Defence Acquisition Reform

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 “over-programming” 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 over-programming 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 multi-domain 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 over-programming. 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 Al 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 warfighting. 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.

Let me begin by thanking the Minister for his statement and for early sight of it.

Defence procurement matters. It provides the vital kit that our forces need to fight, as well as supporting hundreds of thousands of UK jobs. We need to get this right as a nation, both for our national security and for economic growth. However, defence procurement is a mess. It needs deep and major reform. The Public Accounts Committee describes it as

“broken and repeatedly wasting taxpayers’ money.”

It has been a mess for the last 14 years. Since 2010, the Conservatives have wasted £15 billion of taxpayers’ money through mismanagement of defence procurement programmes; £5 billion has been wasted in this Parliament alone. With 46 of 52 major projects not on time or on budget, this Government are failing British forces and British taxpayers.

Time and again, this Government have been criticised for poor performance on defence procurement. There have been 17 National Audit Office reports on procurement in the MOD since 2019, four reports by the Defence Committee and eight reports by the Public Accounts Committee. They have all been critical—some highly critical—of this Government. It is right that the Minister proposes some changes—we welcome that. He mentioned Ajax; can he explain how his proposals would have stopped the disasters of the Ajax procurement? That was supposed to see vehicles in service in 2017, but now they will not be on operational deployment until 2026. More than £4 billion has been spent, but just 44 vehicles have been delivered to date. That is 70% of the budget spent for 7% of the vehicles ordered. That cannot be described as good value for money.

The MOD’s Command Paper refresh, which sets out the policy for acquisition reform, does not even tackling waste or value for money, so how would the Minister’s proposed changes stop what happened to the E-7 Wedgetail procurement? That programme, vital to enabling the UK to meet our NATO commitments, was cut from five planes to three by a ministerial decision to save money, but the changes mean that the RAF gets only 60% of the capability it wants while paying 90% of the original price. The Minister mentioned Morpheus. How would his proposals stop cost overruns, such as those that occurred in the Morpheus communication system procurement? That £395 million contract, awarded in 2017, was cancelled just before Christmas having delivered nothing at a cost of £690 million. It leaves our forces in the field having to use the ageing Bowman system for another decade.

I am grateful to the right hon. Lady for her comments. Some issues are above party politics and playing politics, especially when we look at the threat we face and our need for more competitive military procurement, but she is aware, for all she said, that we have seen a one-year reduction in procurement time from December 2020 to December 2022. There have been extraordinary efforts in DE&S in particular to get equipment into Ukraine. We should never understate the way we have gifted our own stocks and scoured the world to find an enormous amount of munitions, not least 300,000 artillery shells. That is very positive procurement and in the hour of need as far as Ukraine is concerned.

The right hon. Lady asked a perfectly fair question. Obviously, we cannot say how any of the measures would have worked in the past, but let me take one of her hypothetical questions: how would Ajax—the key example, given the Sheldon report—have been helped? I can only speculate, but the emphasis on exportability, for example, will be robust and from the start of programmes. That applies more pressure where requirements are overly exquisite, because it will be balanced out by international demand. The reason we want to promote exportability is ultimately to strengthen the resilience of our industrial base. Our market is not big enough. If we have that check in place, it will reduce the tendency towards the exquisite.

Secondly, we will have a new set-up in terms of the expert advice we receive at the beginning—the second opinion, as I call it—in particular from scientists at the Defence Science and Technology Laboratory, export experts at the Department for Business and Trade, and our own civil servants on finance and so on. We will have very clear advice, which will look at the technical issues around potential platforms. At the moment, to be frank—I appreciate this is only possible to say from internal knowledge—we do not get that level of balance and challenge against the primary requirement coming forward from the frontline command.

I call the Chair of the Defence Committee.

I congratulate the Minister on the statement, which looks to the future. There is a lot in it to commend. In particular, it is absolutely right to focus on data collection and making certain we are AI-ready. I am delighted about DSTL’s enhanced role, which was one of the learnings from Ajax, and I am pleased that all the recommendations of the Sheldon report are being taken forward.

On closer industrial working at secret and exportability, that is entirely consistent with the defence security industrial strategy. That is absolutely welcome and a very positive sign. Above all, I am delighted with the emphasis on spiral development and the new concept of the MDC. We all know the benefits of that: getting something that is right and appropriate on to the frontline where it can be spirally developed is good for industry—it sees the drumbeat of orders—and good for the services, which do not need to think they are going to get everything in one bite. It is all positive.

