My previous two blogposts on the procurement trinity covered capability and cost. Many people see the problems of defence procurement as a trade-off between one of these two factors or the other, but there is also the third forgotten element: time. Delays in projects can affect the other two elements of the trinity: firstly capability is affected through the need to keep in service ageing and less capable equipment, whilst secondly costs are increased through the need to spend more to keep that old equipment working as well as to maintain a production line for the delayed equipment for longer thus incurring additional costs.
The issue of time can often be the most insidious problem in procurement projects: using time holds out the false promise of solving a problem (for now) but in fact serves only to make the problem much worse and leave bigger mess for others to clear up in a few years’ time. At first glance, nothing can be simpler than stretching out a project – either manufacturing over a longer period of time, or keeping the design in development purgatory before finally committing to placing orders for manufacture. Short term battles within the MoD are averted, the budget profile looks immediately better, and the problems will only surface when most of those involved – politicians, staff officers, many officials – have moved onto other, and perhaps, better things.
An example was given by Sir Bernard Gray (whom we met in my previous blogpost) in a speech to the International Institute of Strategic Studies at the end of the last year as he retired from his position as the head of the Defence Equipment and Support organisation, the body within MoD that manages procurement and acquisition. He recalled a proposal to delay aspects of the avionics for the Typhoon jet aircraft in the late 1990s: it would save £20m in the next two years, but it would mean delaying the in-service date of the aircraft by eighteen months. This delay would result in the under-employment of personnel in the factories making the aircraft and the maintenance of a full range of overheads and working capital for this additional time period, which over the life of the whole procurement project would add between £70m to £100m to the total Typhoon procurement cost. A small short term saving had been bought at the cost of a long term cost increase of over 3 to 5 times greater.
In the MoD argot, this is known as creating a ‘bow wave’, after the phenomenon in which a wave forms at the bow of a ship as it sails through the sea. The greater the bow wave the slower the vessels goes as energy is dissipated in pushing the water forward in the bow wave rather than in propelling the ship forward. In short, energy (money) is wasted in a bow wave at the expense of pushing the ship (procurement project) forward.
The procurement bow wave comes in a number of forms and one example should highlight the difficulties in understanding all the costs associated with such stretching out or delaying of procurement projects. Largely unreported from the recent 2015 SDSR was the decision to push back the procurement of the successor to the current Vanguard class nuclear powered submarines – which carry the British nuclear deterrent in the form of Trident D5 ballistic missiles – by what seems to be between three to five years. In the 2010 SDSR the Trident successor was expected to cost £20bn at 2006 prices (£26bn in today’s prices) and enter service in the ‘late 2020s’. The 2015 SDSR announced that it would cost £31bn with a £10bn contingency and that it would enter service in the ‘early 2030s’. This will not include the replacement of the warheads on the Trident missiles these boats will carry. This was originally planned to take place in the early 2030s (SDSR 2010), then the late 2030s (2015 SDSR), and is now planned to occur in ‘the 2040s’ (Ministry of Defence, January 2016). (SDSR 2010, pp. 37-39; SDSR 2015, pp. 35-36; Ministry of Defence Policy Sheet Jan 2016)
Setting aside the warheads, there are at least three consequences of delaying the ‘successor’ class of submarines themselves. The first is the standard bow wave in which keeping the production facilities going will mean additional overheads at the end of the programme whilst staff will be underemployed at the start. It appears that this increase will be between £5bn and £15bn depending on whether and how much of the contingency is used. Second is the fact that the existing and increasingly ageing Vanguard boats will have to be kept in service for longer – older equipment, systems and platforms will need more maintenance and servicing. This will cost money and mean a reduction in capability as these boats soldier on past their planned retirement dates. Third, because of a need to maintain a skills base in nuclear submarine-building the government has committed to ensuring that there will not be substantive gaps in submarine construction (which if such gaps were to occur would mean the laying off of highly trained shipyard workers and engineers, probably never to return, resulting in even larger amounts of money being spent to re-create a skills base when production re-starts), so it is almost inevitable that the last vessels of the preceding Astute class hunter-killer submarines will be stretched out to prevent a gap emerging. Therefore a bow wave in the successor class has probably created another bow wave in the Astute class with the inevitable consequences for costs.
It seems likely that these delays have little to do with technological problems with the successor boats – they will probably utilise much of the technology already developed for the Astute class – but with a wider ‘portfolio’ issue of fitting the whole procurement programme into the expected budget levels in the next ten to fifteen years. Of the capability enhancements announced in the 2015 SDSR, the most significant (and expensive) was the decision to procure nine P8 maritime patrol aircraft after the 2010 SDSR had removed that capability entirely. A large part of the justification for the re-introduction of this capability was their role in patrolling the approaches to the nuclear deterrent submarine base at Faslane to prevent surveillance by other countries’ navies (for ‘other countries’ read Russia). So to add to the layers of complexity, the new P8s are in fact part of the wider capability to provide a continuous at sea nuclear deterrent that also encompasses the Vanguard class, the successor boats and the nuclear warheads. Looked at in this way the whole capability provision could run to much more than just the currently planned price range of £31bn to £41bn.
The aim of this post and the preceding two has been to highlight the complexities and difficulties of getting defence procurement right. The procurement trinity needs to be balanced, and no decision-maker should ever fool themselves that change to one element of the trinity, be it the stretching of a project timescale, the tweaking of requirements or the allowing of restrictive support contracts to allow for cheaper up-front costs, will not impact on one or both of the other elements. The examples I have given in these blogposts have been placed under one of the three trinity elements, but as readers of these posts should now no doubt realise, at least one of the other two trinity elements will always come into play. How much capability should be traded off to get the project completed on time and to budget? How much money should be spent to try maintain a project’s capability or to keep it to schedule? Is the time bought by a delay worth the money and the reduction in existing capability in the mean time?
The problems discussed here have been acknowledged for many years: but the late 1990s SMART procurement reforms resulted in a concerted effort to view procurement in terms of a whole life cycle. They introduced the ‘CADMID’ procurement stages mentioned in my second post and began to bring together the disparate procurement and logistics organisations in the MoD. Some of these reforms were pulled off track by the post 9/11 wars in Iraq and Afghanistan, but two reports towards the end of this ‘long wars’ period refocussed activity on reforming systems and structures.
The Gray report of 2009 recommended a series of changes in procurement including regular defence reviews to help keep the programme in budget, the better delineation of responsibilities between the commands and the Defence Equipment and Support organisation (‘DES’), and controversially the recommendation that the latter should privatised. Bernard Gray himself was subsequently brought in to head DES in order to lead the reforms based on his proposals, although the privatisation attempt eventually fell through. In 2011 the Levene report, written by a former head of one of DES’ predecessor organisations, proposed a whole series of reforms across the Ministry of Defence as a whole, not just in procurement. The budgetary autonomy of the individual commands was enhanced in return for clearer lines of delegated responsibility – in procurement as well as other areas – whilst staff officers were encouraged to remain their posts for longer to prevent the loss of corporate memory. These as well as a range of other reforms are currently being implemented across the MoD, whilst as has been seen, the economies of the 2010 SDSR apparently dealt with the £36bn projected overspend the National Audit Office predicted in 2009. Many of the new processes and systems are undoubtedly making a significant difference to the effectiveness of British defence procurement, but it would a brave person who would predict that the issues set out in these three posts are now a thing of the past.
Image: A Trident II missile fires its first stage after an underwater launch from a Royal Navy Vanguard class ballistic missile submarine via wikimedia commons.