‘Millions to be cut’ from budget for major UK defence projects

So-called “single source procurement” is to be reformed by the Ministry of Defence (MoD) in a bid to cut costs which might otherwise be reduced by companies operating in a competitive market.

Many major defence projects have to be ordered in this way, either because of specific requirements of the Armed Forces or for national security reasons.

It is expected up to £200m could be saved through the creation of a Single Source Regulations Office, as recommended in a review by Lord Currie.

In the Commons yesterday, Mr Hammond said: “Open competition is our preferred approach to getting value for money but sometimes there is only a single provider of a capability we require and the need to maintain critical national industrial capabilities, or sovereign control of the intellectual property in equipment programmes, sometimes requires us to place contracts with UK companies without a competitive process.

“Single source procurement accounts for about 45 per cent of the total MoD spends on defence equipment and support, or around £6bn a year. It is likely to remain at those levels for the next decade or so.

“Without competition suppliers can price and perform without being constrained by the disciplines of the market place. There is a clear risk to defence and to the taxpayer and ensuring we get good value for money in single source procurement is a key part of my programme to reform defence acquisition.

“At (the reform’s) heart is the principle industry gets a fair profit in exchange for providing the MoD with the transparency and protections we need to ensure value for money.”

Wider reforms of defence procurement continue to be under discussion and the Government will legislate to allow the creation of a Government Owned, Contractor Operated (GOCO) company to carry out the buying of military equipment.

A White Paper has been published by the MoD to lay out the scope of the legislation.

Shadow defence secretary Jim Murphy said Labour welcomed the intention but would scrutinise the detail before backing them fully. “For too long, the good intentions of successive administrations have not delivered sufficient reform in defence procurement.

“However, just as some of the responsibility can be shared, a resolve to learn the right lessons and deliver far reaching reform must also be collective and we welcome much of the content of today’s statement.”

And he added: “We will support what we hope is a genuine competition.

“We will scrutinise this process carefully because efficient and effective defence procurement is essential not just for the MoD bottom line, but for the remarkable men and women of our Armed Forces who we place in harm’s way to serve on the frontline.”

Two independent studies commissioned by the MoD put the total sum of procurement waste between £1.3bn and £2.2bn per 
year.

Mr Hammond said: “Waste on that scale is unacceptable at any time, more so at a time of acute pressure on the public finances.” He told the Commons that he was determined to push through procurement reforms to ensure value for money for taxpayers.

But the Defence Secretary warned that prices would go up in other areas.

Speaking of recruitment at Defence Equipment and Support (DE&S), the body within the MoD responsible for procurement, he said “getting the right skills in 
the right places will be part of the task for the management contractor”.

He said: “And it will, in some cases, mean paying recruiting at market rates where at the moment what we’re doing is haemorrhaging talent. We have to address the haemorrhaging of talent from DE&S by offering market rates if we are going to support our forces in the way we need to do.”