Defence Acquisition Reform

Statement

The following Statement was made in the House of Commons on Wednesday 28 February.

“With your permission, Mr Deputy Speaker, I would like to make a Statement on our plans for reform of the Ministry of Defence’s acquisition system.

Nimrod, Snatch Land Rovers, Ajax, Crowsnest and Morpheus—the narrative of our acquisition system has long been dogged by major programmes that were variously over-complex, over-budget and over-time. Of course, military procurement is inherently complex, and external factors—supply chain disruption in particular—have caused delays across the board that are likely to continue hitting programmes for the time being.

It is also true that our system has excelled at procuring vast quantities of ordnance into Ukraine. We have not stood still. We have been identifying and addressing systemic issues that impact on delivery, we have been driving pace and agility through streamlined processes and increasing the capability and capacity of our senior responsible owners, and, over the last six years, Defence Equipment and Support has come a long way in its internal reform efforts.

None the less, the long-standing weaknesses of defence acquisition are well known. They include a tendency for exquisite procurement—potentially too bespoke to export, leaving industrial capacity vulnerable—and, as Sheldon’s Ajax report assessed, personnel wary of speaking up as problems emerge. In my view, the most significant issue is a model of delegated authority implemented after Lord Levene’s 2011 report, which was supposed to drive financial responsibility but instead makes prioritisation hard to achieve in practice. With budgets under strain from inflation, the result is inevitable—what we call “overprogramming” where, in the absence of effective prioritisation, too many projects are chasing a finite amount of funding. Inadvertently, that drives competition between the three single services, each vying to get their programme on contract, knowing that funding is oversubscribed. Such overprogramming can only be dealt with in one way: delay, shifting programmes to the right to make the books balance.

None of those problems compares with the most compelling reason for reform. In a world where our adversaries are threatening to out-compete us in capability terms, we have no choice but to reform acquisition, or we will see our military competitiveness diminished. Ukraine has shown that today’s battlespace is highly contested, and integrated operations are essential. In 2021 we announced the integrated operating concept, recognising the military need for an integrated concept of operations but maintaining a delegated procurement system. Today, I announce our new integrated procurement model, in a world where multidomain communications are critical and data integration is paramount. At the same time, our kit must be secure, with key elements made in the UK, and we must prioritise procuring enablers alongside the shiny new platform that cannot work without them.

What does that mean in practice? There will be five key features of our new approach. First, it will be joined up, with procurement anchored in pan-defence affordability rather than ad hoc silos that are vulnerable to overprogramming. A key example will be our pending munitions strategy—a top priority given our need to replenish weapons stocks to war-fighting levels. Pan-defence prioritisation of munitions procurement will be driven not only by the hard reality of the greatest threats we face but by the scale of demand signal required for always-on production—the optimal outcome for both military and industry.

Secondly, we will have new checks and balances to challenge assumptions at the outset of programmes. Specifically, our new integration design authority, based within Strategic Command, will be empowered to ensure that our new approach is adopted in practice. If requirements lack a plan for data integration or accompanying enablers, the proposal will be sent back. The authority will also be able to monitor programmes where opportunities may arise, such as to better harness AI or novel technologies.

Meanwhile, in the MoD’s largely civilian sphere, a defence-wide portfolio approach will bring together all the expertise at our disposal to enable properly informed choices and decisions on priorities. The aim will be to provide a credible second opinion for Ministers to weigh alongside the military’s proposed requirements. In particular, there will be a far stronger role for our brilliant scientists at the Defence Science and Technology Laboratory to focus on technological viability. Experts will be tasked with market analysis and prioritising advice on industrial options, ensuring that we make the best-informed decision on whether to go for off the shelf, sovereign manufacture or somewhere in between. To avoid new oversight leading simply to more red tape, the reform takes place hand in hand with defence design, aimed at streamlining our internal processes.

The third key feature is prioritising exportability, which will now be considered in depth from the very outset of programmes, to maximise the potential market for a given capability and, therefore, drive British industrial resilience. That is why one of the key expert voices will be our export specialists. At the moment, their primary focus is on export campaigns, largely for mature products. However, I want that expertise to be embedded within the MoD’s acquisition process from the beginning, giving us robust data to quantify the risk that bespoke requirements might create a delta between our needs and international demand. Above all, that means that our international export campaigns can commence at a far earlier point in the product life cycle.

The fourth feature of our new approach is to empower industrial innovation. We have already started our radical new venture of engaging industry at secret, to give the strongest possible understanding of our future requirements. My aim is to embed this approach throughout procurement, driving the deepest possible relationship with industry, to enable entrepreneurial innovation to flourish and our supply chains to become more resilient. A more holistic supplier management approach will complement that by enabling the department to speak with a clearer voice regarding priorities once on contract.

Fifthly, we will pursue spiral development by default—seeking 60% to 80% of the possible, rather than striving for perfection. For such spiral programmes we will abolish initial operating capability and full operating capability. Instead of IOC or FOC, there will be MDC—the minimum deployable capability. There will have to be exceptions, but we have set new default time targets for programmes: three years for digital and five for platforms. This is all about pace, but to achieve pace we need the right people: capable senior responsible owners, operating in an environment of psychological safety. As such, and given the emphasis on our people and psychological safety, I am pleased to report that we believe we have now implemented all 24 recommendations of the Sheldon review.

