Ministry of Defence (Procurement)

Gordon Henderson Excerpts

Wednesday 19th October 2011 Westminster Hall

[Gordon Henderson (Sittingbourne and Sheppey) (Con)]

It is good to have you in the Chair for the debate this afternoon, Mr Hood, and I apologise for its wide-ranging nature. A number of Ministers have responsibility for Ministry of Defence procurement, which I know has presented something of a dilemma as to who should respond to the debate. The Under-Secretary of State for Defence, my hon. Friend the Member for Mid Worcestershire (Peter Luff), appears to have drawn the ministerial short straw, and I appreciate that he might not be able to answer fully some of the issues raised. However, if necessary, I am more than happy to receive a delayed response from his appropriate ministerial colleague.

The issues are varied but a common theme runs through them: the apparent flaw in how contracts are negotiated by the Ministry of Defence. The first such contract to mention is a memorandum of understanding signed between the British MOD and the Canadian Department of National Defence, an agreement about the British Army training unit, Suffield—BATUS for short—which is sited at the Canadian forces base at Suffield in Alberta, Canada. In case my words are taken as a criticism of the coalition Government, God forbid, or its immediate predecessor, I should point out that although the current agreement was signed in July 2006, the original one was signed way back in 1972. I have a copy of that agreement and, in all my experience in the contracts industry, I have never seen a more one-sided document. Not only does the agreement give to the Canadian Government the final say in how BATUS is operated, down to who is employed on the base and from whom and from where equipment is purchased—I will come to that aspect in a moment—but it is also my understanding that the financial split between the two Governments is such that the British pay 80% of all the costs and the Canadians 20%. Bizarrely, however, nowhere in the documents are those figures spelt out explicitly.

The effects of the agreement are plain to see by anyone who visits BATUS, as I did recently with colleagues from the armed forces parliamentary scheme. Let me give a couple of examples. Administration on the base is shared between Canada and Britain, but three or four Canadian civilians work there, compared with one Brit. That is hardly surprising if we consider that the Canadians decide who is employed but the British taxpayer picks up 80% of the bill for employing such people. On the equipment side, earlier this year the Army decided to withdraw its helicopters from Belize and wanted to transfer them for use at BATUS in support of battleground exercises. The Canadians refused and insisted that British forces at BATUS lease Canadian helicopters piloted by a Canadian civilian from a Canadian company. That is not a good use of British taxpayers’ money.

On the subject of helicopters, to save money BATUS has now stopped using helicopters as part of its battlefield training exercises, apart from in a support role. That is a false economy because the lack of proper training could put at risk members of our armed forces during any future active service in which helicopters might be needed to transport soldiers to the front line. The cost of using helicopters during annual training exercises is estimated at £100,000—a small price to pay for a soldier’s life. If the MOD wants to find that money, let me say where it can be found.

At BATUS, there is a range control building, which is used to monitor vehicles accessing and leaving the training area. It is sited at the beginning of Rattlesnake road—yes, there are rattlesnakes on the prairie, to which my colleagues and I will bear witness—but eight years ago the Canadians insisted that the building was in poor condition and needed replacing. The MOD agreed and, earlier this year, contracts were awarded for a new range control building on a site a few hundred yards from the existing building, which, surprise, surprise, will be built by a Canadian construction company, using local labour. The cost to the United Kingdom, confirmed in a letter from the MOD, will be £4 million. Setting aside that we could build a decent-sized primary school for that amount, I question the need for a new building at all. As I said, I was at BATUS with colleagues a little more than a month ago, and the old one looked fine to me. The House need not accept the judgment of a humble Back-Bench MP, however, because I can assure the House that that view is shared by the permanent British military personnel in Canada, who categorically state that they do not need the new building. I urge Ministers to look again at that unnecessary project and to pull the plug immediately. Just think how many helicopter training hours we could fund with the £4 million saved.

[Craig Whittaker (Calder Valley) (Con)]

I thank my hon. Friend for securing the debate. I was on the same trip to BATUS and the training facilities there are second to none—they are an incredible facility for the British Army to use, and no one for one minute is doubting that. During our recent visit to BATUS as part of the armed forces parliamentary scheme, however, we saw another example of the ludicrous bias in the memorandum of understanding. The British Army has two personnel looking after several bunkers of live ammunition, whereas the Canadians have six personnel looking after the equivalent of a tableful of ammunition, 80% of whose cost is paid for by the British taxpayer. Does my hon. Friend agree that the BATUS memorandum of understanding needs to be looked at again now, for renegotiation, rather than being ignored? My understanding from the Minister is that there are no plans at all to renegotiate the MOU.

