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Witnesses: Francis Tusa, Robert Clark and Dominic Nicholls.

Q132 Chair: Good afternoon and welcome to this session of the Sub-Committee of the House of Commons Defence Committee, which is looking into Defence Equipment and Support, or DE&S for short, which is the element of the Ministry of Defence that procures the bulk of the military equipment for our Armed Forces. We have two panels today that are giving evidence. The first is a team of expert commentators. I am going to ask them to introduce themselves individually for the record in a moment. Following that, we are taking evidence from the Procurement Minister, James Cartlidge, the Permanent Under-Secretary, David Williams, and the head of Defence Equipment and Support, Mr Andy Start.

For people who are watching, I should just explain that there could be some Divisions in the House of Commons in the course of our proceedings; each vote tends to take 15 minutes. It is a fact of parliamentary life and, if that is the case, we will adjourn the Committee and then recommence as soon as the Divisions are over and pick up where we left off. I hope that is clear to our witnesses and to anyone watching.

I will introduce the Committee. To my right is Mr John Spellar, the ranking minority member from Labour. Then we have Robert Courts, Sarah Atherton and Richard Drax, who are all Conservative MPs, and Mrs Emma Lewell-Buck, who is a Labour Member of Parliament. This is our Clerk, Masrur, who is here to keep us all properly in order. Perhaps each of the three of you gentlemen could introduce yourselves for the record and then we will get going.

Dominic Nicholls: Good afternoon. I am Dominic Nicholls, associate editor for defence at the Telegraph.

Francis Tusa: I am Francis Tusa, editor of Defence Analysis and covering UK procurement since 1997.

Robert Clark: Good afternoon. I am Robert Clark, director of defence and security at Civitas.

Q133 Richard Drax: Good afternoon, gentlemen. It is nice to see you all. What are the historic patterns and common themes of troubled defence procurement programmes?

Francis Tusa: One that was observed by the National Audit Office going back at least 15 years was the conspiracy of optimism. Always look on the bright side. Something will come up. Do not worry. We will muddle through, and it will all work out in the end. This has got worse over time. If you think Ajax is a problem, you need to be looking at the Morpheus LE TacCIS programme, where it is even worse.

This is highlighted in the Sheldon report. What is not particularly understood is the degree to which people do not put their hands up and say, “We have a problem, Houston”. The conspiracy of optimism is arguably the single biggest problem.

There are two other ones, a general observation and then a specific. The lack of transparency of MoD as regards procurement is amazing. It is far more opaque today than it was 15, 20 or 30 years ago. You have to prise information out with a crowbar. I do not get any impression that there is someone there who has, for the sake of a phrase, God vision, where they are sitting up and going, “Right, what is happening with this programme? That is going to impact that”. You see various stovepiped programmes running into various walls, impacting other ones, and get an error cascade with serious problems.

The specific issue is the Levene reforms 2011, which gave delegated financial responsibility to the services. At the time, everyone was saying, “You know that this is not going to work”, and it has been proved absolutely true. The services behave collectively incredibly irresponsibly. They game the system worse than before, and they get programmes through the main gate that they do not have the budget for.

Again, it is done on the basis of, “Do not worry. Once the Secretary of State has stood up in the House and said, ‘We are buying this’, he ain’t going to cancel it”. This attitude is prevalent. The Levene reforms were to make the services behave responsibility. They cannot.

Q134 Richard Drax: Why does the MoD keep making these mistakes? Why do these defence reviews not deal with this issue when quite clearly it is such a massive problem?

Francis Tusa: That is a fundamental question. If you then go back to the Sheldon report—was it on page 2 or page 3?—Clive Sheldon says that it is not his job to name names. Actually, he should be naming names. You can say, “No, that is blame culture”, but you can point to someone who has taken a decision that has very much wasted money, for example the person who put through the Protector unmanned aerial vehicle. It is not coming into service because we cannot afford to pay the contractor to deliver it, but we are having to pay them fines. That decision was the wrong decision, so why is that person not held accountable?

Q135 Richard Drax: Dominic, it is the same question for you: what are the common themes and patterns and why is the MoD not learning lessons?

Dominic Nicholls: I will do the last bit first. It is culture. The mechanisms are there. The accounting, planning and managing procedures are there. They are robust and fit, but they are not used. The culture means that those mechanisms are used time and time again. Decisions are deferred to the date of the next meeting. There is another working group six months later that goes through the same information as this one. The mechanisms are all fine, but people do not make decisions. They do not force it through. They are not held to account. It gets mired in the treacle.

I recognise the embers of the conspiracy of optimism, as Francis says. It is very evident. I see posters and I have quoted to me that perfect is the enemy of the very good time and time again, and I never see it being lived, or rarely see it being lived. They always go for perfect.

Those two things together, always trying to make it a little bit more shiny, “A little bit more money will make it a bit better”, plus the inability to use the mechanisms and procedures that are there already, come under culture. Why does nothing change? Because culture eats strategy for breakfast. I do not think that that is going to change.

Q136 Richard Drax: Robert, I suspect that you agree with the other two. I do not want to put words in your mouth. Maybe you do; maybe you do not. If you do, how do you think we resolve this issue? What is the dream answer, if there is one?

Robert Clark: All these issues we are talking about today are nothing new within the Department. We can go back to the 2011 NAO report, with regard to the failed FRES programme. It had seven recommendations, none of which has been studiously followed through. That is one reason why we are in the situation now.

Given the way forward and the gold-plated answer, I will carry on with what Dom mentioned a moment ago, which is almost the transparency and accountability. If we look at how defence works within itself, so, for example, within Defence Equipment and Support and Dstl, one issue that the Sheldon review unearthed was the absolute chronic lack of a top-down management system that would enable long-term defence procurement programmes to come to fruition on time and in a cost-effective manner.

Going forward, defence has to look at the management style within itself. There are several review recommendations put forward by Sheldon that seek to address this. To be perfectly honest, I am relatively sceptical of how they could do so, given the nature of the issues to begin with. It is going to be an incredibly long-term and complex situation for defence to sort out.

Q137 Sarah Atherton: This is a bit of a continuation from Richard’s question. We were in Portsmouth on Monday, and we were talking everything ships. The Type 26, Glasgow, had a gearbox problem. £233 million is going to come out of the Royal Navy’s budget. We hear that the Royal Navy persistently overspends, possibly squeezing the Army. How do we hold the top-level budget-holders accountable for this?

Francis Tusa: Coming back to the Levene reforms and giving the services that responsibility and their budget and then, in effect, going, “On your way”, means that, even if this was definitely not intended and wanted, the services go back to their commands and do everything without any recourse to thinking about the broader defence picture. We need to head back to a system where, quite frankly, if it is not the Minister for Defence Procurement, it is the Secretary of State who is the one going, “No, you cannot do that. I am going to do this”, and looking across the piece.

As regards ships, one problem the Navy has, among many, is that, when it did the Type 31, it said, “Type 31: we want this cheap, affordable frigate”. With a database of over 30 years of frigate prices across the world, £250 million was never achievable. It was de facto entryism by the Navy. That ship is going to end up costing £450 million to £500 million a copy. Yes, it is eating the Army’s sandwiches.

Sitting suspended for Divisions in the House.

On resuming—

Q138 Chair: The Committee is now quorate again, just, so we are going to recommence. Gentlemen, you were just in the process of giving your answers to the question of whether there are appropriate sanctions for the services when they overspend. Perhaps you could remind me who was in the middle of their answer.

Francis Tusa: I think that I was speaking apropos of whether the Royal Navy is eating the Army’s budget because of overspends. The answer is that, if you were to look for a winner in the recent spending round, it is definitely the Royal Navy. Is it de facto taking money away from the Army? Yes, it is.

In terms of sanction, to go back, Type 31 was meant to be a £250 million ship. That was never achievable, ever, and that has been proven through about six different metrics. The ship is heading towards £400 million to £450 million, but no one is going to be held responsible for this. You just get a slight shrug of the shoulders, a wry smile and, “Got it through main gate. What is the problem?” That is the problem: that no one ever gets held to account.

Q139 Chair: On that point, Mr Tusa, it is not just the services collectively. Is one of the fundamental problems in our system that individuals are not held personally accountable?

Francis Tusa: Yes. Interestingly, towards the end of the 2000s or in the early 2010s, the National Audit Office introduced a change to the major projects report. It is a shame that we do not have a major projects report anymore. It listed not only the current programme manager of each programme; it looked back five or six years and listed every previous incumbent, with the dates that they served in that role.

That was done specifically so that someone could say, “Hang on, it was the decision in 2012 that did whatever. It was this guy. Fine. Let us summon him to give evidence”. You could do that. From what I gather, the Ministry of Defence said that this was unfair and should be dropped. With the end of the major projects report, this practice has ceased. By the way, the NAO advised the Australian National Audit Office to do this and that audit office still lists the programme officers.

Q140 Chair: Presumably, without putting words in your mouth, you think that we should go back to a system of making it very publicly clear which officials, and indeed officers in the Armed Forces when they are serving in a procurement context, are responsible for individual programmes.

Francis Tusa: It comes back to my general comment on the lack of transparency in procurement, budgets or whatever. In pretty much every other NATO country, you have line item budgets, saying, “This is what we are going to spend over this period. For the next three years our financial profile is X, Y, Z”. Everyone else does it. Either the MoD here does not have this information, which would be worrying, or it has it and does not want to release it because people can then say, “Is what you are doing achievable and affordable?” and it does not like the idea of having oversight.

Dominic Nicholls: I can add very little, and, for the sake of time, I am not going to rabbit on. There is no accountability outside of the OJAR, the joint appraisal report annual report on accountability, which is a completely different metric. The performance of people who are in the procurement area is judged on a completely different metric. The programme they have been working on will take up a small part of it. They may only be in years 2 to 4 of a 12-year programme and they may have done particularly well in that area. That does not necessarily mean that they are great at procurement.

The two things are divorced. The HR side has too much of a sway over who is SQEP—sufficiently qualified and experienced personnel. The wrong people are in the wrong posts or there is not enough accountability for those people in senior posts.

Q141 Chair: If we are hearing you correctly, you are saying that there is a degree of internal accountability, but there is very little external accountability.

Dominic Nicholls: That is fair, yes. It would be interesting to see how many junior officers, or SO2 or SO1, have been thinned out of DE&S in recent years. That bit with the user community gets translated, or their voice every day is put into the procurement chain. Anecdotally, that has been thinned out. At a senior level, where you are verging on too big to fail and all the other competing pressures, I do not think that those posts have been similarly thinned out.

Chair: I think that you are right.

Robert Clark: Accountability is going to become increasingly more apparent over the next 10 years, when we consider the MoD’s equipment plan 2022 to 2032. The NAO report last year, in November 2022, concluded that the frontline commands and the top-level budgets that they have responsibility for need to find about £5.3 billion worth of efficiency savings. That is from existing contracts, so it is about the ability to renegotiate those.

In addition, the NAO concluded that the frontline commands had not actually determined where those efficiency savings were going to come from. Like I say, it is £5.3 billion over the next nine years now. That is even more so considering that external pressures, such as inflation and the war in Ukraine, are exacerbating those internally. The ability to hold the frontline commands with the top-level budgets to account going forwards with the current equipment plan will be quite interesting, so we will see over the next few years. That is something that we can hold to account here and now.

Q142 John Spellar: We have looked at the responsibility of the services and indeed of the MoD. What responsibility does industry have for the delays and over-budget programmes?

Dominic Nicholls: It bears responsibility. The weight is on the side of the Government and the military, but there is the responsibility to be honest and there are many catalogued areas where, back into the conspiracy of optimism, the information has not been made apparent.

It might partly be also because it is very difficult to hold single-source contractors to account. There needs to be a mechanism whereby we can hurt them without putting them out of business. There needs to be a feedback mechanism that says that that is not correct behaviour or it needs to be remedied quickly and not be met with an email shrug saying, “We all know who has the power here”.

It is on both sides. I want industry to be as lean and efficient as possible, but that has to come with a heavy dose of honesty and integrity. I question whether that has been there in some of the big programmes recently.

Q143 John Spellar: Does the system encourage them to behave like building contractors, putting in the lowest price and hoping to make the money up on variations to contract?

Dominic Nicholls: It could encourage or provide the context in which that behaviour can grow, very much so. All the signals from Government are, “We want twice the number for half the price”, so I cannot really blame industry for saying, “We can do that”. It is then whether you have the mechanisms to hold them to account. The mechanisms are there, but they are not used.

Q144 John Spellar: Apart from the changes of the law that take place in Government, should they also be saying to the companies, “We will sort something out with you within this contract, but we will then take account of your record in whether you are fit and suitable for future contracts”? The current position is that Treasury guidelines say that you cannot take any account of past performance.

Dominic Nicholls: There should be some formal written notice along those lines. I imagine that some of these statements are made in public. Unless they are backed up by anything, some legal or financial obligation, they are worthless.

Francis Tusa: I would agree wholeheartedly with the conspiracy of optimism. I remember very clearly a meeting with BAE Systems back in 2000, a briefing on the carrier before everything had been sorted out: “Yes, we are going to build two carriers for £2.8 billion”. Someone asked the question, “Can you actually do that?” The brief said, “No, that is absolutely impossible”. “What have you told MoD?” “We have told them that we can build it, because that is what the customer wants to hear”. That is not uncommon.

People who have tried to speak truth and said, “By the way, this is not going to work”, are told, “That is not what the First Sea Lord wants to hear. It is not what the Chief of the General Staff wants to hear”. He wants to hear—eventually it will be “she”—that absolutely everything is fine in the garden, so do not cause a ruckus. Keep going with what the customer wants. Is that right or proper? No. We have systems with perverse incentives.

In terms of holding companies to account, I suspect that we are going to see a very interesting stand-off over Ajax and the commercial position. If the Sheldon report is correct, which I suspect it is, the contract is with GDLS UK. The Ministry of Defence says, “But there are parental guarantees, so the GD Corp, the US entity, mother company, will provide whatever money”. Interestingly, speaking with defence analysts on Wall Street, GD Corp has said precisely the opposite. It has said that it has no financial downside from Ajax.

That shows that you have absolutely no control when dealing with offshore entities. Back in the 2000s, Lord Drayson admitted, when Halliburton floated KBR, which was managing Devonport at the time, one of the largest nuclear facilities, that he was not informed by Halliburton that it was going to do this. He subsequently said that he regretted ever saying that it does not matter where a company is registered as long as it has a UK footprint. If your listing is on the New York Stock Exchange, the UK is of no interest to you legally. You are able to walk away.

It is going to be very interesting seeing what happens over trying to enforce what is left of the Ajax contract if it were to require General Dynamics to fund—let us pretend—£250 million to fix it. Will GD Corp say, “Yes, hand in pocket, here is the cash”, or will it just laugh?

Chair: We are going to come back on to Ajax in a little bit more detail in a moment.

Q145 John Spellar: Should someone be held to blame for having nodded through that defective contract?

Francis Tusa: Sorry to refer back to the Sheldon report on the Ajax programme.

John Spellar: That is exactly what I was doing.

Francis Tusa: What I found interesting in the coverage is that, despite talking about the contract recast in 2018, finally signed off in 2020, which I have, sadly read twice, it never actually points our that, whereas Lockheed Martin had to make provisions for losses on the Warrior capability sustainment programme—I think that it had to make three provisions over three consecutive years—there is no sign that GD has had to make any provisions for failure to meet milestones or targets on Ajax. I had a PQ asked about whether it had had to pay any consolidated damages to the MoD and the answer came back as none.

