With the armed forces conducting campaigns in two countries, defence procurement has become a hot topic in recent years. If the papers aren’t full of headlines about how a lack of equipment has contributed to soldiers’ deaths, then they’re reporting delays to orders for aircraft carriers as the Ministry of Defence (MoD) attempts to balance the budget.

Some of this coverage has its roots in the Gray report, which was commissioned by John Hutton when he was defence secretary. He asked Bernard Gray, the former journalist who led the 1998 strategic defence review, to return to the MoD and look into the complex process that is defence acquisition.

In July, excerpts from the report were leaked because, it was claimed, publication was being delayed – a charge denied by the MoD. The result was sensational headlines: one story in the Times said the report had branded the MoD as “incompetent” (a phrase that did not appear in the final report) because its equipment project was £35bn over budget and five years late (these figures did make it to the published version).

Some commentators, such as the Conservative MP and defence select committee chairman James Arbuthnot, believe Downing Street delayed publication because it feared that the report would be used to attack Labour’s record on defence. This was “stupid”, Arbuthnot says, because “it could be regarded just as much as an attack on my handling of procurement while I was defence minister in a Conservative government [in 1995-1997]. Many of these problems were rife then and have not been resolved since then.”

Others believe the fracas was due to intra-MoD politics. Steve Jary, national secretary for Prospect, which represents 9,000 specialist MoD civilian staff, suspects “it was the senior military that didn’t want it published, because the analysis in the Gray report does focus on the role of the military in the acquisition process and it is quite critical”. (See box overleaf for Gray’s analysis and recommendations.) So while the senior military were reluctant to have the report published, continues Jary, “they were quite happy to prime the Telegraph and the Mail that [the report] is about Whitehall incompetence”.

Derek Marshall, a former civil servant and a director of aerospace defence and homeland security at industry body the Aerospace and Defence Security (ADS), also believes the leaks were due to MoD in-fighting. “When Hutton left, reformers felt there was a risk of the whole [report] being shelved,” he says; their response was to give it an airing. It’s hard to pigeonhole those resisting reform, he added.

The leaks revealed internal divisions over procurement reform – though the players remain anonymous – and added fuel to a public debate that was already red hot. Opinion is divided over how helpful that has been for the reform process. Marshall points out that it has added a lot of steam to a reform process that was running out of puff, and Arbuthnot believes that an honest, open discussion is needed (though it’s worth adding that it also serves his party’s interests). On the other side of the fence, John Streeter, vice president of Prospect’s MoD group, says morale is already “at an all-time low” because of cost cutting, “and the media and politicians are not helping”.

Seeing the light of day
The report was finally published in October, allowing the debate to move away from theories to facts. Gray described how the system incentivises industry and military to underestimate costs early on, in the hope that items will be placed on the equipment programme. As time goes on, the scope and the cost of projects increases, which means the MoD has to slow programmes down so it can live within its budgets, which increases costs further and wastes the time of the public and private defence sectors.

Gray’s solution (in brief; see box for full details) is to have regular, fully-costed defence reviews, giving the MoD a strategic overview; a rolling 10-year budget, taking into account the slow pace of defence procurement; a senior committee with oversight of the equipment programme, acting as a counterbalance to the military’s demands; the MoD permanent secretary made personally responsible for the equipment plan’s affordability and accuracy; external auditing; and a clearer line between the customer (the military) and the supplier parts of the MoD. The government has already agreed to act on some recommendations, but much is still being sifted through by Lord Drayson – whose job has recently been renamed to make him the ‘minister for strategic defence acquisition reform’ – and his MoD team.

Importantly, Gray believes his recommendations should be implemented in toto. “It cannot be said clearly enough that the measures are a package designed to work as a whole. Cherry-picking will not resolve the web of entrenched interests,” he wrote. However, that request has already been disregarded after the government quickly rejected his suggestion that Defence Equipment and Supply (DE&S), currently a unit within the MoD, become a Government Owned Contractor Operated (GoCo) entity in order to demarcate the customer (the military and the MoD) from the supplier (DE&S). This is a disappointment to Arbuthnot, particularly as the GoCo was only to be considered if that demarcation had not been engineered through alternative methods within 12 months.

Others are less concerned. Marshall says most people in the defence industry feel that DE&S should remain as it is because there is “no particular merit in a GoCo in itself”. Professor Matthew Uttley, head of the Defence Studies Department at the Joint Services Command and Staff College, also struggles to see the point of change and argues that, whatever the structure, the important thing is that DE&S can act as “an expert customer of technology and supplies from industry and also as an expert manager of the process”.

Prospect officials agree: Streeter says the key is for senior DE&S officials to be civilians (see below), so that they are independent of the military customer. There are some who think the GoCo suggestion is Gray’s attempt to recreate the Defence Procurement Agency, established in 1999 on the recommendation of Gray’s last report but merged with the Defence Logistics Organisation in 2007 to form DE&S in response to the Through Life Capability Management (TLCM) agenda, which called for procurement and support functions to be brought together. “There is a view in the department – not necessarily mine – that there was a bit of an axe to grind; that [DE&S] was his baby and it had been scrapped,” says Jary.

