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Defence Acquisition

My Lords, I thank the Minister for repeating the Statement. We welcome this report; it has been long awaited. We are also delighted that Bernard Gray has agreed to help the MoD to implement many of his recommendations. At a time when we are at war, the findings of the Gray report reveal more than just financial mismanagement. The leadership vacuum created by this Government is on display for the entire world to see. Our brave troops in Afghanistan are suffering the worst consequences. The report expresses what many observers of the defence procurement process have long believed: the procurement system is dysfunctional. The net result has been to damage the efficiency of the Armed Forces, as they do not receive the equipment that they need when they need it. All those involved in the defence procurement process will welcome both clarity and predictability in the way in which the Government engage with industry, the MoD and the Armed Forces. Our service men and women surely deserve the best equipment that we can give them, just as the British taxpayer deserves the best value for their taxes. Some of the most troubling facts revealed by the Gray report are that the average procurement programme overruns by 80 per cent, increases by an average of £300 million and creates a host of additional costs to the MoD. As the report states, the MoD equipment programme is, ""unaffordable on any likely projection of future budgets"," or spend profile. Too many types of equipment are being ordered for too large a range of tasks and at too high a specification. As the report observes, defence planning is not conducted in tandem with the costing of options. The Government’s poor financial planning allows them to promise more defence capabilities than the MoD can afford. The Minister gave a pledge, reported in the Financial Times on Friday 16 October, to, ""implement most of the recommendations of this report within six months"." Can the Minister reassure the House that this will be the case and that this report will not suffer the same fate as the Government’s defence industrial strategy, of which the Minister was the chief proponent? Of all the recommendations, the key one seems to be proposed reform within the DE&S. The report addresses the fact that existing commercial practices and project management are inadequate; there is a blurring of roles and accountability between the identification of capability and the ability of DE&S to deliver it. What steps will the Government take to address this deficiency? Will the Government identify those programmes that they deem no longer meet the requirements for current or projected operational scenarios? Is it not better to be honest with defence contractors that keep design teams going at some considerable cost? Could the Minister elaborate on how the Government will clarify the roles between the capability sponsor, the customer and DE&S and the efforts to improve commercial skills within the department? Aspects of MoD accounting and process would not be countenanced in a private sector organisation—for example, the exclusion of costs from the planning process and the refusal to use external commercial lawyers to approve contracts before signing. The report makes it clear that the costs of delay or programme changes are not measured in any systematic way and there appears to be a lack of programme management and commercial and financial skills at the DE&S. However, the Government have already declined to accept the report’s recommendation that the DE&S should be changed into a separate, publicly owned, contractor-operated body, with private sector management drafted in to get to grips with the MoD’s cost overruns and programme delays. Will the Minister explain more fully why this recommendation was rejected by the Government? I understand that there were concerns that the military’s role in the purchase programme would be removed, but this seems strange, as the report recommends that military personnel remain integrated in secondary positions. Does the Minister agree with the report that, while many of the problems in acquisition have occurred for a long time, "smart acquisition" has had a limited impact in improving the situation? Finally, despite their importance to industry and the UK economy, the Statement makes no mention of defence exports, which were discussed in the report, particularly the French aspect. What is his department doing, in the light of the comments on defence exports, to maximise exportability of UK defence equipment?