Monday, 14 April 2014

Refining Procurement

Originally the current government planned on selling off the Defence Equipment and Support (DE&S) organisation to the private sector, which I'm sure was absolutely because they felt this was the best way to proceed, and had absolutely nothing to do with ideological opinions or generating profit for party donors and old chums. But when it became apparent that only one consortium would bid for the contract the government was forced into the latest of many U-turns.

Now ever since the first announcement that privatisation was being considered I - being the cynic that I am - have been convinced that the government had already made up its mind that privatisation would go ahead. It was essentially just buying time to work out the details and giving the private sector time to calculate its profit margins. I was told originally by one friend that I was just being morbid and defeatist, and that in fact a proper and fair investigation would take place.
And now here we are, not long down the line from the announcement that the original privatisation plan had been blown out of the water, with the government now looking like it will take the alternative route by selling off small chunks of DE&S first. This is because the main problem with the privatisation has been creating an organisation that can be fairly compared to the private sector, and which the private sector can more accurately calculate the costs of running.

By removing small chunks to start with, while shifting DE&S to a more arms length body which can then start paying private sector salaries at the top end (while cutting pay at the bottom no doubt), the government is effectively doing everything within its power to create a scenario whereby DE&S can be sold off. Any pretence that there will be a fair comparison and competition is just that, a pretence.

But I do have to ask, aside from ideological and party/personal benefit motives, what is the government actually hoping will be achieved by all this?

The traditional line of course is that privatisation will save money and make the organisation being handed over more "efficient", because that's what the private sector does, apparently. 

My experience working in the private sector (and I should point out that I've never worked in the public sector) is that private sector companies are rarely much better at running things than government, it's just that the profit motive drives private sector companies to be much better at finding ways to do things on the cheap, even if that often means cutting corners with small matters like safety and employment law, or delivering sub-standard performance in the end product.

Most of the notable privatisations of the past in this country have centred around the government bringing in an expert to cut the fat from around the edges of the public company, reducing it down to a level that generates profit, and then selling it off to private investors who then claim to have been the ones to turn it around.

I suspect that the sale of DE&S will be much the same. Indeed, the work on this already appears to have begun.

So let's cut to the chase; if I was going to try and salvage this organisation financially while keeping it in public ownership, how do we go about it? And while we're at it, how do we deliver better performance on the acquisition of new material for defence?

The idea that strikes me as the most likely to succeed involves a two step approach. The first is to formulate a research body within DE&S that will act much like a service historian crossed with a commercial polling organisation. The second stage is to downsize the teams that actually do the procurement. And when I say downsize, I mean that quite literally.

Sticking with the first element for now, what I'd want to create is a small research and historical branch, with a single director. The branch would split in half, with one half dealing with research, the other with history.

The historical teams job would be to go back and trawl through the details of prior British military procurement programs, from small to large, building up a definitive analysis of which programs went well and which didn't, and what caused the varying results. They would also intermittently be tasked with researching major historical programs abroad and again defining what went well and what went badly.

The research team would be tasked with looking at ongoing procurement programs abroad, researching modern procurement methods and programs in both the private sector and other branches of the public sector, while doing detailed research into the market rates for similar activities to those performed by military contractors (both support and construction activities), and finally with keeping an eye on the market for opportunities, such as when Air India sold off a number of its Boeing 777s on the cheap.

As well as supervising and guiding the direction of the branch, the Director would also be responsible for checking and approving the reports produced by his two units. These reports would, when released, become required reading for at least anyone in any form of authority within DE&S, if not the entire staff (within reason).

The purpose is to build up a knowledge base within the organisation, in much the same way that officer candidates going through the various service officer schools are exposed to the history of their organisations and those from other countries, and to try to learn from the successes and failures of the past.

The second element might take some more explaining.

I've never seen a big group of people do anything with any great degree of efficiency. Layer after layer of decision making has served only to confuse matters and to introduce new problems, not new solutions. So what I'm proposing is to hand over the procurement process to much smaller, "streamlined" (ugh!) teams.

Essentially each team would be composed of the following;

- Project manager,
- Operational expert,
- Technical expert,
- Superintendent,

And um, that's it.

