Defence Reform Bill

Lord Levene of Portsoken Excerpts

Tuesday 10th December 2013 Lords Chamber

[Lord Levene of Portsoken (CB)]

My Lords, I welcome this opportunity to comment on the progress of defence reform in the Ministry of Defence. When the former Defence Secretary, Dr Liam Fox, took office, he asked me to chair a steering group to monitor the progress of that reform. Your Lordships may recall that at the time a very large shortfall had been revealed in the funding of the forward programme of the MoD, and so drastic action had to be taken. That group produced a report, which was published in June 2011, containing a large number of recommendations, several of which required substantial change in the working practices of both the department and the military. After the report was published and the present Defence Secretary, Philip Hammond, took office, he asked me to continue to monitor progress on those recommendations. The first such report was published in December 2012 and I undertook to produce a further update before the end of this year.

Your Lordships will be able to see from that second annual report, which was published last month, the detail of what had been concluded, which was that further significant progress had been made on putting into effect the earlier recommendations. These changes, which were welcomed within the department at all levels, both military and civilian, have become the norm for behaviour in the department and, in my opinion, are being carried out with real enthusiasm. I take this opportunity to congratulate those who have worked and who continue to work in this sphere on what they have achieved.

Today, the Defence Secretary has detailed his conclusions as to the way forward for the Defence Equipment and Support organisation, where an evaluation has been under way for some time as to whether that operation should become a GOCO, a government-owned contractor-operated organisation. This has generated considerable discussion. As someone who was responsible for managing defence procurement for six years, I have to say that I have never believed that a GOCO is the right solution.

I have no prejudice against GOCOs. At the time that I was working for Michael Heseltine, the then Defence Secretary—now, the noble Lord, Lord Heseltine—I introduced the first GOCOs into the Ministry of Defence to take on responsibility for the management of the Royal Navy dockyards at Rosyth and Devonport. These proved to be very successful and were then transformed from GOCOs into facilities managed totally within the private sector.

Defence procurement, however, is not an industrial operation. When procurement is undertaken on behalf of Her Majesty’s Government for the Armed Forces, there are many other factors which need careful attention. These factors include the need to bear in mind the likely effects on the wider economy, the need to consider the strategic implications of a procurement decision, and the need to take into account international implications. It is in the nature of a commercial bidder from the private sector that they will be just that, and therefore the need to demonstrate total impartiality is an extremely difficult task to manage.

I underline my concern at the way that some politicians continue to run down the abilities of civil servants throughout Whitehall. It has become far too common recently for both the military and civilian staff within the MoD who manage those procurement programmes to be depicted as poorly suited to run complex, large commercial contracts because they are insufficiently experienced in that domain. I can reference numerous instances where both civil servants and military officers have transferred into the private sector, where they are in great demand and prove to be a major asset. I should like to cite just one example for your Lordships.

After I left the Ministry of Defence, I was asked to take over as chairman of the Docklands Light Railway, the performance of which was woeful. I asked for permission to recruit two or three military officers and civil servants to sort out what had become an ever-growing shambles. They seized the problem and converted the railway into one of the most efficient operations in Europe. And whom did I select as the chief executive for this task? It was none other than a very modern major-general, who became the star of the show. Therefore, can we perhaps celebrate and exploit the talents of these remarkable people, and stop running them down?

Your Lordships may well ask why, if that is the case, there has been a problem in managing defence procurement successfully. In my view, the answer is straightforward. The one element of understanding which is in very short supply in the organisation is very top-level commercial experience. However, in order to acquire this, I do not believe it is necessary to create the type of revolution which the handing over of this function to a private sector business would undoubtedly create. I believe that once real commercial experience is made available to the department—and the number of people required to achieve that is no more than a handful—existing staff within the department will respond well and successfully to that leadership.

Those of your Lordships who may doubt that should look back to what has previously been achieved. I should like to refer to a report of the Public Accounts Committee on the Ministry of Defence major projects statement:

“The department has undertaken a review of a total of 37 projects, each valued in excess of £100 million started in the last five years ... the cost to date was just under one % less than the department estimated when the orders were first placed. And ... 28 of the 37 projects were expected to be completed on time, one was ahead of schedule and of the rest, only three had delays that were expected to exceed one year, the delays would not result in additional costs falling on the department”.

That report was dated October 1991.

For all those reasons, the Defence Secretary’s decision to drop the plan for a GOCO in favour of what has been termed DE&S-plus is undoubtedly the right one. I should be grateful if the Minister, when he responds to the debate, could explain the difference between DE&S as we have it today, DE&S-plus, its predecessor but two the Defence Procurement Agency, a GOCO and, if I may use the term, DE&S-plus-plus. That would help the House to understand this matter better. The essential thing, in my view, is to enable the Defence Secretary to employ the small number of people needed on competitive, commercial terms, thus removing the barrier that has stood in the way for so long.

The Statement speaks of the new organisation having a strong board and an independent chairman and chief executive, who, as I had strongly recommended, will be an accounting officer. Bearing in mind the Government’s total commitment to competition, where is the competition for the key post—that of the chief executive? We are told that the new chief executive has agreed to take up the post. Can we be sure that his track record qualifies him to be unquestionably the best head of this new organisation in the absence of any kind of competitive process? Somehow, that does not seem quite right to me.

I wish the Secretary of State and the department every success in their task. It will not be easy but it can be done and I believe that, once it has been done, our procurement function will once again be fit for purpose.