The only thing I would ask is that we should not forget the basics. The Minister referred to this in his statement, but SROs who have enough bandwidth, support, and time and length on a project are absolutely critical, as is a culture in which they can experiment, and if something ain’t working, they should be able to pull stumps. That should not be a source of shame, but an inevitable consequence of being forward-leaning, modern and experimental. They should say, “This isn’t working; reinvest the cash elsewhere.” That should be commended when SROs come to the Minister with that kind of circumstance.

I am very grateful to the Chairman of the Select Committee; he is absolutely right. Let me take those two points. On the importance of SROs, the biggest issue we face, ironically, for all the talk about technology, is people—that is across the economy in many ways and across the public sector. Yes, we want to empower SROs. There are some brilliant SROs in the Department and it has been a pleasure to work with them. I stress that I think we are now at the point where 90% of SROs spend at least 50% of their time solely on one project. That is very positive.

On my right hon. Friend’s point about cultural change, let me be frank. We can publish all the strategies we want, but if they are not delivered and do not change the culture, they will not have the effect on output that we want.

Let me return to my drone example. My right hon. Friend spoke about the need to learn from failure, which is how many of the greatest entrepreneurs in the world have succeeded. On the day of my visit to the SME that was developing a highly effective drone to be used on the frontline, the people there had received bad news, but crucially, they took that bad news, they spiralled the platform, they learnt from it, and they made sure that when it went out again it was competitive. That is the key to the system.

I thank the Minister for advance sight of his statement, and for his honesty in detailing the complexity and difficulties involved in defence procurement. I wish him every success with the proposals that he has outlined.

Back in December, a National Audit Office report stated that the MOD faced a £16.9 billion black hole in equipment funding. I did not hear any mention in the statement of how that would be addressed, and I fear that it may not be covered in the Budget, so perhaps the Minister could enlighten me. Will he also tell me whether he can guarantee that we will able to meet the requirement for essential contributions to both NATO and Ukraine during this time of conflict?

Also missing from the statement were any details of the post-Brexit defence sector labour shortages—how do the Government plan to address those shortages in order to support the sector?—and any reference to parliamentary scrutiny, especially with regard to the nuclear programme. What assurances can the Minister give that the programme will be scrutinised by the Defence Committee and by Parliament? Also, given that we are working with allies to support Ukraine, which I welcome, do we not now need a mechanism such as a comprehensive defence security treaty with the European Union to further that?

There is a considerable emphasis on prioritising exportability. Do the Government acknowledge that arms exports and procurement programmes with the state of Israel could make us complicit in war crimes? That is a concern for many members of the public, and I would be grateful for the Minister’s comments on it.

I am grateful to the hon. Gentleman for the broad thrust of his comments. Let me deal with them in reverse order, beginning with his point about arms exports. As he knows, we have strong and robust rules, and we do of course follow them. We keep all our existing export rules and priorities under review. He mentioned nuclear parliamentary scrutiny. I responded to two successive Adjournment debates on nuclear matters that had been initiated by Scottish colleagues. I also appeared before the Defence Committee recently, when I spoke as openly as I could about the highly sensitive issue of the recent certification of our nuclear submarine, HMS Vanguard.

The hon. Gentleman mentioned the lack of a labour supply from the EU. Let me gently say to him that when I speak to defence companies, I see a real willingness to invest in apprenticeships so that we can grow our own UK workforce, and I think that that is what we all want to see. On the equipment plan, the hon. Gentleman made the same point as the right hon. Member for Garston and Halewood (Maria Eagle). The equipment plan is a moment in time. It is a huge programme over 10 years, and only a minority of it—perhaps 25% or 30%—is actually on contract. What that is showing is, effectively, the aspiration for programmes in the future. There will be other programmes, not on contract, that we will not pull out of and that we will be expected to be part of, but there is room for flexibility.

For me, the purpose of this acquisition reform is to inform that process on the basis of what matters most of all: data from the frontline and war gaming data—on what is happening in Ukraine and on our own war gaming—informing spiral and technological development. That is the way forward, and I think it will be a far more flexible process than taking very rigid views.

I remind the House of my entry in the Register of Members’ Financial Interests.

