MoD spent £33 million on 'botched' defence procurement outsourcing

26 February 2015

The Ministry of Defence (MoD) must "sharpen up" its reform of procurement, after "throwing away" £33m on botched changes.

This follows a report from the National Audit Office (NAO), Reforming Defence Acquisition, which examined the MoD’s plans to improve the skills of Defence Equipment & Support (DE&S) staff, its systems and the way it interacts with the armed forces.

The NAO concluded that improving the performance of DE&S remained the most challenging part of the department’s strategy, although progress has been made.

“There is now a clearer separation of responsibilities between the commands, which request equipment, and DE&S as the organisation responsible for delivering the equipment,” the report said.

It also outlined how the department had spent two-and-a-half years and £33 million trying to implement its preferred option of a government-owned, contractor-operated (GoCo) model to reform DE&S, before it was deemed undeliverable and halted in 2013.

Despite this, the department gained a better insight into its business needs, where key skills are needed and how staff spend their time, according to the NAO. But it added the MoD needed to monitor the new DE&S model of a bespoke trading entity, which allows the department to retain greater control over DE&S, to make sure it was delivering acquisition reform.

The ability to track the benefits of investing more than £250 million with private sector companies over the next three to four years will be essential to allow the MoD to take any additional measures necessary to improve performance, the NAO said.

“DE&S now needs to demonstrate how, as a bespoke trading entity, it will address systemic weaknesses in defence acquisition to ensure the MoD can deliver an affordable equipment programme and sustain this over the longer term,” said NAO head Amyas Morse.

Margaret Hodge, chairman of the Committee of Public Accounts and Labour MP, said the ministry’s plans to set up a government-owned, contractor-operated company for kit purchasing had “failed disastrously”.

“Making defence acquisition better is vital to national security and so it is deeply concerning that the Ministry of Defence has got it so badly wrong, throwing away £33 million of taxpayers’ money on botched reforms.

“Poor governance and unclear messages on how risk would be shared between the government and private sector meant that its competition to run the GoCo failed disastrously with just one contractor putting in a bid, forcing the Ministry to keep its defence acquisition company in-house.”

Hodge also said she worried the ministry’s recruitment of expensive contractors had cancelled out the savings it achieved by cutting permanent jobs, and that value for money was still uncertain. “If it is to be successful in reforming defence acquisition, the Ministry needs to sharpen up and address criticism that it is inefficient in how it uses the skills of its staff.”

Responding to the report, defence minister Philip Dunne said: “This report acknowledges the real progress that has already been made in reforming defence acquisition, including stabilising and improving the affordability of the equipment plan. We are not only improving performance through project delivery, but also transforming the way we undertake defence acquisition. Of the £33 million which the NAO identifies, £25.4 million was money well spent on informing the establishment of DE&S as a bespoke trading entity. The £7.4 million spent on the GOCO option represents 0.6 per cent of the annual cost of running defence procurement.”

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