ORGANISATION
Procurement of defence equipment is an important and specialised task. It is the responsibility of the Procurement Executive (PE) in the MOD and is overseen by the Minister of State for Defence Procurement. The PE is led by the Chief of Defence Procurement (CDP) who is accountable to Parliament for the spending of money voted for equipment procurement and logistic support (Votes 2 and 3). This Accounting Officer responsibility covers not only the PE but also the expenditure of the three single-Service logistics commands which procure a wide range of stores and consumables for in-service equipment.
The PE has recently undergone a series of major organisational changes designed to create a slimmed-down, fully integrated, more efficient organisation. A vital component in this is the move to a single purpose-built site at Abbey Wood in North Bristol. Click here to see the final structure of the new PE following completion of the move to Abbey Wood in 1997.
In the new structure CDP has two deputies. DCDP(Operations) has responsibility for managing the procurement of equipment, with each of his Directors General taking responsibility for different systems or types of defence equipment. Within each of these areas, the job of managing procurement projects rests with Project Managers, who head integrated management teams incorporating technical, contracts, finance, quality control and logistic support expertise.
DCDP(Support) and his supporting Directors General deal with procurement and contract policy, resource management within the PE, contractual matters, and technical services including accountancy, quality assurance and intellectual property rights.
CDP chairs the Procurement Policy Board which brings together his two Deputies; the Head of Defence Export Services; the Deputy Under Secretary (Resources Programmes & Finance) from the Central Staff; and the Chief of Fleet Support, the Quartermaster General and the Air Member for Logistics (the head of each Service's logistic command, responsible for the support of equipment in service and known collectively as the Principal Administrative Officers). Thus the Board looks across the full life-cycle of equipment to provide top-level advice on procurement policy to CDP and Ministers.
AIMS AND METHODS
The aim of defence procurement is to buy equipment for the Armed Forces that meets their requirements and timescales with the best value for money. Competition is fundamental to achieving value for money and is used wherever possible. MOD does not simply accept the cheapest bid, but that which provides the best overall value for money taking account of all the relevant factors. The entire life of a piece of equipment is considered because support costs over that lifetime can far exceed the cost of acquiring it.
Competition obtains keen offers but taut contract terms are required to ensure that the value is delivered. Where possible a single prime contractor is selected and, with the aid of clear specifications, made responsible for delivering a complete system which meets the requirement. Firm (ie cash) or fixed prices (ie varying with inflation or other indices) are used wherever possible to ensure that the contractor carries financial risk. Where competition is either not possible or sensible, MOD policy is "No Acceptable Price - No Contract", which is designed to ensure prices are fully agreed before a contract is let. Where longer contracts need interim payments, they will be made only against the achievement of clearly defined performance milestones or acceptable delivery. Frequently a proportion of the payments will be retained until the equipment has been in service for a period and we can be sure that it has met the specification.
Over recent years, a series of initiatives have been introduced to improve the management of defence procurement. These include improved risk assessment and management; integrated logistic support planning; enhanced consideration of reliability and maintainability; streamlined contractual procedures; improved communications and consultation with our suppliers; and more systematic consideration of defence industrial factors. The PE is also open to innovative proposals from industry under the Government's Private Finance Initiative, where it can be shown that the introduction of private sector finance and management expertise can yield efficiencies, for example in training and support.
Click here to see an overview of the procurement cycle. The cycle is common to all equipment; although in many cases, items are purchased 'off-the-shelf' without the need for a development phase.
The MOD needs access to a wide supplier base. To make it as simple as possible for companies to do business with us, the Defence Supplier Service has been set up to assist companies, both large and small, UK and foreign, which are considering tendering for business. The Department's business opportunities are listed in the MOD Contracts Bulletin, which is available each fortnight on subscription.
AN INTERNATIONAL APPROACH
Foreign contractors are free to bid for the majority of MOD business, as prime or sub-contractors. However, some security considerations, international obligations, and a number of other special factors are taken into account before deciding whether work can be placed overseas.
The Anglo-French Reciprocal Purchasing Agreement gives a particular focus to cross-Channel purchases. Features of it have been adapted in a wider initiative to open the European defence equipment market; this is now being taken forward under the aegis of the Western European Union Armaments Group (WEAG) within the Western European Union (WEU). The UK is an active participant in WEAG initiatives such as the proposal to develop a European Armaments Agency.
Because defence equipment is increasingly complex and expensive, the Armed Forces' needs may sometimes be met best through collaborative ventures with other countries. There are many potential advantages in collaboration, including standardisation with allies, increased inter-operability, the sharing of development costs, economies of scale in production and efficient use of national resources. As the cost of developing very advanced defence equipment grows, the pressures on defence budgets throughout the NATO alliance grow too. This is heightening the need for collaboration, particularly in Europe but also in the USA. However, collaboration is not an end in itself, but simply another way of achieving value for money; and collaborative projects must be managed as effectively as national projects.
DEFENCE EXPORT SERVICES ORGANISATION
The DESO is a key part of the Procurement Executive. Defence exports have a vital role in sustaining the health of the British defence industry and keeping its costs down. They also have an important wider role in maintaining and developing the UK's international equipment relationships. Under the Head of Defence Export Services, DESO exists to help British companies to market and sell their defence products and services overseas. It mounts defence equipment exhibitions, such as the combined Royal Navy and British Army Equipment Exhibition. PE project teams work closely with the DESO in considering the export potential of equipment.
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