Defence Reform Bill

Philip Dunne Excerpts

Wednesday 20th November 2013 Commons Chamber

[The Parliamentary Under-Secretary of State for Defence (Mr Philip Dunne)]

I beg to move, That the Bill be now read the Third time.

This is the first time I have had the opportunity to serve under your chairmanship, Madam Deputy Speaker, and it is a great pleasure to welcome you to the Chair. I want to begin by thanking the members of the Public Bill Committee, who did an outstanding job in ensuring that the Bill was subject to detailed scrutiny. As a Committee, we benefited particularly from the expertise of those who are or have been members of the armed forces, both regulars and reserves, a number of whom have contributed to our debate today.

The Bill deals with important matters, some, I accept, of a rather technical nature. In particular, I would like to thank my hon. Friend the Member for Canterbury (Mr Brazier), who has had much praise heaped on him, quite properly, from all quarters of the House. He brought his deep understanding of current, and several historic, reserve issues to our deliberations in Committee and today. In fact, it was remarkable to be taken back by him well over a hundred years, thanks to his knowledge of reserve numbers before the first world war.

I should also like to thank the hon. Member for Plymouth, Moor View (Alison Seabeck) for fulfilling her promise on Second Reading to give the Bill a fair wind. I understand that she is not with us this evening. I completely understand why, and I ask her colleagues to pass on my kind words and hope that she shortly becomes a grandmother again. Her contributions in Committee were insightful and constructive, with the enthusiastic assistance of her shadow Front-Bench colleague, the hon. Member for North Durham (Mr Jones), who frequently brought his experience as a Defence Minister to bear on our proceedings. They both ensured that the Bill left Committee having been thoroughly examined, after more than 40 hours of debate.

Defence of the UK and the protection of our national interests can be achieved only if we provide our armed forces with the capabilities they need to operate effectively. We have a duty to them to ensure they have the tools they need in terms of manpower, training, equipment and logistical support. The Bill will allow significant improvements to the way in which defence operates in the two crucial areas of procurement of equipment and support, and of rebuilding our reserve forces.

There is widespread agreement that the procurement and support of defence equipment can and must be improved. It is clear from our debate in Committee that there is a consensus on the need for reform. In the past, under Governments of both parties, too often defence procurement has not delivered the equipment needed by our armed forces on time or within budget. By producing for the first time a balanced and affordable equipment programme, we have already made significant progress in improving the framework in which defence equipment is procured. Now is the time to make further structural changes to ensure that the ground we have already gained is not lost in the future.

The outline of our approach on procurement reform was set out in the White Paper “Better Defence Acquisition”, which we published on 10 June. Our preference, as we expressed around the time of the White Paper, is to transform the existing Defence Equipment and Support organisation into a Government-owned, contractor-operated organisation—a GoCo. But as we have explained, it not a foregone conclusion that a GoCo will be chosen instead of a public sector comparator, which we are calling DE&S-plus.

In addition, as was made clear in the written ministerial statement by my right hon. Friend the Secretary of State for Defence, the Cabinet Office and the Ministry of Defence have recently completed a review into the viability of the matériel strategy commercial competition. After a rigorous examination, it concluded that a viable commercial competition for a GoCo provider exists, albeit with risks. We welcomed this conclusion; indeed, we have already made considerable progress in addressing the recommendations and managing the risks the report highlights, including strengthening the DE&S-plus team.

The report also recommended that any further reduction in the number of bidders should stimulate a formal reconsideration and decision on whether to proceed further with the GoCo option. Last week, we received through this competition, which we have been running in parallel with the Bill, one bid for a GoCo from Materiel Acquisition Partners, a consortium led by Bechtel, with PA Consulting and PricewaterhouseCoopers. This is a complex, detailed proposal, running to more than 1,200 pages, which is currently being evaluated to understand what benefits it offers, at what cost and with what conditions. We intend to subject the bid to run a GoCo to a rigorous comparison with the public sector comparator, DE&S-plus. We expect a proposal from the team developing the DE&S-plus option shortly.

