23 March 2000
A year on from the major reorganisation of UK defence purchasng and logistics, Elizabeth Bellamy examines whether 'smart procurement' has got any smarter
After recent debacles over jamming rifles and Tornado bombers unable to use "smart" weapons, defence procurement has been thrown into the spotlight again as ministers wrangle this month over the awarding of two major Ministry of Defence contracts.
Two groups, a European consortium led by Matra BAe Dynamics - a joint venture between the UK's BAe Systems and France's Aerospatiale Matra - and US firm Raytheon, are bidding for a £1 billion Eurofighter weapons contract. Meanwhile, US firm Boeing and UK charter company Air Foyle are competing for a transport aircraft contract. The government is expected to decide on both next month.
It is this type of wrangle that has made analysing the success of the MoD's smart procurement initiative difficult. While government thinking encourages value for money, the debate is often complicated by the pursuit of national interests.
Last November, a similar case arose when an Anglo-German consortium signed a £2 billion contract for up to 2,000 armoured battlefield vehicle. UK firm Alvis won a contract to supply vehicles, but the deal took 19 months to close and, of the 600 vehicles to be delivered to Britain, the first are only likely to arrive in 2006.
So, despite an air of cautious optimism, it seems that the jury is still out on smart procurement. Indeed, the MoD thinks the "industry is still in the dock", according to Alan Sharman, director-general of the Defence Manufacturers' Association (DMA).
A survey of DMA members, released this month, found that 51 per cent said there had been no change in defence purchasing since smart procurement had come into force.
It was not long ago that the MoD was previously the centre of attention. In the year ending 31 March 1997, its 25 biggest projects were £3 billion over budget and late on average by more than three years.
This level of performance prompted the government's Strategic Defence Review (SDR) in spring 1998. It found that there was too much reliance on compulsory competitive tendering and adversarial supplier relationships. It also found that projects were too bureaucratic. As a result, the Defence Procurement Agency (DPA) and Defence Logistics Organisation (DLO) were set up last April. A tight ship
The DPA aims, by 2001-02, to stop any in-year rises in major project costs and to limit in-year date slippage - to four weeks for major projects started before last April and 10 days for new projects. It is responsible for an annual spend of £6 billion and replaces the MoD's Procurement Executive.
The DLO, the result of a merger between the logistics operations of the army, navy and air force, has a budget of £4.6 billion and aims to achieve cost and efficiency savings.
"The traditional view was that defence spending was sacrosanct," says Derek Marshall, assistant secretary of the Defence Industry Council (DIC). "But, with the cold war over and priorities for spending shifting to health and education, defence has had to justify its value for money."
One way the two bodies have attempted to do this is through integrated project teams. By next month, 135 of the teams, which include MoD staff and industry representatives and oversee a project from start to finish, will be in place.
The MoD is already singing their praises. On its Brimstone anti-tank missile project, closer work with industry has led to contractual and technical changes, which are expected to bring cost savings of between 5 per cent and 10 per cent.
In theory, suppliers are in favour of the idea. "Relations between the MoD and industry became quite hostile over a number of years," said the DMA's Alan Sharman. This made life difficult when the MoD wanted to alter requirements or companies were unable to deliver on time, he said.
But the DIC's Derek Marshall urged caution: "We don't want to return to the cosy partnerships of the 1960s - we need competition."
Colin Howard, smart procurement director at Marconi Electronic Systems, said there were some "lingering doubts" about smart procurement last year, despite a positive feeling about the integrated project teams in the manufacturing community.
The DMA's survey revealed that 80 per cent of respondents had dealt directly with an integrated project team and 71 per cent thought working with them would benefit their firms.
But the MoD says the changes have been a success. Last August it revealed it was £89 million ahead on its cost-efficiency programme, which had already saved £594 million.