The project manager is quite clearly the person in charge. Their job is to run the whole project. I believe the current phrase of choice is "Senior Responsible Owner". Essentially nothing happens without this persons prior approval, and as such their arse is on the line when things go badly. This could either be a senior officer, or preferably a senior civil servant (someone who's been exposed to the procurement process routinely over the course of their career and ideally is above inter-service rivalries).

The operational expert is just that, someone fresh off of operations. I think the en vogue phrase at the minute is "Subject Matter Expert". This should be someone with plenty of experience in the field of concern, with recent operational experience. 

In the case of a project like the Type 26 frigate this would be someone who has just finished a tour as a frigate captain and has plentiful experience working on said ships (or similar). For something like the Future Rapid Effect System (FRES) this would be either a Major or Colonel, possibly two, with one from the armoured reconnaissance world (FRES-scout variant) and one from the armoured infantry community (FRES-utility).

This person, and possibly a Senior NCO with recent front line experience as their assistant, would provide the operational knowledge on the project at hand. They are the fountain of wisdom when it comes to the specifications for the equipment, what it needs to do etc. They are there to inform the project manager not make decisions on his behalf, unless otherwise delegated to do so.

The technical expert is just that, someone who understands all the physics, the chemistry, the possible, the improbable, and the down right unrealistic. Whether sourced from in-house, from Qinetiq, or eventually from the chosen "partner" (i.e. the monopoly supplier of that product in the UK), this person is there to provide information, and in some cases, perspective.

The superintendent is the person that will go to the test and production facilities and supervise the company selected to make the final product. They are essentially there to nosey around and watch every stage like a hawk. They are the eyes and ears of the project manager, reporting back on every last lapse of effort or monumental cock up. And on occasion saying nice things when everything goes well.

What about finance? What about legal?

Well, this is a huge organisation. One would have thought, for one is in posh mode, that such an organisation would retain more than enough experts in financial and legal matters to cover multiple projects if needed. It shouldn't be too hard to ask certain people to manage multiple case loads. When dealing with a massive project with multiple contracts and contract stages, dedicated financial and legal expertise can be added to a team as necessary to help.

But what about the service heads? What if they don't approve? 

Well then they should get their priorities straight from the start. To be clear, the requirement for the equipment should come from within the services themselves. The team above is just the one that will manage the project. Once the requirement is outlined the team is formed. The project manager is selected by the civil service and he then hand picks his team. 

This team produces the more refined proposal and sends it to the various defence ministers for discussion, as well as to the service chiefs. The service chiefs, both joint and single service get to have their say, but only in the form of a response to the proposal that outlines their opinion, which is sent to the defence secretary. He can then have a chat with the project manager, then the Prime Minister and the treasury people (and you would hope the shadow defence minister). 

Once approval is achieved authority now goes back to the project manager to get on with it. This is where industry is brought in and tenders for designs start going out. For the rest of the projects life the authority will pass through the project manager, with his authority having been delegated to him by the defence secretary, which in turn has been delegated by the First Lord of the Treasury (the Prime Minister).

Simples (hehe, he says).

The purpose is to cut out a lot of the wrangling and people throwing in their own ideas and opinions. You give absolute authority to one person (not doing so was one of the glaring mistakes highlighted in the FSTA PFI) to run the project and make decisions on behalf of the government, unless otherwise directed. You keep the number of potential influences to an absolute minimum and you strongly suppress the ability of people other than a select few to make changes to the project once it's started. 

Trust in your people, trust in your support network (the legal and financial sides), learn from your mistakes, keep abreast of the current situation and just bloody well get on with it. Quickly, cheaply, effectively.

And publicly.


  1. The four roles you describe are generally what IPTs contain anyway. However, the breadth of knowledge required is usually such that you end up with several people against each to provide the requisite expertise.

    I'll leave the PM/SRO out of it (because actually the delegation to act as you suggest is what is misisng atm), but take your "operations" post for example. You suggest someone who's just had a drive of a frigate as an example for T26. That post is usually called the Requirements Manager (RM) and exists already. However, I can tell you for free that the sort of person (usually from Warfare branch, either just had a drive or just been PWO) will not have a scooby about the logistic support of the ship and its combat systems - precisely because they usually have their MEO and WEO, plus the LogO to deal with that for them - and they require support from technical specialists when it comes to the details of how you do through life support.

