DES022

Written Evidence submitted by Lockheed Martin UK

 

  1. Lockheed Martin UK (LMUK) is a wholly-owned subsidiary of Lockheed Martin Corporation, employing over 1,600 people in 28 locations around the countryLockheed Martin invests on average over £1.8 billion each year in the UK, supporting over 750 British companies (75 per cent of which are SMEs) and 23,000 jobs in the supply chain. 

 

  1. LMUK is part of the Cabinet Office-led Strategic Supplier Relationship Management Programme and the Ministry of Defence’s (MOD) Strategic Partnering Programme.  We are also engaged in DE&S’ ongoing strategy refresh and operating model optimisation work, including at Chief Executive level.

 

  1. Whilst the Defence Select Committee’s inquiry focuses on Defence Equipment & Support (DE&S), the MOD has other procurement and support organisations including Defence Digital and the Submarine Delivery Agency (SDA).  These organisations share similar opportunities and challenges to DE&S.

 

  1. Importantly, DE&S and other procurement organisations sit within a wider “ecosystem” of entities involved in requirements generation, scrutiny, approvals, and contract management/oversight, including the Frontline Commands, MOD Head Office, Cabinet Office, HM Treasury (including Ministers), and Infrastructure and Projects Authority; see Figure 1.  They also rely for specialist support on other ‘enabling organisations’, such as the Defence Science and Technology Laboratory (Dstl) and the Defence Safety Authority (DSA), which may have their own acquisition requirements.  The effectiveness, efficiency, and value for money of defence procurement is influenced by the operation of all of these entities and is not the sole purview of DE&S.

 

 

Figure 1: Key organisations and functions involved in the Ministry of Defence’s major equipment programme delivery[1]

 

What are the strengths and failings of DE&S’ current approach to defence procurement?  Does it deliver value for money to the taxpayer?

 

  1. Based on its experience, Lockheed Martin believes DE&S has opportunities to:-

 

  1. Become more integrated with the Frontline Commands and MOD Head Office rather than adopting an “arms-length” relationship with them.  This is a cultural issue, not necessarily a structural one resulting from DE&S’ formal status as an arms-length body.  There should be more engagement between DE&S, the Capability and Force Development staffs, and end-users, with an expanded role for requirements managers and capability desk officers. Closer cooperation and shared understanding of operational imperatives would reduce the risk of DE&S changing the scope of a procurement in a way that is not linked to operational needs/outcomes or long-term capability planning;

 

  1. Undertake earlier and more consistent engagement with industry, including pre-procurement.  As part of this, DE&S could consider whether its Engineering Delivery Partnership (EDP) and associated ‘Futures Lab’,[2] which replaced Niteworks, provide an effective and efficient means for industry engagement;

 

  1. Allow more integration between its different Delivery Teams.  As part of this, DE&S has an opportunity to develop coherent and common architectures as well as share technologies and best practice across different programmes.  Examples of where this approach would deliver benefit include battlespace management and command and control, Radio Frequency, Artificial Intelligence and Machine Learning, cryptography, and training.  Approaches such as ‘Category Management’ could help enable this;

 

  1. Use Operational Analysis to support acquisition approaches and decisions, including requirement trade-offs, the identification of integration opportunities, and the development of common architectures;

 

  1. Recognise that suppliers have dependencies on DE&S and other parts of MOD for delivery for Government Furnished Assets (GFX).  These dependencies need to be adequately resourced so they do not cause delays, become a cost driver, cause disputes, or lead to the failure of a programme;[3] and

 

  1. With other parts of government, allow earlier confirmation of Preferred Bidder status in order to let industry mobilise for delivery prior to a contract commencing.

