MoD: We've got a handle on contract costs. Audit Office: About that...

Ministry of Defence plans to cut costs on “non-competitive procurement” look nice but won’t work unless the cash-strapped ministry keeps a close eye on its contracts, the public sector spending watchdog said today. The UK National Audit Office’s latest report into the MoD’s financial situation, snappily titled “Improving value …

[@JagPatel3]

Financial risks on Trident successor – a Conspiracy of Concealment

The problems associated with letting uncontested, single-source contracts like that for the new Trident nuclear submarines, scrutiny of which falls within the remit of the Single Source Regulations Office, are not only limited to the usual delays and cost overruns – they extend to the contractual support arrangements put in place to acquire and re-provision additional Support Assets to sustain the equipment in-service, for the full period of its service life.

Financial risks don’t come any bigger than the £41bn officially set aside for the initial cost of the four Trident submarines – £180bn if one takes into account the whole-life sustainment costs – given the fact that, the cost of acquiring and re-provisioning Support Assets associated with military equipment over the whole life cycle can be in the order of four to five times the prime equipment costs.

Now that Parliament has given its approval for Trident to proceed to the manufacture and build phase, the focus of attention turns to the ability of the Ministry of Defence to deliver this project without incurring the usual delays and cost overruns, which have dogged military equipment programmes for as long as anyone can remember.

On the basis of past performance, it can be predicted with certainty that the newly established Submarine Delivery Agency will not deliver Trident successor within contracted time and schedule boundaries.

Whereas the mainstream media is, as always, focused on the human interest story of the person who has been appointed as head of the SDA and the organisational construct within which he will operate, the intellectually engaging public interest story of failings in the existing business processes used by MoD to procure this highly complex weapons platform, is certain to escape scrutiny.

Not least, the likelihood that financial risks on this uncontested, single-source contract, which involves substantial design, development & systems integration work, will materialise sometime soon – a concern expressed by the then Permanent Secretary at MoD Jon Thompson, who admitted that the possibility of this happening is what keeps him awake at night, when he appeared before the Public Accounts Committee in October 2015.

Anyone who has worked in the defence engineering industry will know that financial risks start-out as innocuous looking technical risks on the Defence Contractor’s premises, where selected ones are deliberately concealed by the Contractor during the design and development phase, then skilfully transferred to MoD Abbey Wood, Bristol where they suddenly morph into ‘show stopping’ risks and come to the fore immediately after the main investment decision has been taken (as they have done so spectacularly on the Type 45 destroyers with total power blackouts, costing a further £280 million to fix), ultimately ending up as an additional cost burden on the Front Line Commands, who have recently been given day-to-day responsibility for managing the defence equipment budget – resulting in sleepless nights for many other people too!

This happens because a key behavioural characteristic of Defence Contractors is that they will always choose to conceal technical risks identified early in the programme, by engaging with procurement officials and getting them to focus on declared risks which ordinarily fall in the trivia category, whilst skilfully diverting their attention away from those really huge ‘show stopping’ risks which they will only reveal later on, when things go wrong, to realise their objective of ‘growing’ the Contract by getting Abbey Wood Team Leader to raise Contract Amendments and/or let Post Design Services Contracts.

They achieve this by contriving situations which entice procurement officials into partaking in detailed design decisions relating to the evolving Technical Solution, and then use this involvement to coerce procurement officials into raising Contract Amendments later on. Indeed, it the very existence of Contract Amendments and PDS Contracts that causes Contractors to conceal ‘show stopping’ risks in the first place!

These concealed risks then come to the fore immediately after (never before) the main investment decision has been taken, surprising everyone (except the Contractor) and imposing a budget-busting burden on MoD.

And because there exists no ‘Code on Ethical Behaviour in Business’ which would offer protection to good people on the Contractor’s payroll (generally in the direct labour category) who are driven by strong professional, ethical and moral values and who would otherwise blow the whistle on this conspiracy of concealment, they are forced to remain silent.

The only people who are not in the know about this blatant scam are those in the pay of the State!

So the chances of financial risks coming to the fore on Trident soon after the main investment decision has been taken are about as certain as night follows day.

@JagPatel3

[SkippyBing]

Re: Financial risks on Trident successor – a Conspiracy of Concealment

' the focus of attention turns to the ability of the Ministry of Defence to deliver this project without incurring the usual delays and cost overruns'

I was under the impression that responsibility for the Trident successor programme was actually the Treasury's, at the insistence of George Osborne, or have they stepped back from that plan?

Although why using an organisation with even less experience of purchasing from a defence contractor than the MOD was considered a good idea does escape me somewhat.

[Mark 110]

Re: Financial risks on Trident successor – a Conspiracy of Concealment

Jag - nice piece. Lots of sense in there. But I would like to know:

- who you are,

- who you work for

- and whether you collaborated with El Reg to get first post of a good essay on this article.