    Similarly, on the Technical side for a ship you need the Naval Archs for the overall design, hydrodynamics, safety and structures, marine engineers (of clanky and sparky variants) for the propulsion system, HVAC, auxiliary systems and that's before you get to the Weapon engineers for combat systems equipment, which is both hardware (mech and elec) and software (software & electronic engineers). There are a number of specialisms I haven't included in that little lot, not least among which are competent cost estimators. You can have the biggest nerd box in the world, but of none of them know how to put a design together and cost it reliably (or at least have a clue when they're on the "Unaffordability Highway"), then you're going nowhere.

    Those people are not the finance bods by the way - they need real up to date knowledge and experience of how costs accrue and need to be there to hold the prime contractors or tenderers to account. Currently, they're not there and that is one reason why project after project escalates in cost.

    Another is the lamentable quality of some MoD commercial staff. That's not "legal" by the way, these are the people who are supposed to understand terms and conditions of a contract offer and make sure that the MoD requirements are met by the T&Cs, as well as understanding the potential liabilities of each offer. Defence contractors do not exist to make the cheapest equipment at the highest performance. They exist to make a profit - something that many MoD commercial staff have yet to figure out. They also seem to be unaware that when requested to make a decision by a certain date, failure to do so affects the company and there will be a concomitant impact on price, availability or delivery date. A few in my experience are very good. However, far too many are what I refer to as "retreads" - career CS who have generally been on the admin side but at some stage (either through shortage of commercial bods or redundancy rounds) have been sent on a commercial awareness course, given a rule book and told to enforce it. These people will go through travel and subsistence sections of bids arguing the toss about the number of rail fares or overnight accommodation assumed in a bid, but completely missing the bit that says the bid is valid up to a certain date, beyond which (either because you've taken another contract from someone prepared to order, or because you've had to lay off a project team) the price and timescale of the offer will change. So they don't respond (despite warnings) and you end up starting again. I'm sure our Red-Trousered friend has many similar experiences to relate.

    That is what the upskilling of DE&S is about, trying to get good PMs, good technical staff, good cost estimators and realistic commercial people. CS wage stuctures don't allow you to compete with industry for those people in this application. That's what Bernard Gray (despite his charming personality) is trying to do.

    1. Blimey, quite the response!

      I'd be very surprised if an officer came through command of a boat without having some idea of how his ship is supported logistically? That would appear to be quite a significant oversight on the part of the Navy if true.

      Meanwhile the MoD must be the only company in Britain that doesn't refer to its contract experts as legal staff, because really that's what they are. The position you're talking about as commercial staff should really be the sort of role fulfilled by the PM themselves. Delivering a project on time and on budget, while being aware of any potential hooks in a contract, is rather the job of a PM/SRO in the normal world.

      As regards the technical side, one would expect the final contractor to have the required technical expertise in the very diverse array of areas you mentioned. Part of the problem I've seen with contracting (outside of MoD as well as looking at MoD projects) has been over detailed specifications at the early stage, instead of defining an output and allowing contractors to suggest their own methods to reach it, with a broad based technical minded observer on hand to provide balance on the probable and the improbable.

  2. They may have an idea. That is far from being able to talk in detail on the subject.

    The companies I have worked for always refer to commercial - and while you are correct that the PM/SRO ought to know about contractual issues, that is very different from being able to actually spot the pitfalls.

    As for the last point, MoD tried the loose spec with contractor suggested solutions - it was called Smart Procurement. One of the reasons it didn't work is that MoD could not understand the detail of what it was getting. In that position, the last thing you do is rely on the contractors knowledge. I have a fairly broad-based range of expertise from 25 years of military ship design and build. I'd still want my experts available in MoDs position - particularly when considering platform vs combat system issues.

    Hopefully a more digestible response.

    1. Haha, large responses are welcome. Apologies if I gave the impression otherwise.

      When you say the MoD could not understand the detail of what it was getting, in what way? The contract? The actual products themselves?

      As for technical experts of the broad based kind, oddly enough you were one of the people I had in mind of that sort of position. Someone with experience and a broad knowledge. I also don't think the above plan precludes DE&S from retaining a core of technical staff with more specialist knowledge, who are referenced when needed for multiple projects, e.g. someone who is very specifically an expert in aerodynamics being consulted ad hoc when a project that encompasses his skill range comes up.