How can you have a contract where the contractor fails to deliver and yet it does not have to pay any damages? By the way, if you want to see damages or provisions, you can cheerfully check out the amount of money that BAE Systems had to pay out on Nimrod and Astute. It was hundreds of millions in provisions. GD does not seem to have done any.

Robert Clark: It is well known that industry partners and contractors often overreach their ability to deliver procurement quickly. Then they compound this even more in an even more optimistic recovery programme to deliver at pace. We have seen that with Ajax with regards to the accountability and the Ajax programme itself.

With regards to the contractual lawyers and the pre-contract lawyers with Defence Equipment and Support, it is well known that they are often placed at a disadvantage compared to industry lawyers in writing up these contracts. This is something that even predates the last 15 years or so. We are still discussing this now as a root cause of these problems. Ajax is an absolutely crystal-clear example of where the entire system is failing. The Sheldon review reveals some of this, but you have to dig deeper even from that.

Chair: We have taken a lot of evidence on this, including a lot of written evidence. One theme that comes out very strongly is that, in contractual terms, the MoD is often overmatched by the lawyers of the very big contractors that it does business with. If a contract gets into trouble, when you get into the small print you will often find that the MoD is, as it were, arguing with one hand behind its back. Everything that you gentlemen are saying to us this afternoon is rather bearing that out, unfortunately. I hope that that is one lesson that we can learn from.

Q146 Sarah Atherton: We have spoken about accountability of frontline commanders and industry. What responsibility for overspends and delays does the DE&S have?

Dominic Nicholls: I am right on the edge of my jigsaw here, to be perfectly honest. What responsibility does it have? I come back to the point that I made at the start. The mechanisms are there. If a contract is overrunning or likely to, there are enough people and processes to be able to flag a warning early, which should lead to remedial action.

There is a huge responsibility on DE&S to be the canary in the coalmine. It is not necessarily up to them, because it would very quickly get to a political decision of whether to continue, cancel, change, make an adjustment or what-have-you, but they are absolutely on point for flagging when programmes start to shift and go beyond the 50% or 90% tolerances that they are budgeted against. My personal experience was that those were working. These were much smaller, faster programmes.

Other than the obvious bureaucratic treacle, I see no reason why those processes cannot also work for Cat A projects as well as they do for all the other groups. They bear responsibility to be the first, to be the catcher’s mitt, if I have not mixed too many metaphors in this answer. On what they do about it, they very quickly need backing up with political support.

Q147 Sarah Atherton: We went to Abbey Wood. One reason that they felt was around slow approval cycles of projects. They also agreed that they need to ensure good commercial and project management. Would anyone agree with that or like to discuss that further?

Francis Tusa: Sorry. Did they say that they need better management? Self‑evidently, yes. One reason why a lot of these programmes have got into trouble is that they are not well managed, or they are managed on the basis of, “Oh God, it is all going to go wrong, is it not? In that case, how can I make sure that I am not in post when this all explodes?” You manage it during the wait for your next job to appear. The short tenures of SROs, you name it, has been highlighted. I cannot remember when the first report said, “Why is it that the turnover is every eight months or something?” This is well known.

One problem I have seen, especially with the Army, over the last 25 years, is, once you have done two procurement jobs, you are generally regarded as having left the warrior race. You are no longer a warrior. You are a hat, in para parlance. There is this thing of, “I do not want to be doing procurement because my promotion will end”. People have fought shy and it is, “Oh God, I have a procurement job. How quickly can I get out of here into something back at Andover?” It is problematic. Self-evidently, there needs to be better management.

I would look across the Channel. The DGA, France’s procurement body, is a much more swept-up entity. It has elements of Dstl, so technical. Within DGA, you can almost literally poke your head round the door and say, “Does this engineering submission stack up?” You have the subject matter experts on your doorstep to sort things out.

Back to when you were saying to look at the services, MoD and DE&S, perhaps this is the problem. The DE&S was created from Defence Logistics Organisation and Defence Procurement Agency because of this problem of what was called throwing things over the fence. DPA buys it and then throws it over the fence to DLO, which goes, “What is this? How are we meant to support it?” DE&S was meant to be swept up and handle everything.

At the moment, the problem is that it is viewed as just the commercial arm. Speaking back to what Dom was saying, if it is the canary in the coalmine and it is raising alarm, no one is listening to it at the commands or at Main Building. That is a problem. It may be doing this, but no one is listening. I come back: DE&S should have been screaming about Ajax five years ago. For Morpheus, the next one to blow, people should have been saying, “It is going to fail”, three years ago. Wedgetail has gone so quiet. It is ominously quiet. If DE&S is shouting and saying, “This is going wrong”, it is not getting through.

Q148 Sarah Atherton: Would that have been helped if someone from DE&S sat on the joint requirements oversight committee? They think that it would.

Francis Tusa: The question is whether they will have the responsibility and authority to say, “I am sorry. I have looked at your plan and it is not going to work”. That is what it requires.

I cannot remember how many years ago, in discussion with various industry people, looking at some of these problems, I was saying that procurement needs what I call an SRA—a senior responsible adult—who is able to say, “I am sorry. I have looked at your bid. It is industrially unfeasible. I am not even going to waste any time seeing whether I can massage this through main gate. It is not going to work”. The other name for this post was Dr No—just “no”. There are far too many examples of programmes going through that have been done with crossed fingers: “It will work out, I am sure”.

Q149 Sarah Atherton: We see that in Sheldon with the psychological security of speaking out and the optimism bias.

Francis Tusa: Quite frankly, if I am an SO2 and I read the Sheldon report, I will draw the conclusion that speaking truth unto power is going to be a really good way of seeing my career ended.

Robert Clark: I will add something briefly on the last question in terms of responsibility. As we know, it is the primary lead on commercial negotiations and day-to-day relationships with the suppliers. It is responsible for bringing the equipment to the programme.

The management of delivery is something to be questioned. We have known about this long before Sheldon. The ability to effectively manage contracts, identify risks and oversee suppliers has sometimes been hampered by shortages in staff. This has been evident in the Sheldon review, in particular with the so-called pinch point shortages that they have had with vital programme delivery, making increased use of contractors to fill posts. Something like 58% of the workers on the Morpheus sub-programme are on short-term contracts. The ability for DE&S to manage its own workforce, particularly at scale, working under tight time constraints as well now with Ajax is something that has really been brought out over the last couple of months.

Chair: For the benefit of anyone watching who is not familiar, Morpheus is, in essence, the new communications system for the British Army, in shorthand. That programme too is plagued with a very large number of problems.

Q150 Mrs Lewell-Buck: Afternoon, everyone. We have gone through who is accountable for these failures, for want of a better word. We have gone through MoD, industry and DE&S. Ultimately, who is? Does it not stop with the Ministers and Secretary of State? Is there something going wrong in all these Departments culturally? I cannot remember who it was, but someone said something along the lines of people want to hear that things are going well and do not want to hear that this cannot be done in the time it is done. Is it a culture problem? Is it ultimately the fault of the Secretary of State and Ministers?

Robert Clark: The problem starts way below and gets to ministerial level. By that point, the traditional lines of information and communication have been so broken through various Department channels, particularly between DE&S and Dstl, and throughout various Departments that, by the time it even gets to that level, it is completely broken.

Q151 Mrs Lewell-Buck: Is that a cultural thing?

Robert Clark: I believe that it is absolutely cultural.

Francis Tusa: Agreeing with the point, the Secretary of State cannot be across absolutely every single issue inside the Ministry of Defence. It just is not possible. The Secretary of State or Minister for Procurement has to say, “Chief of the Air Staff, you want this. Is it affordable? Can you do it?” If they are told, “Yes, we have done everything and it is absolutely fine”, I could not hold the Minister for Defence Procurement responsible. If they are fed as a mushroom, I cannot really hold them to account when things turn out wrong.

In this particular case with Wedgetail, I will give serious credit to the current Secretary of State. The RAF finessed Wedgetail through main gate, claiming it could get five for £1.55 billion. Absolutely, there was no way that that was ever going to be possible. When it went back and said, “We need some more money. Can you give us another £1.5 billion?” the current Secretary of State said, “No. You said that it was possible at £1.55 billion. Cut your cloth to fit your suit”.

I give him credit that that is the attitude that has to be taken, rather than constantly saying, “Oh God, I do not want to go back on what I said in the House. Yes, have another £500 million”. It is cultural. I would come back to one of my original things: transparency. Everything should be pretty much open book, with no hiding behind, “It would impair the MoD’s commercial position”. Come on. Pretty much every other MoD has to put out its business’s cases, budgets and line items. Somehow it does not impair their commercial ability.

Dominic Nicholls: Yes, it is culture. It is very difficult to turn that super‑tanker round. One thing you can do in the meantime is you can try to go for the transparency. That will answer it, but it is all extraordinarily difficult to do.

I used to fly helicopters for the British Army. We had a system called ACORN, which, if I remember correctly, was “aviation confidential occurrence reporting notice”. These were bits of paper left all around. Anybody could write this out and say, “Something is going wrong here. I have seen this”, or “Nobody is listening to me”, or, “There is going to be an accident”, if they did not have trust in the chain of command. That would be posted directly to headquarters of Army aviation. They were read and this was a way of anybody being able to say, “Stop”, or warning of something happening.

In the meantime, while we try to turn the super-tanker of culture round into this transparent world, which will answer the question, before then, there needs to be some mechanism where people at any level can flag up to the very top of the MoD that something is going wrong.

Chair: I am worried that we might be interrupted by further votes. There is one question that we have asked every witness. I am going to ask Richard to ask that of all three of you. Then we will come on to Ajax, but we want to ask you this specific question.

Q152 Richard Drax: If you each had one key suggestion to materially improve defence procurement in the UK, what would that be?

Dominic Nicholls: It would be annualisation. We need to have a sensible conversation with the Treasury about in-year money. I used to work in the special user community, and we had a lot of relatively cheap projects. If there is any in-year money, we would grab it and you could spend it, because you have to be able to physically touch the thing you are procuring by 31 March.

Any top-level budget-holders would not go anywhere near it. The carrier programme sneezes and £ 1million arrives. Nobody would touch that after about September or October, because they would be terrified that they would have a penny left over after the financial year. We were making hay while the sun shone. We could spend all that money. A lot of people thought that SF was cutting corners and doing backroom deals. We were held to exactly the same accounting procedures, but we could use money more wisely, but there was a lot of money being wasted. There was a lot of money going up smoke.

I knew, for example, that I would be able to lay my hands on £50 million a year in in-year underspend; there was no question. I could find £50 million a year, but I could not commit to a three-year project costing £150 million, because I could not spend next year’s money, clearly. It is the same argument about in-year money. There was so much being wasted that is just disappearing on 31 March because top-level budget-holders are scared to touch it after autumn for fear of not having it cleared and the thing in service.

Francis Tusa: I keep on hearing people say, “We have tried this before. It failed”. No. It has been tried before, but tried badly. There needs to be a centralised equivalent of the Cost Assurance and Analysis Service, which is at the moment in DE&S, a body looking at each project, empowered and literally whispering in the ear of the Defence Procurement Minister, and thus the Secretary of State for Defence, saying, “This business case will not work. It will not. The costs are wrong and they are basically fiddling the figures, trying to get it through main gate”. We need to have a body capable and empowered to take the tough choices and say them openly to stop phoney business cases coming through.

Robert Clark: I would say staffing. For example, the average acquisition programme goes through four SROs. It is a process of 77 months, the average SRO is in post for about 22, so it will see four SROs just in that. It is similar at the political level. Just since September, we have had four Procurement Ministers. More importantly, since Ajax was supposed to be in service we have had nine. I know that that is part of the political beast in which defence operates in the political space, but it goes to show that continuity is almost currency in defence. The current Secretary of State’s tenure can testify to that. It is something to bear in mind when we look at future acquisition programmes that go over many years and start to incur those delays. It is the turnover and churnover of the senior management, both in defence and more broadly in the space itself.

Q153 Chair: We have been joined by Tobias Elwood, who is the chair of the main Defence Committee, and Meg Hillier, who is the chair of the Public Accounts Committee, who is providing us with some reinforcements this afternoon, as well as my colleague, Emma Lewell-Buck, who you have just heard from.

On Ajax, in a nutshell, the programme was designed to replace a reconnaissance vehicle for the Army, primarily the Scimitar, that came in in the early 1970s. The programme began in about 2010. It took over from some previous programmes called TRACER and FRES, which had been cancelled. The first vehicles were due to arrive in about 2017. All of them were meant to be in service by about 2025. That is it in a nutshell.

Expenditure of public funds is about £4 billion to date. There is still no vehicle in frontline service. That probably will not happen now until the back end of 2025, and they will not all be in service until the back end of 2030. Ben Wallace, very frustrated at this, brought in a man called Clive Sheldon KC, a very experienced forensic barrister, who has just last week published a review into what went wrong with Ajax. It is now colloquially referred to as the Sheldon review. Having set that context, what is your view of the Sheldon review? What wider lessons can we learn for the Ajax programme?

Robert Clark: It should be stated that the Secretary of State should be commended for launching the independent review process. This Sub-Committee as well, with its current inquiry on the back of it, is incredibly timely, given last week’s release of the Sheldon review.

After reading and re-reading the Sheldon review many times over the weekend, it quickly became apparent that the only real useful insights into the inner workings of the Ajax programme over the last decade have been the sheer dysfunction within the Department and at inter-Department levels. I have highlighted the almost borderline infighting within DE&S and with Dstl as well.

In particular, it borders on professional negligence on DE&S’s side when we consider that Dstl tried to highlight the vibration and noise issues pre-2015 and 2014 to DE&S. The Dstl scientific advisers, which is part of their role on the Ajax programme, felt so ignored by the DE&S senior management that they had to write formal letters. These were also seemingly ignored and they had to go outside of the traditional complaints system to have their concerns heard. By this point, it was too late and it resulted in over 112 British Army soldiers needing medical attention, some of whom incurred life-changing injuries to their heating.

It goes to show that people on the shopfloor, at the coalface, at Dstl—and in DE&S as well—had a far better grip of the day-to-day reality of the problems with Ajax over a period of many years. The senior management, like I highlighted earlier, rotate out every 18 months or two years and are unaware. Like I also say, the traditional information flows are broken to the point where they are unaware. Like we said earlier, by the time it reaches ministerial level, it is far too late. There was the infighting almost and the dysfunction within various Departments.

Francis Tusa: The biggest single flaw with the Sheldon report is that it, in effect, says, “We are going to start in 2018 and then look through to the present day”. The fact is that the programme went wrong from pretty much about 2007-08. I remember standing down at Bovington, seeing armoured vehicles whizzing past. CV90 came past.

Chair: That is an alternative to Ajax.

Francis Tusa: I turned to the major general and said, “Come on, you have to admit that it looks the part”. Said general turned to me and said, “Francis, I do not care whether it is twice as good and half the price. We are not going to buy it”. He said, “You know what my principle is. I want to break BAE Systems’ monopoly on armoured vehicles in the country”. That was the starting point of the programme. It was not buying something to replace Scimitar. It was being used in an industrial manner.

What was not understood was why there was only one armoured vehicle company in Britain. That is all there was business for. The turnover was only enough. There had been rigorous consolidation of the industry, with Vickers, Royal Ordnance, Alvis and GKN all ending up in one company, because there was no business for two companies. That was not understood.

The Sheldon report only starts in 2018. I have compared notes with a number of fellow defence journalists. We were being fed stuff back in as early as 2013 that there were problems with vibration. At one stage around 2014 GD called in a motor-racing Formula 1 company that had experience of high vibration to help sort out the fact that its cables were coming disconnected from the boxes inside the vehicle. You were seeing a programme where, ultimately, it was coming down to, “CGS wants this and I am not going to be the one who is going to risk my career by telling CGS, ‘Sir, I really think that this is problematic’”.