[Gordon Henderson]

I thank my hon. Friend for his intervention and for reminding me of that additional scandal—which is what it is, ultimately—about an agreement that allows the Canadians to employ whomever they want with the British taxpayer paying up to 80%. I, too, urge Ministers to enter into immediate negotiations with the Canadian Government to reduce the percentage of the total operating costs of BATUS paid for by the British taxpayer. I hope they do so, and it can be done, because the memorandum of understanding is a rolling contract—there is no bar on opening negotiations at any time.

The MOD pays the Canadians £20 million a year to use the BATUS training area which is, as my hon. Friend said, a fantastic training facility, and I would certainly not want it to close. Entering into new negotiations with the Canadian Government might pose a threat because the Canadians could turn round and ask the British to leave, but I do not believe they would. It is Canada’s interest as much as ours to have that joint training facility, and I remind Ministers that it is a joint training facility for which we Brits pay 80% of the cost. In addition to the £20 million that Britain pays for use of the training area, the UK pays a proportion of the operating costs, which is around £80 million a year, so the total cost of the facility is £100 million a year. In the current economic climate, with members of the armed forces being asked to accept cuts in pension entitlement and allowances, it is surely right that the MOD makes an effort to reduce the cost of operating BATUS.

[Graham Evans (Weaver Vale) (Con)]

I congratulate my hon. Friend on securing this debate. I, too, was on the parliamentary scheme visit to Canada, and I could not decide whether the Canadian Government wanted the British Army at BATUS. Given what my hon. Friend has just said, would it be worth considering leaving Canada and using other areas such as Scotland and Germany? The Army of the Rhine has to return to the United Kingdom, and perhaps we could look at more cost-effective areas instead of staying in BATUS.

[Gordon Henderson]

My hon. Friend is right to point that out. While we were visiting BATUS, it became clear that with the number of oil wells in the 2,700 sq km of training area, which is essentially protected by the Canadian Government, there must be tremendous pressure on them from the oil companies to encourage the British Army to leave BATUS. That is a risk, as I pointed out, but my hon. Friend is right in suggesting that other options are open to the British Government, not only in Scotland and Germany, but perhaps with expansion of the training area in Kenya, which colleagues may visit in the new year.

My personal view is that nothing that we can provide in this country is suitable for armoured warfare and tank manoeuvres. That is a problem with Scotland, although it could provide good training facilities. Germany is an option, but Kenya would pose a risk because of what might happen if there were a change of regime to an unfriendly Government and we had to leave. At least Canada is a long-standing ally and, I hope, a long-standing future ally.

I do not want BATUS to leave Canada, but in the present economic climate the Canadian Government will recognise that the British Government must do something to reduce costs, and I ask the MOD to start those negotiations. If we could negotiate a more equitable 60:40 split, which would be a reasonable split for a shared facility, that would save British taxpayers at least £20 million a year, and probably more. A more equitable cost share would encourage the Canadians to be more cost conscious when considering whom they employ, how many people they employ, and how they operate. That should be considered.

Good negotiation is the key, and there is the rub. I simply have no faith that some other procurements negotiated by the MOD provide the best possible deal for British taxpayers or, perhaps more importantly, the armed forces personnel who must live with the consequences of those contracts.

[Mr Mark Spencer (Sherwood) (Con)]

I congratulate my hon. Friend on securing this debate. Does he agree that the MOD’s focus should be on value for money, rather than price? A contractor in my constituency, F.J. Bamkin, made high-quality socks for the MOD, but lost the contract to a company providing a much cheaper but inferior product. If the focus was on value for money, rather than just price, we might be more successful.

[Gordon Henderson]

I thank my hon. Friend for his intervention. He is right, and I will come to that when referring to a contractor in my constituency whose situation reflects, in a slightly different way, the difficulties facing suppliers. I hope that he will bear with me.

I have no faith in the MOD securing a good deal for taxpayers, and I will highlight as an example a couple of contracts, the negotiation of which can best be described as nonsensical. I recently visited the 2nd Royal Tank Regiment at its Tidworth camp in Hampshire. I toured the armoured vehicle repair shop and noticed that one of the lifting ramps was cordoned off. When I asked why, I was told that the ramp had been out of order for a couple of weeks, and that although the on-site mechanics could repair it, as would be expected from REME personnel, they were not allowed to because the contract for the equipment required outside contractors to be called in, and the regiment was having trouble getting those contractors in. The bureaucracy involved in applying for the contractors to do the work was not only taking up a lot of time, but was a lot of work. That is idiotic.

While at Tidworth, I saw another example of idiocy. The problem, which is only a small one, is in the sergeants’ mess, but I have no reason to think that this is not replicated in all messes throughout the armed forces. The range of beers on offer is limited to brands determined by the private company that runs those messes, and if that is not bad enough for beer drinkers, the corporals are even worse off, because the contract does not recognise that corporals have a mess. It recognises only officers’ messes and sergeants’ messes. The corporals must pay almost double the price for beer as sergeants. In the grand scheme of things this is a small issue, but such small niggling issues chip away at the morale of our service personnel, yet they are so easy to resolve with the right contracts and the right negotiation.

