Douglas Carswell's Blog

2012 - the year we ended the defence industrial scam?

Congratulations to Radio 4 - and Francis Tusa - for yesterday’s excellent Buying Defence – which put the spot-light on the scandal that is Britain’s system of defence procurement.  Listen to it here if you missed it. 

Despite having one of the largest defence budgets in the world, we have one of the most ineffective systems imaginable for converting that financial muscle into military punch.

Why?

Part of the problem, as the programme identified, is the so-called “conspiracy of optimism”.  In other words, it suits the Ministry of Defence (MoD) and the companies supplying the kit to both underestimate the cost and time to provide new kit – until the contract is signed.  Only then do we discover, for example, that a £3.5 Billion aircraft carrier actually costs £6 Billion. How convenient ..... 

Rivalry between the different services is also part of the problem. 

So what should be done to fix things?

The government has commissioned Bernard Gray, head honcho at the defence procurement quango, Defence Equipment and Support, to produce a review. His report is not yet out, but the signs are not encouraging.

Gray appears to see the problem largely in terms of a “skills shortage” at the MoD, with defence contractors being able to run circles around some rather flat-footed Sir Humphreys.  Beef up the commercial nous of those who oversee the contract negotiation, and many of the problems will disappear – seems to be his logic. 

Not surprisingly for someone running a quango, Lord Gray’s solution appears to involve handing over even more powers to an even bigger quango. Gray suggests this super duper new defence quango would be like the Olympic Delivery Agency.  I suspect it'll turn out to be more like the UK Border Agency.    

There is a real problem with defence contractors running circles around dudder heads at the MoD. But dudder head-ishness at MoD is a symptom of the problem, not the disease itself.  It is a bit like blaming a "skills shortage" in the Kremlin for all those missed tractor production targets. 

Even if we were to recruit the wisest, most omnipotent planners imaginable to oversee the way that the MoD spends money, they would never be as effective as the market.

The MoD mis-spends money because it does not shop around. It does not use the pricing mechanism to determine value, or price signals to allocate resources the way it should. In any market when you constrain the range of suppliers, the seller sets the terms of trade. This is what happens in defence.

Having brilliantly identified the problem, my only criticism of yesterday’s programme is that it failed to do justice to the one solution that might fix things. The programme seemed to pull its punch, curiously dismissive of the idea that we might equip our armed forces by buying more kit “off the shelf” or via the open market. 

Three people were interviewed to explain why shopping around for defence kit was a bad idea. Yet no one was interviewed explaining why it might be a good idea. 

One interviewee suggested that if we did not build our own kit, we might not have the best kit. No one was call upon to make the obvious retort that by trying to build our own kit all the time, our armed forces often have to go without.   Nor did the programme makers make any effort to explain that some of those who favoured protectionist procurement might have an interest in preserving the status quo.

I am nit picking. Overall the programme was excellent. And if we can continue to shine the spot light on this murky area of public procurement, eventually – if only by a process of elimination – we will eventually end up with the “off the shelf” based system that we need. 

I fear that by that stage we might not have very much money left to spend.

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