RUSI/Cranfield University: acquisition reform conference

Speech by Bernard Gray, Chief of Defence Materiel.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
Bernard Gray

I would like to add my own appreciation to that of others, and say that it is a great privilege and a pleasure to work with you on the vital task of acquisition reform.

You approach this difficult issue with insight, courtesy and determination: a great combination when change is needed. Your support for the MOD, for DE&S, for our industry, and in support of our exports has been remarked on by many, and is admired by all.

I last spoke at a Shrivenham acquisition conference almost 2 years ago, when my report had yet to be published. Then, I shared with the audience some of my key conclusions. I am sad to say that these conclusions were subsequently leaked to the media.

Of course, I was sad that the information itself was leaked, but mostly I was sad that the poor quality PowerPoint slides that someone had made to try to explain my conclusions to others were passed off to the BBC as being my work. I’d never be seen dead producing that kind of low quality graphics.

But whether in tawdry black and white or glorious Technicolour, the conclusions of that report are now, of course, a matter of record. In some senses, it is a matter of history.

That “bow wave” of impending costs that I demonstrated was about to descend on the MOD has now crashed down upon us. And it has done so at precisely at the worst possible time; when the government has to retrench more generally, when money is so tight.

Sadly, the impact of this perfect storm is all too clear. Key capabilities have had to be cut, important programmes cancelled. Many good and capable crown servants are in the process of being laid off. It is a grim picture for all of us who care about the robust health of the UK’s armed forces.

No part of this reduction is welcome, and indeed the government has made clear its distaste of the action it has had to take to balance the budget. But the worst example of what has had to happen is, in my mind, the fate of the Nimrod MRA4 programme.

It is not because I have a particular view about the importance or otherwise of this capability; I leave that well-worn fight to others. It is because the MOD will have spent £4 billion on this capability over the past 15 years, and ended up with nothing.

That is the worst indictment of the defence programme I can imagine. Just think of what capabilities we could have had for that money: imagine the number of aspects of defence that could have been improved. Or perhaps, don’t. To do so may be too disheartening.

That the programme had to be abandoned, I have no doubt. The MOD simply could not afford to carry on with that capability, alongside all of the other priorities in the defence budget, and with the limited cash available.

No, I am not cross because the programme was stopped. My ire is raised because the situation that gave rise to the expenditure of £4 billion on a programme we could not afford was predictable. This disaster could have been avoided if action had been taken earlier.

It is the exemplar par excellence of what happens if the department lives beyond its means. Put simply, if you start more things than you can afford to finish, then sooner or later you are going to waste money by having to cancel some of those projects.

And what is worse, you will probably waste money on all of your projects along the way because you will slow everything down in a brave attempt to stave off the inevitable.

My report made a number of points, some say too many. The MOD helpfully, and accurately I think, boiled this down into 2 key principles.

First, the MOD must balance its budget over the short, and even more importantly, the long term. We are in a long term business, and we must plan for the long term. We have to be realistic and clear-eyed about what our programme will cost, and we have to balance what we are planning to buy against the cash we are likely to have.

Second, we must make sure that DE&S is well set up to acquire and support the equipment within the plan. We have to be able to deliver.

These 2 tasks are, I believe, the principle focus that Min(DEST) and I will have in driving forward acquisition reform in the years ahead.

So, how is the MOD doing so far? Well, I am pleased to say that the department has made considerable progress on both fronts since I gathered the data for my report 2 years ago.

First, the programme is more realistically costed now than it was then, and painful actions were taken in the SDSR to address the bow wave in the programme. This process is not yet complete, as both the Secretary of State and Min(DEST) have made clear on a number of occasions, but a decisive start has been made.

In parentheses at this point, I should like to say that I personally have little or no time for those who have criticised the SDSR for making cuts in the defence programme. I believe that ministers and officials have been brave in tackling the problem left to them, and that they have shouldered their responsibilities admirably in acting as they have.

When confronting the financial picture faced by the MOD, the new government faced 3 choices: to find more money, almost impossible with a budget deficit in excess of 10 per cent of national income; to pretend, and so to visit further “Nimrods” on a badly-served MOD; or to act courageously to take on the issue.

I am glad to say that the government chose this last course. It is, and was, the only responsible way. Unfortunately, as ministers have made clear, we are not yet at the end of this difficult and undesirable process. The current budget round, and probably the next few, are going to be extremely difficult for the MOD, as it seeks to get its budget fully back under control. It is not quite “blood, sweat, tears and toil,” but it is certainly going to be “hard pounding gentlemen”.

In this regard, the task of defence reform, and indeed the test of its success, must be to see whether the defence budget cannot just be balanced, but that institutional mechanisms must be put in place to ensure that it remains balanced into the future. As I know only too well, it is one thing to take weight off, it is quite another thing to keep it off.

My report recommended a number of actions which I felt would achieve this effect: from placing responsibilities on the Permanent Secretary, through to an executive committee of the board, to 10-year fixed MOD budgets and mandatory quinquennial defence reviews.

It is with some disappointment that I have to observe that many of these measures have not been enacted. And while this is an art, not a science, and there may be many ways to resolve these problems, I do not abandon my views of the way forward until I meet a better model.

Genuinely balancing this programme, and keeping it balanced so that the organisation has a fighting chance to deliver what is asked of it, must be the overriding test of this aspect of defence reform. I look forward with eager anticipation to what Lord Levene will bring forward. But if the team struggles for a model, I can always point them at my report….

