Defence procurement ‘broken’ and needs 'root and branch reform', MPs say

MPs warn of "optimism-bias" budgeting, cycle of costly delay and failure, and skills shortage
The Ajax armed vehicle has been one of the MoD's most troubled procurment programmes. Photo: Ben Birchall/Pool via Reuters/Alamy

By Tevye Markson

19 Apr 2023

The defence procurement system is “broken” and needs “root and branch” reform to break a cycle of costly delay and failure, MPs have said.

In its latest report on the Ministry of Defence’s rolling 10-year equipment plan, the Public Accounts Committee says it has serious doubts about whether the plan is affordable, agile and responsive enough to react to the “new more volatile world we face now”. 

The report says that the plan suffers ever year from a "cycle of costly delay and failure". These issues are amplified by Russia’s invasion of Ukraine, but the plan has failed to reflect the lessons emerging from Ukraine, MPs said. Without swift action to fix the issues, the department may not be able to meet its Nato commitments, the committee added.

The report also warns that the MoD still does not have the skills it needs to deliver the plan.

Deputy chair Sir Geoffrey Clifton-Brown told CSW the same issues have been cropping up every year since he joined the committee nine years' ago.

“Nothing has changed in the nine years that I've been on the Public Accounts Committee,” he said.

“We've done one of these sorts of reports on virtually the same issues every single year. But the reason this report is even more critical is that we now face a much more dangerous world. So it's of absolutely paramount importance that the MoD actually produces a defence plan that is affordable, agile and adaptable, and gives our armed forces the proper equipment on time and on budget.

Affordability claim 'suffers from optimism bias'

The report questions the MoD’s assessment that the equipment plan is affordable, saying the department suffers from “optimism bias”.

It said the claims of affordability are based on potentially over-optimistic assessments of project costs, pointing out that the department’s cost assurance and analysis service estimated that the plan could cost between £5.2bn and £14bn more than budgeted for.

The report says the MoD has “ignored” external cost pressures such as inflation and foreign exchange movements in its budgeting, despite identifying during the production of the plan that inflation could increase project costs by up to £2.1bn.

PAC also expressed doubt that the department can achieve the £13.8bn of savings earmarked in the plan, £5bn of which it has not yet developed plans for.

Earlier this year, defence secretary Ben Wallace described efficiency savings as a "sort of fantasy", calling instead for the MoD to receive more "real money". The department has subsequently received an extra £5bn in a refresh of the 2021 Integrated Review.

It said the department should in future set out the affordability position of its plans as a range, based on a full assessment of internal and external uncertainties.

Clifton-Brown said the department needs to start putting together plans that fit the budget it receives from the Treasury.

“There's always been an optimism bias built into the equipment plan,” Clifton Brown told CSW.

“They then say they haven't got enough money, they then go to government and ask for more money. That is not the way it should be done.”

'Pay and will needed to solve skills shortage'

Clifton-Brown told CSW one of the main issues preventing procurement from overcoming the cyclical issues that keep cropping up is a skills shortage “in every discipline”.

MoD officials told PAC the department and its supplier does not have enough data scientists, software engineers or project managers, putting programmes at risk.

Solving this is partly about pay and partly about will, Clifton-Brown said.

“Of course you need to pay people properly, in particular where the skills are in high demand, like digital skills, which there are a national shortage of, of course you've got to pay at least the going rate for the job,” he said.

“That sometimes is hampered by civil servants' pay rates. But it's also a willingness to go out there and really start recruiting people, which I don't think we've seen that that real drive to do that. “

He said the department also needs to procure better legal skills, as currently defence equipment manufacturers are able to produce better contracts or better amendments to contracts to suit their interests.

The MoD also needs senior responsible owners of projects to stay for the length of the project, Clifton-Brown added.

But he said fixing the system also needs political will.

“20 years ago we had a man called Lord Levine who was brought in to sort this out,” he said. “He did sort this out and yet now the procurement programme has gone back to its same bad old ways.”

'Get tougher' on defence suppliers

The department also needs to start being tougher on defence suppliers to stop programmes from going over budget and being delayed by years, Clifton-Brown added.

"There is an awful tendency in the in the MoD to keep changing the specification after we procured made the initial procurement specification," he said.

He pointed to the Ajax armed vehicle programme, which is mentioned in the report as an example of programmes “beset by problems and delays”.

“Ajax has had goodness knows how many different changes to the original specification it was originally bought at,” he said. “We've got to stop this. If it isn't delivered in within a certain period of time, it should be cancelled. We should be much tougher with our defence suppliers.”

A Ministry of Defence spokesperson said the department does not "recognise the broken procurement system painted by this report".

"The department routinely assesses time, cost and risk factors on all projects, and delivers the vast majority on time and in budget, and we have made numerous changes to improve procurement practices where projects have fallen short," the spokesperson said.

"Some of these projects are decades long, and many of our reforms will take time to deliver results.”

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