I turn now to a specific procurement problem that affected a company in my constituency. The company wanted to bid for MOD work, but the tender document was drafted in such a way that compliance was impossible for any company except the existing supplier. The products that my constituents wanted met all the relevant quality and safety standards, and all the tender conditions except one. The tender document required proof of field trials carried out in Desert Storm warfare conditions. That condition could, of course, be met only by the company that supplied the equipment during that conflict. My constituent was not best pleased and, understandably, believes that the tender document was written not by the MOD, but by the supplier of the original equipment. I am slightly more charitable, and inclined to believe that the MOD staff who drafted the tender document simply did not consider the ramifications of what they were writing, and what the consequences would be.

I want to finish with a confession. I know something about MOD negotiators, because I worked for 15 years as a senior contracts officer for GEC Marconi Avionics. I spent my time running rings round MOD staff while negotiating various defence contracts. That is the problem and the solution all in one. The MOD needs people with a sound commercial background, the desire to get as good a deal for the taxpayer as they would if they were still working for a private company, and a financial incentive if they succeed.

[Stephen Gilbert (St Austell and Newquay) (LD)]

I congratulate my hon. Friend on securing this debate. He has put his finger on the crux of the matter with his ability to run rings around procurement staff at the MOD. Is part of the problem the fact that procurement staff in the Ministry rotate, and would a more professional, stable procurement service go some way to solving the problems that he has outlined so eloquently?

[Gordon Henderson]

I welcome that intervention. My hon. Friend is right because that is half the problem. However, my experience of running rings around staff during negotiations does not apply only to MOD staff; I have also negotiated with staff from the Department of Defence in America and with Canadian defence staff and they are all the same. They are civil servants who have no interest or background in commercial matters. They are negotiating with taxpayers’ money, which does not come out of their pockets or affect their profits. They have no incentive.

[Karen Lumley (Redditch) (Con)]

I thank my hon. Friend for securing this debate and for sharing his vast experience. I know that the taxpayer needs value for money, but does my hon. Friend also accept that we need to use Great British companies, such as Mettis Aerospace in my constituency which employs over 500 people?

[Gordon Henderson]

I accept everything that my hon. Friend says. It is vital to bring more professionalism into procurement. I do not want this debate to be only about kicking the MOD. I suspect that procurement systems across Government are absolute rubbish, and today’s debate highlights a deeply flawed system that we must try to do something about.

--- Later in debate ---

[Peter Luff]

The hon. Lady not unexpectedly anticipates remarks that I will make in a few moments. I will turn to that issue then, if I may.

I will now address the concerns of my hon. Friend the Member for Sittingbourne and Sheppey about the costs involved with BATUS. The BATIC—British Armed Forces’ Training in Canada—agreement makes clear provision for the cost-sharing of goods and services relating to UK training in Canada, including the provision of all goods, services and facilities supplied in Canada or procured through Canadian sources. The costs are shared in accordance with agreed formulae, which my hon. Friend talked about in his speech, and those arrangements are scrutinised carefully. In addition, the memorandum of understanding is open-ended and may be renegotiated—that will give my hon. Friend some encouragement—at any time with the mutual consent of both parties.

In my view, the UK quite rightly pays the lion’s share of the costs of BATUS, on the basis that we use the facility significantly more than the Canadians. That is absolutely right and proper, and I have no problem with the cost-share involved in these arrangements. I agree that there is always scope to reduce costs, but other locations, as suggested by some hon. Members during this debate, are simply not equivalent and they would incur costs of their own, including significant set-up costs. So I am sure that the scope for savings is always there, but it may be more limited than my hon. Friend imagines.

[Gordon Henderson]

I accept what my hon. Friend says about the useful nature of BATUS. Nevertheless, does he not accept that it is wrong for the British taxpayer to have to pay such a high proportion of the costs without the MOD having a greater say in how those costs are accrued?

[Peter Luff]

I will look at some of the specific points that my hon. Friend made during his remarks, but I must say that I am broadly content with the overall structure of this arrangement, which delivers great value to British taxpayers and great opportunities for British armed forces, while strengthening and deepening our relationship with an important ally.

I must also say specifically that there has been no cancellation of helicopter training in BATUS. It is true that there are some different arrangements with contractors, including changes to some of the transport arrangements, but the training facilities involving helicopters have not been affected in any way. It is very important that that is understood.