Colleagues have asked me, rightly, about what DE&S-plus means. As we have said, we believe that the GoCo option is most likely to embed and sustain the significant behavioural change required to transform defence acquisition, but we need to test this, and we are testing the GoCo proposition against the best that we could do wholly within the public sector. The DE&S-plus proposition is being worked up now. I cannot give much detail at this stage, as I would not want to compromise its proposal. What I can say is that we are focusing on ensuring an optimum balance between the need for an organisation that has the freedom to run its affairs in a way that best meets Ministry of Defence needs, and retaining and building on the values of the public sector. Should the GoCo option be the chosen way forward, the legislation that we have set out in part 1 of the Bill is essential to ensure that it can operate effectively without delay.

The Secretary of State’s written ministerial statement yesterday also announced the withdrawal of the other consortium competing to run a potential GoCo—clearly, that is regrettable. The Ministry of Defence, with the Cabinet Office and the Treasury, will now study the detailed proposal received from Materiel Acquisition Partners. In parallel, the DE&S-plus team will continue to refine and enhance their proposition. This analysis will inform a decision on whether it is in the public interest to proceed with only a single commercial bidder and a public sector comparator, and a further statement will be made once this process is complete. All I can say at this stage is that the bid we have on the table is substantial and from a consortium of world-class private sector businesses.

While analysing these proposals, we are going to continue to work with our allies and with industry, who have expressed a desire to understand how the potential changes to the matériel strategy for DE&S would work. We are confident that through this engagement we will work to determine how a GoCo would manage our international business and relations with industry as effectively as possible.

One of the most valuable aspects of the Committee was the opportunity it provided me to set out the GoCo proposal in greater detail than was possible in the White Paper. We have been able to describe the mechanisms, in addition to the legislation through which the Government will exercise strategic control over a GoCo. For example, through both this Bill and the contract, the GoCo will be required to protect information that is sensitive for national security or commercial reasons. Much of our debate in Committee centred on protecting confidential information and on intellectual property.

Open competition will usually be the best way of ensuring value for taxpayers’ money. However, sometimes there is only a single provider of a capability we require, and sometimes the need to maintain critical national industrial capabilities or sovereign control of the intellectual property in equipment programmes requires us to place contracts with UK companies without a competitive process. This so-called single-source procurement typically accounts for about 45%—some £6 billion a year—of the total that the Ministry of Defence spends on defence equipment and support, and it is likely to remain at that level for the foreseeable future.

The MOD currently uses a framework for single-source procurement that has remained largely unchanged for the past 45 years. It is a system that is failing the taxpayer—neither does it help industry to remain competitive in an increasingly globalised world. It is therefore in the interests of both the MOD and its suppliers to create a framework with incentives to deliver efficient and competitive behaviour. Part 2, based on the 2011 report by Lord Currie of Marylebone, addresses this need. It sets out a new framework based on transparency, with more and better information on costs, stronger supplier efficiency incentives and stronger governance arrangements. At its core is the principle that industry gets a fair profit in exchange for providing the Ministry of Defence with transparency on cost and better value for money. To oversee that new framework, the Bill will create a small, non-departmental public body to be known as the single source regulations office with approximately 30 staff. That will replace the existing pricing review board. The SSRO’s role will be to keep the statutory framework under review and to monitor adherence to it. The new arrangements will operate routinely through agreement between the Ministry of Defence and industry, but where agreement cannot be reached, the SSRO will have the power to make binding determinations on both parties.

Finally, the third part of the Bill relates to our reserve forces. We have already had a long debate on many aspects of that this afternoon and, as has been made clear by everyone who spoke, the reserves already make an important contribution to military effectiveness. The White Paper of July makes it clear that we expect them to make an even greater contribution in the future. We need to update the legislation that supports the revitalised reserve forces and their contribution to defence. Part 3 remedies that situation.