Another one was in terms of the base vehicle briefing at the time of the announcement, so in 2010: “We are basing Ajax off the tried and tested Pizarro 2, in service with the Spanish Army”. Great. The programme had actually been cancelled in Spain 14 months previously. There was no Pizarro 2. It had not been developed, so the programme was sold basically on a lie. It is on the Spanish MoD website as well, by the way.

If you looked at what Pizarro 2 was meant to end up as, the maximum growth weight I think was 34 tonnes. We have a vehicle coming in at 42 tonnes, perhaps even 45 tonnes in worst case. If memory serves me well, that is pretty much in the range of what Chieftain was when it entered service in the 1960s.

Q154 Chair: You are saying that we have a reconnaissance vehicle that is meant to gather information about the enemy but not be seen itself ideally, and this thing is going to weigh as much as a Chieftain tank.

Francis Tusa: The early modern Chieftain, yes. Bearing in mind the noise of the vehicle, any enemy is going to hear this thing coming quite some way away. Speaking to some of the engineers who have been called in to try to help work out what they can do, they say that, when an Ajax starts up its engines inside Bovington Camp, you can hear it on Lulworth Ranges pretty easily.

Q155 Chair: It is perhaps not the stealthiest reconnaissance vehicle ever built.

Francis Tusa: It is definitely not.

Mr Elwood: Very quickly, on the weight of it, I just came from a lunch where there were some representatives and I asked this very question: why is it so heavy? I think that the Scimitar came in at about eight tonnes. They said that it was all to do with protection. Unlike Warrior, where, when you went into different locations they would add on the necessary armour, depending on the location they were going to, that is not the case with Ajax. Is that correct? That heavy armour is built into the mainframe of the body itself. That is what has jacked the weight up to, I want to say, 43 tonnes.

Francis Tusa: It is a bit of both. There are add-on armour packs.

Q156 Mr Elwood: Those will make it even heavier than 43 tonnes.

Francis Tusa: It is 43-ish tonnes. One problem that has certainly been reported is the build quality issues with a number of the vehicles issued to date. The intention was that you have armour packs and it does not matter which vehicle you put them on. You can just put them on. Because some of the vehicles are different sizes now, armour packs have had to be assigned to a specific vehicle. If somebody forgets to put it on the C-17 and it arrives in theatre with someone else’s armour pack, some of the vehicles will not be able to be up-armoured.

We are at about the time of active protection systems, so this is something sitting on top of the turret spots an incoming anti-tank missile and, in effect, shoots it down. The British Army would have said five years ago, “Absolutely not. We will rely on Chobham or successor armours”. Active protection systems are now far more mature and they hold open the prospect that you do not need to just rely on the weight of armour for your defence. You can rely on something else. There are issues still, but I think you would find that the Israelis would go, “What issues?”

Q157 Richard Drax: Francis, in my time in the Army, the reconnaissance vehicle, the Scimitar, was light, fast and sent ahead of the main force. The enemy were unlikely to take you out because that gives the position away. Your job was to spy the troops and then report back where the enemy was. Is this a classic case where the generals have asked for a reconnaissance vehicle, which we could have made more of and moved around the world far easier? I do not believe that this vehicle fits into any of our aircraft.

Francis Tusa: C-17 should be able to.

Q158 Richard Drax: Alright, C-17, but we have 600, or 589, coming. Of course, it only has a 40mm gun on top. Although it is heavily armoured to protect the crew, I would not like to meet a tank in one of these things with your pop gun on top. You have a rather false sense of protection with such a tiny little thing. I agree that it is helpful. Has this just gone horribly wrong? The generals wanted a reconnaissance vehicle but, as you say, they actually have a tank with a pop gun on top.

Francis Tusa: In which case, at what stage did a CGS or assistant CGS go, “Hang on, we have a problem here”? I have not seen any evidence that anyone said that. They just kept on going.

As regards the main armament, the 40mm cased telescoped ammo weapon, you will see lots of things, such as, “It is troubled”. That is because of the procurement strategy, which was, again, to exclude BAE Systems. CTA International is a joint venture, Anglo-French, between BAE Systems and Nexter, the French land systems company. The original agreement says that, for any British procurement at CTA, BAE Systems is the prime contractor.

As part of the “We must break the hold of BAE Systems”, they came up with a construct to try to exclude BAE Systems as much as possible. Instead, they said to Lockheed Martin, “Please go and reverse engineer this weapons system so we can keep BAE Systems off”. That is why the thing has gone horrendously wrong. Nexter in France have delivered many dozens of complete turret systems for their Scorpion land systems modernisation.

I have spoken to the DGA and it goes, “Yes, it works fine”. It has excellent penetration of armour. The airburst is coming on nicely. It is going, “Why did you in Britain choose this different strategy of getting a completely new contractor with no experience of land systems to try to reverse engineer the system? Why did you just keep going with what you had?” To that I have to say, “That is a very good question”.

Coming back to the point, at what stage did anyone in the Army say, “Do you know what? I think that we have a really serious problem. This was the requirement. This is what we wanted to do and we are a long way away from that”? I see no evidence.

Q159 Chair: I read Sheldon at the weekend and the Minister for Defence Procurement told the House of Commons when this came out last week that it made for difficult reading. I would say that it makes for appalling reading. Dame Meg chairs the PAC, which concluded in November 2021 that the UK’s procurement system is broken. On the basis of what you know and what you have read in the Sheldon review, do you agree? Is it broken?

Francis Tusa: Yes, completely. One problem is that you get asked, “Who else is doing better?” The answer is, “Draw up a chair and let us start going through the other countries that are doing better”. The Finnish Army has basically undertaken complete systems modernisation, not just armoured fighting vehicles but night vision, communications, anti-tank—you name it—for about €8 billion or €9 billion. In terms of the Army command land equipment budget, for the last 12 years it has spent £18 billion to £20 billion and not a single new armoured fighting vehicle has been introduced into service.

Chair: That is UK Army command.

Francis Tusa: Yes, UK. I suspect that, if this performance was from a listed company, someone would be phoning up the serious fraud authority, saying, “We have concerns about the accounts of this company”. It is the shy end of £20 billion and not a single new armoured vehicle has been delivered over the space of a decade. That takes a lot of explaining.

The Slovaks decided that they needed to massively increase the size of their armed force and wanted a new infantry combat vehicle. They did it flash to bang in four months. They basically phoned up their cousins in Prague and said, “Can you send us over your assessment of all the vehicles you looked at?” They went through it and went, “Yes, okay, they picked the right one. We will do the same”.

You think, “Ah ha, we, the UK, are different. We have nuclear”. The French do as well and they perform a hell of a lot better in procurement. You have to ask yourself why we are performing so badly. Seemingly, the services are happy for this bad performance to continue. Based on some of the work that Sir Bernard Gray did in his eponymous report, he reckoned that system waste was about £1.5 billion. I have taken some of his calculations and updated them. I reckon that now the system waste is over £2 billion a year. Yes, the equipment plan is bigger than it was in 2010-11, but, at the end of the day, there is 10% to 15% waste, a lot of which could be not wasted.

Q160 Chair: To be clear, between the procurement of equipment and paying to support it in service takes up coming on for about half of the entire MoD budget now, in rounded terms. You are suggesting, Mr Tusa, that about £2 billion a year of that, again using your round number, is wasted and could be much better spent.

Francis Tusa: Yes, through programmes being delayed or recast, numbers changing so the economics of a programme and the industrialisation changing, saying, “Let us not spend money on maintenance”, and then suddenly vehicle fleets break down because no one has spent the money on spare parts, so putting this sort of thing together. People will say, “You cannot prove that”. I think that I can in a number of areas, because the figures come out through the Infrastructure and Projects Authority and so forth.

It is about the degree to which people are happy not to look. If anyone tells you, especially in the next session, “You cannot compare our procurement system with anyone else’s”, that is because they do not want you to compare with anyone else. Someone might say, “Estonia is really small”, or, “Finland does not have the range of defence responsibilities of the UK”. They have just completed, or are very close to completing, a modernisation of their army where they are looking to equip an army of 300,000 people to the same standard. I suspect that they have people who have been over there. The Finnish total defence plan is realistic and funded. Anyone who says, “You cannot compare”, is wrong. You can and we should be to learn how we can do it better.

Q161 Chair: If you could stand up that £2 billion number, if you could submit us a note, ideally within the next couple of weeks please, we would be fascinated to go through it. Mr Clark, is it broken?

Robert Clark: Yes, absolutely. It was broken before the Sheldon review came out. We have known about it for several years. A lot of the issues raised in the Sheldon review, like I have mentioned, we have all been aware of. It is just brought into starker contrast. We can see quite clearly that one of the policies in the Sheldon review states that better reporting needs to be handled from dissenting voices within procurement, in particular a warts-and-all account of progress.

My issue with that would be how one goes about achieving that in the first place, with the management style that is already in place to allow the permeation of the dissenting voices to not be heard in the first place, in order to require that to be changed. I must add that that is a completely standardised working practice in most other cultures. This is a departmental issue. It is a cultural problem. It is a people problem.

Having said that, I remain optimistic that, in the future, these lessons and more important lessons should be learned, and indeed they can be. It will require change and that is from the top down. Like I said, there is enough evidence now with the Sheldon review, in a light version, to go forward and start holding people to account in a way that the Sheldon review sought to avoid.

Q162 John Spellar: On holding people to account, you mentioned several times, Francis, about “they” being determined that BAE should be pushed out of the military vehicles contract. Who is “they”?

Francis Tusa: It was not one individual. There were three out of four successive directors of land equipment who all shared the same view, or equivalent posts, because they had a different name in those days. The “I will break BAE Systems’ monopoly” was a common thread.

To come back to it, this is one problem with Type 31. The Royal Navy ask, “Why do we have a monopoly frigate manufacturer?” There is only enough business for one. You look at France and Italy. They spend roughly the same, although it fluctuates year on year, on surface warships as we do. In France, it is Naval Group. In Italy, it is Fincantieri. There is one warship yard.

You think of France and Italy and you think of countries that have regional policies: “Let us open new shipyards to provide jobs in disadvantaged parts of the south of Italy”. No. There is one yard up in Genoa. That is it. Why is it the economics for them and we suddenly decide that we are going to open Rosyth and then also open Harland & Wolff? It is going to end in tears.

Chair: Gentlemen, thank you very much and, in absentia, to Mr Nicholls, who had a family commitment he had to go to. Thank you to him as well. You really know your onions, which is why we asked you to come here and give us the benefit of your advice. We are very grateful. If there are any points that we have not covered or anything else you would like us to know, please feel free to drop us a note. Mr Tusa, you are going to give us the benefit of that calculation. In the meantime, thank you very much indeed for coming. We are extremely grateful to you. We hope to start drafting our report fairly soon. Thank you very much.

Examination of witnesses

Witnesses: James Cartlidge, Andy Start, and David Williams.

Chair: Good afternoon and welcome back to our second panel in today’s inquiry by the Sub-Committee of the House of Commons Defence Committee, which is looking at defence equipment and support, or DE&S for short. This is the part of the Ministry of Defence that procures the bulk, but not literally all, of the equipment for our Armed Forces and is responsible for maintaining it in service.

I will just introduce the Committee for this afternoon, please. We have Mr John Spellar, the ranking minority member, who is a Labour MP; Gavin Robinson, a DUP MP; Sarah Atherton and Richard Drax, who are both Conservatives; and Tobias Ellwood, a Conservative and the Chair of the main Committee.

I am delighted that we also have Dame Meg Hillier, who is the Chair of the Public Accounts Committee, which has had a longstanding interest in defence procurement matters. Dame Meg is guesting with us this afternoon. On my left is Masrur, our very good Clerk, who will make sure we proceed in order throughout.

The afternoon has been interrupted by multiple Divisions. We are now hoping that there will be no further votes for several hours. That should give us time to complete all of our business. With those preliminaries done, Minister, perhaps you and your team would like to introduce yourselves. We want to ask you a couple of very quick-fire questions, and then we will get into the meat of the hearing itself.

James Cartlidge: I am James Cartlidge, the Minister of State for Defence Procurement.

Andy Start: I am Andy Start. I am the chief exec of Defence Equipment and Support and the national armaments director.

David Williams: I am David Williams, the Permanent Secretary at the Ministry of Defence.

Q163 Chair: Gentlemen, good afternoon. You are very welcome here. Minister, very quickly, there is a great deal of debate about when we are going to get the Defence Command Paper refresh. Are you able to give us any guidance on that at all? Can we realistically expect it prior to the Vilnius summit on 11 and 12 July or, in the worst case, will we still get it by the summer recess on 20 July? What can you tell us?

James Cartlidge: There is no specific date, but we aim to publish in the coming weeks.

Q164 Chair: Will those coming weeks be before the summer recess or not?

James Cartlidge: I am afraid I do not have a specific date. There is a heck of a lot of work ongoing on it. You know the process; you have been in it yourself. It is in what I would like to call the final stages. I would not want to put an exact date on how long it will take, but it will be in the coming weeks. It is relatively imminent.

Q165 Richard Drax: Will it be on 21 July?

James Cartlidge: I am not going to give you a specific date, I am afraid.

Q166 Chair: As the Defence Committee, we have been waiting for this for a long time. You will understand our interest.

James Cartlidge: Yes, I totally get that.

Chair: I think what you are telling us is that you are going to get it out as soon as you practically can.

James Cartlidge: That is correct.

Q167 Gavin Robinson: Minister, this is not to cause you difficulty, but, if it were to come out the day before the House rises in a Written Ministerial Statement, or around about that time, that would be pretty suboptimal from Parliament’s perspective and from our perspective. Do you accept that?

James Cartlidge: We would like to have an optimal outcome. That is definitely my preference.

Q168 Gavin Robinson: It would be suboptimal if it were to come out on the last day of term before the summer recess or a few days thereafter.

James Cartlidge: Genuinely, we are proceeding at pace. We are doing all the things you would expect at this stage. The bulk of it has been written. As you know—several of you have been Ministers—it is at this stage when you are bringing in the rest of Government, et cetera, that it can take time. We are committed to publishing it in the coming weeks. I am sorry I cannot be more specific than that.

Q169 Chair: Minister, we have pushed as far as we can. I have another quick issue. Mr Robert Courts, who is a Conservative member, is just joining us. That is very timely because Robert is going to be chairing the Sub-Committee, after this inquiry is complete, to look into the whole issue of service families’ accommodation.

As you know, Minister, there was a story that was breaking overnight, and I did explain to you that we would raise this briefly. Unfortunately, there has been a lot of criticism about the FDIS, the new accommodation contract the MoD has signed up for. We now know that these contractors are responsible for, amongst other things, conducting safety checks on the properties in which our personnel and their lives ones are living. It would appear that over 700 of these properties have not had either, and in some cases both, gas or electrical safety checks carried out within the requisite legal period, which is a very serious issue about which the Committee is really exercised.

Mr Courts is going to follow up on this in a moment, but can you assure us that you are gripping this and that this is not going to happen again? We are now talking about safety.

James Cartlidge: I am very grateful that you have raised it because it means I can put on record what has happened. We published the Written Ministerial Statement, but I just want to be clear about the figures.

I was first told about this situation on 2 May. The key, most important figure, as I am sure you will agree, was overdue gas certificates in occupied SFA. That is clearly the priority for obvious reasons. The figure that was given to me on 2 May, which is the one taken from 25 April, was 4,229, to be absolutely clear. That is totally unacceptable. As you say, this is a safety issue. It is about the safety of our Armed Forces personnel. The absolute priority was to get a plan together as expeditiously as possible to get this down to as close to zero as possible. Let me explain what we did as quickly as I can.

