Sunday, August 09, 2009

350 Years Of Defence Waste

HMS Royal James* - serious cost issues

Dateline Woolwich Dockyard - 21 July 1662 -

"While the Royal James was bringing towards the dock, we went out and saw the manner and trouble of docking such a ship, which yet they could not do, but only brought her head into the Dock, and so shored her up till next tide.

But, good God! what a deal of company was there from both yards to help to do it, when half the company would have done it as well.

I see it is impossible for the King to have things done as cheap as other men." (Samuel Pepys - Clerk of the Acts to the Navy Board)

When it comes to defence spending, nothing changes. What Pepys witnessed at Woolwich 350 years ago - overmanning, incompetence, delay - applies equally well today. And last week's leak of a secret MoD report on defence procurement once again puts the problem up in lights.

The report apparently says that MoD wastes up to £2.5bn pa because of shockingly bad procurement practices, including (see leaked presentation slides here):

  • MoD "does not really know the price of any kit"

  • "Project management does not really exist in the Department"

  • "New requirements set by MoD during the procurement process are not unusual and cause delay, cost and time overruns"

  • Over-optimism in commissioning projects is endemic

  • MoD is "in denial" and "always late in admitting there's a problem"

  • The overrun on major projects averages 40% in terms of cost and 80% in terms of time

  • The so-called "Smart Acquisition" programme introduced in 1999 has flopped - if anything the delays are worse

  • Current procurement programme far exceeds the funding available - even if nothing further is ordered, the accounts will not balance until 2028

  • This chronic funding imbalance necessitates constant "reprofiling" of projects and further delay, all of which costs money (delaying the Navy's new aircraft carriers cost us between £500m and £1bn)

  • There are far too many bureaucrats involved in the process, and they are generally of low quality

Of course, none of this will come as a shock to BOM readers. Neither will the fact that Brown tried to suppress the report.

But it does underline just how expensive MoD failure is.

Let's remind ourselves how much of our cash MoD spends. This year it will be £48bn - about 13 pence on the standard rate of income tax - of which £9bn will be spent on capital procurement.

And let's also remind ourself of how they spend that money. In particular, let's recall how few actual fighting men they employ.

According to the latest official stats, total MoD employment is 283,000 (Sept 2008, full-time equivalents). But of that total, the number of people available to fight our wars - the real ones we actually face, like Afghanistan - is no more than about 30,000 (see this blog). Which leaves about 250,000 people who are doing something else. Like running the dysfunctional procurement system.

But can anything be done?

Because whereas we can see how to make education, health, law and order, and various other public services work better - by removing central government right away from the action - with defence it's difficult to see what we can do. We can't privatise it, and while the idea of directly elected generals has some appeal, we're not entirely convinced.

Government has to run defence, and somehow we have to find some way of making them do it more efficiently.

Yes, we should slash the number of desk jocks, and yes, we should insist they buy more off-the-shelf kit from the yanks, and yes, we should scrap all the Cold War kit we're still buying (including the full Trident replacement). But beyond that, it's tricky. Very tricky.

The simple fact is, the King really can't get things done as cheap as other men.

Which is precisely why the King should not be involved in anything beyond law and war.

PS A few weeks ago we blogged an interesting paper by Ted Bromund of the US Heritage Foundation on MoD's misuse of PFI. Ted subsequently sent another useful defence paper which we are going to blog in due course. He also sent some long-term defence spending charts which he has painstakingly assembled. Just for the record, here they are (click on them to enlarge):

A couple of points jump out that we've blogged before. First, how extraordinarily low spending was during the nineteenth century, even though Britain was ruling half the globe (I've recently heard it said that's because we made extensive use of Empire troops who were very cheap - in every sense). And second, how Labour have gone on cutting spending despite all the various wars they've taken us into.

*Footnote HMS Royal James was launched in 1658 as the Richard - named after Richard Cromwell in honour of his appointment as Lord Protector in North Korean-style succession to his dad. After the Restoration in 1660 the ship was renamed, and expensively respecced. It had just three encounters with the Dutch, before being sunk and burned. Contemporary taxpayers cannot have been best pleased.


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