The title of the White Paper published by my right hon. Friend the Secretary of State last July encapsulates the Government’s attitude towards the reserve forces, as they are both “valuable and valued”. The Bill reflects that and replaces the outdated title of the Territorial Army with the Army Reserve, which not only far more accurately describes the reserves’ current role, but is a change that reservists themselves have resoundingly called for.

The Bill also allows reservists to be mobilised for the breadth of tasks carried out by regular forces, which is not currently the case. It recognises the contribution that employers make in supporting our reserve forces, by providing an additional monthly payment, per reservist, to small and medium-sized enterprises when their reservist employees are mobilised.

Finally, the Bill contains a measure to ensure that reservists are not disadvantaged by their reserve service. Reserve service does not count towards the two-year qualifying period for claims of unfair dismissal. For claims where the reason for dismissal is, or is primarily because, the individual is a reservist, we will remove that two-year qualifying period.

In conclusion, the thread that runs throughout the Bill is the need to deliver the equipment and support that our armed forces need, while ensuring a fair deal for reservists, their employers, industry and the public. The Bill makes important changes to the way in which we might deliver defence capabilities in future and I commend it to the House.

--- Later in debate ---

[Mr Jones]

I am pleased to hear that, but I am also rather sceptical about what the Secretary of State says. Clearly, the emphasis in Committee and the mood music have been that the GoCo seems to be the main show in town, and there has been scant examination of what DE&S-plus will do. We must ensure that as the process goes ahead and the Bill goes to the other place proper scrutiny is maintained. Not only is this a major change to how we procure defence equipment in this country but it will have an impact on our relationships with international allies.

[Mr Dunne]

I agree with the hon. Gentleman’s final point: this clearly needs to be scrutinised properly. However, let me gently make the point to him that part 1 of the Bill inevitably focused on a GoCo rather than DE&S-plus because DE&S-plus does not need legislation whereas a GoCo does.

[Mr Jones]

I accept that point, but the mood music coming out of the MOD seems to be that there is a concentration on the GoCo. We will certainly wait and see how things develop.

--- Later in debate ---

[Mr Arbuthnot]

The focus of debate today has been on the reserves, but the issue of the withdrawal of one of the only two remaining bidding consortia from the competition to run the equipment procurement for the Minister of Defence is central to the defence procurement of this country, and I would like to ask the Under-Secretary of State for Defence, my hon. Friend the Member for Ludlow (Mr Dunne) to explain.

My right hon. Friend the Secretary of State intervened on the hon. Member for North Durham (Mr Jones) to say that the private sector bid will be weighed against the DE&S-plus bid, but I thought the review that my right hon. Friend announced yesterday was precisely into the question of whether that weighing-up would take place. I am not entirely sure that my right hon. Friend has got the Treasury and the Cabinet Office on his side on that point.

[Mr Dunne]

I will happily try to clarify the position to my right hon. Friend the Chairman of the Select Committee. There are two processes happening, one as a result of the single GoCo bidder. As was made very clear in the statement that my right hon. Friend laid before the House yesterday, that would require a further review across Government as to the validity of the competition. Secondly, we at the Ministry of Defence will be assessing the bid that we have on the table for a GoCo with the DE&S-plus proposal, when we have it, to see which provides the best solution for defence.

[Mr Arbuthnot]

I am grateful for that clarification. So when will my hon. Friend receive the DE&S-plus bid? It would be good if he knew exactly what that DE&S-plus bid was. Will it be days, weeks or months? It is an initiative forming within his own Department and it might be better that we all discover what it is sooner rather than later.

The Defence Committee has to take evidence on this fundamental shift in the circumstances surrounding the central plank of our country’s defence procurement. We need a clear time scale to know when we should take evidence, as Ministers need to realise. Scrutiny of what they do will be determined by the Select Committee and not by them.

Finally, to what do my right hon. Friend and my hon. Friend attribute the fact that they started with three private sector bidders and they are now down to one? What caused that?