Finally, how will this systematic change be implemented? I said to the Defence Committee that our plan was to launch our new model in the next financial year. From the second week of April, the integration design authority will formally deliver its new oversight function in support of the integrated procurement model. For major new programmes starting after that date, newly formed expert advice will be made available to Ministers, ensuring that we thrash out all the hard issues at the beginning of a major procurement, locking down the key policy decisions so that our SROs and commercial functions can deliver at pace from then. For contractual reasons, existing programmes will continue under their current procurement mode, but on 8 April we will publish our new spiral development playbook so that existing programmes that can adopt spiral features will be empowered to do so.

On exportability, yesterday I published the next stage of our new medium helicopter competition, which includes a strong weighting for exports to ensure that the high-quality rotary work that it will support in the UK is sustainable in the long term. Such an approach to weighting exportability, where appropriate, will become the default from 8 April. From that date, our three and five-year targets will apply to new programmes, including top priority pending procurements, such as the Mobile Fires Platform. Ukraine has shown how close combat artillery remains critical to war-fighting. We will now accelerate that crucial acquisition, exemplifying our new approach whereby we will order critical enablers in parallel to the platform itself, particularly ammunition. Ukraine has also shown the importance of drones. Uncrewed systems will form the first overall category of pipe cleaner for the integrated procurement model from end to end.

Alongside this Statement, I am today publishing a short guidance note explaining the nuts and bolts of our new acquisition approach. Copies will be placed in the Library, and will be available in the Vote Office after I have sat down. The current environment in which we find ourselves—war in Europe—has made it impossible to ignore the urgent need for change. I commend this Statement to the House”.

My Lords, I thank the noble Earl for coming to the House to respond to these questions and the necessary scrutiny, on a repeat of the Statement from another place. It is welcome that the Government are finally beginning to acknowledge what we on these Benches and many others, including the National Audit Office, the Public Accounts Committee and the Defence Committee, have been saying for a long time—that defence procurement is not working.

The Statement referred to the narrative of the acquisition system being dogged by major programmes and, while certain programmes have indeed been over budget and over time, the issues go much wider. Some 46 of 52 major projects have been either late or over budget under this Government. It is a systemic problem. In the past 14 years, £15 billion of taxpayers’ money has gone to waste, £5 billion in this Parliament. Report after report from the NAO and the committees that I have mentioned have been critical.

This is not just about the wasted money, as important as that is. Continuous failure in MoD procurement sends a message to the world, to both our allies and our adversaries. Good defence procurement can strengthen our sovereignty; make our country more secure; provide economic growth by creating and supporting jobs; and ensure that our troops can fulfil their roles and fight, while allowing us to fulfil the obligations that we have to our NATO allies. As we would all agree, it is therefore a top priority.

The changes are right and welcome and we agree with the reasons for the reforms set out by the Minister. Indeed, there is not too much in the Statement that you can disagree with, but the real concerns with the Government’s approach stem from the lack of action to tackle the bigger issues, which is a disappointment and a missed opportunity.

The Government’s policy for acquisition reform, as set out in the Command Paper refresh and the Statement, do not address the waste and poor value for money that have plagued the Government’s mismanagement. Without addressing the waste of taxpayer money at the scale that I have set out, it is difficult to see how the reform as set out by the Government will fix the problem. How will the Government ensure that these reforms offer value for money and stop the waste that we have seen? What steps are they taking to address the underlying systemic issues that have contributed to the delays and mismanagement that the Minister has acknowledged in the Statement, which have led to these projects being late and over budget? It certainly does not appear that they would have prevented the issues with some of the major programmes mentioned in the Statement, such as Ajax or Morpheus, or others that were not mentioned, such as the E-7 Wedgetails. Is that analysis wrong and, if so, why?

My Lords, “over-complex, over-budget and over-time” is how major programmes of defence procurement have been characterised not just by the opposition, our enemies or even our allies but by the Minister for Defence Procurement in giving this Statement in the other place. Defence procurement has, over years, been riddled with problems, as the noble Lord, Lord Coaker, pointed out. While this Statement is very welcome, there is a question about whether it goes far enough or thinks about the wider pattern of defence procurement.

I read the Statement as it was produced and put into the Printed Paper Office last week. It said, “Check against delivery”. I read it, and there were various points where I thought, “Surely no Minister actually said this”. I went back and looked at Hansard to see what the Minister for Defence Procurement said in the other place and, indeed, some of the slightly strange comments were made in the House of Commons. I will therefore ask a few very specific questions.

What we have as the fifth aspect of the new approach to procurement is:

“Fifthly, we will pursue spiral development by default”.

Other noble Lords might know what spiral development is, but I am afraid that I do not. The Statement did not give me much clarity on it, nor does the document that was produced to go alongside it, so I hope the Minister can explain a little more what spiral development means.

Even more, however, I would like to know what is meant by the next line:

“seeking 60% to 80% of the possible, rather than striving for perfection”.

I realise that there have been concerns about the fact that we have looked for exquisite solutions and platforms that are so highly specified that they become ever more complicated, with the timeline for procurement shifting ever further to the right. However, “60% of the possible” raises a lot of questions. Does it mean that only 60% of our ammunition is going to work, or that only 60% of our trials of Trident will work? Given that we seem to have had a couple of problems with Trident recently, I very much hope that the Minister can explain what this means. There is nothing in the Statement or the document that explains clearly that we do not want to spend so long over-specifying things that we never deliver the platforms or equipment that our Armed Forces need. Do we think that we need to specify less? What do the Government mean?