Defence Procurement

6. What assessment he has made of the effectiveness of the defence procurement system.

We are driving the delivery of capability in the frontline. Most of our programmes are delivering on time and on budget. For the second year in a row under my stewardship, the Ministry of Defence has set out an affordable 10-year equipment plan to ensure that our armed forces are being given what they need while living within their means.

Defence procurement is essential to the success of a domestic steel industry, but, as the Secretary of State will know, the UK is currently the only country in the G20 in which steel production is declining. Given that steel is a vital industry of national security importance, will the Secretary of State ensure that we do not see a repetition of what happened with the fleet solid support contract, under which an overseas lead contractor had no obligation to use UK steel in the construction of UK Navy ships?

We always try to use as much UK steel as possible where we can, and when we do not, it is often because we do not manufacture the type of steel that needs to be used in a certain type of product. As for the fleet solid support ships, whether Navantia is part of the consortium or not, the hon. Gentleman should not listen to the union briefing. He will find that across the provision of those ships there will be plenty of British components—in fact, they will be in the majority—and the full integration of the ships will take place in a yard in Northern Ireland.

Will the Secretary of State update the House on the status of the Ajax procurement programme? I understand that the supply chain is being geared up to produce 589 vehicles.

As my right hon. Friend will know, the Ajax was decided on in, I think, March 2010, under a Labour Government. As I have often said, it has been a troubled programme. Since I have taken over this office, we have sought to rectify the issue on almost a weekly basis, and with the determination of both the former Minister for Defence Procurement, my right hon. Friend the Member for Horsham (Jeremy Quin), and the current Minister, my hon. and learned Friend the Member for Cheltenham (Alex Chalk). The vehicle has passed its user validation trials and is now undergoing its basic field trials. It is doing extremely well, and I am given a weekly update.

Although the programme is being delayed—and we are doing our best to rectify that—overall it has not cost a single extra penny, because the contract, which was agreed under the Conservative Government after the selection of the vehicle by the Labour party, involved a fixed price. Yes, the programme is being delayed, but we are fixing it, and it is showing good progress.

May I say first that if the Secretary of State is going to quote the National Audit Office, he should read the entire statement rather than doing so selectively?

In large, multibillion-pound contracts in the private sector, a project lead with expertise is usually put in place for a number of years. In defence procurement, well-meaning and committed individuals with very little expertise in project management are there for a short period. Is it not time to look at the ways in which we project-manage these large multi-year contracts, and to move from what appears to some to be an amateur approach to a more professional one?

I do not disagree with some of the right hon. Gentleman’s observations. Consistency in these programmes is incredibly important. As he will know, some of them, even when on track, can be 20-year programmes, and consistency is important. It is not just about the senior responsible owners, by whom those programmes are led, but he is right to suggest that we are seeking to see whether we can have more longer-term or permanent SROs. They are accompanied by programme deliverers from Defence Equipment and Support in Bristol, who are more permanent.

There are lots of lessons to be learned about procurement, some of which are within our gift to fix. Some of them, sadly, have been observed as problems for decades, and we only have to the read numerous reports from the last Labour Government and my Government to know that they have not always been rectified. Some are out of our control owing to inflation, change of threat or changing technology, or because they involve an international consortium in which we have less control when we start. An example is the Typhoon, which is a four-nation project. Sometimes it is harder to control those projects. Overall, in my experience the key is that we have to manage expectations, get our pricing right, seek consistency of skills and reward that skills base for the long term. I agree with the right hon. Gentleman entirely on that.

Would my right hon. Friend agree that defence procurement is a complex issue but not the total disaster that it is often presented as? When compared with the naval procurement of some of our closest allies—for example, the United States ended up spending $5 billion per destroyer in the Zumwalt class and the Canadians took over 30 years to procure a ship—the MOD produces Type 26s, Type 31s, aircraft carriers, hunter-killer submarines and more under a fixed price, showing that it tries to do its best in always tight financial circumstances.

I am grateful to my right hon. Friend, who served with me in the Department. I miss his time in the Department. One of the biggest drivers of cost overruns is a decision by the Government of the day to defer decisions about whether they should cut or delete something. Deferring the aircraft carrier under the Labour Government cost £1 billion. Deferring the F-35 buy under this Government cost about £500 million. If we defer things, they cost more in the long run. That is always the battle that the MOD has with the Treasury and others. That is one of the fundamental challenges and one of the cost drivers. However, many other projects are delivered on time and successfully and our men and women in the armed forces have some of the world-leading equipment they need to do their job.

I call the shadow Minister, Chris Evans.

May I join the other voices welcoming you back to your position, Madam Deputy Speaker? I think I speak on behalf of everyone when I say that the House has missed your ability to turn people to stone with just a few words when they fall foul of the rules in this place.

Much of the innovation in the defence industry comes from the small and medium-sized enterprise sector. However, many SMEs tell me that there are real barriers to entry and to gaining access to Government contracts, and that when they do gain that access, they find that some primes are slow to pay, especially when projects are delayed. This leaves them demotivated and demoralised and with a poor experience of working with the Ministry of Defence. How will the Secretary of State ensure that SMEs have better access and are encouraged to be involved in a thriving British defence industry?

I recognise some of those characteristics of SMEs. For decades they have said that there is a challenge in engaging with wider Government procurement, whether it is in defence or anything else. I also recognise, as the guardian of the taxpayer, that one of the challenges is that risk is involved. If we commission an SME to build something large, the amount of risk it takes in relation to infrastructure is a challenge; we cannot get halfway through a project and then have the SME fail.

However, I think that changes to the battlefield will open the aperture much wider for SMEs to engage with Defence. What we have seen in Ukraine through Operation Kindred is that the winners are the SMEs. The ability for us to cut through the regulations that normally govern procurement, because we are procuring for someone else in a warzone, has enabled us to effectively go straight to the marketplace and straight to SMEs, and some of the big winners have been SMEs in innovation and space. We will know the results and whether they work when they get to Ukraine.

I think this is an exciting time. I recognise the narrative that the hon. Gentleman mentions, which has been around since I worked in the aerospace sector, but of course we should and must do more. When we have a big exciting project, such as the next generation of fighter aircraft—the global combat air programme—or the carrier alliance, it is important that something sits over the top of it to ensure that SMEs are forced in if the primes get in the way.