Defence Equipment and Support

Lord Rosser Excerpts

Tuesday 17th July 2012 Lords Chamber

[Lord Rosser]

My Lords, I thank the Minister for repeating as a Statement the response to the Urgent Question that was accepted and answered in the other place earlier today.

The Secretary of State also issued a Written Ministerial Statement today, the last day before the House of Commons breaks for the Summer Recess. In that Written Statement as well as in the Statement that we have just heard, the Secretary of State set out his views on why the present system of procurement did not work as effectively as it might. He went on to say that the restructuring of defence equipment and support was key to maintaining the defence budget in balance.

Two options for restructuring have been considered—namely; either an executive non-departmental public body, with a strategic partner from the private sector, or a government-owned contractor-operated entity. The Government take the view that the work done to date “suggests” that the case for the government-owned contractor-operated company is stronger than the first option, but say that further value-for-money work is under way “to confirm this assessment”, which indicates that in the minds of some a conclusion has already nearly been reached.

In the mean time, the Secretary of State said in his Written Statement that,

“as resources and commercial appetite constrain our ability to pursue these two options simultaneously to the next stage, I have decided that MOD should focus its effort on developing and testing the GOCO option further”—

that is the government-owned contractor-operated option.

I have a number of questions for the Minister, although, before I start, I must say that I am not expecting him to be a walking encyclopaedia. If he is not able to respond to all my questions, it would be more than acceptable if he were able to give the answers subsequently in writing.

First, what would be the additional cost of pursuing the two options simultaneously to the next stage, and what exactly are the “resources and commercial appetite” constraints referred to? Unless it is going to cost a substantial sum, the constraints cannot be financial since the Secretary of State has told us that he has balanced the defence budget. He has also told us that the restructuring of defence equipment and supplies is key to the process of maintaining the budget in balance. This is hardly an issue one would have thought appropriate for not undertaking with complete thoroughness and openness and testing fully the merits of the two options when the Government agree that the work done to date only “suggests” that the GOCO option might be better.

The Secretary of State said more than once in his Statement today that the criterion is value for money and apparently only value for money. Is it literally the case that no other factors will be taken into account in determining the most appropriate form of restructuring for defence equipment and supplies? What factors are included within the criterion of value for money? Issues of national security must surely be involved in defence procurement, including security of sensitive information or the potential loss of skilled staff who may not wish to move to the private sector under the new structure proposed. How will non-monetary considerations be assessed against a value-for-money criterion?

The Statement refers to having a competition for the private sector management company to run the organisation. What kind of companies will be invited to tender? Will they be major defence contractors and, if so, would there not be a potential conflict of interest if such a company were running an organisation awarding contracts? Or, will major defence contractors or companies with defence contracts be excluded? In which case, what skills or expertise in the defence field would such a management company be expected to be able to show?

After all, we need to be very careful. We have just had an example of a major private company involved in the Olympic Games on the security side which has not exactly excelled itself. One of the issues in that case is that the Home Office said that it was not aware of the impending failure to deliver because contracts were with LOCOG and not direct with itself. Is that not a possible likelihood with the GOCO: namely, that Ministers become a step further removed from knowing what is actually happening, with the potential consequence of the kind of situation we have seen with G4S? The GOCO appears to bring a third party between the defence contractors and the Ministry of Defence, which may not be helpful.

Under the GOCO arrangement, where will commercial risk within the private sector lie in future? In particular, what commercial risk would lie with the GOCO? The GOCO will have contracts with defence contractors. If the defence contractor fails to deliver, presumably the defence contractor picks up the bill. However, what happens if changes are made to the specification? Will the GOCO and the private management company bear the additional costs, or will they continue to lie with the Ministry of Defence? What expertise is it considered that the private management company will bring that is not there at present? Will it be technical, or some other form, of expertise? Is it envisaged that all DE and S will be transferred over to the new private management company, and continue to work at its existing locations? Will military personnel continue to be part of DE and S if it becomes a GOCO, and on what basis will they be employed? As it will be run as a private company, will they be required to leave the Armed Forces? Is the reality in fact that the only change is that at boardroom level the GOCO will be run by private sector managers, who will not be required to have any defence experience, as opposed to DE and S being run by the Ministry of Defence?

Where will the GOCO fit in as far as the international dimension is concerned? There is the issue of our defence manufacturers being asked to provide equipment which will also meet specifications to make sales overseas achievable. There is also the political decision on whether to procure defence equipment from overseas which is made overseas, or whether to have equipment largely made and supplied from within our own country. Who will make those decisions: the GOCO or the Ministry of Defence? Will primary legislation be required if the government-owned, contractor-operated company is to be established?

The Statement by the Secretary of State also referred to testing the GOCO against a public sector comparator before finally deciding whether to proceed. Which public sector comparator would that be, and will the only criterion once again be value for money? Finally, how can we be assured that our brave troops on the front line, who it is widely accepted have the best equipment and supplies under the present DS and E structure, will continue to do so under the vague and unclear future now being proposed?