 

  1. In relation to value for money, in Lockheed Martin’s experience:-

 

  1. Procurement decisions still tend to be made on the basis of lowest upfront cost rather than reflecting the imperatives of end-user needs, through-life cost, or industrial resilience.  Evidence demonstrates that in most cases choosing cheaper solutions upfront can be detrimental to operational output or lead to significant cost growth over timeThis is either because the contractor struggles to deliver contractual requirements as the budget is not realistic, or because some contractors may try increase their margin over time having initially bid low to secure the contract;

 

  1. DE&S tends to adopt a one-size-fits-all approach for developing Business Cases and undertaking approvals of them.  There is scope for it to streamline its processes and review points, depending on the nature of a programme.  For example, if only one solution exists for a requirement there should be no need to run an Assessment Phase; and

 

  1. The UK procures and funds concept and technology demonstrators even if mature systems are already available on the market (for example, Directed Energy Weapons, future anti-ship missiles, rotary platforms, etc).  Development programmes have high costs and risks attached to them.  Better value for money could be achieved by leveraging development programmes funded by allies.  This would allow UK funding to be focused on developing onshore Design Authority and achieving mass.

 

How effective and efficient is DE&S?  What can be done to improve DE&S’ overall performance?

 

  1. Scrutiny and Approval TimelinesScrutiny and approval of business cases is undertaken by each of the Frontline Commands, DE&S, and MOD Head Office (including at Ministerial level, often even for cases within financial delegation thresholds).  These processes may be duplicative.  The Cabinet Office and HM Treasury also review major procurement recommendations. 

 

  1. The timelines for scrutiny and approval by MOD Head Office, including by Ministers, can add significant time to programmes.  This issue is not limited to the approval of the original Business Case; the timelines can dissuade Delivery Teams from adjusting the scope of an existing programme, even if this needed to capture new requirements or save money, as they know the Review Note process would take too long.  This is a particular challenge as capabilities need to iterate over the lifecyle of a programme, as technology and threats evolve.  It is unclear what progress the MOD Head Office-led Acquisition and Approvals Transformation Programme (AATP) has made in streamlining scrutiny and approvals processes.  See also paragraph 22.

 

  1. End-to-end Responsibility.  There are many “hand-off” points in the business case, scrutiny, approvals, and delivery processes for defence programmes.  Responsibility can be transferred to different people throughout these processes and urgency/priority lost.  The MOD should empower a single individual with authority to push through the programme from cradle to grave.

 

  1. Evidence for DecisionsOutside of competitive procurements there is often a lack of transparency about why the MOD decides to acquire a certain capability over others and on what evidence base, including at Ministerial level.  This can undermine industrial confidence in the UK compared to other markets and is not in line with the collaborative and transparent relationship between the MOD and industry that is envisaged by the Defence and Security Industrial Strategy (DSIS).

 

  1. Routes to Market – Frameworks.  DE&S and other parts of the MOD operate a large number of ‘frameworks’ as routes to market.  For a company it is resource and time consuming to get on to these frameworks; the business case to do so is challenging, as there is no guaranteed work through them.  The large number of frameworks can also result in disjointed approaches to procurement (see paragraph 5(c)).  Finally, each framework has its own programme management office that is usually contracted out (see paragraph 20).  The Committee may wish to consider whether frameworks are an effective and efficient route to market and whether they offer value for money.

 

What has been the impact of DE&S on the effectiveness of defence operations?

 

  1. In relation to the impact of procurement on the effectiveness of defence operations, the Committee will wish to consider:-

 

  1. Whether and how often the scope of a requirement is changed during a procurement process, resulting in a disconnect between what is procured and what the end-user actually needs and what industry has resourced for;

 

  1. The balance between the UK procuring expensive technology demonstrators versus procuring mature systems that are already available on the market (for example, Directed Energy Weapons, future anti-ship missiles,, rotary platforms, etc).  The UK could achieve more operational benefit by leveraging development programmes funded by allies.  This would allow funding to be spent on a larger numbers of systems, a lower risk transition to new capability with the potential for earlier in-service dates, and increased interoperability with allies; and

 

  1. Whether the UK’s requests for bespoke change requests or capability integration in collaborative programmes can cause programme delays and risk divergence from allied capability upgrade cycles.

 

  1. DE&S – and the MOD overall – has recently demonstrated agility, pace, and higher risk tolerance in providing support to operations in Ukraine.  The Committee may wish to consider what lessons from this can be applied in more routine procurement and support outputs.

 

What can be learned from the UK’s recent history of defence procurement?

 

  1. See paragraphs 5 to 13.

 

What can the UK learn about defence procurement from international comparators?  Which countries have a particularly strong model and track record and what can the UK learn from them?

