Defence Reform Bill

Lord Lee of Trafford Excerpts

Tuesday 10th December 2013 Lords Chamber

[Lord Lee of Trafford (LD)]

My Lords, I want to focus my remarks on Part 1—the procurement aspects of the Bill. I could almost second the speech of the noble Lord, Lord Levene, on this subject. Let us be quite clear what has happened here. The GOCO horse, carrying the colours of Bernard Gray, has been pulled up. There was, frankly, little backing for this nag within either the civilian or the service sides of the MoD. Unfortunately, the Secretary of State decided to place his bet on GOCO and, frankly, faces some embarrassment today. I refer the House—this was mentioned earlier—to the ministerial Statement of 17 July 2012, which says:

“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”.—[Official Report, Commons, 17/7/12; col. 845.]

So, clearly, the GOCO option was the department’s favourite.

GOCOs are fine in certain circumstances. The noble Lord, Lord Levene, and others referred to the contractorisation of the dockyards. I was involved in that process, and supported it, when I was a Minister at the MoD. However, no other country and, to my knowledge, no other major plc, has effectively thrown in the towel and said, “We cannot handle our buying ourselves”. Huge amounts of civilian, ministerial and service time and at least £12 million have been wasted on this GOCO option. However, in my judgment it is the Treasury that historically carries the prime responsibility for this procurement fiasco through its bone-headed, penny-wise, pound-foolish approach, which over the years has prevented DE&S recruiting top talent from the private sector. It has effectively been emasculated and has proved no match for hard-nosed defence contractors, as was referred to earlier. We were told this afternoon that at present DE&S has 800—I repeat, 800—vacancies. In recent years, it has had to employ very expensive consultants. Perhaps when my noble friend sums up he can indicate just how much the MoD is spending on consultants.

Thankfully the Treasury, under pressure, has now got real and has given certain new freedoms to DE&S-plus. I am sure that we all wish it well. Excellent personnel are already there, as a number of noble Lords mentioned —in fact, all noble Lords who have spoken referred to that aspect. It will be strengthened and augmented, we hope, by top-drawer recruitment from the private sector. However, I must ask, first, whether we are giving DE&S-plus a chance. As the noble Baroness, Lady Dean, said, is it sensible or fair to retain the GOCO option in the Bill, almost as a sword of Damocles hanging over the future DE&S-plus? Is it going to encourage top personnel to give up their careers in the private sector and join this organisation if some future Government in a few years’ time are going to go back to the GOCO option and argument? Secondly, does it really make sense for the morale of this new organisation to have its new chief executive in Bernard Gray, the person who drove the alternative option that clearly has failed and fallen?

I should like to ask my noble friend three or four specific questions to which I should like him to refer in his wind-up speech, or, if not, perhaps he can write to me. First, can we have more details of the freedoms that the Treasury is going to give DE&S-plus? Will there be an additional block of money available to it or is there going to be some sort of limitation on the numbers employed? Is there going to be any maximum salary level? Secondly, what is the duration, if any, of Bernard Gray’s contract with the new organisation? What is his salary going to be? Will it increase or, bluntly, will it be a reward for failure? Thirdly, is the new chairman being brought in going to be an executive or non-executive chairman? Finally, on the question of the GOCO competition, what is the position regarding compensation for the remaining Bechtel-led consortium? Is there any likelihood of significant compensation having to be paid out?

--- Later in debate ---

[Lord Astor of Hever]

My Lords, we have had a constructive and well informed debate on the Bill. I share the generous thoughts of the noble Baroness, Lady Dean, about Lord Gilbert. The debate has shown that there is a large degree of consensus on the need to reform the way in which we manage and deliver our defence capabilities. It is important that we provide our Armed Forces with the equipment and support they need and that we take the appropriate measures to ensure that the Reserve Forces can be used as part of the integrated Future Force structure with individual reserves appropriately protected in their role and their employers better rewarded for the contribution they make in supporting the Reserve Forces.

The measures set out in the Bill represent a real change to how the Ministry of Defence will conduct its business in future. They will allow us to ensure that equipment and capabilities are delivered on time, on budget and to the right specification.

At this point, I am going to cut short my speech as I have been bombarded with questions, and I will try to answer as many as I can tonight. There is no way I will be able to answer all of them, so I will write to all noble Lords who asked questions and copy in other speakers.

The noble Lord, Lord Rosser, and other noble Lords asked why Part 1 should remain if we are no longer proceeding with the GOCO. I am well aware of the mood of the House on this issue. We believe that a GOCO remains a potential future solution for transforming DE&S once we have put in place a more robust baseline from which to contract with a GOCO partner. It would therefore be prudent to have Part 1 in place should a future Administration decide to go the GOCO route. We very much hope that the new DE&S-plus organisation will be robust and successful. We should not be afraid of the competition that potentially testing the market for a GOCO in three to five years’ time would provide. Keeping the possibility of a GOCO would provide an incentive for a new organisation to maximise its performance.