While this recommendation’s death is mourned by few, other ideas that look set to fall by the wayside have more supporters. Arbuthnot complains that the defence secretary has already refused to commit to external auditing of the equipment plan. Meanwhile, at a defence select committee meeting last week, MoD permanent secretary Sir Bill Jeffrey said there was unlikely to be any legislation to make his role legally responsible for the affordability of the MoD equipment plan. In fact, Jeffrey said he was unsure about taking on this responsibility in any form – legal or otherwise – because it would “put me in a materially different situation from other accounting officers”. Taking all this into account, Arbuthnot is “concerned [that] much of the Bernard Gray report is being nibbled away at by rats”.

A sense of déjà vu
Many of the problems and solutions that Gray identifies are nothing new – over the past decade many reform programmes, such as Smart Acquisition and TLCM, have attempted to wrestle with similar issues. If those reforms have failed to take root, will it be any different in the future?

Take, for example, the issue of the military personnel who make up 25 per cent of DE&S staff. Military rotation – which gives some armed forces personnel two-year stints in desk jobs, filling roles for which they don’t necessarily have the right experience – contributes to the organisation’s skills deficit. Gray’s proposed remedies include a ban on military secondees being line managers unless they can commit to a four-year term, and a requirement that they have the right programme management experience. Marshall says the attempt to push out short military appointments is “quite a radical proposal” for the MoD, “was proposed in Smart Procurement and did not really go anywhere. It will be interesting to see if it will get anywhere this time.” Indeed, says Streeter, a Review Of Military In Acquisition (ROMIA) has been carried out more recently and “did not produce any clear outcomes”.

Other areas of Gray’s report represent well-established arguments, such as those for more privatisation. While there is not much detail in his report, Gray does suggest that dockyards, communications and the supply chain could be hived off. Marshall, representing industry, believes there is “plenty of scope for MoD and industry to talk a lot more about what could be outsourced in areas of logistics support and downstream areas of procurement”.

However, Prospect officials argue that outsourcing – and the accompanying transfers of staff to the private sector – is a big contributor to the DE&S skills shortage identified by Gray. “We’re selling off these skills wholesale to the private sector,” says Streeter; the result is that DE&S loses its “intelligent customer capability” and is unable to challenge industry about rising costs and over-engineering. Gray describes this phenomenon in his report: “DE&S is too often ill equipped to lead commercial negotiations, feeling ‘outgunned’ and ‘under-experienced’ in comparison to industry partners.”

Room for debate
There is plenty of scope for debate about Gray’s report, but Arbuthnot says that is a good thing. “I want to hear lots of people discussing it, arguing it, attacking it, supporting it and testing it,” he says. However, he adds, the debate will “certainly not” be a public one within the MoD, where an open discussion would be “seen as undermining the chain of command”. This is a “bad thing”, he adds: “A lot of people in the MoD know a hell of a lot, and their contribution could be useful.” Their expert contribution could help a public debate that at times doesn’t have all the facts. As Prospect’s Jary says: “the complexity of the whole subject means it is very easy for commentators in the media and politicians to run off with misguided views.”

The debate – publicly outside the MoD and privately within its walls – will rage until after the next election and the strategic defence review promised by both parties. As yet, says Jary, “there is no consensus about the right way [forward], and this is the problem”.

Marshall believes the Conservatives certainly have an appetite for some major changes, so Gray will appeal to them: “Its agenda for change is already there,” he says, providing a clear route forward. But he says there is also a school of thought that sees the report as too radical, and would prefer a more evolutionary approach.
The pace of change is a big concern for Streeter, who argues that reforms are never allowed time to settle in before the next one comes along; and, he says, he is not the only one to believe this: Bill Jeffrey “has said to government that the rate of change is too great, and he has got short shrift”. Streeter is one of those who would prefer “an evolutionary rather than revolutionary approach, because all our people are struggling to keep up”.

Whichever recommendations make it into the strategic defence review, there are a couple of key bits of advice that tomorrow’s politicians might bear in mind. First, says Marshall, learn lessons from the Smart Procurement reforms and make sure that the implementation team is in place throughout the process. In the case of Smart, he says, the report’s authors went on to other jobs and the work was handed over to “a normalisation team”. “Somehow the initiative was lost, because the natural force to resist change and bed down with what is comfortable is too great to allow radical change to take place,” explains Marshall. “It’s nothing unique to the MoD; I’m sure it’s true of any large organisation,” he adds.

The second piece of advice, from the union that represents civilian staff at the MoD, is about money. While Marshall believes this round of reforms has more chance of success than previous attempts because the pressures on budgets is so great these days, union officials believe the system can’t cope with more change and cuts at the same time. Streeter points to the thousands of civilian jobs lost in the last 10 years, an increased demand for savings – from five to around 10 per cent this year – and the consequent shifting of people and budgets to protect key work areas such as helicopters. This has all contributed to creating a workforce that is too stretched to cope with change, he argues. “Will Bernard Gray produce an improvement? There will be some, but I don’t think there will be radical improvement in budget and cost overruns, because defence acquisition staff will still not have the wherewithal to do this job,” says Streeter. “The mantra which all political parties ceaselessly recite, that ‘we can do more with less’, is on the face of it a laudable aim. But is not only unrealistic; it is at best inefficient and uneconomic, and at worst positively dangerous.”