09:00, 15 Mar 2011
Defence Academy of the United Kingdom, Shrivenham
I'm delighted that RUSI and Cranfield University have come together to bring us this important conference on acquisition reform.
It's a seamless match.
Bernard and I will try to do justice to that ethos of seamlessness as we open this first session...
That's because, together with Lord Levene, we are the coalface team that the Prime Minister and Liam Fox have charged with responsibility for making Defence acquisition work.
We have an enormous opportunity.
Genuine acquisition reform will mean better value for money for the British taxpayer; greater stability and clarity for industry; and our Armed Forces will have the equipment they need, when they need it - now and in the future.
We also have two enormous challenges.
First, even in the best of times, Defence acquisition is not easy.
Procuring and supporting everything from the most basic supplies to the most complex engineering and technology on the planet, and deploying and supporting it in the harshest global conditions, is a task of epic proportions.
We spend £20 billion on contracts each year, or 54% of the core Defence budget - though of course much less than that is on actual equipment.
Contrary to public perception, we deliver the vast majority of around 2,000 equipment and support projects at any one time to performance, time, and cost.
Well over 80% are delivered to time, and nearly 90% to budget.
And the work that our people are doing, supported by industry, is saving lives as I speak.
Yet whereas 90% success would be welcomed with open arms in the private sector, in the political world it is the 10% failure that the likes of Jeremy Paxman and the editors of national newspapers focus on.
And they understandably focus on the extremes: billions wasted, or scrimping on kit that costs pennies - or £22 spent on a light bulb!
This is not just a political problem for Ministers.
However unfair the concentration on failure, all of us in Defence acquisition recognise that the 10% spent unwisely or wastefully is taxpayers' money, and it's a large sum of money.
In the public sector, we have to strive for 100% success.
But our second major challenge is that these are emphatically not the best of times.
Since we came to power, the Government's unavoidable and overriding priority has been deficit reduction.
I've said it many times but you can't defend a bankrupt country.
The MoD has its own very serious challenges too.
As the Chancellor said, Defence was the "most chaotic, most disorganised, most over-committed" budget he had seen, and we inherited a Defence programme with a huge black hole of £38 billion over ten years.
The constant postponement of difficult decisions which would balance the budget; the lack of transparency and accountability; and what's been referred to as "a conspiracy of optimism across the Department, involving politicians, the civil service, the military, and industry" are the root causes.
So it won't be enough to get the equipment programme back into balance - we must also embed permanent cultural and behavioural change.
We are making headway against that gross over commitment of our budget, but we are not there yet.
And underlying all of this is probably the most difficult challenge we face - perception.
We know from the regular polling we do of MoD and Armed Forces personnel that over 75% say that the equipment our Armed Forces have today is good or satisfactory; and the score is on an upward trajectory.
Rightly, members of the Armed Forces will never be satisfied - they should always expect more from the equipment and supplies we give them - but this is a hugely encouraging indicator.
Yet polling suggests that barely 30% of the general public think our Armed Forces are well equipped, and the figure drops to almost 20% when asked about the equipment our forces have in Afghanistan.
We have to address this huge gulf between perception and reality head-on.
That's why Bernard and I want to start a new course, and start a new dialogue.
We must regain the British public's trust by being honest with ourselves and with them.
When we say we will do something, we must do it.
When we're at fault, we must admit it and strive never to repeat it.
And when we're good at something, we should celebrate it and the critical difference in capability - or affordability - that it brings.
We need to demonstrate that we understand the problems; that we have the right plan in place; and that the plan is working over time.
It's rather like restaurants, where reputation is everything.
Just one or two instances of poor value for money; food that's cold or late; appalling service and no-one accepting responsibility, and it can take years for an unhappy diner to be persuaded to return, if ever.
They don't want to know.
And the news spreads like wildfire.
The basic problem we face is the same: the public have stopped listening.
The public perception - indeed assumption - is that their money will be wasted.
That's why Bernard and I are going to bring real change to the way that the MoD does business.
Of course, turning round a super tanker heading for the rocks takes time.
But it has to be done.
So does changing entrenched perceptions.
I know - in opposition, my perception of Defence mirrored that of the public.
I was a card-carrying member of the 20-percenters.
Like most people, I had huge respect for the Armed Forces, but also like most people I thought that the MoD's finances were a runaway train.
