The Defence Reform Unit is being set up under Lord Levene to oversee the changes outlined in the speech below.
The DRU will work with the Permanent Secretary, Chief of the Defence Staff and the Service Chiefs to find ways of devolving greater responsibility for the running of the Services themselves.
Lord Levene will therefore have tremendous power and this will no doubt ruffle some feathers, which is always a good thing but what are his qualifications for the job of reforming the basket case that is the MoD that can quite happily spend money on dubious nonsense like diversity conferences, can’t even run its accounts without having them qualified by the NAO, repeatedly wastes money on farcical procurement programmes and until very recently could not even properly clothe its own soldiers.
From the Telegraph
London-born Levene was introduced to the City’s quaint customs while at school in the Square Mile, but rather than join the family silver business he studied economics at Manchester. “I wanted to go to Cambridge but I was too stupid,” he says, self-deprecatingly. Then at 21, he joined United Scientific Holdings, selling army surplus telescopes and watches on London’s Tottenham Court Road.
He built the 20-man firm into a major quoted company. “We went legit by buying real manufacturers,” he explains. Acquiring the Alvis tank business helped turn United Scientific from a MoD customer into a supplier and Levene so impressed defence secretary Michael Heseltine he was made head of defence procurement.
The scandals of the Tigerfish heavy torpedo and Nimrod AEW aircraft bought about by inadequate ‘cost plus’ contracts led to the appointment of Levene as Chief of Defence Procurement in 1985. Like a new broom sweeping clean Levene revolutionised the procurement processes in the MoD. A much more adversarial and commercially hard nosed culture was introduced, gone were cost plus contracts and in came fixed price contracts with severe restrictions on the interaction between the MoD and suppliers once the contract had been awarded.
This limited interaction meant that opportunities for scope creep were reduced, scope creep being anathema to fixed price contracts. It also meant that any government funded research into relevant technologies could not be fed into ongoing programmes and led to the rise of the commercial, rather than technical skills family.
Behind these reforms was a fundamental misunderstanding of the reality of defence programmes, whilst fixed price contracts might be OK for spare tyres or ammunition, they are wholly unsuited to complex programmes where there is significant technical risk and the dogmatic approach lead to an increasingly fraught relationship between the MoD and industry. Because of the need to nail down every aspect of a requirement, requirements documents and contracts grew increasingly complex and tested the capabilities of the MoD, competitions became slow and unwieldy which damaged both the customer and industry.
Open competition and fixed price bidding also encouraged under bidding and this became endemic as almost every contract was bid low. Cost and time overruns were as common with this method as before as fixed price contracts were always renegotiated after the fact and any cost savings, however they were trumpeted as a success, were in the vast majority of cases, achieved by de-specifying, delaying and reducing quantities.
Nothing very clever about that.
If a fixed price deal stays the same but delivers less, it isn’t really a fixed price deal and political and regional interference made a mockery of this approach anyway, step forward Westlands.
A number of serious scholarly research papers exposed the impact of this approach not only on the MoD but industry as well, the approach massively favoured US manufacturers because whilst in this brave new world of competitive tendering and fixed price deals UK companies had to compete with others, mainly the US, who benefited from US government funded research programmes. There is a very good reason that US systems appear to be cheaper, that is because they have a much larger market in which to generate economies of scale and benefit from a government funded research environment that dwarfs that of the UK.
The net result of the Levene Reforms was a transference of risk from the MoD to industry, industry responded to this by merging and entering into partnerships that would have the critical mass to accept these risks.
US companies started making serious inroads into the UK defence market, like General Dynamics for example, winner of the recast BOWMAN contract in 2001. The old situation where we had a small number of companies that made the same things has been replaced with a situation where we have an even smaller number of companies that still make the same things, only more expensive. The desire to increase competition resulted in less of it.
Faith in market forces as the saviour to the MoD’s acquisition woes was completely misplaced, buying complex military equipment is simply not the same as buying paper clips.
When the Labour government came to power they inherited a much worse situation than they left, many people conveniently forget that in the rush to call the MoD not fit for purpose. In 1998 the Levene Reforms were cast aside in favour of Smart Acquisition where the less adversarial approach of partnering was introduced.
In evidence to the Defence Select Committee in 2006, Lord Levene argued;
“we did get value for money. We did get projects, almost without exception, delivered on time and on cost”
The National Audit Office reports on major projects for that and subsequent periods paint a somewhat different picture, in reality, lower costs were produced by less quantity and lower specification.
What of the others in the DRU?
Baroness Sheila Noakes, George Iacobescu, Dr David Allen, Björn Conway, and Raymond McKeeve
- Baroness Sheila Noakes, conservative politician and formerly head of KPMG’s government practice.
- Björn Conway is head of aerospace and defence at Ernst & Young
- George Iacobescu is the Chief Executive of the Canary Wharf Group
- Not sure about Dr David Allen and Raymond McKeeve but from initial research, I think the latter is a lawyer
An interesting group, obviously high performers in their respective industry sectors but a little light on military or security expertise. Maybe this isn’t a bad thing and having experience of transformational programmes in other large organisations is exactly what is needed.
Can’t help feeling a little dejavu about this though.
You might also want to have a read here but I will leave you with these two statements from the new man in charge of Defence reform, the Chairman of General Dynamics UK and former President of the Defence Manufacturers Association.
“We are delighted that the MoD has selected ASCOD SV for its SV programme, a decision we believe will sustain the British tank industry for future generations!
“WATCHKEEPER is a central program to the future ISTAR growth strategy of General Dynamics U.K. Ltd, and is viewed as an essential project in shaping the direction of our organization and the synergies with our existing U.K. business is clear”