Why is UK defence procurement so bad?

There is a long and depressing history of incompetent UK defence procurement, resulting in cost over runs and late delivery and poor equipment.

And we seem never to learn. Nothing appears to get better.

Why?

Well three little letters for you to give you the answer, MoD.

I don't know how good they will be at running a major war, if it happens as people are speculating, but if it's done as competently as their procurement, we may as well surrender now.

Let's examine the UK Ajax programme, which is now scheduled to enter service in 2027, nine years behind schedule. The programme was paused by the MoD after encountering significant issues. Ajax is touted as "an advanced, fully digitised land vehicle system that delivers transformational change in capability to the British Army."

Unfortunately it suffered from excessive noise and vibration, causing temporary hearing loss and aching joints in crews.

This in turn impacted on time spent by crews on the platform and a speed limit of 20 mph, when the platform has a top speed of 40 mph.

It has also been claimed that the "vehicle cannot reverse over an obstacle more than 20cm high". 

Defence experts say many of the problems stem from additional armour protection being put on the original hull, which has seen an increase in weight, which just over doubled from 19 to more than 40 tonnes. 

In addition programme costs have risen from £3.5b to £5.5b.

The MoD now claim the programme is back on track, but at one stage binning the whole programme was seriously considered, which would have meant £5.5 billion wasted for no return. Just think for a moment, a programme so bad, the MoD seriously considered and were advised by several bodies to scrap the programme, as the Platform wasn't worth rescuing.

Whilst the Ajax programme was a particularly poor programme, it doesn't mean its problems are unique. So what goes wrong with these big budget programmes? Well lets give an insiders view of events.

Firstly it is not uncommon for the MoD to not know what it wants when placing an order!

The assertion may seem extravagant, so allow me to elaborate. Indeed, it will recognize the need for a Tank, an Aircraft Carrier, or an Airplane, but the specifications must be defined with much more precision, such as operational capabilities, not only for the platform's main body but also for all the sub-systems that comprise it. For an aircraft, what is its role? What speed must it attain? What defensive subsystems are necessary? What about helmet functionality, radar capacity, IRST systems? Is stealth a requirement?

Now obviously the MoD is aware of this and during the bid phase looks to industry to help resolve these requirements. Typically it needs some guidance as to what is possible. Its a process not an event. But even allowing for this it is not uncommon for there to be some outstanding issues at contract award.

It is also not uncommon for there to be changes to agreed requirements which can have a big impact on delivery and cost. For example on the Carrier programme the MoD/Navy spent a lot of time getting tied up in knots over the catapult system for launching the F35 aircraft. 

What launch system to use? Would they buy the vertical take off variant of the F35 and use the ramp system? Would they use the well tested steam system or the the new electromagnetic system now deployed on USN Carrier Gerald Ford?

The MoD's inability to make up its mind led to the issue impacting on cost and delivery time.

Secondly the MoD typically seems hell bent on making the programme as expensive as possible. Yes it uses competitive tendering, yes it audits the costs and yes it gives itself the contractual right to impose price reductions if it feels the price has too much mark up.

But otherwise it seems to do everything it can to make things more expensive then necessary.

Lets start with the tendering process.

Following numerous promises and delayed dates, the MoD will ultimately issue the tender requirements. Even at this preliminary phase, the delay in the programme could impact the pricing. It will hinge on whether the supplier has been compelled to hire or relocate staff to commence work on the programme.

The probability is that pricing will be impacted, particularly on the bigger programmes.

In a large program, there can be numerous staff members involved. This includes Engineers, Program Managers, Project Managers, IT staff, Quality Assurance staff, Procurement staff, Test Engineers, Finance staff, and Directors, all awaiting the green light to provide a properly costed, competitive, and compliant quote.

And with all these people waiting for programme go-ahead, costs are already growing before the tendering process has even begun.

Of course the MoD has an answer to this. Contractually it denies the supplier the right to payment of costs associated with the quote process.

Well one word for you 'Overhead'. The MoD is always complaining about the amount of overhead suppliers include in their pricing. However as the MoD is one of the major reason why overhead tends to be so high, they can only have themselves to blame.

Let me explain. For reasons best known to itself, the MoD always asks for aggressively fast turnaround times on the quote. Now when UK forces are either preparing for, or are on active service this makes sense as usually these urgent requirements are to fill important capability gaps that typically have been known about for some time. And there is a process for this, it's the UOR or Urgent Operational Requirements process.

And in the main it works. All of a sudden the MoD finds the ability to operate in a proactive manner, make the required decisions and works closely with it suppliers. The only real problem is it tends to be expensive, But at least the kit is ordered and delivered, if possible,  in a timely manner.