A balanced and well-costed programme has to be the cornerstone of success for the MOD. I make no apology for repeating the point, because without achieving this outcome, little else is possible.

We can try to improve skills and processes within DE&S as much as we like, we can splint and tourniquet the system as much as we wish, but in the end, cost growth and time delays will burst out like damp through a repainted wall.

Let us assume, therefore, that this difficult work of bringing the defence budget into balance has been achieved fully. No mean feat, as I have said, but let us make it so, at least in our mind’s eye. What then? What next? What more do we need to do to improve the performance of the MOD?

Well, I move on to the second point in the department’s summary of my report. We have to equip Defence Equipment and Support to enable it to be able to deliver.

In this arena, as in others, I made recommendations for change. Much attention was focused on the GOCO proposal, which I am pleased to say, gathered almost universal approval, falling just short of any actual support.

There are reasons I made this recommendation, which we could discuss if you wish. Even though it seems to me extremely unlikely that this idea will be pursued, given the lack of support it received, there is, nonetheless, a need to realise the objectives it sought to achieve.

I made the point in my report that key disciplines have been downgraded over recent years in the name of saving money, and that the erosions of these functional skills harms the ability of DE&S to deliver. Most saliently, and ironically, our cost-estimating teams have been run down over the past decade, removing our ability to complete that most crucial of tasks, estimating the size of programme we can afford.

I also observed how finance, engineering and project management skills had not had the prominence they deserve.

Happily, as with the point about the size of the programme, I am pleased to be able to report back that good progress has been made in the course of the last 5 years.

The Cost Assurance and Analysis Service within DE&S is in the process of being rebuilt and reskilled, to allow us to cost our projects fully. It is absolutely vital that these people have the freedom to advocate their “should cost” views without fear or favour. I intend to back this effort to the hilt.

Investment has also been made in the finance function of DE&S, to bring greater financial modeling skill into the organisation.

I intend to build on this success. I will give greater prominence and control to the finance, commercial, engineering and project management functions. I intend to build skills in risk management and project control.

The line management of individual projects will remain strong, but the functional skills that are needed to actually deliver the outcomes need to be built up if we are to succeed.

It is right that an orchestra needs a conductor, but it also needs the disciplines of strings, woodwind, brass and percussion if the symphony is to be played. And each of those disciplines needs leadership, skill and development if it is to shine.

Work is in hand to look at this and other issues within DE&S. Over the next few months a team, under the leadership of General Chris Deverell, will be re-evaluating all aspects of DE&S’s work. This is part of a commitment I made to the workforce when I first arrived, that I would work with them and seek their views about the way forward, before making major changes within DE&S.

I have also asked the team to look at the relationships between DE&S and MOD Centre, the front line commands, and industry. I have invited them to look at other large scale procurement and support organisations. I will be encouraging them to explore the skills and secrets of other project management organisations.

In some ways, this will be to re-walk a path I trod in my own studies of 2 years ago. But again, I make no apology for this. In part, because this team may discover many things I missed. In part, because even if they do not, it is only right that the staff of DE&S have the opportunity to explore the ground I have covered, and come to their own views about the best way forward.

Along the way there will be a synthesis of the independence that outside views bring, along with the expertise that in-house experience offers. I know that everyone is working diligently and co-operatively towards the best possible outcome for the organisation.

Two main thrusts, therefore in acquisition reform. A deep commitment and drive to balance the budget, and to find ways to keep it balanced, and a thorough and collaborative approach to bringing best practice into DE&S so that it can confound its critics and be justifiably proud of what it delivers to our armed forces.

Before I close, let me touch on 2 other issues. First, the proposed reduction in numbers within the Ministry of Defence as a whole, and DE&S in particular. This will certainly make it harder to deliver a better output, not least because some of our brightest and best may be tempted by severance packages and a career in the private sector.

We will have to strive to avoid losing our talented people in these difficult days. And it may be that this whole process forces us to a fundamental re-evaluation of those services the organisation provides.

But I would also say this: less does not always mean worse. Sometimes involving too many people complicates decision making and slows down progress. Placing power and responsibility in fewer hands can be motivating and liberating, if we have the confidence to do it. Ironically, we might actually be able to deliver more satisfying and productive careers to those who stay with us, than we have been able to in the past.

There is a linked point: a great deal has been made by the Defence Reform Unit about accountability. I’m fine with that. Indeed, sometimes people accuse me of taking responsibility for things that are not mine to run!

Yet to be properly accountable, one also needs the power to act. Too often in government we seek to find someone to blame, only to find out that so many people had a finger in the pie that it is impossible to hold anyone to account.

If there is a real desire to change this, then I think this would be for the good. But I would urge those involved to understand the full implication of their statements. Accountability has to be matched with decision-making power or it is nothing more than show.

But accountability with power is a fantastically energising force. It could transform the way that business is done within the whole of government, not just the MOD. If it came to pass, it would make the lives of those given the power to act far more rewarding. Making such a profound cultural shift within government will take huge effort and courage. If it were done, though, it would unleash great spirits.

All of this will be hard work, but success would be so self-evidently worthwhile that it has to be worth all of the striving. There is real excitement beyond the difficulties of today, much to look forward to. We have much to be proud of already. Let us make the future something to shout about.

Published 15 March 2011