GDR 99 - European Issues

Slogan or Solution?


Section Articles
• Slogan or Solution? • AFV Firms in Troubled Times • High Technology: Marconi • The UK's Role on the Ocean • All Systems Go in South Africa • South Africa Backs Europe
Will smart procurement contribute towards solving one of the most intractable problems faced by all democracies - how to allocate taxpayer's money between the demands of all the benefits and preparation against the uncertain contingencies that threaten those benefits, the defence and security that only governments can provide?

Humphry Crum Ewing reports on the latest moves towards smart procurement and assesses the implications for government and industry.

An essential task in following through the UK government's strategic defence review (SDR) of 1998 is to bridge the gap between what it will cost to provide security for Britain and British interests in the modern world of the SDR's sub-title, and the defence budget available.

In the SDR smart procurement was marked to contribute Ł2bn over the next 10 years towards bridging this gap. So what is smart procurement? What are its objectives, what will its methods be, how likely are they to succeed and how will its success or otherwise be measured? Is it simply a slogan coined by defence ministers to persuade cabinet colleagues they are doing something about defence costs? Or will it contribute towards solving one of the most intractable problems faced by all democracies - how to allocate taxpayers' money between the demands of all the benefits society should provide (health, education and welfare), and preparation against the uncertain contingencies that threaten those benefits, the defence and security that only governments can provide?

Smart procurement started to become a familiar phrase in July 1997, when defence secretary George Robertson first used it to describe what the then recently launched SDR process was intended to achieve. When published a year later, the review headlined the concept while adding little detail. Not surprisingly early comments ran along the lines of: 'So, what's new?' and 'Smart words maybe, but no difference'.

Changing recognition of the possibilities
As the debate developed in response to the publication of the SDR, through the late summer and early autumn of 1998, the tone of comments began to change. Industrialists, suppliers and prospective suppliers of the equipment to be procured, smartly or otherwise, initially among the most sceptical, were heard to remark that there might be something in it after all. The problem was not that there could not be such a thing as smarter procurement in any meaningful sense, but rather that to achieve it there would have to be a complete cultural change within the MoD and the Procurement Executive (PE). There would need to be a move away from the confrontational position between would-be purchasers and would-be suppliers. And there would have to be a move towards negotiating a contract that went so far as reasonably possible towards providing customers with equipment that met their requirements, but was not redesigned and re-specified time after time to include every possible refinement. Officials with appointed responsibility to ministers for fleshing out the smart procurement initiative, that has become known as the SPI, quickly accepted these points. A complete cultural change? Yes, indeed. Establish and identify for each project, or group of related projects, a specific customer comprising real people in place of a monolithic, impersonal MoD. Bring the customer into the project from the earliest stage. Convert the PE into an agency. Think in terms of providing capabilities to perform tasks, rather than like-for-like replacement of each obsolescent item. Think about a future offensive air system rather than a Tornado replacement. Look again at contracts such as Brimstone to see whether the capability sought could be achieved more cost-effectively by varying the detail of the specification.

The underlying objectives


Humphry Crum Ewing is author of the Centre for Defence & International Security Studies Bailrigg Debating Point No. 6 The SDR: now that we have the Review, what do we do next? He also advises Opposition speakers in Parliament on issues related to the review and defence procurement generally.

The detailed objectives of the SPI can best be described as eliminating cost over-runs and slippage. Cost over-runs occur as a result of inaccuracies in estimating on the part of the contractor that the PE has failed to identify in advance but the possibility of which is conceded; cost inflation rates within the defence industry being higher than more broadly based and measured rates; changes to specifications; reductions in numbers ordered, so raising projected average unit costs after incorporating design and development overheads; and acceleration or delay in delivery timetables. Slippage results from technical difficulties not anticipated by the contractor or PE; decisions by the MoD to give effect to budget cuts by slowing down programmes, therefore holding down cash outflow this year at the expense of increasing overall cost; redefinition of projects after the programme has been approved and budgeted; and difficulties arising in internationally co-operative programmes. Changes and inconsistencies in accounting policies and practices as applied from year to year also can contribute to adverse changes in reported figures. The reallocation of sunk overheads from predecessors of DERA to the Eurofighter project is a good example of this.

Central to literally smartening the procurement process, will be to bring together in the same office from the earliest stage a project team whose members are drawn from customer and suppliers, and to keep this team throughout the successive stages. This contrasts with the present practice of moving responsibility at each stage.

Identifying the saving by procurement on the new methods over the notional cost of the same procurement by the old methods has to be the touchstone and the yardstick of success. The MoD has calculated what the notional cost of 10-year forward-planned procurement would have been and it is with this that costs will be compared. Will it publish what those estimated costs would have been? The National Audit Office has been consulted, but how much will be disclosed to allow taxpayers to see for themselves?

Will it happen?
The intended shape of the SPI is emerging and important milestones are set for March 1999 and April 2000. It can happen, but the question still remains, and is likely to remain for the next year at least - will it happen?

There is real enthusiasm among many of those in the MoD directly involved in the SPI to see it work and to help it to work well. Others with different roles in the department are less happy with some of its implications. There is a recognisable military case against passing over to industry the effective decision as to what equipment may be provided for the armed forces. There is a nagging suspicion that instead of getting more for less, what will be provided is rather less for about the same. Most tiresome of all is the recognition that if it is the intention that smart procurement will prevent project slippage, then the corollary will be that project deferment, moving costs to the right across the five-year/10-year spreadsheets, will become much less readily available and will change from a convenient device employed behind the scenes to a subject for critical scrutiny. Perhaps this is no bad thing in the eyes of those more concerned with adequate defence than the false economies of arbitrary public expenditure limits.