The tender package often implies an almost aggressive need for speed in non-UOR quotations, which is usually unnecessary. For suppliers, the critical dates are the 'Quotation Required By' date and the 'Contract Award' date. Despite the urgency indicated by the quotation requirements, it's a safe bet that the contract award date will be postponed, not just once but multiple times, and the final date may be years beyond the original schedule.

And all of this is very expensive and the costs of this need to be covered and it is typically covered by overhead.

Another negative consequence of an aggressive quotation deadline is that the requirements may often remain incomplete. Furthermore, despite uncertainties in the program, the pricing provided in the quote will usually be aligned with the customer's expectations, in the hope that any issues can be resolved after the contract is awarded.

Anyway the Contract award date comes and goes and eventually the MoD will announce that the quotations are unacceptable and will need to be redone for x, y or z reasons. 

And to 'minimise' programme slippage an even more aggressive and ridiculous quotation date will be set. And this process may well happen several times with the pricing and delivery dates supplied becoming ever more fanciful.

The additional programme costs will not be fanciful however. This frequently leads to avoidable additional costs in the millions.

And contrary to what the MoD says, the cause has little to do with the prices. It's more to do with the Minister, the MoD and the treasury having an ongoing fight as to whether the kit is required, how much is required, when it is required and finally cost of requirement.

The treasury usually wins.

Remember when bidding for a contract, the Supplier will often fail to win the contract more times than it wins it. And there is nothing wrong in this, this is how it should be, but for the benefit of all parties the MoD should be more aware of the large costs imposed in the tendering process and should work harder at helping to minimise them.

All parties would benefit.

Now I know what you are thinking, why is the supplier willing to supply prices that it believes to be fanciful or at least very difficult to achieve?

Well there are various reasons. 

Firstly the Supplier will be confident that the MoD will change its mind. On requirement, on quantity or on delivery date. All of which provide an opportunity for the Supplier to increase their prices. 

On a big programme this is almost a slam dunk. One or more of these things will happen.

In a complex program, it is almost inevitable that there will be outstanding requirements needing further definition and agreement. Eventually, these issues will be resolved, requirements will be clarified, quantities will stabilize, and the delivery date will become fixed. However, supplier prices are likely to increase, as the final agreement often represents a change from the original requirements.

And finally, and this one will surprise. Very often the supplier may not really care that much about the design, build and deliver platforms element of the programme, It will even accept with a certain equanimity that they will make a loss on this part of the programme, because this element is only a means to an end.

The end being the support contract and very often that is where the real money is. A lovely long contract, with pricing based on algorithm's created by the supplier. I know of a support repair contract where for the period of the programme, not a single repair was done under warranty, but were all done at the MoD's expense.

Squaddies are typically not very gentle with their handling of kit. 

However this is not what the algorithm's suggested would happen, but had the happy consequence, at least for the supplier of making extra profit. 

Support contracts are much beloved. They tend to go on for years, there is a large mark up on them, the risk is low, the costs are low and the contract is usually easy to supply too.

There are a lot of causes of cost and delivery over runs. A lot of them customer caused. So let me finish with a final example. This time on an international joint programme.

These programmes are meant to supply a way for nations to develop a capability, lets say a fighter aircraft, that they couldn't otherwise afford. A lot of time is spent dividing the programme amongst the various partners, with each partner looking for design and build work. 

On a particular programme one of the partners declined to be part of one of the elements, it believed it could do it cheaper alone. 

It was discovered that it could not proceed independently and eventually requested to rejoin the element that the other partners had been successfully developing. Naturally, this partner sought a share of the work in the program. This resulted in redesign efforts, delays, and the mandated use of equipment that replaced the original design's equipment, which was known to be less effective and more costly.

And indeed, it is the taxpayer who bears this cost.

Do joint ventures succeed? The French, opting out of the Eurofighter program early on to develop their own Dassault Rafale, present an interesting case. It would be brave to assert that the Eurofighter is a significantly superior aircraft. It is known to be more costly to purchase and operate, meaning higher costs for airtime. Additionally, the development costs were higher for the Eurofighter joint venture, and the program experienced longer delays.

Moreover, it appears that more countries are inclined to purchase the Rafale over the Eurofighter.

Hence, the evidence might indicate that the Joint Venture model does not always deliver the hoped for advantages.

Which we should have learned from the earlier Tornado programme. But learning from experience appears to be beyond the capability of our governments.

Here at least the MoD can't be solely blamed, the major cause of cost overruns on the Eurofighter are the Governments. 

And ultimately even with our own UK programmes it is the Governments inability to get a grip of the problem that means the same issues keep reoccurring and programmes continue to be late, over budget, with sub standard kit.

So what have they done? Well they now have a larger number of people involved in the sign off approvals process. Based on the logic that if three people cant complete the necessary review adequately, then having x-times more, will surely work.

Its not proving successful so far. Which is no great surprise.