The noble Lord also asked what “at a future date” means in relation to a possible future GOCO. We do not envisage reopening the GOCO option for at least two to three years, certainly not before the next election.

The noble Lord asked how much money has been spent on the GOCO commercial process and whether the Bechtel consortium will now make a claim against the MoD for the money it has spent on the bid. This was also asked by the noble Lord, Lord Davies. We have spent £7.4 million on supporting our work on the GOCO option. The money is not wasted. We have gained valuable insights from this work that have not only helped us understand the commercial landscape but will stand us in good stead for the new organisation. On Bechtel, we have always made it clear that we will not pay bid costs.

The noble Lord asked about the draw-down of regulars prior to build-up of reserves. We have had no choice but to reduce regulars to stay within the budget. The cost of 20,000 regulars is £1 billion a year. In line with the SDSR, there is a drawing down in some areas to build up in others, such as cyber, as the noble Lord knows. This is about doing defence differently.

[Lord Lee of Trafford]

My noble friend has just given an indication of the cost of the GOCO option so far. I draw his attention to a reply to a Written Question I had tabled:

“The Materiel Strategy programme is currently in the Assessment Phase and is considering two options … The Concept Phase of the programme started in May 2011 and analysed a number of different operating models. It concluded with the approval of the Initial Gate Business Case in April 2013 and cost £12 million. The Assessment Phase is currently developing both DE&S+ and GOCO options”.—[Official Report, 18/11/13; col. WA135.]

Perhaps my noble friend might like to look at that.

[Lord Astor of Hever]

My Lords, when I come to answer my noble friend’s questions, I will touch on the assessment phase and come up with some figures which may be helpful to him.

The noble Lord, Lord Rosser, asked for the latest update on recruiting. The quarterly personnel report of 14 November had trained and untrained strength of reserves, inflow and outflow. The Secretary of State will publish recruitment targets before the end of the year. The noble Lord asked about Capita recruitment. We have been very open about the fact that there have been teething problems. The Army and Capita are fixing these. The new website will be up and running in January, and there will be a faster recruitment pipeline. Temporary adjustments have been made to applications to ensure that we continue to progress new recruits. We want to cut out any blockages there.

The noble Lord, Lord Levene, suggested that we stop running down the abilities of civil servants. I agree with the noble Lord and pay tribute to those civil servants in the MoD, who certainly give me excellent advice. The noble Lord asked for a definition of the difference between DE&S and DE&S-plus. This is quite complicated, and I will write to the noble Lord and make sure that all other speakers get a copy of that.

The noble Lord and my noble friend Lord Lee asked why there was no competition for the chief executive post. The simple fact is that the CDM has an extant contract that takes us past 1 April, when the new trading entity will stand up. His post as CDM will morph into the chief executive role. Furthermore, realistically, there would have been no chance of selecting and appointing anyone else in time for them to stand up the new organisation on 1 April. He will also provide a vital thread of continuity from the Gray report into the continuing reform agenda.

Going back to the note that I said that I would write to the noble Lord, I will undertake to do that before the Bill moves into Committee. The note will set out the different models.

The DE&S civilian staff will remain civil servants—a point that the noble Lord raised. Their status will not change. Members of the Armed Forces will continue to make a valuable contribution in DE&S as they do today. We will be able to create a more businesslike organisation which is better able to recruit, reward, retain and manage its staff. In terms of recruiting, we will be using private sector expertise to help DE&S-plus get match-fit, including in terms of its HR transformation.

My noble friend Lord King mentioned the deferral of mobilisation. It is already possible for a reservist or their employer to ask for mobilisation to be deferred. For an employer, one of the criteria for deferral is the impact that mobilisation would have on the business.

I am glad that my noble friend Lady Garden mentioned the cadet debate of a couple of weeks ago. I listened to some of the speeches in this Chamber and was most impressed. I will write to my noble friend about careers advice for cadets. She asked whether there was any skills audit of current DE&S staff. The answer is no, but we undertook a detailed assessment of DE&S business capabilities in the early part of the materiel strategy, which looked at the issue of skills.

The noble and gallant Lord, Lord Stirrup, pointed out that we must focus not just on a single factor as we reform DE&S. We recognise the complexity of defence acquisition, and will continue to do so.

The noble Baroness, Lady Dean, asked about the proportion of regulars recruited to reserves. There are incentives for ex-regulars to join reserves. Those who leave the Army through redundancy are being encouraged to consider a part-time military career in the reserves. For the Army, ex-regulars who enlist into the Army Reserve within three years of leaving regular service can enjoy a number of incentives and benefits, such as reduced Army Reserve commitment and training requirements or, alternatively, a commitment bonus worth £5,000 paid over four years. There is a comprehensive information campaign to ensure that all service leavers, not just redundees, are aware of the opportunities and benefits of joining the reserves.

The noble Baroness asked who is running recruitment; it is Capita, which is working closely with the Army to fix the teething problems. She asked whether tranche 4 redundancies were to be paused. No final decision has been taken on that. Also on the regular to reserve transfer, 459 applications have been made to the commitment bonus scheme, of which 316 were from ex-regular other ranks, 35 from ex-regular junior officers and 108 from direct entry—that is, not ex-regular—junior officers. I understand that this is quite complicated, and I shall write to the noble Baroness and set it all out, copying in other noble Lords.

