05/25/2012
Andrew Elwell - defenceiq.com
“The budget is genuinely balanced with both contingency and headroom built in,” Peter Luff, Minister for Defence Equipment, Support and Technology, told me in an interview earlier this week.
That was shortly before the Public Accounts Committee (PAC) published a report this morning criticising the MOD for being short-sighted after Philip Hammond recently announced that the department
had balanced the books and successfully plugged the £38 billion black hole.
“We are concerned that these cuts have been determined by the need to cut costs in the short term rather than by considering the MOD's strategic objectives in the long term and the skills it will
need to deliver them successfully,” the PAC report concluded.
Is that a fair assessment? Not according to the Defence Minister.
“Military and civil service colleagues almost have a spring in their step since we’ve balanced the budget; we haven’t done this in living memory, it’s a completely new experience. It’s a good
place to be. The treasury has confidence again in the MOD,” Luff said.
The minister is under no illusion that tough decisions have been made at the MOD and concedes that morale is “fragile” due to the cuts in budgets and manpower, but he’s confident that the
department is doing the right thing and efficiently preparing for the future.
“For DE&S there’s a future challenge there in making sure we have the skills [and people] to match our needs as we procure items and equipment over the next three years … this is one of the
biggest challenges we face in the future and I freely acknowledge that.”
Luff was sure not to be “overly optimistic”, but having worked with MOD officials, the private sector and the Treasury, he wants it to be known that balancing the budget at the notoriously unruly
MOD is an extraordinary achievement.
“I was always doubtful that I’d actually be able to say it because it’s such a huge thing [to balance the defence budget] … it is the single most interesting thing I’m ever likely to say in my
tenure in this job,” Luff explained to me.
“At the heart of this is a proposition about transparency,” Philip Hammond, Secretary of State for Defence, said at an industry event earlier this week. We need to be “honest about what we can
afford, providing the armed forces with the confidence that once a budget is in the programme it is real, it is funded, and it will be delivered.”
When transparency and confidence align
Confidence through transparency is what this new look MOD is trying to achieve. Under Hammond the department does seem to have turned a corner, which considering the back alleys it had been going
down for years is no small feat.
“The equipment programme had become meaningless because projects were committed to it without the funding to pay for them, creating a fantasy programme,” Hammond said, referring to the
‘conspiracy of optimism’ at the MOD where everything was procured on a best-case scenario.
Confidence is high, but there’s little indication that it is morphing into bullish complacency.
“I do emphasise that we’ve only balanced a budget at a moment in time,” Luff told me. “Keeping it in balance will require a lot of discipline here at MoD.”
The key to ensuring this is a sustainable budget is collaboration between MOD and industry.
“Overall we have given clarity, we have given certainty, we’re giving transparency, we’re producing an improved process,” Hammond said, “but this is a partnership together.
“Let me be clear that the support provided to industry is only sustainable if it’s part of an integrated approach … defence is a team effort, to increase productivity, to avoid repeating the
mistakes of the past, we must work together.”
In short, the future of the UK defence industry pivots on ensuring that at every stage the objectives of the MOD and industry are aligned. The MOD will no longer be a “soft touch” for companies
merely seeking to line their pockets on the back of weak management and poor decision making at the expense of the taxpayer and the armed forces.
“I have no problem with profit, as long as it is earned by performance,” Hammond stated. “But I have a big problem with contracts that misalign the interests of buyer and seller. So alignment is
the watchword I will use in driving forward our reform project.”
Expect to hear this word, ‘alignment’, frequently over the coming months as further announcements about MOD’s future are revealed.
Moving forward...
Hammond said that “the next big piece of the puzzle” is the “radical changes” that DE&S will undergo over the coming months that will “deliver much more clarity, much greater accountability
and much better project management.”
Since discussions are still on-going regarding the exact nature of these changes Luff couldn’t give any specific details. He did however say that, “we will make a change, we’re clear on that, the
status quo has been ruled out.”
“Essentially we’re going to keep a much closer eye on the costing of programmes,” Luff said, talking about the changes in the works to the annual defence budget Planning Round system.
Luff continued, “rather than revisiting it once a year and having an ‘Oh my God’ moment, which is what it used to be up to now, we will look to the organisation be have their finger on the pulse
much more throughout the year.”
“In the future, industry can expect to deal with a more capable and intelligent customer [the MOD], equipped to move at greater speed with more focused incentives driving it and staffed by people
who face individual accountability for their actions,” Hammond said. “A customer that will set clearer requirements, be better at negotiating and managing contracts for the benefit of the tax
payer.”
The aim is to make the MOD a smaller, more strategic organisation with an eye fixed on more commercial goals. So far, it looks like they’re on target.
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