A quick google of you brings up lots of links to stuff you have written on the failings of defense procurement but doesn't answer my questions about who you are or who is paying you.

Please enlighten us. You don't normally get this passionate about stuff without being paid. So if you are going to go lobbying on forums you need to say so, in the same way this organ says when its doing PR stuff for IT companies. Full disclosure please.

==

Edit:

This article says you are a 'Defence Procurement Advisor' but not who pays your bills: https://www.nuclearinfo.org/blog/nuclear-information-service/2017/08/financial-risks-trident-successor-%E2%80%93-conspiracy-concealment

[Anonymous Coward]

Well, you could

take much of the technical detail out of the contract and leave it at the desired outcomes...

I.e. I want a submarine, that doesn't kill its occupants, while launching big fireworks from a submerged location.

Rather than attempting to procure a BIGSUB/1 with the Powerplant Mk6, and firework TBC in design.

The same happens in my experience for even relatively trivial IT contracts often as procurement people are not experts in the thing or service they are procuring. vendor saying I'll throw in a free upgrade to Powerplant/Mk7 sounds great to them, but the engineers will say it gets too hot, doesn't fit etc.

Inevitable as described :)

[SkippyBing]

Re: Well, you could

'take much of the technical detail out of the contract and leave it at the desired outcomes...'

As I understand it, in the initial scoping you're pretty much limited to saying, 'I want to launch big fireworks from underwater'. Saying you want to do it from a submarine is seen as 'solutionising'* i.e. going straight to the solution you first thought of rather than seeing if there aren't better ways of delivering thermonuclear energy direct to the enemy of your choice from under the sea.

However once you've gone through the process of determining the optimum methodology, you do have to give the vendors some specifics to work with, i.e. we need these sonars and radios. Otherwise you end up with something that only meets the very broad sweep of your intentions, and doesn't fit in your dockyard.

*It's a real word in the MoD

[Salestard]

The last remaining boy's club

The problem is the system - if you pick any point in the procurement process between the taxpayer and the poor sod doing his bit stood in his foxhole in some far flung corner, there is little incentive to make anything on time, in budget, or that actually works as intended.

Apart from a brief interlude in 1982, the defence sector has had no real compulsion to do anything quickly since 1945. The usual British thing of adding layer upon layer of stops, checks, departments, and sign offs to every single decision. The historically conservative nature of the British military, especially the army top brass. The ever constant defence reviews, with politicians deciding what toys the boys should and shouldn't have. The endless political meddling from Westminster in trying to sell stuff (usually to the Saudis), meet NATO requirements, don't meet NATO requirements, just buy it from the yanks, etc etc.

We're not necessarily alone in this - the first iterations of the M16 were dreadfully unsuited to combat, as the GIs in Vietnam found out to their cost. However, we have cornered the market in burning through piles of cash to burn through more piles of cash to get something that kinda works (often by eventually buying whatever the Americans are using) and needs more piles of cash to keep it kinda working.

Let's just pick one for Wednesday lunchtime; Nimrod MRA4 - eventually put out its misery by the 2010 SDR, by which point it was £789 million over-budget and more than nine years behind schedule. Total cost of MRA4 project £3.4bn... plus another £3bn spent buying P8s.

Collectively, the RAF, Government, Treasury, and defence sector, managed to convince themselves that it would be a good idea to try to get a load of ancient airframes, built to varying non-standard designs, and try to drag them into the 21st century by shoving even more kit and engines into them, effectively creating a brand new aircraft. Not only that, but it would be a better idea than buying one of the many foreign equivalents already on the market.

Perhaps, then, the problem is that because we have an indigenous defence sector - albeit a shadow of what it was - everyone feels compelled to buy British no matter what, and only doing the sensible thing much, much later. I suspect the countries without a defence industry don't have anything like these problems when they buy off the shelf Leopard MBTs, F-16s, and so on.

[Anonymous Coward]

Re: The last remaining boy's club

everyone feels compelled to buy British no matter what,

For making ship and submarine hulls, yes. In terms of aircraft, I'll raise you the Embraer Tucano, the Boeing AH64 Apache, the CH47 Chinook, the C17, the P8, E3 (AWACS), the Lockheed Martin F35. And in terms of serious missiles, we're reliant on the US for Trident, Harpoon, Tomahawk..., for drones we rely on US and Israel. Our only idigenous helicopter maker is now Italian owned, and most of the smaller missiles are made by the French headquartered MBDA.

So on balance, buy British no matter what? Doesn't look like it from here, and I'm not persuaded by any "offset" or local assembly nonsense.