[Gordon Henderson]

I am not sure whether we MPs were misled during our visit to BATUS, or whether the information has not yet filtered back to London, but I assure the Minister that there are two aspects of helicopter use during battleground operations: one is the use of helicopters to help injured people during the exercise, which is still being maintained and which involves BATUS using Canadian pilots; the other aspect, which has been cancelled, is the training that allows helicopters to be used to take troops into battle, as they would be used during a real battle operation. That second part of the training is the part that has been cancelled.

[Peter Luff]

I will clarify exactly what the arrangements are in a letter to my hon. Friend, so that there is no misunderstanding at all, but my information is that no aspect of our training arrangements has been affected by the new arrangements for helicopters.

Turning to the range control building at BATUS, it is true that there is an existing building, which provides the safety and co-ordination function required. It controls access and oversees safe practice on the range area, which is extremely important where live ammunition and weapons are concerned. Of course, it also controls movement around the prairie during live firing. In 2003, the Canadian Government approached the MOD with a number of infrastructure requirements that they felt needed to be addressed to enable the future use of the BATUS facility, including improvements to the range control building. I agree that the decision to upgrade that facility may not have been the UK’s first priority, but the facility was in very poor condition and met neither UK nor Canadian building regulations. A number of options were considered and the only viable option was to construct a new building. The contract for that was awarded in February this year, so I am afraid that the possibility of cancellation is no longer one that we can countenance.

I promised the hon. Member for Plymouth, Moor View that I would talk about future training in BATUS, which relates to what other colleagues have said. I will simply say that BATUS is 2,690 sq km compared with Salisbury plain’s 375 sq km, so BATUS is about eight or nine times the size of Salisbury plain. We must assess BATUS in the context of our overall training requirement, both in terms of the capacity and the nature of environments in which we need to train. We must also ensure that we end up with an overall solution that is the most cost-effective mix.

There is more work to be done before we can draw any conclusions, but what is certain for BATUS, any other training area and indeed for defence as a whole is that we need to drive out any unnecessary cost and to prioritise ruthlessly between what is “essential” as opposed to what is “highly desirable” or just “desirable”. I know that our Canadian partners will support us, so any work that looks at BATUS will be a truly collaborative effort. Not only does the memorandum of understanding require that collaboration, but Canada is one of our closest and most valued allies, and our interests are closely aligned. So, to answer the hon. Lady’s question, work is being done in this area.

I will briefly address the tank-lifting ramps at Tidworth. In view of the time that I have left to speak, I will not give my hon. Friend the Member for Sittingbourne and Sheppey all the remarks that I have here. It is true that the Royal Electrical and Mechanical Engineers could fix the ramps; it is also true that there are some issues around the contract; and I will look at that matter and write to him about it, because he has a point. I assure him that there has been absolutely no impact on operational capability. It is an important point, but he need not be concerned about the preparation of our armed forces or the health and safety of personnel using the site.

I now turn to the very important issue that my hon. Friend raised, which is drink—beer. The three-mess system is very much at the heart of the military ethos. Junior ranks’ messes are private sector enterprises, because all bar stocks are purchased by the contractor and the messes are wholly commercial ventures. In the officers’ messes and senior non-commissioned officers’ messes, bar stock is purchased by the mess and paid for through mess members’ subscriptions. Any profit is returned directly to the mess and lower prices can be set. I agree that there is a distinction there, but I am told that the three-mess system goes to the heart of military traditions and ethos. It is not a matter of contract—it is a matter of armed forces’ choice—and this politician is not going to interfere in the traditions of the armed services. However, I have been assured that military front-line commands keep this matter under constant review, so I understand my hon. Friend’s concern.

In the minute that I have left, I will address nuclear missile systems. I smiled when the hon. Member for Islington North got to his feet, because I could see the other “usual suspects” in Westminster Hall and I knew what would happen. Actually, I think that the hon. Gentleman’s concerns have largely been addressed. The long-lead items for HMS Victory were bought 15 years ahead of the construction of the ship, and the oak for the ship was laid down accordingly. Long-lead items are an established part of military procurement, and they always will be. I do not think we need to make any apology for that.

I heard what my hon. Friend the Member for New Forest East said, and he is right to keep us to our pledge. I assure him that the main gate decision being delayed until 2016 brings certain advantages, in that there will be a more mature design by then for us to approve. However, I hope he will hold us to the fire on an important capability that guarantees our freedom, as he so rightly reminded the Chamber. I also heard what the hon. Member for Barrow and Furness (John Woodcock) said. He and I have often talked about this issue, and I will correspond with him about some of the specific points that he made.

Finally, as for the aircraft carriers, it is true that we are getting a more capable and stable carrier variant than the previous Government decided to have, and it is also true that that has a cost. However, at least we are buying increased capability for an additional sum, because the previous Government delayed the carriers for a year, which cost £1.6 billion, and just got them a year late.