Government would not see that it is appropriate to extend what the Department of Health and Social Care has done with the Health and Social Care Act to ensure that there is transparency in supply chains and that we do everything possible to ensure that genocide and modern slavery are excluded. Other noble Lords have provided the reasons why that is so important. I would hope to give the Minister plenty of time in which to respond.