We got all the key players together, the contractors, DIO, et cetera. The key thing is we realised that essentially the problem they had had, which had started to build this backlog, was access to properties. There were some issues, but essentially the issue was access to properties. On the one hand, we needed to surge the capacity of inspectors, those going out to do the work, but we also needed to ensure they could get into the properties.

The key decision I took was to approach the Chief of Defence People, Vice Admiral Hally, and to ask him whether we could use the chain of command to intervene. We essentially agreed a plan whereby the relevant chain of command would order personnel to work from home on the day of the visit. This enabled us from 22 May to implement what we called a surge plan, where we surged the number of tests.

To be fair, the numbers since have been significant. The 795, which is the latest figure, is down from that 4,229 figure in a matter of a few weeks. I was concerned that it would take longer. We are on track for the target we gave ourselves when we started the plan, which was to be up to date on outstanding certificates in occupied SFA by the end of June. There may be a small number of exceptional cases that have not been done, but that is the target. It is clearly very unsatisfactory, but, as you can appreciate, for me the absolute priority was to get this done as quickly as possible, given the safety issue.

Chair: Minister, thank you for your candour in the matter. What is worrying is, whereas what was in the public domain was that you had about 700 properties that were affected, you have now candidly told us that at one point over 4,000 properties were affected. In a way that is even more worrying, but we take the point that you have tried to do something about it. I will go to Robert Courts and Dame Meg, and then we will move on to the main body of what we came here to discuss today, but this is very important.

Q170 Robert Courts: Minister, thank you again for your candour. I am glad you are dealing with it, but, clearly, if this had been a private landlord, there would be very serious consequences for failing to have these checks in place. How has this been allowed to happen?

James Cartlidge: It is a very good question. When you get a situation like this, where you are told, “This is the position”, your immediate priority is to deal with the immediate challenge and get that down as close to zero as possible as quickly as possible. In the early few days of coming up with a plan, my concern was that it would take too long, which is why, as I say, we got this combination of both surging capacity and using military command to make sure we could get into the—

Q171 Robert Courts: Can I just interrupt you, Minister? You have only heard about this recently. I understand that. You are dealing with it. I totally understand that. It is the historic aspect of it, not your personal responsibility, that I am interested in.

James Cartlidge: Let me be completely clear. There will be a response to a freedom of information request that is now in the public domain, which will show that there were higher numbers going back further. Clearly, what had happened was that, for various reasons, contractors could not access properties. Essentially, they were emailing people and this was causing problems.

Robert Courts: Yes, this is it.

James Cartlidge: It was the communication.

Q172 Robert Courts: You said this in your Written Ministerial Statement. I have it here. It says, “Until now, contractors have relied on email to notify residents of upcoming checks. It appears, for numerous reasons, these were not always seen in enough time to ensure someone was available at the property”. It was fairly obvious that was always going to be the case. Who put that procedure in place?

James Cartlidge: All I can say is that, from the moment I got this, we did everything possible to accelerate it. As to what has happened before, I would imagine that, in your Committee, you will be looking into that further. I totally understand that. You know who the contractors are.

I just want to make one other thing clear. What this did not result in, just to be clear, was not managing what we call business as usual, i.e. we still did—I demanded this—the checks that were needed to be done on those that were imminent, if you see what I mean. We did not fall behind and create a new backlog. That is important. We have not only caught up or got very close to it; we have maintained the business-as-usual run rate at the same time. That is very important.

Q173 Robert Courts: What worries me about this is that, if you just email someone, they might not see the email. If you do not check they are actually going to be there, it is fairly obvious that this is going to take place. How can we be sure that this is not happening in other areas of defence maintenance?

James Cartlidge: If you are talking about statutory checks, which are incredibly important, there is gas and electricity. There are checks outstanding on electricity, but that is a slightly different situation. There was a change in the time period, from 10 to five years, that you had to be up to date. We are managing that as well. We are hoping to be up to date in August on that one. It takes longer to deal with. Occupied properties with gas certificates that are not up to date were clearly, for obvious reasons, the absolute priority.

Q174 Chair: I am sorry, Minister. It is not acceptable to have an electricity certificate that is not up to date either.

James Cartlidge: I agree.

Chair: No parent is going to want to be in a house with children if you do not have electrical installations and kit that have been approved to be safe.

Q175 Robert Courts: My point, of course, is that in the private sector this simply would not be allowed to happen. There would be hugely serious consequences for a private landlord who did that.

James Cartlidge: I do not want to dwell too much on getting the data and trying to deal with the urgent problem, but the point is, “Once you were aware of it, did you do everything possible to deal with it?” That was the priority we were working to.

As to the contractors, the private sector companies, there are serious questions to answer. The first thing was to get this sorted as soon as possible and absolutely pull every possible string you have. In parallel, we brought in the military alongside to ensure this was dealt with. As to how we got there, clearly there has to be—

Q176 Robert Courts: Are you still investigating this?

James Cartlidge: We have an internal review looking at why that has happened. I would entirely welcome your sub-committee looking into this as well and working with you on it. We have to learn these lessons.

Robert Courts: I look forward to hearing from you on this specifically. We will, of course, come back and look at this in more detail, but what worries me about this is that it strikes me as something that is systemic. We have seen the complaints already. You have visited my constituency; I have had them in my own patch. There are places where repairs are not being done and no one is answering. Nobody gets back and does the repairs that have to take place.

Here we have contractors that, on the face of it, seem to be completely out of connection with the people who they are meant to be serving. Is this contract even remotely functional?

James Cartlidge: Like any contract would have, FDIS has key performance indicators. On some of those, there has been improvement, just to be absolutely clear. We receive lots of written questions on these contracts, and we answer them as transparently as we can. There is a lot of information in the public domain.

It is a parallel process, is it not? You have to deal with the critical issue of getting up to date because it is about safety. Touch wood, we have done that on the gas side, by and large. We have to learn those lessons. Those companies have to deliver. I am absolutely clear about that. As for the companies, we will be considering all options going forward.

I want to make one final point. As I think the Secretary of State has confirmed, we have been withholding monies in relation to these contracts.

Q177 Dame Meg Hillier: Just briefly, Minister, you say in your Written Ministerial Statement that you recognise the problem. Nowhere do you say how long it is that these certificates have been lapsed for. What is the range of time that these properties were without a gas safety certificate? Was it a matter of weeks or days?

James Cartlidge: That will vary.

Q178 Dame Meg Hillier: How much did it vary by?

James Cartlidge: I do not have a figure in front of me for the average out-of-date-ness.

Q179 Dame Meg Hillier: You do not have a figure in front of you, but does somebody somewhere in the system have that data?

James Cartlidge: I will happily look into that.

Q180 Dame Meg Hillier: If they were due by a certain date and they started chasing it 12 weeks beforehand, it would not be difficult to find the data to show how long it has been. If it is a matter of a week, that is quite different to a matter of a year or more.

James Cartlidge: No, I accept that. I mentioned what we call business as usual. In other words, I specifically said to the companies, “If you surge to deal with those that are out of date, you must not allow in parallel a new backlog to occur because you are not doing those that are going to fall due soon”. We were clear on that, and that has been maintained. That is the key point. We should get to a point where not only is the backlog cleared but we are then not allowing certificates to get near the point where they are due to expire.

David Williams: What we can set out to you—it goes back to Mr Courts’ question—is that there was an escalation process in place. If there is no reply to first contact and the service personnel or a member of their family is not present when a visit was due to take place, what is the escalation process? There was one in place, but in our judgment it was way too slow. We can set out what that escalation process looks like and what we are now doing.

Dame Meg Hillier: The Public Accounts Committee, as Mr Williams will know, has looked at this contract quite a lot. It has been woeful for quite some time. This is just another problem that has arisen. It would be very interesting to see the data on how long it has been. If it is a matter of weeks, it is quite different to if it is a matter of many months.

Q181 Richard Drax: I just want to be clear in my own mind: where does the buck actually stop? You are talking about contractors. In my day in the Army, the families’ officer, the commanding officer and other serving officers were very much responsible for how their men and women were living and the conditions of their home. They got very involved.

Has that changed now to the point that serving officers do not get involved in the condition of the homes? Is it purely down to the contractors? Is this therefore their fault? Is it a combination of both or what?

James Cartlidge: This is primarily about the contractors. They have those contracts.

Q182 Richard Drax: They are solely obliged to do these checks.

James Cartlidge: Just to be clear, these are statutory requirements. This is not about the contracts. The properties are meant, legally, to have up-to-date gas certificates. That is why it is so important and why what your Chair said earlier was absolutely right about this being totally acceptable.

Q183 Richard Drax: The buck stops with the managing director of the contracting company.

James Cartlidge: When we found out about this, the first thing we did was, with DIO, look at what we could do and how quickly we could do it.

Q184 Richard Drax: The buck stops with the managing director of that company. Is that correct?

James Cartlidge: Yes, or their contractors. Ultimately, the executives of the company are responsible for the contracts they enter into, absolutely.

Q185 Chair: Minister, gas safety checks have been a legal requirement for many years. From memory, the electrical safety checks came in afterwards. Dame Meg is helpfully nodding at that. Social housing landlords and housing associations have done this as a matter of course, important though it is, for years. Were these checks being carried out successfully by the DIO and their contractors before the FDIS contract? In other words, has this just gone horribly wrong since you have switched to FDIS, or was this going on for years?

James Cartlidge: That is a very fair question. I do not know the answer to that off the top of my head. That is a very fair question. The comparison is important. The impression I have of the period before we went into dealing with it on an emergency basis, if you like, is that the backlog was building up and it was driven primarily by not being able to contact personnel.

I take Mr Courts’ point. It sounds simple. Should we be able to do that? Many people would say yes.

Q186 Chair: To round this off, can you let us have a note—perhaps you could copy the PAC—with as much detail as possible on the data Dame Meg was referring to, including whether this problem was specific to FDIS or whether it was going on for years?

James Cartlidge: Essentially, you want the historic data on gas safety checks.

Q187 Chair: I want as much data as you have got, but the key thing is whether this really went wrong when you switched to FDIS. I have to say—Dame Meg used the word “woeful”; I will go further—it has been an unmitigated disaster.

We know lots of people are leaving the Armed Forces, more than we can recruit. We know from the Armed Forced Continuous Attitudes survey that barely more than one in five service personnel are satisfied with the degree of maintenance of the quarters they and their loved ones are now asked to live in. If you carry on like this, more and more people will leave and the Armed Forces will hollow out to a point that is operationally dangerous.

This will be my last word on it. Could you assure us that you are looking at other options?

James Cartlidge: To be clear, I am always considering all the options, particularly when you have a failing like this on something that is statutory and where it is a safety issue. I entirely share your dissatisfaction at what you have discovered.

When it comes to serving personnel, the one thing I had to do, as far as I am concerned, was to deal with it as soon as I discovered it. In terms of getting this down so that properties are fundamentally safe, we have dealt with it as quickly as we could. This should absolutely not have occurred in the first place.

Chair: We have spent a bit of time on this, but any fair-minded person would accept that it is very important. It is particularly important if it touches on the safety of our Armed Forces and their loved ones.

James Cartlidge: I totally agree.

Chair: In that case, let us crack on with the main part of the inquiry, please.

Q188 Sarah Atherton: Just to set the scene from the previous session, we heard from witnesses that the challenges facing MoD procurement rest on culture and the culture within which the procurement system sits. Some of the words that were used were “needs changing from the top down”, “conspiracy of optimism”, “inability to speak truth to power”, “lack of transparency”, “perverse incentivisation” and “does not hold people to account”. Some of that has been borne out in the Sheldon review into the Ajax. Minister, what are the principal challenges facing MoD procurement?

James Cartlidge: It is a very good question. If I may, I will begin by referring to the answer I gave your Chair today in the Ajax statement. If I am frank, when I got this job, lots of colleagues came up to me and said congratulations, but they nearly all mentioned Ajax, if I am completely honest. Its reputation, if I may say, is out there.

When you have a situation like that, people expect you to say that you want a faster system because of those delays. My answer to your question in my statement was about how we need a more agile system that procures faster. The ultimate reason for that is not because other projects have taken too long, though they have. It is fundamentally because of the top-level strategic picture we face, which is competition with our adversaries.

Above all, the reason we need to have a faster, more agile and more effective system is because, if we do not, our strategic capability will suffer and we will not be innovating at the speed we need to in order to compete with our adversaries. To me, that is the most important reason why we need to improve our procurement process.

I would just make one other key point before I bring in the other two. There are positive changes happening, but they are happening within the current system. As we go through some of the other questions, we are going to try to demonstrate some of the specific changes we have made.

Where do I want to get to? I would like to get to a position this time next year where we have made changes, but, importantly, you reach a point where you can say, “We now have, definitively, a reformed acquisition system”. The key feature of that—this is something that is important from a managerial or internal point of view—is to have a clear diagram or map, whatever you want to call it, of the process that you, as stakeholders, the people in defence, understand, one that is straightforward and transparent. That is where we want to get to.

In order to get to that and ensure it delivers meaningful change, I have tasked the Permanent Secretary with holding an end-to-end review of the defence operating model.

David Williams: Yes, let me just expand on that. An end-to-end review of the defence operating model sounds quite dry. Clearly, some of the aspects of that are around structure and process, but you will only get a structure and process to work with the right behaviours and the right culture. I absolutely acknowledge those points in your opening question. That cultural and behavioural point is a really important theme from the Sheldon review that we absolutely have to get after.

I know the Committee has heard in previous sessions in its inquiry from Lord Levene, who is the architect of the operating model that we operate today. His report is often conflated with simply the decisions we made about delegating capability management and financial responsibilities to the frontline commands. It did do that, but it was a much wider review of how defence works, the role of the board and the roles of Ministers and senior officials, not just the acquisitions system.

It is important that we posit work around how we reform acquisition and procurement in that wider piece of work this time around as well. Whatever you think of the Levene review, it was 12 years ago. An operating model that worked for 2012-13 is not necessarily going to be right for 2023 and the 2020s. Life moves on.

We are conducting a wider review. We have got going on that. Our first sessions looked at how we need to operate and how we need to campaign in a world of greater state-on-state competition. Of course, getting after that acquisition question, getting after capability management and delivery, is going to be central to it.

There we will building on improvements that were already in train through our acquisition reform programme, building on the work Mr Start has launched that I know you have discussed about how that acquisition operating model looks from the DE&S end of the relationship and taking recommendations from the independent panels that Ministers commissioned last year to look at particular aspects of our procurement. Of course, the timings will work very nicely for us to reflect on the findings and recommendations from this Sub-Committee as well.

For me, without trying to design the new operating model live in committee, it is about really getting after pace and simplicity. It is about ensuring we are reducing bureaucracy to support better decision-making, better value for money and, in the end, stronger delivery.

In particular, looking at this end to end definitely gets into some of the lessons from Sheldon and the softer behavioural pieces as well as the process of organisational design. There are just way too many hand-offs between different parts of the Department and different teams. Accountability at those hand-offs is not clear enough. The ways of working and the culture that needs to go with that have been allowed to drift.

James Cartlidge: Can I just make one final point to supplement that?

Chair: We need to hear from Mr Start as well?

James Cartlidge: Yes, absolutely. Something I feel very passionately about is exportability. I want to see us competing and bringing forward products we can market internationally as well. The system currently considers that, but it is about really considering it and making it really intrinsic to the process from the beginning. That is a good example, but there will be others like that.

Q189 Chair: Mr Williams, you gave a very good exposition there about the wider reform of the MoD’s processes. On procurement itself, just to make sure we heard you clearly, Minister—it helps if we start on the same page—you are telling us that you accept that the system needs to be reformed.

