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Artist’s impression of the shorttake-off/arrested recoveryconcept for future carriers |
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Smart thinking |
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Humphry Crum Ewing examines the theory underlying the UK defence industry’s smart procurement initiative. When the UK strategic defence review was published in 1998 much was made by the government of the importance – and potential value – of the smart procurement initiative. It was to be a means of getting more for less, to generate over time substantial savings in procurement costs, to bridge the gap between necessary defence expenditure and the amount of taxpayers’ money to be made available. Some scepticism was also expressed of course. One recurring question among those engaged in the nitty-gritty of the procurement process was: how much would really be changed? Further, the more complex question was posed: was there not a danger that control over the choice of equipment would move from what the armed services needed to what industry decided to provide? A year or so later the jury is still out and further questions, more complex still, are starting to be developed and to be asked. These new questions originate with the practical working of the integrated project team (IPT) that are a key feature of the smart procurement process as a whole. We find two buzz-words – partnership and competition often coming into conflict with one another. Partnership is an essential strand of smart procurement and IPTs are intended as a means of giving expression to this concept and for its practical application. The idea is simple enough, and to its advocates self-evident. If the people who are going to the use the kit – namely the armed services – and the people who are going to provide it – namely industry – can be brought together only at the beginning, then the real requirements can be explained and thrashed out at an early stage, and the real potential of modern technology for increasing cost-effectiveness can be released and a wastefully adversarial negotiating process can be avoided.
In this way the armed services will understand better what can and might be provided and industry will understand better what is really needed. This, so the argument runs, should allow agreed trade-offs between capabilities, costs, in-service dates with something in it for everybody. For this logic to work however there are several essential pre-conditions. The first is that the military participants in the IPT should have two conflicting attributes. One of these is that they should hold these appointments for the full duration of the project, something that is difficult to fit into the appointments and promotion structures of a progressive military career. The second is that they should have close, up-to-date, active service familiarity with systems that work well, those that do not and why. This requires, among other things, that individuals should be going in and out quite frequently between staff and front-line appointments. It also requires that the military participants should bring to this relatively mundane work a comparatively scarce and valuable range of skills. A counterpart essential is that the industrial participants should also have the standing and authority in their companies that the work requires; that is to say they should be senior high-flyers, with a multi-disciplinary background, equally at ease for instance on financial, technological and production issues. Failing individuals with all these attributes, then a team whose several members together contribute these skills is necessary. This points towards IPTs becoming ever more cumbersome, with industrial participants being drawn from those who can be spared rather than from the up-and-coming, with attendance becoming more intermittent and the continuity and cohesion of that partnership that the groups are intended to contribute to, not being achieved. Counter-productive competition But the prospects for such coherence and cohesion become weaker still when the search for competition also is factored in. The stronger the requirement for competition the less likely that any particular company will get the contract, and the less likely are the prospects of gaining continuing business. From the recognition of this there is already a greater reluctance on the part of the senior management of industrial companies to allocate money and time to participation in preparatory debate in pursuit of a one-off contract. If competing bidders sit on the same IPT, then there will be an understandable reluctance for them to put forward innovative proposals for the more cost-effective procurement of a particular capability when their competitors will be in a position to borrow or steal this. Dealing with this by forming two or more separate IPT around prospectively competing prime contractors might meet this point, but only at the cost of rendering the whole process less coherent, more cumbersome and time consuming and less cost effective, thus defeating one of the main purposes of the whole smart procurement initiative. It has to be asserted that the IPT system is not going to work as intended unless sufficiently water-tight protection for the intellectual property rights (IPR) in innovative proposals is built into the system. There is no sign that this is adequately recognised within the Ministry of Defence or at senior levels within the procurement agency. It is also questionable whether it is recognised by the ultimate paymaster, the Treasury. Now perceptible as starting to affect the earlier steps in the intended smart procurement process, a further problem affecting the subsequent stages is beginning to emerge. Again this further set of problems arises partly from the blind pursuit of competition. It also arises in part from a procurement mind-set that sees the initial provision of a system, a platform or an item of kit and its through-life support and maintenance as being distinct and separable matters. Through-life costs This conceptual separation that is the direct antithesis of that efficient management of through-life costs to which so much lip service is paid, may well result in a successful bid to provide the original platform being followed by bids from other sources, by the armed services themselves and by industrial competitors to provide after-sales service and spares. It is necessary to recognise that while service may require the provision of spare parts, it also goes well beyond this simple supply. The lines along which the new mind-set – the new procurement culture if you will – should be encouraged to evolve is exemplified by the lessons to be learned from the contract placed by the Ministry of Defence in 1995-96 to procure the RAF’s white-vehicle fleet in the UK. This was the subject of an informative post-mortem examination and report carried out by the national audit office (NAO). The fact that the report has not received the wider attention that I would suggest it merits, may well be due to the fact that it was published in the middle of the summer, on 19 August 1999. The report made four central recommendations: that future projects should be expressed in output terms not input terms; that they should be offered wherever possible under what is known, in European Union terminology, as the negotiated procedure rather than the alternative restricted procurement procedure that was actually used; that satisfactory pre-qualification (including financial standing) is essential; and that further financial guarantees should not be sought. Restriction v negotiation The restricted procurement procedure involves an invitation to a limited number of pre-qualified parties to tender against a specification. By contrast the negotiated procedure is based on issuing invitations to negotiate on proposals and allows flexibility in negotiation, finalising contract terms and encouraging innovation. Put simply, in a case such as this, the restricted procedure is for the supply of a specified number of specified vehicles and their subsequent maintenance for a set period, (an input process) while a negotiated procedure is for the supply of a transport capability (an output process). The report makes a number of further important points, notably the need to safeguard IPR in innovative proposals as already touched on above, but its broader value in relation to the successful evolution of smart procurement lies in a slightly different direction. This is the way in which the report brings out that the RAF white- vehicle project was – as it was intended to be by the government – a real pathfinder towards a different and more modern form of supply. Namely to provide a continuing capability, involving ongoing product development and supply of goods and services rather than simply to supply, once off, a specific number of items to a specified design. If that lesson is learned and sensibly followed through, then smart procurement has a better chance of being perceived by industry as worthwhile in relation to the up-front expenditure and commitment involved. It needs to become a recognisable opportunity to secure, in the fullest sense of that term, ongoing profitable business. Only the reality of such opportunities will encourage and justify whole-hearted industrial participation in the process rather than the tepid reluctance that is understandably notable at present. © |
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