[Salestard]

Re: The last remaining boy's club

Although that's mostly flying things, I agree - but much of that has arisen in the last 10-15 years as our industry has been whittled down since the end of the cold war. I was more talking about the political imperative to be seen buying British because Spitfire, Lightning, SMLE, and what have you is what made this nation great *sniff".

We could probably argue that the real reason there's nothing left apart from BAe is because of the very real inefficiencies and lack of competition that occurred after the forced merger of the aerospace industry, coupled with the factors I outlined in my first post.

[SkippyBing]

Re: The last remaining boy's club

'Embraer Tucano, the Boeing AH64 Apache'

The Tucano as used in UK service is built by Shorts, it has ~50% commonality with the original version and hence ended up being more expensive. Ditto the current Apache fleet built in Yeovil, which has different engines, leading to a different centre of gravity, leading to a different software build, from the Boeing version. I'm not sure what the cost delta was for that version, but it was going to be £1B more expensive to buy the next model from the Somerset garage door manufacturer than straight from the US production line.

Chinook, apart from an attempt to really f**k it up by specifying a short run of a really bespoke version has by contrast been a successful programme. Ditto C-17 where frankly if we'd gone to buy an equivalent from a domestic manufacturer it probably still wouldn't be in service. Our E-3s have bespoke modifications to the baseline aircraft (engines, AAR equipment), but were only purchased after pissing away an obscene amount of money on trying to make the Nimrod an AWACS platform, and then having to soldier on with Shackletons equipped with a radar from WW2 for longer than sanity would suggest was sensible. Similarly, before buying the P-8 we spent a small fortune trying to buy British by upgrading the last Comets* off the production line.

It's almost as if the MoD are learning the lesson that if you're not going to want a few hundred of something, it may just be better buying off the shelf...

*Okay strictly not Comets, but they were I believe the last Comet derived airframes built.

[Anonymous Coward]

Re: The last remaining boy's club

It's almost as if the MoD are learning the lesson that if you're not going to want a few hundred of something, it may just be better buying off the shelf...

Often the case. In respect of Nimrod MRA4, it seems we shat up the whole deal by the IDIOTIC attempt to modernise a 1940's airliner design. As a result we have no IP of any worth in the P8, and all of the £3.5bn development costs have been pissed up the wall.

The "might have been" question is whether the MRA4 avionics would have been capable if the MoD/RAF hadn't been obsessed with the airframe?

[SkippyBing]

Re: The last remaining boy's club

Oddly, I think at the time Nimrod 2000* was chosen the competing upgraded Orions actually had more UK avionics, but as a headline it didn't look as good. On such things are procurement decisions made. A lot of that tech has since gone into the P-8 so it's got more UK content than you'd perhaps have thought.

I'd agree that putting the MRA4 avionics in something like an A320 would have been a much better idea than re-cycling Nimrods, however I suspect the Treasury's mindset was that it must be cheaper reusing something you've already got. A similar issue hit the USMC when they upgraded their AV-8Bs they eventually realised it was cheaper buying complete new fuselages rather than stripping everything out and putting new stuff in.

*Don't laugh, someone seriously thought it would be entering service around then.

[Rhospid]

I’m a technical procurement expert and got approached by the MOD in 2016 to support on a project. Day rate offered was £350 per day.

The commercial client I was working for paid £650 a day.

Guess who I stayed working for. I suspect the MOD struggles with a big gap between well paid, well staffed sales teams and their own underpaid procurement and engineering staff.

Just guessing though:)

[SkippyBing]

The MoD's inability to pay the going rate for technical staff is getting beyond a joke, they are, unfortunately, bound by Civil Service pay scales so unless they make half of Abbeywood the same band as the Cabinet Office secretary it's hard to know what they can do. Hence the use of contractors who they can pay half the going rate to, although that tends to end up with them just rehiring people who were fed up being permanent staff when the contractors were getting paid more for knowing less...

[Mr Sceptical]

That's the problem with Other People's Money - no one cares how much it costs.

Here's an alternative plan - give the total budget for the item to the staff as a personal payment, and then make them personally liable for overspend but they get to keep 10% of what they save. If they do what they're supposed to that might be rather generous on a nuclear sub project. They obviously have to meet the agreed outcome of the procurement, so they can't just cut back the project or reduce numbers of units to save money.

That would instantly solve the issue of getting talented procurement staff and if you add the stick of a guaranteed visit by Her Majesty's armed forces most lethal killers to anyone attempting to do a runner with the cash it should keep them on the straight and narrow.

Can't be worse than the current system...!

[John Smith 19]

"Improving value for money in non-competitive procurement "

IOW "Can we deal with Billions Above Estimate" any better?

Note the presumption that the MoD is getting some value for its money already.

Hahahahahahahahahahahahahahahahahahahahahahahahaha.

That is all.