James Cartlidge: Yes, absolutely. It needs to be reformed, but I am just being very conscious that we have lots of live acquisitions happening. There are positive changes happening already. It is about getting to a point where you can say, “There is now a different model”. It is people’s understanding of it, ultimately.

This is why Andy’s presence is so important. Day to day, this is very much about the internal workings of the Department, DE&S, et cetera, as you know. Some of that will take time, but, as the Permanent Secretary set out, by engaging with our people and our leadership and by changing the culture, as Ms Atherton referred to, we can deliver change. We have to be clear about why we ultimately want it. As I said in the beginning of my answer, fundamentally it is about the strategic capability of the United Kingdom.

Q190 Sarah Atherton: Mr Start, we had a very successful and informative visit to Abbey Wood. One thing we are all convinced on is how you and your team have stepped up considerably to support Ukraine. I would like to compliment you and DE&S on that.

Some of the issues I raised about culture sit at the interface between you and the MoD. Would you like to comment on what I said about the cultural issues there and the friction there appears to be, to the other witnesses, between DE&S and the MoD?

Andy Start: I am very happy to do so. First, thank you for recognising the team’s efforts in Ukraine. We have a team that works incredibly hard and is really passionate about protecting this nation and helping it prosper, and whilst we accept that there are things we can do better, taking this opportunity to say thank you to my team and the industry players that support them is important.

I will answer your first question and then come to your second. Your first question is, “What are the headline challenges?” For me, they are the two that the Minister spoke of, which are this rapidly accelerating threat environment globally, which is very significant, and the pace of change of technology, which is also really significant. There is a third one that we are dealing with at a macro level, which is a post‑Covid global supply chain issue that is impacting every defence acquisition globally during the Ukraine crisis.

I was in Paris on Monday talking to my national armaments director colleagues. They do not have a single programme at the moment that is not being impacted by supply chain issues.

Underneath that, you then have the pan‑defence issues that David talked about. There is definitely an opportunity for us to make the end‑to‑end process more effective, to your point, to simplify the hand‑offs that are today overly complicated. There is too much to-ing and fro-ing between different parts of the organisation. We have made good progress in some places in terms of transparency, but we have more to do in terms of culture.

If I speak at a pan‑defence level, because it applies to all of us, one of the things that I observed coming in from industry was just how reticent people are in every part of defence—in the armed services, within the Civil Service and within the delivery agents. Individuals are reticent to raise issues. There is a culture of people trying to solve the problem and then saying they have fixed it. In acquisition, that is really problematic, and Sheldon clearly points that out. We have to shift to a culture where people highlight that there are issues to be dealt with and get on doing the best they can to solve those problems, and for senior leadership, looking across the range of those issues, to be able to get after them.

Within DE&S, we have already made some significant changes in terms of driving the culture within the organisation. We are going further in terms of a very inclusive process of redesigning DNS’s part of the operating model. DE&S will contribute to the wider process that the Permanent Secretary just described, but we are getting on with it inside Defence Equipment and Support.

We have already had roughly 1,000 people involved in that redesign process. That sounds like a really heavy‑handed way of approaching it, but it is industry best practice. If you want to change an organisation to be more efficient and you want to change the culture, then involving the organisation such that the change is biased for us is critical. It is very well proven. We are following that methodology and it is already starting to make a change. I am pleased with the progress that we are making, but there is a big job of work and it will take us through at least this time next year to have it embedded, but the change has started.

Sarah Atherton: What about the interface between you and the MoD?

Andy Start: It comes down to the same dynamics. Until we have an end‑to‑end process that is very clear, very simple and is underwritten by a culture, across the MoD and DE&S, that is comfortable highlighting issues early and is focused absolutely on protecting the nation and helping it prosper, we have to think with a “one defence” mindset. That is being driven at the moment by the Chief of Defence Staff. He is absolutely right. If we all focus on protecting the nation and helping it prosper, then the conflicts that happen because people have different motives and drivers start to evaporate. That is the change that we have to drive through. The change process the PUS started last week in Shrivenham has started going after that. It is continuing this week and I am going down to see that work tomorrow, after this hearing.

Sarah Atherton: I may also suggest it is value for money for taxpayers. Thank you.

Chair: Just quickly from the Chair, Mr Start, it is exactly as my colleague says. We may have some issues with you about procurement in general—in fact, we do—but when we came to Abbey Wood, we thought what your people in your organisation were doing to support the Ukrainians was of extremely high quality. On behalf of the whole Sub‑Committee, we would just want to reiterate that today. If you could carry our compliments back to Filton, we would be grateful.

Andy Start: Thank you, Mr Chair.

Q191 John Spellar: Minister, you mentioned exportability, but the first question that any overseas customer says is, “Are you selling to the British Armed Forces? If you are not, do not bother to try to sell to us”. There is a question as to what rating that has and how much value is put on that by the Department. Similarly, the war in Ukraine and especially the munitions shortfall and ability to resupply has highlighted the crucial need to maintain domestic industrial capacity. Given both of those, what value is given in awarding contracts to securing our manufacturing industrial base, not only in terms of supplying us now but being able to sustain our Armed Forces as well?

James Cartlidge: That is a very good question and linked, in many ways, because a key point about exportability is that you are increasing total aggregate demand. By doing that, industries’ demand signal is made stronger and so the ability to revitalise the replenishment through the supply chain is stronger. For me, because the supply chain issue is global, as Andy says, in our current circumstances we all need to replenish, particularly in light of Ukraine. Exports offer that benefit, so it is not just about the direct UK economy benefit.

Your first point was very good. It is well established, dare I say, in the philosophy of the Department that, where something is used by the British Armed Forces, because of the respect there is for our Navy, our Air Force and our Army, it makes the brand UK associated with that product much stronger, as I am sure Andy would affirm.

As to how that scores, we are very conscious of the importance of our brand and the thing I want to see us doing more is what I call collaborative production. A brilliant example is AUKUS, as is GCAP. The work we are doing with Poland is also good. One interesting thing with the UK is that this point about the trust in our Armed Forces therefore builds trust in the brand as a whole. We are selling on the basis of high quality, a trusted brand and delivery of products and platforms that are effective for our allies and partners.

Q192 John Spellar: But you can only co-operate with somebody else’s industry if you have an industry yourself, and we see that we have exited several industries. I come back to my point. Within making the specifications and awarding contracts, what value is put by the Department on securing our industrial base through that?

James Cartlidge: As you know, there is always this parallel challenge where, on the one hand, you may want to secure something relatively quickly off the shelf, as we say, which could well be a foreign military sale, for example. The P‑8 was probably a good example of that. There will also be capabilities where we want to have sovereign capability. Irrespective of where we procure, in contracts, we do have social value requirements, insisting, for example, that a certain percentage of the manufacture is in the UK. That does already take place, but I would not want to downplay the fact that this is done on a case‑by‑case basis. That is really important to stress.

Q193 John Spellar: Let us look at the percentage. What percentage of social value do you build into the contracts?

James Cartlidge: There is not a single figure.

David Williams: The way it works is that you are allowed a weighting for social value within a set of assessment criteria, which in this space is somewhere between 10% and 20%. That is off the top of my head, but we can confirm that to the Committee.

Q194 John Spellar: Who decides where, within those parameters, it lies?

David Williams: That would be for the Department and, for major projects, it would be a ministerial call.

John Spellar: If you could do us a note on that and how it plays out, that would be helpful.

David Williams: We can do that very quickly.

Q195 Robert Courts: Minister, you mentioned high‑quality kit. We are always going to want to have the best‑quality kit because we want to send our forces out with the best that the world can get, but as it becomes more expensive, you also have the issue of mass. How do we square this circle between having high‑quality, exquisite kit but not very much of it and making sure we get the mass that we need? It would help if it is on time and on budget, but are we going to achieve this?

James Cartlidge: In many ways, it goes back to Mr Spellar’s question. The tension—I would not want to imply that it is negative, but it is always going to be there—is really between the exquisite and off‑the‑shelf. That is historically how we have described that. Going for something that is a sovereign capability with a high‑end specification will take longer than buying off the shelf. Archer is a classic example. Having donated to Ukraine the equivalent, we needed to fill that gap. Whether Archer would have been defined as the epitome of what you wanted when you were initially procuring or not, the point is that that was what was available and it is a very good piece of kit.

Q196 Robert Courts: Is it not the case that, if you want something that is bespoke, UK‑manufactured, exquisite, high‑end and all of that stuff, but it takes too long and it costs too much, you end up in that awful and frankly artificial situation where you are thinking, “If it is going to be in budget and on time, you are going to have to buy it off the shelf”? That is the last thing we want.

James Cartlidge: You have to strike a balance. If I can give you a good example, the T26 has been described to me as a submarine on the surface, in the sense that it has to be as quiet as possible because of its duties in relation to submarines. That means you might say it is meant to be an exquisite platform and, from our point of view, because of the importance of the deterrent, this is something that we want to have sovereign capability in, but there may be other areas where, although it is still important, because it is not absolutely critical to be sovereign, we are more relaxed about purchasing an off‑the‑shelf option.

Q197 Robert Courts: But we do not have enough of either Type 26 or Type 31. That is the point I am making. You end up with very small numbers of high‑end kit. You do not have enough and it is delayed and it is over budget.

James Cartlidge: The most important point on mass is about NATO. As the UK, yes, we do have significant capability and it is the combined effect we can produce that is the most important point, but ultimately mass in terms of potential war‑fighting situations comes from us and our allies. We cannot expect to do everything ourselves.

Q198 Robert Courts: In the event of an Article 5 situation, yes, but if it is discretionary or there are tasks that the Government want to perform around the world, you may not have NATO backing. Does it not come down to that? You are going to have to make a choice about what you do and you do not.

James Cartlidge: If you look at our Armed Forces, they are engaged in pretty much every NATO exercise. We have the troops in Estonia. Last year, our Navy was active in pretty much every maritime area of the world, as it would be classed. We are doing a heck of a lot, but ultimately I do not think we would ever expect, on our own, to take on a major adversary. We would assume we were in a NATO coalition situation and that is absolutely right.

I know there were some comments in the press about mass in terms of the Army but if you look at it in that light it is positive. From NATO’s point of view, that mass has increased because of new countries acceding, with Finland and hopefully Sweden bringing more troops and more platforms.

Chair: Minister, just to interject quickly, historically, the 1981 White Paper slashed the Royal Navy so that we could concentrate more on the Army, BAOR and the commitment to NATO, where we would fight with allies. Then, a year later, Argentina invaded the Falklands and, if we had stuck to your argument, we would not have been able to retake them. I am afraid this rather lazy argument, if you will forgive me, where the Department keeps talking about allies as a substitute for the fact that it has fewer and fewer units of anything left anymore, does not wash with this Committee. That dog will not hunt today.

Q199 Robert Courts: The Chair makes exactly the point I make. In a NATO Article 5 scenario, if you are fighting with NATO, that may be true, although we would bring less to it. If it is discretionary things, you will have less ability, will you not? Let us take this back to the original point, though. The original question I am asking you is how you square this circle between having small numbers of exquisite kit and large amounts so you have the mass, and how you are stopping everything being delayed and over budget.

James Cartlidge: In terms of acquisition reform, can I make what is a really crucial point about this balance? I take your point about mass but normally, in terms of acquisition, the tension that exists is between exquisite kit on the one hand and off‑the‑shelf on the other. There is probably a better word than “tension”, because it is inevitable that that happens.

Q200 Robert Courts: What are you going to do to make sure it is exquisite but on time and on budget, so you do not have that choice?

James Cartlidge: There is a phrase that I have heard spoken about a lot in relation to the changes that we need to make. When I went to Salisbury Plain on Operation Interflex, an officer in the Irish Guards said exactly this to me. When we were talking about procurement, he said words to the effect of, “Well, we need to go for 70% not perfect and then spiral the rest. He put it to me in a nutshell. That is where you strike the balance; by not procuring something that is perfect and exquisite from the outset, you recognise the importance of spiral development. You sprint to 70 and then you spiral once it is with the Army or the Navy or the Air Force. That is how we should do it.

Q201 Robert Courts: Are the commands going to accept that so that they do not keep coming back and changing requirements? I think this is probably something that you would say has bedevilled procurement. Andy may want to comment on this.

Andy Start: First, to your very explicit question about the need for some exquisite capability, you do need it, and therefore there are going to be complex programmes. How do you manage them better? We agree with the Sheldon recommendation, which is for new programmes that are exquisite.

First, we need to get the requirements really thoroughly and robustly reviewed at a level that we may not have done previously. Secondly, we need to do everything we can to reduce the technology risk before final contract, and that is going back to some of the thinking about spending a decent amount of money pre‑contract. It is good to see that we are doing that on GCAP, for example. Thirdly, it is about using something like a P70 as we go through approvals for those exquisite capabilities. You do not need to use a P70 if you are buying Archer and you know you are going to deliver it in March.

Q202 Chair: Can you just explain what a P70 is?

Andy Start: With complex programmes, when the programme experts use industry best practice to analyse the schedule, they will look at the duration of each activity, and each of those activities will take a varying length of time based on history. It might take three or four months to do something complicated.

When you combine all of those together for a big, long, complex programme, you get a spread of likely dates that you are going to complete, and there is a probability associated with those dates. Historically, the Department, for schedule, has used a P50, or a 50% probability, for the approval of the date. That means that there is a 50% probability that it will come in after that date.

There are reasons why the Department chose to do that, but Mr Sheldon appropriately pointed out that that creates some real perverse incentives on the behaviours of the team. As a consequence, we accept Mr Sheldon’s recommendation that what we should actually do is set target dates that have a 70% probability of completion for complicated programmes. That does not guarantee that everyone is going to get finished on time, but by setting a date that looks like that, you are much more likely to do so. Therefore, that is why we believe we should move to that and we will see that built in.

James Cartlidge: This is what we are talking about when we say optimism bias.

Chair: Do not worry. We will come onto optimism bias in a little while, big time.

Andy Start: I am looking forward to that. Can I just check that I answered Mr Courts’ question completely?

Q203 Robert Courts: I was interested in whether the commands are accepting the “70% of what they want” point as opposed to continually coming back and changing the specification, which pushes everything to the right and increases the cost. The Minister was saying that is what we have to do. I do not think that that has happened.

Andy Start: It is probably worth repeating the conversation we had this morning with the Chief of Defence Staff.

James Cartlidge: There is total acceptance of the need to improve acquisition. In a way, what should happen is that newer requirements are spiral-developed. When we talk about this, there is no magic silver‑bullet solution and there is a lot that is already happening that will continue to happen. It is about refining the model into something much clearer, as Andy is saying, which I think they have done at DE&S and which has worked well. I was very pleased by your feedback. Basically, you engage your internal teams, the people who are going to be doing all this work, and you try ultimately, going back to Ms Atherton’s point, to change the culture. That is what we have to do.

Q204 Robert Courts: Tempest will be a culturally different programme to Typhoon, then.

James Cartlidge: That is going to come down to spec, but the system through which you do it must be more efficient. I take your point. It is important that everyone is involved, including the leadership of the military. You do not immediately strive for the sublime. You have this psychology of speed to 70% or 80% and then spiral develop.

That will be much more effective, not least because you do not just do the spiral development to save the time. It is because technology changes so quickly. This is standard in many commercial areas, such as software. What we are talking about is very standard. It is not rocket science, but we will need a bit of a mindset change to fully implement it.