I thought that the previous government had short-changed our men and women in Iraq, then Afghanistan, by failing to provide them with the equipment and support for the job they had been asked to do.
And I thought this was being compounded by a MoD which closely resembled an institutionalised Inspector Clouseau - serious and well meaning, but all too frequently bungling and inept.
In office, the reality has been somewhat different.
On the down side, the MoD's finances were in an even worse state than I thought!
But on the upside, the previous government did, eventually, do a number of good things in Afghanistan - once the public fury about vehicles, helicopters, and personal equipment came to a head.
I'm proud to have inherited a fleet of vehicles in Afghanistan that offer British forces world-leading levels of protection - and the process continues with the production of the Light Protected Patrol Vehicle - the Foxhound.
The Osprey body armour is among the best anywhere.
And I'm proud of the work that has gone on to counter IEDs.
The quality of the equipment in Afghanistan today is not just good, it's first-class, and that's the overwhelming view of the commanders and soldiers who use it and rely on it.
One said, "Soldiers have confidence in it. It saves lives."
As for personal kit, the perception has lingered for many years that British forces are down-at-heel cousins, often forced to beg, borrow, or steal from more well-to-do neighbours.
The reality is that the 'Black Bag' - which is issued to every British soldier deployed on operations - contains over £3,000 worth of kit from boots to sunglasses.
And everything that finds its way into the bag only does so after being given the go-ahead by the soldiers who will be using it in battle.
There's the story of the soldier who three weeks into his tour was struck by small arms fire in his side.
Not only did the new side plates probably save his life, but he didn't even know he had been shot until he saw his pierced magazines in his side pocket.
Most striking of all, US forces have been casting envious glances on our equipment - perhaps one of the most striking barometers of the changes we have made.
There is no room for complacency, of course, and my worry is always about staying ahead of the game as our enemies shift tactics.
But the reality - the reality we must talk about with pride - is that our people today have the best equipment the British Armed Forces have ever gone to war with.
We all know that there have been some spectacular individual failures too.
When we fail to provide our Special Forces with new helicopters - and then inexcusably take eight years to correct the mistake.
When we spend 10 years failing to procure a fully integrated family of armoured vehicles because we're seeking perfect specification, perfect planning and perfect integration.
And when the public read about radios that can't communicate with each other, yet another IT disaster story, and a 'cycle of failure', it's inevitable that success is drowned out.
We need a new approach.
The work ahead of us has three simple components against which we can be held to account.
- We need a clear vision.
- We need to change what's not working.
- And we need to apply existing best practice wherever we can.
First, our vision.
We developed a clear vision in the Strategic Defence and Security Review - the SDSR.
Within the framework of 'adaptable' Britain, our twin priorities are: supporting current operations in Afghanistan, and building the Armed Forces of tomorrow.
To achieve these aims, we need a new approach to acquisition - balancing value for money and affordability with the need for industry to make a decent rate of return.
We need an approach to Science and Technology that is innovative and leverages wider investment to help meet our S&T requirements.
We need an approach that is 'good enough, as fast as possible', and capable of improvement when and where possible, not 'perfect, eventually, if ever'.
We need an approach that gives our exporters a fighting chance in a fiercely competitive global market, both in our approach to acquisition and in the wider support we offer to campaigns.
Our vision is a climate in which Defence and Security companies are resilient, and can flourish, without using the Defence budget to subsidise them.
And in which internationally mobile Defence and Security organisations choose to invest in Britain.
We're addressing all these issues in our Green Paper consultation, of which this conference is a part.
Your responses in the next fortnight would be really welcome.
We must determine where the 'conspiracy of optimism' is at its most destructive and make significant changes.
When we do end up with a project that goes badly wrong, we usually find that the seeds of it were sown when we are 10% to 15% into the lifecycle of a project and have locked in 80% to 90% of the time and cost - I'm sure that Admiral Lambert will say more about that later.
In particular, we need greater accountability and transparency to ensure that our resources genuinely match our ambitions and cost control is rigorously enforced, not least because it brings greater legitimacy and discipline to our endeavours.
So from now on, guarantees of realistic budgets for development, procurement, and deployment must be presented to Ministers before spending can begin on new programmes.
