Ministry of Defence contracts watchdog in bid for more powers

Written by Suzannah Brecknell on 31 January 2017 in News
News

Single Source Regulations Office seeks greater oversight of contracts for non-competitive military goods

The Ministry of Defence contracts watchdog wants more power to request information from defence suppliers and a greater say in which contracts come under its remit, according to a newly published consultation document.

The document is part of a review carried out by the Single Source Regulations Office (SSRO), which regulates the government’s procurement of “single source”, or non-competitive military goods, works and services.

The SSRO operates under the Defence Reform Act 2014, but the contracts it covers are referred to it by the MoD, it cannot directly request information from suppliers, and it has no enforcement powers if companies or individuals do not comply with regulations set out in the act.


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As part of a review of the Defence Reform Act launched by defence secretary Michael Fallon, the SSRO is calling for changes to the way qualifying contracts are defined and assessed – particularly in relation to sub-contracts – and the power to request information from the MoD and its suppliers.

The watchdog also wants to be given power to enforce compliance and issue penalty notices when companies fail to meet reporting and assessment rules set out in the single source regulations. Currently, this power rests with the MoD.

The SSRO monitors contracts which have not been through a normal competitive procurement process, and which fall under the definition of Qualifying Defence Contracts (QDCs) or sub-contracts (QSCs). 

However, the consultation points out that some contracts can become QDCs if they are subject to material changes after they are signed – and not all of these contracts are being referred on to the SSRO. 

It also notes that it left to suppliers themselves to assess whether a contract counts as an QSC, and says there is no transparency about why a particular decision is made, nor a deadline on when contracts should be assessed.

It therefore wants to bring in a number of changes, including setting a 30-day time limit for QSC assessments to be carried out, and creating a requirement to publish the reasons why contracts are deemed to be QSCs.

The SSRO also wants to lower the threshold at which sub-contracts fall under its remit from £25m to £10m, arguing that this will create greater transparency around the total amount of single source defence spending.

The SSRO's consultation on the proposed changes began as the MoD published its latest Equipment Plan, setting out details of its £178bn planned equipment spending from 2016 to 2026.

But the National Audit Office public spending watchdog has already warned that the affordability of this plan “is now at greater risk than at any time since reporting was introduced in 2012”, and said the MoD may have to delay or reduce the scope of projects unless it acts quickly to meet tough efficiency targets.

The NAO's Comptroller and Auditor General Amyas Morse said: “It is worrying to see that the costs of the new commitments arising from the [Strategic Defence and Security Review] considerably exceed the net increase in funding for the plan.

“The difference is to be found partly by demanding efficiency targets. There is little room for unplanned cost growth and the MoD must actively guard against the risk of a return to previous practice where affordability could only be maintained by delaying or reducing the scope of projects.”

The NAO recommends that the ministry should identify the projects most at risk of rising costs, as well as setting up mechanisms to prioritise spending and stop or delay projects as needed.

“It is important that the department has in place a robust central process for reprioritising commitments in the plan that balances operational need with the requirement to protect value for money, and that decisions are supported by suitable business cases that address both requirement,” the report says.

 

About the author

Suzannah Brecknell is CSW's senior reporter. She tweets as @SuzannahCSW

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@JagPatel3

Submitted on 31 January, 2017 - 11:02
With such a bleak outlook forecast by NAO for MoD’s finances, the Government should consider exercising its power of coercion to replace the public subsidy given to Defence Contractors with Private Sector funding. Not only will such a bold move ease the pressure on the Exchequer, but it will also go some way towards tackling the budget deficit – and with it, the bourgeoning national debt. This innovative proposal is at the heart of a modern Defence Industrial Strategy that puts the National Interest first, not military equipment manufacturers’ commercial interests. It comes in the form of written evidence submitted to and published by the Business, Energy and Industrial Strategy Committee which is conducting an inquiry into Industrial Strategy. The submission observes: “It is called the Private Sector for a reason – so that it can use Private Sector funds, not Public Sector subsidy to innovate, grow, create jobs and make a profit. It is the job of Government to foster an environment which causes this to happen, within the context of a modern Industrial Strategy. If the Government is going to intervene in the market with public funds to stimulate economic activity and boost export-led growth, then provision of this subsidy should be made conditional upon Private Sector players making an equivalent contribution of investment capital to increase the competitiveness of their own products and services, both in the domestic and export markets. As for the Ministry of Defence, there exists no evidence that its long-standing policy of securing input of Private Sector investment capital into defence equipment programmes is being applied, which means that they continue to be funded exclusively by the taxpayer – yet, the Intellectual Property Rights for the resultant fully engineered equipment, which rightly belong to the Exchequer, is simply handed over to the main Contractor for nothing in return! Accordingly, to avoid repeating mistakes of the past, a revamped Defence Industrial Strategy should have at its heart, a built-in mechanism which elicits Private Sector capital into defence equipment acquisition programmes, as its first and foremost priority. This submission shows how to go about doing exactly that.” And it concludes: “At a time when senior members of this Government are firmly behind the view that this country should put economic security first and balance its books at the earliest, there exists an excellent opportunity to introduce a Defence Industrial Strategy which gradually replaces the public subsidy given to Defence Contractors with Private Sector funds. Ask not what Government can do for Business, but what Business can do for Government.” The full submission can be downloaded as a pdf file via this link: http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/business-innovation-and-skills-committee/industrial-strategy/written/36606.pdf @JagPatel3 on twitter

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