Chair: Sheldon makes a point on this and the way he summarises it is very good. He says that, if you are working on the basis of a probability of being 50% right, you are as much likely to be wrong as you are right. If you increase the accuracy of your guesses to 70% or more, then, in a sense, you are making your organisation a bit tauter. There is greater discipline, rather than just saying, “It is 50/50. We could be as right as we are wrong”. You will find that the Committee has a lot of sympathy with that direction of travel.

Q205 Mr Ellwood: I want to pursue the point the Chair raised on the subject of reliance on key allies to fill gaps in our own capability. We departed from Afghanistan because the United States left first. Can I ask if there have been any conversations whatsoever, or calculations made, in the event that Donald Trump gets elected and the Americans pull their support out of Ukraine? What impact does that have on our support for Ukraine and our procurement assistance?

James Cartlidge: As you will appreciate, it is not for me to speculate on the internal politics of any country. The United States is our greatest ally. They are our most important military ally and partner. They are, as we have been, but on a different scale, making an enormous difference in Ukraine in terms of provision.

Q206 Mr Ellwood: That was not my question. I appreciate what they are doing. It is a reality that there is a serious possibility that America’s support for Ukraine will change fundamentally in 2024. My question is whether we are making any calculations now in preparation for that possibility, or whether we are just saying, “It is up to them to decide and we will pick it up”.

James Cartlidge: The election is a matter for the American people. You know perfectly well that the reason we are working as hard as we are on supporting Ukraine is precisely to assist them in the very real situation they are in in the live military conflict, and we will be continuing to do that. The United States, like us, is a lover of freedom, and wants to protect democracy and oppose despotism. I would sincerely hope that would continue, but we can be clear that we are, as countries, totally committed for the long term to supporting Ukraine in every way we possibly can.

Mr Ellwood: That was not the question.

Chair: To be fair, asking Mr Cartlidge to give us predictions on the American electoral system puts him in a difficult position.

Mr Ellwood: I was not doing that, if I may, Chair. I was just feeding it in that it may be something that the MoD, CDS and the Defence Secretary might need to start considering as a possibility.

James Cartlidge: Our focus is on how we support the Ukrainians right now, in their righteous struggle.

Q207 Dame Meg Hillier: It seems to me we have had Infrastructure and Projects Authority reports, National Audit Office reports, now Sheldon, and various parliamentary Committee reports all saying much the same thing about changing procurement. You have accepted all of the Sheldon recommendations, though with some reservations. I can see there might be some technicalities that you might have to work through. Given that, are you acknowledging that there is a problem with the procurement system and that you are going to change it, just in simple terms?

James Cartlidge: Yes.

Q208 Dame Meg Hillier: You were talking in slightly jargonistic terms about end‑to‑end change. That is, in a way, pretty obvious. It is going to be an end‑to‑end process you have to go through. From all of those areas, there are a couple that I just wanted to probe. We have looked a lot on the Public Accounts Committee into the role of senior responsible owners. It is interesting how Sheldon highlights that the senior responsible owner was diverted a bit, and he recommends a period of office. I recognise that that might be challenging and you had your own caveat. In your ministerial statement, you talked about the challenge of delivering that.

Given that the projects are, on average, according to the NAO, 77 months and SROs stay for 22 months, what are you going to do to try to encourage and support career development in the MoD for people who stay longer and see a project through, even if not from the beginning to the end, for at least the relevant stage of the project? Maybe it is more for Mr Williams than you, Minister.

One of the problems that we see repeatedly on my Committee is that it is not a good promotion opportunity for you if you stick with a project for a very long time because of the rotation system in the Civil Service, which is perhaps more than the MoD can deal with alone.

James Cartlidge: I will bring David in on the career path, as it were. It is a very good point. I say this to the whole Committee: I would characterise a lot of the debate and focus on the acquisition issue historically as being on the role of the SRO. That is primarily because of the desire for accountability, for having someone who stays with the project and can be held to account for its performance. It is as simple as that.

You are absolutely right. In terms of accepting Sheldon’s recommendations, you are right. That is one where we accepted it in principle, precisely because of the caveat I said: that we all see the benefit of having an SRO there for as long as possible, but obviously it has to be subject to employment law and you cannot force someone to do that.

Q209 Dame Meg Hillier: You can reward someone for staying for the relevant stage of the project.

James Cartlidge: The key thing is that this area is really important to us. As I said in a statement, the Army have doubled the number of SROs and, in particular, doubled their time. This is an area of investment, but I will pass to David on the career point and the structural point around SROs.

David Williams: Thank you. Both for Civil Service and military SROs, part of the response is around a clearer focus on and recognition of programme delivery and being an SRO as a professional stream, in which you would expect people to cut their teeth on less complicated projects or as a programme director before they step up to be an SRO. It is partly about how we appoint people. On the whole, many appointments to SROs are linked to milestones, but they tend more often, traditionally, to be approvals milestones rather than delivery of capability milestones. Focusing on the outcome, not on the stage of the process, is going to be really important.

You then have a range of techniques, all of which we are using to some extent or another at the moment. The real thing here is about how we do it consistently and persistently. On the Civil Service side, for instance, there are pivotal role allowances and payments linked to milestone deliveries. On the military side, we can think about rank ranging. You would stay in post for a period and, for phase 1 of a project, you might be a two‑star admiral; if that goes well, for the next period, you might then be a three‑star admiral. It is worth thinking about that sort of promotion in post, rather than telling people, “You have to go”.

Q210 Dame Meg Hillier: You are thinking about this. How long is it going to take, though, to implement? Certainly on the military side, that is a whole different approach to do with promotion compared with the Civil Service. What challenges are there within the Civil Service as a whole? You are talking about extra payments for delivery. Are you hit by any of the salary issues with the Prime Minister?

David Williams: We have quite a lot of flexibility. As I say, we have people that are already in this kind of position now, so I do not think there are particularly external permissions barriers to it. We may need to work through some salary issues with the Treasury. The real trick for now in expanding the cadre of full‑time professional SROs is having people with the right skills. It is less, for me, about that external environment. We have to grow the people, so it will be an incremental roll‑out, but you should expect to see progress on this this year.

Q211 Dame Meg Hillier: Of course, the Minister was only very recently a Treasury Minister, so I am sure, Minister, you can see the benefit of a bit more pay now.

James Cartlidge: You are being very modest. I was not only a Treasury Minister, but I sat on your Committee as the Exchequer Secretary, although entirely nominally. It is a good point, because I had responsibility for infrastructure as the Exchequer Secretary and I did a session with the Lords Built Environment Committee where SROs were very much the focus. The point I would make is that their angle was, “Can we almost have an infrastructure Minister across the board?” As I clarified then, and it is really important to stress, the whole point is that, on major projects, it is at a departmental level that accountability sits. That is through the SROs. Accountability is crucial, ultimately to Parliament.

Q212 Dame Meg Hillier: It is through my Committee and other sister Committees as well. The Sheldon recommendations actually quite neatly sum up some of the things that my committee has been looking at for a long while, and it is well written as well. Optimism bias comes up. It is something that I highlighted in my own annual report. It is a bit of a disease across Whitehall. I would not put it all at the door of the MoD.

Minister, you have a role here, but, with respect, you are the 11th Procurement Minister. The longest-serving two of them have done two years and three months, so I partly direct this to Mr Williams, although, Minister, of course I am not going to stop you speaking. How are you going to change your Department around so that optimism bias is out of the system. You have your Department. You have the commands. This is a big cultural shift and a big challenge to deliver across the Department through all your civil servants. How are you going to go about that?

James Cartlidge: I have one point. It is not being flippant, but I think that it is true—I think I am right in saying—that, on the 50% point, we are sort of saying, “Is the glass half full?” I think that it means 50% or above. Am I right, David? In other words, it is not 50/50. It is 50%-plus, but that is a technical point.

Either way, you are absolutely right. In the Sheldon report this is a key finding. As I said in the statement, in many ways what was happening in Ajax is a good example. Arguably, the timings, et cetera, were too optimistic. Now, working with General Dynamics, we have agreed what is arguably a more cautious timetable, but one we can therefore all have more confidence in. That is a good illustration of that.

Q213 Dame Meg Hillier: Mr Williams, you have the challenge of delivering it through the system.

David Williams: It is partly about skills and partly back to the opening question about culture, behaviours and the systems we are operating in. On the skills side, we have been doing work over the past six months or so, including with some external industry experts, on how we can improve our cost forecasting and cost control. There is something for me there about having centres of excellence.

We have a CAAS, a cost assurance function, which looks at costing and schedule. At the moment, it tends to be operating in a scrutiny role. Once the programme is coming up, we want to engage much earlier as an offer to commands and project teams. We need to engage industry earlier. Some of the challenge with optimism bias is that our expectations on what is doable and industry’s are not aligned. As I think you heard from your evidence session with Mr Livingston from Lockheed Martin, industry can also sometimes be optimistic about the level of technical risk in projects that it takes on.

There is this skills-based early engagement and bringing industry in early piece. There is a move away from P50 costing or scheduling. The point of P50 is that, if you do it well, it is as likely to be higher or lower. It is not that you will get it right 50% of the time. It is a most likely outcome in a range.

Q214 Chair: It is still too weak. Let us say that you made it P80, for argument’s sake. You are still not always going to get it right. If you had a much stricter discipline at P80, your scheduling and budgeting would be a lot better than it is now. It could hardly be worse.

David Williams: It would be different and it may well be better. If you budgeted and did schedule at P80, more often than not, it would cost less and come in early. Do not get me wrong. That would be a world in which I would be happy to live, but dealing with capability that arrives early brings a different set of challenges. The services would be up for that challenge.

Q215 Chair: Given the history of all this, that is a problem we would be happy to deal with.

David Williams: Indeed, yes. We may come on to annuality. A world where you are costing at a higher confidence level makes it more likely that you will underspend. Therefore, it is more important that you have flexibility to carry money over. There will be some different challenges at the margins. On the whole, a greater confidence level in cost and schedule gives you more certainty that you can deliver the programme that you were planning to deliver than the way in which we currently operate.

Chair: We are coming to annuality, but we are still doing optimism bias.

David Williams: This is more a case where money is tight and the affordability of the programme is challenging. By its nature, there is a degree of competition between the services on their slice of the cake. Some of those perverse incentives are around the entryism of getting a programme in on the assumption that it is relatively straightforward and does not cost too much. Once it is in, all of the incentives are to make it work, rather than take it back out.

Q216 Dame Meg Hillier: Culturally, you need to have more honesty at that point.

David Williams: There are cultural issues that we need to think through.

Q217 Dame Meg Hillier: I will not repeat the questions about the efficiency savings in the equipment plan, because they are well rehearsed. I appreciate that it is difficult when you have the Minister sitting next to you, but, Minister, you are the 11th Minister in this position. In terms of the culture of the MoD, how hampering is it? I am not making a party-political point at all. We have seen far too often turnover of Ministers across all Governments in this very important role. Does having high turnover of Procurement Ministers have an impact on the culture of the MoD?

David Williams: On the culture, I do not think so. You have to make sure that you are not getting into a mindset of waiting people out, but in my experience recent Procurement Ministers are keen to make their mark quickly and we respond to that. The challenge, particularly in the procurement portfolio, is that in a range of programmes that are highly complex and technical, and can take some time, you are coming to a set of decisions the first time round, rather than with the history. That can offer additional useful insight.

My way of describing this with Minister Cartlidge’s predecessor is that, in a Department that likes its jargon and is not always the best at explaining the decisions it is seeking for Ministers to make, it is a bit like dropping into a Korean drama halfway through its second series. We do not bother giving you the series recap and from time to time we do not bother putting the subtitles on. There is a challenge in getting up to speed, but we have an able set of Ministers who seem more than capable of taking that in their stride.

James Cartlidge: On a minor point, the MoD has had one of the most stable Secretaries of State and Ministers for the Armed Forces in terms of timing.

Q218 Dame Meg Hillier: When you look at the record, there have still been six of them since 2010, but, yes, we recognise that. It is perhaps a wider issue.

James Cartlidge: It is not the first time I have had handover from the now Lord Chancellor, because in my first job as Courts Minister I took over from the right honourable Member for Cheltenham and I have done it again. I can assure you that we have got used to, therefore, having a handover.

Q219 Dame Meg Hillier: Was there a handover? That never used to happen.

James Cartlidge: Yes, absolutely. He gave me a very effective handover.

Chair: For the record, Ben Wallace is the longest continually serving Conservative Defence Minister, I think, in history, in actual fact, and certainly in living memory.

Dame Meg Hillier: It is four years.

Q220 Chair: As you will note, Mr Cartlidge, in the defence procurement portfolio, it has turned over a bit more frequently than that.

Mr Williams, quickly on SROs, and then we will move on to annuality, Sheldon points out that the SRO for Ajax had four major programmes initially. Then as Ajax got into more and more trouble, that was cut to three, and then I think it was cut to two. For the record, we are talking about the senior responsible owner, because we are throwing acronyms around here, and I am guilty of doing it too.

The first point is that one area where you might want to look is having SROs with perhaps only one main, Cat A programme that they are responsible for, because a layman might ask why one person is dealing with multiple multibillion pound programmes. How do they have enough bandwidth to really focus? I think there is an issue there.

Another issue that comes out of the Ajax problem very clearly is that the SRO was part of the capability organisation, not part of DE&S, and when there were problems there was frequently tension between the SRO and the DE&S team who were buying the vehicle. At one point, there is an exchange of correspondence, I think, where the DE&S person basically says, “I hear what you say, but we are doing it our way”.

There is another quote from Sheldon where the SRO says, “At the end of the day, I realised I had no formal levers at all, and I can only achieve anything”—I think the phrase is—“by force of personality”. Another thing that needs to be looked at is where the senior responsible owner actually sits in the system. Sheldon posits moving them into DE&S, but then at the end of the day recommends against it. I would just say to you now that there is a very real debate, if you are going to have SROs, about where they live in the Ministry of Defence and how much authority they have relative to the procurement arm. Perhaps that is something you could take away.

David Williams: Those are all good points that we are grappling with. On the percentage of time, the cross‑Government standard is that an SRO should spend at least half their time on a major project. We are now up to the point where 80% of our SROs are meeting that. In the Army, we have deliberately moved to single full‑time SROs, and indeed they are largely civil servants, rather than military officers, to drive that portfolio of programmes forward.

On the whole, for the most major and complex programmes, that would be my default ambition. There may be some cases. The Minister has mentioned Type 26. We have an SRO who is full-time on two programmes, Type 26 and Type 31, because thinking about it as a frigate transition programme makes some sense. There is one downside when we come on to budget flexibility and annuality. If you only have one programme to look after, you do not have very many other places to go if you want to move money around. We can come back to that. That is important.

Where they sit and the authority is really important. For the major programmes, they draw their authority through a letter of appointment from me. We are recasting that letter of appointment because the version I have inherited and have been using is quite long on the SROs’ obligations and pretty short on their authorities and the support that they might expect to get. Getting a clear escalation route—this is a broader theme in Sheldon—for SROs to raise concerns to senior officials, indeed to Ministers, is really important.

We have looked at the DE&S point. The role of the SRO primarily is to ensure that all of the lines of development, so equipment acquisition, support, training, infrastructure and how the service will fight the new equipment are in place. It may well be that you want different types of experience in that role, possibly a different structural position at different phases in programme. It is an open question.

Q221 Chair: I have a quick point and then we will come on to annuality. In SROs’ appointment letters, it is often stressed—this follows on from Dame Meg’s very good point—that they are responsible for keeping Parliament properly informed about their programmes, including to parliamentary Committees. I have seen some appointment letters that, in effect, say that.