The noble Baroness asked whether having the legislation in Part 1 would not be a sword of Damocles over the DE&S-plus option. No, we do not see it like that at all. We are constantly striving to improve performance. The innovative structure will move us forward, but the underpinning rationale for a GOCO remains in place and could represent a further evolutionary step. Part 1 being in place will not mean that we have to proceed with a GOCO in future, but it will keep the option open.

My noble friend Lord Lee asked a number of questions. He asked whether a GOCO was the department’s favoured option. When the Secretary of State announced the materiel strategy proposals in June, he was explicit in saying,

“we have not yet accepted the GoCo concept as the chosen outcome; we are conducting an assessment”.—[Official Report, Commons, 10/6/13; col. 54.]

My noble friend asked, as did the noble Lord, Lord West, whether Bernard Gray would resign. No, there is no need for that; what matters is that we drive forward the reform of DE&S. Bernard Gray will do that as chief executive of the new organisation.

My noble friend asked whether the chairman of the new organisation’s board would be executive or non-executive. The answer is non-executive; we will have strong oversight of the new organisation. We were asked how we would recruit the new people. We will use the private sector expertise that we plan to bring in through business partner contracts to help us to deliver a transformed HR. This will include getting the best out of freedoms that we have agreed with Her Majesty’s Treasury and the Cabinet Office, which are necessary for the new DE&S.

My noble friend mentioned Her Majesty’s Treasury. We have agreed with the Treasury and, indeed, the Cabinet Office that we must have freedom to be able to operate effectively. We are confident that we will get these. It is one of the reasons that we are setting this up as a bespoke entity. How much have we spent so far on this? I gave the figure of £7.4 million to the noble Lord, Lord Rosser. We have spent some £17.8 million on the assessment phase of this complex change programme to determine the best way to deliver what we need. This investment, which excludes the cost of MoD staff, has included work on the GOCO, the DE&S-plus option, and on the necessary changes to the customer.

My noble friend asked how much we have spent on consultants. The MoD spent £68 million on consultants in 2012-13. Going back to the freedoms, we do not yet know details of these, but they will be significant. Her Majesty’s Treasury recognises the need for significant freedoms around salary for DE&S-plus. I will write to my noble friend when I have more information. This is obviously a very important issue and I will copy in other noble Lords on it.

My noble friend asked about Bernard Gray’s salary, as did the noble Lord, Lord Davies. I understand that Bernard Gray will continue on his existing terms, but I cannot confirm that today. His current salary is around £220,000 per annum. My noble friend asked whether the potential GOCO competition would make it harder to recruit from the private sector. This is simply not the case. Those we are trying to recruit would see GOCO as an opportunity, not a threat.

The noble and gallant Lord, Lord Craig, asked about ministerial notification and early availability. It is important that Ministers oversee a call-out. We will seek to provide employers with as much notice as possible and arrangements already exist for high-readiness reserves who can be mobilised at short notice. I will write to the noble and gallant Lord on this issue.

My noble friend Lady Doocey asked about mental health and housing. I have very detailed answers but, rather than test the patience of the House tonight, I will write to my noble friend on those matters. I have a very full answer that I think she will be happy with.

The noble Lord, Lord Davies, made a very political speech and asked whether the potential GOCO contract would make it hard to recruit from the private sector, as did my noble friend Lord Lee. We do not believe that is the case. The people we are trying to recruit would see GOCO as an opportunity, not a threat. The noble Lord asked whether there was a special deal for Bernard Gray. His role will continue beyond 1 April on his existing terms and conditions. He provides a vital link between the work done so far and the new organisation.

The noble Lord, Lord Tunnicliffe, gave me sight of his questions. I can confirm that legislation is not required to establish the bespoke entity that we announced today. However, legislation is required to establish an effective GOCO and that remains a possible future option. If we do not have the legislation in place then, that could inhibit a future competition.

We still have to work out the detail of specific freedoms and authorities. However, as I said, the Treasury and the Cabinet Office have been working with us to ensure that this innovative structure will be permitted significant freedoms and flexibilities. I have already undertaken to write to noble Lords on this very important issue.

DE&S civilian staff will remain civil servants—their status will not change—and members of the Armed Forces will continue to make a contribution to DE&S, as they do today. We will be able to create a more businesslike organisation which is better able to recruit, reward, retain and manage its staff.

The Bill provides the legislation we need to make far-reaching changes to the way in which we deliver our defence capabilities. The changes set out will not only improve the support we give to our Armed Forces but make specific improvements for reservists and their employers, who are an integral partner in enabling the Reserve Forces. The measures in the Bill will also help to ensure that the taxpayer gets value for money. We must not miss this opportunity to make essential changes to the way we manage and deliver defence in the future. I therefore commend the Bill to the House.

Bill read a second time and committed to a Grand Committee.