 

  1. A successful procurement process includes the following factors:-

 

  1. Clarity about and consistency of long-term requirements and budgets;

 

  1. A pragmatic approach to onshore content that takes into account national security, supply chain security, economic viability, technology readiness, and global market opportunity;

 

  1. Adherence to stated acquisition timelines, including for scrutiny and approvals; and

 

  1. Transparency around decision-making and the evidence used to inform decisions, including at Ministerial level.

 

  1. Whilst direct comparison can be challenging given national military, political, economic, and cultural nuances, the Committee may wish to consider the following examples from other countries:-

 

  1. Australia.  Australia’s Department of Defence and government generally publish detailed, long-term capability roadmaps and timelines. The Committee may wish to compare the MOD’s Defence Capability Framework to such roadmaps.  Australia is also more precise and realistic about what onshore content it requires and over what timescales;

 

  1. PolandPoland has demonstrated an ability to rapidly turn increases in defence spending into fielded capability based on direct operational understanding, for example through its acquisition of artillery capabilities; and

 

  1. United States.  The U.S. Department of Defense (DoD) publishes budgets and issues draft Requests for Proposals (RFPs) to allow industry to prepare and be better placed to respond to formal procurements.  The MOD should consider doing similar.

 

Does DE&S have the right set of skills and incentives to succeed in its tasks?

 

  1. Commercial ResourceIn Lockheed Martin’s experience, DE&S does not have sufficient commercial resource.  This delays the release of procurement requirements, putting pressure on the timelines for industrial responses as well as putting pressure on industry to condense programme schedule and accept additional (and unnecessary) risk.  Programmes may not deliver on time as a result.  DE&S currently allocates its commercial and financial resources on a project-by-project basis, which can risk creating single points of failure.  It may wish to create a common resource pool that is able to work across multiple programmes.

 

  1. Project Management ResourceThe Committee may wish to review whether DE&S has sufficient project management resource and whether that resource is allocated in an effective way.

 

  1. Industrial Understanding.  There is scope to increase industrial/business understanding and expertise within DE&S’ Delivery Teams.  If DE&S – and wider MOD – have a better understanding of how companies work and are incentivised they will be able to design more effective routes to market and contracts.

 

  1. Contractors and Consultants.  DE&S appears to make extensive use of contractors and consultants.  This suggests it may lack suitably qualified and experienced personnel in-house.  Consultants are incentivised to prolong their work, including procurements, and consume budgets that could otherwise be spent on capabilities.

 

  1. Culture and RiskIn DE&S and MOD overall there needs to shift from a culture of risk reduction and avoidance to one of pace and outcomes.  As part of this, ‘attempting to manage the highest financial risk may not necessarily bring focus to areas that pose the greatest risks to capability delivery’.[4]  As noted in paragraph 5(a), DE&S culturally also needs to develop closer relationships with the Frontline Commands and MOD Head Office.

 

  1. Delegation of Authorities and Empowerment.  There needs to be increased delegation of authorities and empowerment from MOD Head Office (including Ministers), the Cabinet Office, and HM Treasury to allow DE&S and the Frontline Commands to streamline process and deliver with pace.

 

31st March 2023

6

 


[1] Extract from National Audit Office, Ministry of Defence: Improving the performance of major equipment contracts, Session 2021-22, 24 June 2021, HC 298, pp. 16-17.

[2] See https://www.qinetiq.com/en/what-we-do/services-and-products/edp and https://www.qinetiq.com/-/media/a371376e4cd2486fbb53273e9d8bb55c.ashx

[3] Lockheed Martin has previously highlighted the issue of GFX to Parliament.  See SSU0014, written evidence to House of Commons Committee of Public Accounts, Strategic Suppliers, Fifty-Eighth Report of Session 2017-19, HC 1031, 18 July 2018; and AFV0008, written evidence to House of Commons Defence Committee, Obsolescent and outgunned: the British Army’s armoured vehicle capability, Fifth Report of Session 2019-21, HC 659, 14 March 2021.  The National Audit Office also highlighted the issue of GFX dependencies in its report Improving the performance of major equipment contracts, 24 June 2021, para. 13 and 3.6-3.7.

[4] William Foulds, Gareth Day and John Louth, Unwrapping the riddle of defence acquisition in the United Kingdom, 6 March 2023, p.5.