I want to quote from page 12 of the executive summary of Sheldon, when he talks about this. He is talking about varying opinions on the programme. He says, “Nor did they reflect dissenting voices, such as that of the programme director whose view on the achievability of the initial operating capability date was significantly more pessimistic, and more realistic, than that of the SRO. The same ‘glossing’ and optimism were seen in evidence to parliamentary Select Committees. The review identified a need for reporting to present a balanced, ‘warts and all’, account and for dissenting voices to be included”.

I do not know if “glossing” is going to become a new euphemism, but clearly there is an issue about whether those people accurately report to Parliament about what is really going on on programmes, on both the positive and the negative. It is absolutely clear from Sheldon that people have been glossing parliamentary Committees for years.

David Williams: I saw that phrase. That is within the context of him concluding that Parliament was not deliberately or materially misled. Nevertheless, it is a worrying point and it is on a shortlist of issues, now that the report is out, that I am keen to follow up with Mr Sheldon on, on whether he can shed a little bit more light on his findings.

Chair: We have made the point.

Dame Meg Hillier: I will happily have a chat with Mr Williams about experiences at our Committee.

Chair: Does the word “glossing” ring any bells, Dame Meg?

Dame Meg Hillier: It is optimism bias. I would put it that way. People were enthusiastic about their projects. Enthusiastic civil servants were wanting to believe that a project would be delivered. It is not something that is just relevant to the MoD. This is quite a theme.

Chair: I do not want to turn this into a seminar on sophistry and have us all consulting thesauruses. The key point to make, in all seriousness, Minister, and to your colleagues, is that one problem in procurement has been, shall we say, that, when people have been giving evidence to this Committee or the Public Accounts Committee, they have been perennially very optimistic. Perhaps we could make the point, as you are new in post, that it is far better from a taxpayer point of view if people tell us the truth.

Dame Meg Hillier: I would add that I have never felt that anyone in front of me has actively lied or been dishonest in front of the Committee. I will just put that on the record. It is sometimes just enthusiasm for their project.

Q222 Chair: Dame Meg makes a good point. We are trying to convey that, when we are talking about very important projects for the defence of the realm, to keep ourselves free, and they cost billions of pounds of taxpayers’ money, in the past some of the reporting to parliamentary committees has not been as candid or frank as perhaps it could have been. Is that a fair way to characterise it?

David Williams: I recognise that. One point from the Sheldon review is that the escalation of that information has not been as candid and transparent within the Department as we would like it to be. That partly reflects a can-do culture of wanting projects to succeed and wanting to fix problems as they arise. Early transparency of risks materialising and problems coming to be, so that we can think about how best to support teams, not to say they cannot cope, is an important part of the behavioural shift that we need to get to.

James Cartlidge: May I make one important point? Ultimately, from a ministerial point of view, and going back to Sheldon, for me it should never be the case that you could say that, whether it is the SRO or the programme generally, Ministers did not know or did not know until much later than they should have done. One thing I have stood up to meet as soon as possible, certainly before recess, is a ministerial delivery oversight group.

There are meetings like this every month, but they do not have Ministers present. The reason for this is very specific. Someone could come to that meeting and, arguably, not give the correct update or not be as transparent. What they much never be able to say is that they did not have the opportunity. Do you see what I am saying?

The concern about Sheldon is the sense in which the point where my predecessor at that point found out was later than it should have been. Therefore, I want to have probably a quarterly way of being updated on all the major projects and being clear that people should be transparent with me about where the serious issues are.

Q223 Chair: One reason Sheldon is very valuable is because, for want of a better phrase, it reveals the inner wiring of the Ministry of Defence. He is very detailed: “This person emailed this person, but they did not copy that other person and maybe they should have done”. He goes into extreme detail about this, so it is very useful for people who want to know what is really wrong with the system if they can find a day and a half to read it.

For the record, your predecessor but one, Jeremy Quin, was asked a direct question at this Committee: “When did you first know that there were serious problems with Ajax?” He said that the first time it really landed on his desk was November 2020 and Sheldon absolutely bears him out. It is very worrying that, in early 2019, when lots of people knew there were serious problems, it took the best part of two years to end up on your predecessor but one’s desk. Sheldon gives you that in glorious technicolour.

James Cartlidge: I know that you could say, “It is just another group”. If you have a ministerial delivery group, you must be able to say that they had the opportunity. Do you see what I am saying? That is what is important to me. It may be that in one of those meetings, for whatever reason, time pressure or we have to go off and vote, they did not reach the point where they were able to divulge, but they have had the opportunity periodically. That sort of timeframe you are talking about is not permitted to happen where too long passes before Ministers know. That is incredibly important.

Chair: We will come back to Ajax in more detail in a moment.

Q224 Mr Elwood: Putting annuality into context, I was just looking online. You have the spending review when it comes to finance and that offers a three‑year window. It was interesting that you have the defence equipment plan 2020 to 2030, for which I remember sitting and taking evidence, but you are only covering, I think, four years of that from a financial perspective. Then you have your annual budget for that. How does that then allow you to seriously budget when you are not allowed to commit to a project to say, “This is the ringfenced budget. This is what we are going to spend it on”, when there are so many forces demanding that you then reassess the funds for it.

I give an example of A400. When I was sitting as Defence Minister, I was told to sign off something where a widget was taken off the A400. I have no idea what it was. I checked that it was not to do with the flight capability, but it was a capability that was removed because there was not the money for it. That cannot be the way to procure equipment in the MoD.

James Cartlidge: David is the principal accounting officer of the Department, so I will bring him in shortly on this very important point of annuality. When you say “you”, as in we as a Department have a three‑year SR then one-year reporting, this is ultimately driven by Parliament. It is really important to stress this. Parliament’s role for hundreds of years has been to approve the expenditure by the Executive and we have an estimates process every year. There is annuality built into all Departments’ accountability to Parliament.

Very positively, I can say that, looking back over the last four financial years, the estimate sets the ceiling on what the Department can spend. We have been within that by under 1% for each of the last four years. We have not gone over, which is absolutely crucial. Of course, there is a lot of work to get to that point, but I would not underestimate the fact that this is a Department that has demonstrated financial discipline within the strictures that you describe, Mr Elwood. We are delivering in that sense, but I appreciate that it is about the impact on programmes.

Q225 Mr Elwood: I want Mr Williams to come in. Let me just quote you from the Committee, because it is so important to understand. In 2021, the 10‑year equipment plan rolled out, but the money available was the £16.5 billion for the next four years of a 10-year equipment plan, so you could not even promise the money for the 10 years that you were then wanting to procure your equipment for.

David Williams: It is a really good question. It is not quite what I mean by annuality, which is needing to hit a budget each year. As I sit here in June of 2023, I have a firm budget agreed with the Treasury for the next 21 months to the end of the current spending review period. We have some assumptions against which we can plan beyond that, and we are not unique in Government in having that, because we have long-term capital programmes.

The majority of our major projects involve contractual commitments that routinely run beyond the period in which I know what the defence budget is. You could not let contracts on a basis that was only three years out, or then two or one. We have to make a judgment about the cost of projects, and we talked earlier about how easy or not that is against particular confidence levels. We are also making judgments about what the overall equipment budget will be within the overall defence budget. There are two sets of variables there.

The challenge more often on annuality is that I have to deliver the defence budget within the control totals, the budget totals voted by Parliament for this year. That is both a challenge and a constraint, but it is important that we do not, within our system, let it be an excuse.

You do not, like some elected bodies, thinking of the US Congress, vote us money in advance on a project-by-project basis. I am responsible for hitting about four or five numbers a year at the aggregate defence level. On a £50 billion a year budget, that gives you quite a lot of flex. Your value-add on the individual projects is in the scrutiny in sessions such as this or in the PAC on whether we are actually delivering what we said we will do.

At the departmental and macro level, there are not that many numbers that we have to hit on an annual basis, and we are really good at it. The problem is that we are really good at it by driving a set of behaviours into the system, which are that each year people are thinking about their rate of spend, whether they can go faster or need to slow down, at a service level, so the Navy for example, at a portfolio level and in individual projects.

At best, that is an opportunity cost in terms of bandwidth. At worst, it can lead to a range of suboptimal—I think that that is the phrase we have been using today—decisions, because you are chasing short-term affordability rather than long-term value. At the individual programme level, if you were setting up a complex engineering, technologically risky programme to deliver over a five-year period, the last thing you would want to do is specify in advance which years you can spend the money in, because you need to be able to move the money around to tackle risks as they are materialising. Upfront spend often makes for a better life downstream.

The trick for us is how we facilitate as much flex within those complex projects to be able to move money around, while still being able to hit the aggregate control totals that are, in the end, my accountability to Parliament. There are some things that we can do. Some of this is about engagement with the Treasury about in-year flexibility and what we can carry forward. I can talk a bit about how the rules work there.

Some of it is about how we set aside risk contingency within DE&S and the equipment programme overall, so that, if costs go, we can manage some of that without having to change the rest of the programme. It can be as much of a challenge if you are underspending and trying to bring spend forward so that you do not lose it as if you are overspending and trying to slow spending down.

Chair: I think that you have taken the point, which is that much greater financial flexibility across years would probably be quite helpful.

David Williams: Yes. We have a reasonable degree at the moment, but it is largely subject to negotiation year on year with the Treasury. That clearly takes bandwidth up in the system for us and them.

Q226 Richard Drax: I have two very brief preliminaries. A marine engineer informed me—he may be completely wrong—that the wrong grade of fuel was being put into our aircraft carriers, which damages the engines. Can you comment on that? That is his claim. I would be interested to know whether you know anything about that. Who is paying for the shaft on Prince of Wales, which is being repaired, as you know? I believe that is coming out of the Royal Navy budget. Is that correct?

James Cartlidge: On the second question, I do not think that we have made a final decision on that. On the first question, the grade of fuel in our aircraft carriers has not come across my desk before.

Andy Start: I have not heard that one before, no.

David Williams: In the first instance, the cost of the repair will come out of the Navy’s budget, yes, within the Department.

Q227 Richard Drax: Going back to the procurement system and all the contracts you do, why is that? Why is the company that did all this not paying for this?

David Williams: Within the Department, budgetary responsibility for ship maintenance sits with the First Sea Lord, contracted through Mr Start’s organisation. There is a separate question whenever something goes wrong about whether you want to engage with the manufacturer about whether there is any claim against it. In this particular case, the issue is complicated by the fact that the carrier in the end was delivered by an alliance of which we were a full partner. It is a question that we have thought about.

James Cartlidge: Legally, it has ceased to operate.

Andy Start: If I can build on that, there is a strategic decision we need to make as a Department whenever we buy stuff, rather like when you buy a car, as to whether or not you buy the extended warranty or not. The extended warranties on things like carrier, particularly in an alliance agreement, are really expensive. The cost of the repair was a tiny, tiny proportion of what it would have cost us to have the equivalent to an extended warranty.

Q228 Richard Drax: What is it—£200 million?

Andy Start: The current estimate is around £25 million. In the cost of operation of the carrier and of the fleet, that is not a significant number. It is better value for us not to buy an extended warranty and better value for us to pay for it as we go and that is what we are doing.

Q229 Richard Drax: You actually answered part of this question already, but I will ask it anyway. How does the MoD and DE&S support the frontline commands when it comes to setting requirements for new equipment?

Andy Start: In terms of DE&S, traditionally we have provided advice when we have been asked. That has started to change and we are now—

Q230 Richard Drax: You said “when we have been asked”. On some occasions you are not asked.

Andy Start: Sometimes we are not asked, in the same way that Dstl may not have been asked, not in terms of the formal process. I am really pleased that, over the last year or so, that has changed. As a consequence, General Rob McGowan, the director of military capability, and I have run a number of industry sessions with DE&S, Dstl and industry involved at secret, where we have been going through requirements at a very early stage to allow us to start to give our advice into the requirement setting process.

Q231 Richard Drax: Is that a new move?

Andy Start: That is a new move. It is a really positive one.

Richard Drax: Of course it is. I do not understand why it did not happen before.

Andy Start: I cannot comment, but it is a really positive move. What we would like to see, as we go forward, is that embedded in this new operating model, so it is a standard way of operating, because it is clearly beneficial.

David Williams: I have four quick points. On engagement, in terms of whether it feels like support or not, you would have to ask the frontline commands. First, the requirement setting takes place within a context of a departmental strategy and planning framework. As part of the defence strategy, we share threat and risk assessments and force development work. We undertake high-level balance of investments. Where is our priority for resourcing? In the end, we agree with frontline commands a set of requirements, a set of priorities and a budget to deliver.

We are just beginning to develop some new approaches in that space, thinking about capability in different portfolios—less single service, but more about associated types of capabilities. The first three areas we are looking at are medical capabilities, electronic warfare and CBRN protection, which are relevant to all three frontline commands. We are thinking about requirement setting in a joined-up way.

The second point on the specific requirement setting for capabilities, you have heard in previous evidence about the Joint Requirements Oversight Committee, the JROC, and that continues to operate. We are developing that by getting more subject matter experts in the room early, making sure Dstl and the scientists are there, in particular. It is a really good way of ensuring join up, as well. Rather than just bringing in the platform SRO, for example, we are making sure that the SROs for all of the dependent capabilities on which that platform is going to work are there. We are also joining up with our new integration design authority. It is about early shaping of requirements, as well as early challenge and support.

Finally, in process terms, it is about the approvals process. We operate a delegated system. Individual frontline commands can approve programmes and projects up to £400 million before they need to touch our central approvals process. We are also looking to improve here by getting joint kick-off meetings, where we are really setting projects up for success from the beginning, thinking about the kind of evidence we will need to approve any cases that comes through and considering any risks that will materialise. We are having those conversations at the beginning rather than at the end.

Finally, this is not particularly a head office thing, but all of this work is supported by people in functions and professions, whether is the finance function, commercial programme delivery and so on. That is something we facilitate.

Q232 Richard Drax: Just quickly, too, on people changing their minds: how do you mitigate for procuring a bit of equipment when suddenly, halfway through it, the General, the Admiral or whoever it is says, “Actually, I want a bigger this or a longer gun”, or, “I want something strapped onto it”, or whatever it is? How do you mitigate that at the start of all this to avoid cost being spent halfway through project, when there are massive changes demanded? Does that happen?

David Williams: Mr Start will have a go but, in the end, one or the other is I would have to say no.

Andy Start: We are living in a world where our adversaries operate as strategy-based infantry. Their entire way of operating is to work out what we are building and work out how to undermine it. When we have very long programmes, there has to be change.

Q233 Richard Drax: You could make the programmes shorter.

Andy Start: Ideally what we do is, wherever possible, go for shorter increments, so we do not reach quite so far each time. We run shorter programmes and then spiral up from that. That way, we can hold the contracts closed. Whenever you open a contract, on the basis that you are with a sole supplier, you are at a disadvantage relative to when you create a contract under competition. Therefore, it is desirable to keep the contracts closed as long as you can, keep the programme running, execute and then change. You can do that if the programmes are short enough.

David Williams: One of the things that would be really helpful, based on the people you have talked to in this Committee, is one person’s change of requirement midway through a project is not so very different from another person’s spiral development of a capability we have brought in and then want to upgrade. How you get the virtue of the second without the disbenefit of the first is tricky.

Q234 Chair: Just quickly on Ajax, the Army kept constantly changing its mind about what it wanted. That is one of the reasons the programme was such a disaster. Somehow, the system allowed them to keep doing it.

On the frontline commands, to follow Mr Drax’s question, there is a problem here. In theory, under the Levene model you give them their own devolved budget and they then decide to prioritise it, but if one frontline command keeps perennially overspending, you end up constantly robbing Peter to pay Paul. £25 million to repair Prince of Wales is going to go on the Navy budget. The slippage, by one year in the IOC for Type 26 was another £233 million, which goes on the Navy budget; that is a quarter of a billion quid.

