Defence Procurement: the role played by Contractors in delays and cost overruns

The share of blame attributed to the Ministry of Defence for delays and cost overruns has been extensively documented over the decades. But what is the role of MoD’s other half of the partnership, the defence contractors, in this epic tale of failure? In his first article, Jag Patel identified deep-seated problems that have plagued the existing, flawed defence procurement process. In this article, he examines the role played by contractors in delays and cost overruns, why it is important to apply the principles of natural justice and the need for professionalism in defence procurement.

The risk that new equipment procurement programmes will fall behind schedule is driven by three significant factors – all of them, entirely within the control of the Contractor:

• Work allowed to commence without the full complement of Task Performers being assigned to the project performance team, right from the start.
• Task Performers arbitrarily (and clandestinely) re-assigned to other priority work during the term of the Contract.
• Task Performers, who are typically on one month’s notice corresponding to pay in arrears, abandon their posts for a better paid job elsewhere.

The practice of switching the most capable and smartest people (the ‘A’ Team members) from existing project commitments, to working on other contracts running concurrently which have gone ‘critical’, or to producing bid phase deliverables for ITT responses, is very common within Defence Contractors’ organisations – because the need to continually bring-in money or win new business takes priority over everything else, a foremost characteristic of for-profit organisations.

Indeed, such is their obsession with future income (and share price) that, once they have got a new contract in the bag, their attention immediately shifts onto chasing the next one – at the expense of compromising performance on the contract they have just won!

Paying the Price for treating task performers with contempt

This all too familiar scenario is further compounded by the fact that:

Contractors at every tier of the defence industry have mandated enforcement of a minimalist staffing policy of being just ‘one man’ deep in many of their specialist core functions, with no slack or succession plan – which unfortunately, also denies defence workers the opportunity to associate with like-minded people in the work environment, severely impeding their professional development.

• In their desperation to quickly build-up their project performance teams to full strength following down-selection for the first contract performance phase, contractors have been less than honest with new employees (particularly those originating from the Public Sector) about their individual role in the project performance team, the job content and near-term prospects – because they are not bound by a ‘Code on Ethical Behaviour in Business’. Consequently, these newcomers have no choice but to align their personal and career goals with those of their new employer on the basis of what they are told. It is the disappointment of discovering a substantial gap between the reality on the ground and what they were led to believe at interview that causes these new starters to leave – creating yet more vacancies and disruption!
• Instead of looking upon people on their payroll as human beings with hopes, fears and insecurities, individuals are treated like ‘economic units’ by Contractors – to be bought and sold like commodities, at will, in the free market to serve their own narrow commercial interests.
• Recent years has seen the working relationship between Indirect and Direct labour types to be strained beyond breaking point on account of:

1. The latter (who are all Task Performers, adding value by producing deliverables which attract payment from MoD) being compelled by the former to partake in activities which are contrary to their professional, ethical and moral convictions.  In turn, this has led to Direct labour types to accuse Indirect labour types of ‘living off their backs’ by charging MoD a ‘tax surcharge’ on their labour – creating, even more, bitterness and division.
2. The duplicitous policy enforced by Indirect labour types of making bold pledges in Management Plans, and then promptly rescinding on these work commitments during the follow-on Contract performance phase has had the effect of disenfranchising Direct labour types because they think this is thoroughly deceitful behaviour.
3. The burden of responsibility for executing the resultant grossly under-scoped Programme of Work falling on Task Performers, instead of those people on overheads who made the false, exaggerated claims about the maturity of the proposed Technical Solution in the first place.

Commitment and loyalty time-limited

Even more disturbingly, in the interests of furthering their careers in today’s mobile labour market, many defence industry workers especially those possessing highly marketable skills (the crème de la crème) are now willing to extend their commitment and loyalty only, as far as the next pay packet – having adopted this tactic from observing, at first hand, the behaviour of their own employers who have, for many years demonstrated their willingness to provide a service to MoD which extends only as far as the next milestone payment!  Worse still, whereas every Contractor has got a Staff Recruitment Policy, none has a Staff Retention Policy.

So when a programme in the Contract performance phase suffers a loss in personnel on the project performance team (usually those most difficult to replace), work on producing deliverables to schedule comes to an abrupt stop – leading to delays and ultimately, cost overruns.

A risk and associated cost burden that has traditionally been borne by the Ministry of Defence!

What’s more, Defence Contractors are also engaged in some pretty nefarious activities, like masking any delays attributable to themselves (for instance, because they haven’t got adequate numbers of skilled Task Performers), by building-in intervention from MoD Abbey Wood team members as a dependency into the Programme of Work schedule, citing partnership and/or collaborative working as a pretext, then deliberately stopping progress of planned work and disingenuously blaming MoD for the delay.

MoD Abbey Wood. Home of the Defence Equipment and Support (DE&S) organisation where around 8,000 civil servants manage procurement for the UK armed forces.

Task performers more important than apprentices

Defence Contractors have treated employees shabbily for decades and yet they have the gall to criticise the Government for the poor quality of skills possessed by young people emanating from the education system, when in fact, it is their responsibility to invest in specialised, on-the-job training for new employees so that they can, as Task Performers, perform the full range of job functions prevalent on defence contracts.

It is not the number of apprentices taken on by the Contractor that matters, but whether he has the full complement of suitably qualified and experienced Task Performers, who are able to undertake and complete the planned Programme of Work, during the follow-on Contract performance phase that is even more important.