And we have launched an independent review into the pricing mechanism - commonly called the 'Yellow Book' - which the MoD uses for single-source, non-competitive contracts.
This not about attacking profits but attacking costs - which is especially important for SMEs.
We also have to be certain that the forward equipment programme is affordable.
Certainly, the grossly over-committed one we inherited was not.
So we will be publishing an annual assessment of the costs and affordability of the equipment programme - accompanied by an independent audit from the National Audit Office.
Organisationally, we have established the Major Projects Review Board which will review our major projects on a quarterly basis, naming and shaming those projects that are not on time and within budget.
And we've announced the establishment of a new Defence Suppliers Forum, to replace the NDIC, which will be truly representative of the full range of the Department's domestic and overseas suppliers.
Finally, Lord Levene's Defence Reform Unit gives us an opportunity to bring further transparency and accountability to our acquisition system.
We will also ensure - and I look here primarily at Bernard - that the right people, with the right skills, are kept in post long enough to deliver.
Third, we must identify where we are strong, and ensure that best practice is adopted where we are weak.
But this is not some wholesale cleaning of the Augean stables.
The most recent Major Projects Review would have actually registered a fall in costs if it were not for the policy decisions taken in London by the previous Government on just two programmes.
And discounting the previous decision to delay the Nimrod MRA4 aircraft, project slippage was at an average of around two weeks per project.
We've clearly got a number of things right.
We have just completed our third annual independently assessed benchmarking of our programme and project management skills, which places DE&S in the top 10 of 56 blue chip companies and other government organisations.
Take the Centre for Defence Enterprise, which is doing so much to bring innovation to Defence, and works so closely with SMEs.
One of the best things about the CDE process is that we have proved that value for money and profitability are far from mutually exclusive.
Or take our Urgent Operational Requirements system.
Over the course of current operations, we have responded to about 1,600 UORs, resulting in about 700 new equipments being delivered into theatre, at a value nearing £5 billion.
Or look at the Niteworks partnership where good work is done to develop sensible requirements and bring them into line with industry's capabilities.
But the toughest nut to crack is - and will remain - major, complex project acquisition.
Applying UOR processes to the purchase of a nuclear submarine or fighter aircraft is a complete non-starter.
They take many years to design and build; they usually succeed complex equipment already in-service; and are designed to meet the long-term military capabilities required in future decades.
UORs seldom take into account the through lift cost of support and maintenance, which constitute the vast majority of any equipment acquisition cost.
The reason why major complex projects fail is almost always down to technical risk and uncertainty which was not properly provisioned - in time and cost - and which then inevitably manifests itself.
Very often when we get to the end and we look in the rear-view mirror on a project that has gone over its performance cost and time limits, we find that actually we got exactly what we paid for; or perhaps more accurately, we paid for exactly what we got.
A recent example was the procurement of four Bay-class landing ships - all of which are now performing very well around the world supporting our Armed Forces.
They cost twice as much to build as we originally predicted and took far longer.
Yet our studies showed that we paid the correct amount - it was our original cost estimates that were wrong.
That's why we're committed to improving skills - notably the capacity and capability of our cost and time estimating functions.
And, incidentally, it's why we're committed to buying "off the shelf", or as close to it as possible, wherever possible.
But no amount of improved tools and processes will be successful without the culture and behaviours to accompany them.
There's been a radical shift in the culture of DE&S which now strongly reinforces openness and honesty within the project team.
The people at Abbey Wood have not received the praise and thanks they deserve, but they can take great satisfaction from the numerous lives that have been saved by their work.
I am happy to take this opportunity to praise them.
It's our duty to set them up for even more success, not least because of the challenges they face as staffing levels are reducing significantly.
And then to celebrate that success with even greater enthusiasm than our detractors will always celebrate our failures.
For too long there has been a 'conspiracy of optimism' in Defence acquisition.
Yet we must also avoid a 'conspiracy of pessimism'.
All that we do is based on the legitimacy given to us by the British people, and right now they're simply not buying our story.
So we must be frank about our shortcomings, forthright about our strengths, and fearless about the changes we need to make.
We know that it cannot be done overnight, and it cannot be done painlessly.
And that the ultimate arbiters will be the Armed Forces and the British public.
But they will only judge us favourably if we show them we're finally moving in the right direction.
The hard work to prove that has started.