The fact is—let us put it on the record—that the Royal Navy seems completely incapable of keeping to its budget for whatever reason. The procurement record within the naval bit of DE&S, I am afraid to say, is particularly poor. Your model is flawed because the Navy keeps overspending. It keeps having equipment problems. You keep robbing Peter to pay Paul in order to subsidise them and no one ever seems to stop it. What are you going to do about that?

James Cartlidge: It is a key thing to stress. Correct me if I am wrong, David. It is not explicitly overspending. It is over-programming because, as I hope I demonstrated, we still have to ensure the Department does not overspend in totality. What you mean is coming forward with programmes which, if they were all to be implemented—

Q235 Chair: We are into sophistry now. The Navy has a budget. If they spend an extra £250 million because a frigate programme that was being bought from BA Systems is even later—because it takes us 11 years to build a frigate and bring it into service, when some other countries can do the equivalent ship in three or four—that is an £250 million that was not otherwise going to be spent. You cannot spend the same pound twice. That money has to come from somewhere within the MoD. It does not mean the MoD overspends, but it means someone else is then £250 million short. The Navy has been doing this for years to the other services, and it is about time it stopped.

James Cartlidge: It is absolutely right that, in bringing forward a new acquisition model, there must be discipline from the outset that anchors the user requirements coming in in what is the total available budget, and does so with the headroom for spiral development. We are not there at the moment. As I said—and you understand this point—it does not actually amount to an overspend in totality.

As to the friction, therefore, between different programmes, typically in defence spending you have this cyclical variation between Departments as a relative percentage of the overall equipment plan. Going forward, the Army’s percentage will be increasing significantly. Some of the programmes you refer to may still be within the overall budget—

Q236 Chair: I am sorry. I do not want to get into sophistry. The cost of the Type 26 frigate overall is going to go up by £233 million because of the delay to HMS Glasgow. In layman’s English, two people in a pub, that is an overspend. The Navy keep doing it and DE&S, which is meant to manage the procurements, keeps allowing it to happen. We have precious few frigates and destroyers that can go to sea at the moment as it is, and it is getting worse, not better.

Here is a plea from the Committee: please go and sort this out. We were down with the Navy the other day. They were commendably frank about some of the problems, but that £233 million thing was in the public domain from a year ago. Somehow, you have to stop one top-level budget-holder constantly robbing off the others. Otherwise, the whole thing will not work, will it?

David Williams: This is a really important litmus test for the new system that we come up with. It works for me in two ways, both of which you have touched on. First, it is about the handoff and the relationship between the frontline command and DE&S. When projects cost more than we expect, where does that responsibility sit? The first element of our annual planning cycle is to ask each service to illustrate how they would manage themselves back to the budget that they have been set. That is illustrated. We then take a central judgment about whether getting each service to live within its previous means, from a balanced capability perspective, is more or less painful than moving some money around.

The Levene model would be that you make those intra-service shifts ideally in a spending review. Then, you give people some stability to get on with delivering their programme in between time. The two years where the Levene model has worked most closely to the way in which he envisaged it have been the two previous years after SR20, where we had an equipment programme that was broadly funded and affordable. We have not run any in-year savings exercises, nor have we really had to do much balance of investment work across the services in those two years.

Part of the challenge for the Navy is that it has had, over 10 years, an equipment programme dominated by some very large platforms. The carrier is a really good example. Is it more or less damaging for defence overall to absorb only where that problem has arisen? The system that we come up with has to address that point or it will not work, and you will get back to the kind of behaviours that we are trying to address, as well as the defence outcomes.

Andy Start: At risk of opening a can of worms, I will just make the observation that, in terms of our shipbuilding acquisition, the overspends we are seeing are big numbers but, as a proportion of the total shipbuilding programme, they are relatively small. We, of course, do hold contingencies against some of these numbers. I will go and run the numbers—

Q237 Chair: Are you telling a parliamentary Committee, Mr Start, that a £250 million overspend is not something to worry about?

Andy Start: I am not saying it is not something to worry about. It is certainly something we should seek to manage, but we have to recognise our overall performance on major programmes. When you compare our delivery performance with that of running major projects around the world, it is actually really good on financial performance. Our overall delivery performance is only 4% overspend across the portfolio. That is significantly down over the last few years. If you look at research work, there is a recent academic study on major programmes over £1 billion and if you look at the proportion of programmes that actually deliver on time, on cost, on budget, globally, it is a tiny proportion. We are many times better than the global average.

If I talk to my other national armament directors, all of them have material challenges on the biggest programmes. Our delivery performance is actually, overall, very good. I am happy to bring back those numbers and present the data. Some of it is in the evidence pack.

Q238 Chair: Again, Mr Start, the argument that there are some people who are even worse than us are doing it really does not cut any ice.

Andy Start: That is not my argument. My argument is, compared to global benchmarks, our performance is materially better.

Q239 Chair: Explain that to me.

Andy Start: “That” being—

Chair: Ajax. Let us not get bogged down in this.

Andy Start: I am very happy to accept there are areas we have to improve. There is no question. Ajax is a very clear story of that. There is no question whatsoever that we need to improve.

Chair: It is. There are 172 pages to document it. Sarah wanted to ask about DE&S accountability, so that is a perfect segue.

Q240 Sarah Atherton: We have probably partially covered it. We have spoken about the Prince of Wales. We have spoken about the Type 26 gearbox problems. I will ask about the Type 31. You had a settled requirement. You have now decided all five will be fitted with the Mark 41 missile silos. As a Committee, we agree that is probably a good move, but you are now in a dispute resolution process with Babcock. That is three major projects with three major problems, all costing the taxpayer, I suspect, bar the last one, where we do not know.

I would not say that was successful, and certainly would not given what we heard from the previous witnesses. Do you feel DE&S has the right skills—the commercial skills, the contractual skills—to actually get this right?

Andy Start: In terms of skills, my predecessors have done a good job of improving the skills and competencies in the organisation. We are now in a place where the vast majority of staff within DE&S are professionally qualified. If I take the commercial example, of the most senior staff, 75% have a Chartered Institute of Procurement and Supply level 6, which is the equivalent of a degree in purchasing. There are some really well-qualified people. Certainly, if I compare some of the people, I have met with some of the people I have worked with on the other side in industry, they are equally a match.

Does that mean that we cannot do better in terms of skills? No. We have to continue to develop our people. We need to continue to attract experienced people from industry, particularly in the commercial roles, to augment our teams. We have a cadre of individuals called fellows, who are basically people who have been there, seen it and done it. We have to leverage those people into advising our commercial strategies, so that we get good commercial outcomes. There is more we can do, but DE&S has improved its skills materially over the last few years.

Q241 Sarah Atherton: Just thinking about the Ajax, DE&S is up against the best legal minds that America can buy. Are you up to the job?

Andy Start: That is an interesting question. As I said, the most senior people I have met in defence, particularly in commercial, are exceptionally good. I have been on the other side; I have run US businesses before. Both of us clearly have strong legal support from expert lawyers. Do I think we are up to a match? Yes, when I have looked at the negotiation. Would I like to see more of that competence that I see at the top proliferating right through the organisation? Yes.

If we had Andrew Forzani, the head of commercial, here, he would talk to you about the programmes he is going through to raise commercial skillsets across defence. We need to keep at it.

Q242 Chair: We have had multiple divisions today. Thank you for your patience and for rolling with the punches, as it were, in terms of that. We are not going to have the time that we would like to go forensically into the Ajax programme post the Sheldon report. Perhaps we may have to do that another day. You can breathe out slightly.

As I say, the key point is it shows the inner wirings of the Ministry of Defence; it is not just DE&S, but it shows how the requirements people, Ministers and the whole system work, or rather, I would argue from this report, patently does not. It took him a year to write it. Hopefully, some positive things can come out of that. Before we conclude, I would just like to ask Dame Meg if there is anything else she wants to cover.

Q243 Dame Meg Hillier: I do not want to go into the weeds of the equipment plan but, Mr Start, when you talk about contingencies and savings, the equipment plan, which the Public Accounts Committee looks at regularly, every year, gives a snapshot of the challenges ahead over the decade. You have efficiency savings you still have not found. You have removed £2.8 billion from the last one as cost reductions. I am just picking out some of the figures here.

Then, of course, you have all the cost pressures on it. Those cost pressures are really going to be quite immense. You have projects underway where you are going to have to prove pressures that are outside your control like inflation, forex and so on. This Committee is examining how to improve procurement. What would you do differently on the equipment plan in this context?

Andy Start: It is probably better for David to talk about what we are trying to do to balance the equipment plan.

Q244 Dame Meg Hillier: Is the equipment plan just a bit old-fashioned?

James Cartlidge: I have one very specific point on DE&S and efficiencies. The efficiency savings at DE&S since 2017 have been £6.2 billion. It has have achieved very significant efficiencies. The procurement volume, in relation to Ukraine, has increased and the workforce has stayed basically the same.

Q245 Dame Meg Hillier: That is not what I was asking. You are looking at things 10 years out and, along the way, you have to change things. There are challenges—

Andy Start: You are talking about the underlying balance of investment challenges that we have through the equipment plan as a consequence of—

Q246 Dame Meg Hillier: You have to do some contingency for things that might arise. Often that is the bit that gets cut back and then you still have to bid for that, because things do not always go according to plan. In complex projects that will happen and that is recognised. We look at it on a rolling basis. I wonder if it is still a model that works for you in terms of planning.

Andy Start: David, that is the balance of investment.

David Williams: My answer is not entirely. We have talked earlier in the session about whether we cost at a P50 confidence level or a P90 level, but it is still a point estimate. For a range of our programmes, we should be thinking about a range of costs, a range of capabilities, and the layering up of portfolios then becomes about a management of uncertainty within the capability area. My instinctive problem with the equipment plan, in the way that we present it and actually construct quite a lot of it, is that it just builds a degree of spurious accuracy, as though the world is not going to change over 10 years, we are not going to change our minds about what we want and we know perfectly what it is going to cost.

Of course, none of those are true, which is why, within the equipment plan, there is unallocated money, there is contingency and risk provision, but it is built up, from its heart, from a series of quite detailed costings to a level of accuracy which we cannot possibly hope to be right over a 10-year period. We need to think that through.

A more interesting question for us at the moment, as we manage the short-term pressures of inflation, is not only what we thought we were going to do, but what actually is on contract. What is the pipeline? What is the next set of commitment decisions? To Mr Ellwood’s earlier point, I am going to be signing a contract now that commits me to spend five years beyond what I am confident I know what the budget is. How much headroom do I have?

We are thinking about an equipment plan where we are definitely going to deliver what is on contract because, to the point, when you change the requirements and you try and change the contracts halfway through, that is not really value-adding. We want headroom in the equipment plan for spiral developments. Some of that is linked to platforms and some of it is being held at a capability level. We have a pretty good idea in the digital space what we might spend money on in the next three to five years. I am pretty confident we will be spending at least the same amount of money in the second half of the decade. I have no idea what the projects will be.

For financial discipline and planning discipline, there is still a role for the equipment plan in the way that we do it and present it but, in and of itself, it is not sufficient for the way in which we need to dynamically manage the challenges that we face if we want to deliver Armed Forces the capabilities they need in the future for the taxpayer’s money we are going to get.

Dame Meg Hillier: It is quite interesting being in a Committee where I can talk about things other than just the money.

David Williams: I asked the Minister, at the start of hearing, not to make up the new operating model on the fly in the hearing, and I am afraid I have fallen into that trap.

Q247 Dame Meg Hillier: Discipline is really important, in terms of accountability to Parliament. It is about understanding the range of certainty at different stages in the programme. It is interesting. Mr Ellwood raised a point earlier about annularity. The Public Accounts Committee, just for the record, has got close to suggesting that we will always want annual discipline in budgets. I know Mr Williams, as accounting officer, does agree with that. Sometimes, in terms of the bleed-over from year to year, there ought to be more flexibility. I do not know if the Minister has anything to say, as a former Treasury Minister, about that. The Treasury probably does not like that idea very much.

James Cartlidge: When I was in Treasury, I had the infrastructure and growth portfolio. As Procurement Minister, I have a background as an SME owner. We participated in public procurement. In fact, when I did my SME forum in Northern Ireland on Saturday, they took great heart from the fact that I had been through the pain they had of taking part in an unsuccessful procurement. I get a lot of correspondence from companies that have been in that position.

This point about industrial capacity is so important. It is effectively now part of capability. At the beginning, Andy spoke about supply chains. There are these huge external pressures. They are the reasons why we have cost pressure. How those come through actually is partly a function of the contracts that pertain—whether, for example, they are fixed price. As a former mortgage broker, I cannot get my head around the fact that a fixed price does not mean it is fixed. A firm price is the one that is “fixed”, as we would understand it.

Either way, there are all those factors. They are ultimately about these huge external pressures. This takes me back to my very first point: in reforming acquisition, we must not lose sight of the big picture. This has to be faster, more agile and more effective, because that is how we retain our advantage in our capability from a military point of view.

Chair: That is a good segue to our final question. We were delayed starting because of votes and we are grateful to all of you that you have stayed the course and not looked at your watches and said, “I have to go”. Thank you for doing that. We are asking the same question of every single witness so, for equity’s sake, we want to ask it to all three of you.

Q248 Sarah Atherton: If each of you had one key suggestion to materially improve defence procurement in the UK, Mr Start, what would that be?

Andy Start: Mine would be to execute the operating model reforms that the Permanent Secretary has talked about.

James Cartlidge: This does not mean this is more important than any other change, but exportability is intrinsic, along with technology, in ensuring we stay ahead of the game. Exportability must be intrinsic because it brings other disciplines. A procurement system must not require something to be exported, although there may be very good reason why a capability is not, but it does mean, on that discipline of, for example, speed, that you can come to market quicker.

Ultimately, if we want to have 2% of GDP or whatever the figure is, we want the GDP to be higher and to be able to sustain an industrial base that can deliver the output, the capability and grow that overall aggregate demand, so that we have a robust industrial base in this country, one that succeeds in international markets and brings prosperity all around the country as part of our levelling up agenda.

Chair: Forgive me, Minister, but I am translating that into, “We need a greater emphasis on exportability”.

Andy Start: I am afraid so. You are absolutely correct.

David Williams: I will give you one, then I will give you something not to forget. Mine would be—this is slightly odd for an accounting officer—that we should place more value on time and less on money, so the pace of decision-making and pace of delivery. We are speaking quite a lot today about acquisition and, Chair, as you know, the “S” in DE&S is about support. Making sure we are absolutely sweating our assets that we already have in terms of availability, lethality and sustainability is also a really important part of the equation.

Chair: You have told us that there is a reform underway of the whole defence operating model for the Department. We have heard you. Minister and Mr Start you have been very clear that, within that wider envelope, there is a reform underway of procurement and that does not just involve DE&S. That involves other elements of the MoD as well, because it is so interconnected. We understand that point.

We will attempt to produce a report not only on the evidence where we believe there are weaknesses because, if there is nothing wrong at all, why would you need to change anything? We can give a commitment that we will also try to produce an ultimately positive report that perhaps provides a roadmap for how you might be able to do things better, at least on the basis of all the evidence that we have received. As for when that report will come out, Minister, it will be soon.

James Cartlidge: It will be in the coming weeks.

Chair: It will be in the coming weeks and then perhaps, at some point, we may want to have you back and hear your views on how you have marked our homework. In the meantime, in all sincerity, thank you very much for spending so much time this afternoon discussing what is a fundamentally extremely important part of the defence of the realm, of us and of all our freedoms. Thank you very much.