I commend my hon. Friend for the remarkable pace at which he has got to grips with the challenges of acquisition in defence. He has not been in post for very long, but he has brought intellectual rigour to those challenges, which some of us have been trying to do for a while. I also endorse everything that was said by the Chair of the Select Committee, my right hon. Friend the Member for Horsham (Sir Jeremy Quin), who is an expert on these issues. I am particularly pleased that he has sought to bring the learning from the current conflict in Ukraine back into our own system here in the UK. Other countries are learning how to adapt their acquisition systems rapidly, and we need to do the same.

I completely endorse the integrated procurement model. Its precursors were in the complex weapons programme, which has been running for more than 10 years. I think the fact that my hon. Friend has referred to it in the current contract that he announced yesterday for the next stage of the competition for the medium helicopter lift is a good example of that. He spoke about introducing agility, about exportability and about innovation. Many of us have been pushing the MOD to proceed with all those developments. The spiral development and, in particular, the move from an initial and a final operator capability to a minimum deployable should have a huge impact on the acceleration of processes.

SROs have been referred to. If my hon. Friend can consider extending terms— double or triple terms—for service personnel and key civil servants in that role, he will assist enormously in retaining knowledge within the system.

Order. May I remind Members to focus on the question to which they want the Minister to respond?

It is a privilege to take a question like that from the former Minister for Defence Procurement, who followed another former Minister for Defence Procurement—the Chairman of the Select Committee. I hope that my right hon. Friend does not mind my repeating what he said to me privately when I got the job. At that time, he made the same point about the importance of SROs’ spending as long as possible in their roles, which was also in the Sheldon report. Obviously there is an employment law issue—in the sense that we cannot insist on that—but I have referred to statistics which show that we are investing more in SROs, in the Army in particular.

My right hon. Friend spoke of learning lessons from Ukraine—he is absolutely right. One lesson that I have been struck by is the importance of understanding electronic warfare, jamming and interference, and the way in which the battle space has changed. That is why I keep emphasising the importance in our system of securing data from the front and from war gaming to inform procurement.

My right hon. Friend made an important point about the complex weapons programme. This involves a portfolio approach that should lead to more agile commercial relationships, enabling a better demand signal to industry, which drives its investment, but also allows us to take a nimbler approach when dealing with industry.

Is it is right for the Minister to seek to reform a defence procurement system that the Public Accounts Committee has described as “broken”? The shadow Secretary of State, my right hon. Friend the Member for Wentworth and Dearne (John Healey), has just delivered a speech to Policy Exchange, in which he set out that a future Labour Government will create a national armaments director to co-ordinate and oversee defence procurement. Why have this Government not done that in the last 14 years?

It is interesting to hear what the hon. Gentleman has just been WhatsApped by the Labour Whips Office, but I am happy to share what is happening in the real world if he wants to hear it. Andy Start, who runs Defence Equipment and Support, is an excellent national armaments director. He has been out leading trade fairs in Ukraine, he has led reform in DE&S, and above all, at a time of war in Europe, he has overseen DE&S, particularly in Abbey Wood, getting equipment out to Ukraine and helping to keep it in the fight.

Forgive me, Sir, but—Yes! [Laughter.] I have waited for years to hear an MOD Minister issue this statement, and this very good Minister has done just that. It is true that the Public Accounts Committee said that the procurement system was broken, and last summer the Defence Committee endorsed that in a report, produced by a Sub-Committee that I chaired, entitled “It is broke—and it’s time to fix it”. Well, I take this to be the “fix it” or “put right” plan. I welcome it, and in particular the sense of urgency that goes with it. Given that the Defence Secretary has told us that we now live in a pre-war rather than a post-war world, we must do this sooner and, crucially, faster. The proof of the pudding will be in the eating, but can the Minister assure me and the whole House that the sense of urgency that I mentioned will be at the centre of this, and that he and Andy Start will now get on with it?

I am honoured by my right hon. Friend. We enjoy our robust exchanges, but that was an example that I shall particularly remember.

The phrase “a sense of urgency” is, I think, what the public want to hear. Important as today’s exchanges are, this is really serious; it is above politics. This is about the fact that our adversaries are ramping up their procurement and their technology—frankly, in some instances, at a frightening pace. That is why embracing the deep relationship with industry, the constant feedback loop on data from the frontline and from war gaming, is so crucial. I think the Committee has an important role in this regard. I set out our intention in my statement, but for it to be embedded we will have a key set of milestones that will enable us, if we work together, to show that it is being implemented; if we can do that together, we can put the pressure on to ensure that it becomes manifest.