Applying the Principles of Natural Justice

Public Servants have a greater duty to apply the Principles of Natural Justice than the rest of us. In no area of public policy are these fundamental principles being violated as in defence procurement.

The current practice of digging out old ITTs from the archives, searching & replacing the project name and promptly dispatching them off to Defence Contractors has resulted in the Principles of Natural Justice being routinely violated, because selection criteria essential to inform the decision on down-selection, phase-by-phase is omitted – leaving Bidders in the dark as to how their performance will be judged.

Under the Principles of Natural Justice, defence procurement officials are duty bound to inform Bidders what evaluation criteria they will be measured against, as they progress from one phase to another and what level of achievement constitutes satisfactory or not – given that taxpayers’ money is to be spent on procuring assets for public benefit, through the instrument of open competition. Not decide upon selection criteria on the spur of the moment, at the time of assessing the ITT response, as is currently the case!

Later, bidders removed from the contest will be denied the opportunity to complain that they had not been informed about the rules of the competition, to begin with – including a chance to challenge the final decision at Judicial Review.

Accordingly, it falls upon procurement officials to clearly state the rules by which they intend to prosecute the competition for each phase of the equipment acquisition programme, what penalties bidders are likely to face for not abiding by these rules, and for failing to comply with the requirements expressed in the ITT.

This means that procurement officials will need to have the talent to be able to express the whole of the requirement, in plain and clearly written English – in such a way, that it cannot be interpreted any other way than intended.

In addition, they should be single-mindedly impartial in their dealings with industry, that is, not take sides with one defence contractor or another. Procurement officials whose impartiality has been compromised cannot usefully contribute towards the achievement of team, departmental or organisational goals, nor is it in taxpayers’ best interests to have them remain on the public payroll.

The governing elite make great play of this country’s sense of fairness, respect for the rule of law and doing the right thing – yet, it seems that people in the pay of the State are exempt from having to abide by these same values!

MoD and its contractors tolerate the wet-finger-in-the-air technique

How is the engineering profession supposed to attract young, technically-literate people like graduates, technicians and apprentices into its fold when the real world they go into, later on in their career, will require them to act in an unprofessional manner?

In a report released last year, the Defence Select Committee of the House of Commons accused the Ministry of Defence of using ‘creative accounting’ practices to meet its NATO commitment to spend 2% of GDP. What is less well known about MoD’s use of such under-hand tactics is that, it was the first to pioneer application of the wet-finger-in-the-air technique in the designing of military kit – more specifically, the most important aspect of defence equipment – its inherent reliability – which is an indicator of how frequently it will break-down when in service with the user, and therefore its cost of upkeep subsequently, through-life.

The main reason why MoD Abbey Wood has failed to build-in desired levels of reliability into diligently engineered products is because defence contractors have been using the thoroughly unprofessional, wet-finger-in-the-air technique of ‘divvying up’ the given MTBF (mean time between failures) figure among lower-level maintenance significant items – instead of employing the best practice method of determining overall system reliability ‘bottom up’ using measured failure rate figures (not predicted or estimated) derived from an up-to-date, Microsoft Access-based 4th Line data repository.

And from whom did contractors’ people learn this method of quantifying equipment reliability? Why, none other than from the Ministry of Defence!

To be precise, the famous here-today-gone-tomorrow procurement officials who have been freely applying this wet-finger-in-the-air technique during their short stay at MoD Abbey Wood before migrating to the defence industry, in overwhelming numbers, and infecting it by continuing to spread this lazy practice – which has, over the years, become regularised and embedded in commercial & engineering processes to the extent that objective, evidence-based scientific analysis and thinking which has exercised technically-literate people since the dawn of the Industrial Revolution, has been suppressed. This disastrous situation has come about because 99% of people who end-up working in the defence industry were previously in the pay of the state – with no appreciation of what it takes to uphold the values of a true professional.

It should come as no surprise to MoD that all competing bids appear to be fully compliant with the reliability requirement claiming the same level of achievement, a figure slightly higher than that stated in the technical specification – thereby denying Abbey Wood Team Leader the opportunity to discriminate between technical solutions on the basis of inherent reliability.

So, instead of acting as a responsible great department of state and instilling professional values in its loyal employees, the Ministry of Defence has ended up doing the exact opposite!  It has made a mockery and laughing stock of the engineering profession – as practiced in the UK – especially in the eyes of European competitor nations, the United States and potential export governments in the Arabian Gulf region, the wider Middle East, North Africa, Latin America and emerging nations in the Asia-Pacific region – where the engineering profession is still regarded in high esteem, and remains an automatic career choice for many young people.

Conclusion

It is not only defence procurement officials who are to blame for the malaise afflicting defence procurement – defence contractors are equally culpable in creating a procurement culture which has failed to deliver equipment to the Armed Forces that is fit for purpose, adequately sustained in-service and constitutes value for money through-life.

 

Jag Patel is an independent Defence Procurement Adviser with over 30 years experience of researching, analysing and solving a wide range of entrenched procurement problems. He tweets as @JagPatel3

Views expressed in guest posts do not necessarily represent those of savetheroyalnavy.org

 

from Save the Royal Navy http://www.savetheroyalnavy.org/defence-procurement-the-role-played-by-contractors-in-delays-and-cost-overruns/