Oral Answers to Questions
Debate between James Cartlidge and Maria Eagle(1 month ago)
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Maria Eagle (Garston and Halewood) (Lab)
Defence procurement can strengthen UK sovereignty, security and economic growth. We on the Opposition Benches believe that defence investment should be directed first to UK businesses, so that we make, buy and sell more in Britain. With that in mind, what steps is the Minister taking in his rapid review to ensure that social value considerations properly take into account the huge advantages to the UK economy of awarding more contracts to British businesses, so that we create more defence jobs here in the UK? That does not seem to happen at present.
James Cartlidge
I think there is considerable consensus, because I agree with the right hon. Lady about the importance of sovereign defence capability, and not just because of the economic benefits, although those are crucial. As we enter this era, which has been described as pre-war, it is vital that we have a UK sovereign industrial base. As the Ukrainians have learned, there are certain skills and capabilities that we will need in country, should we get to a hotter military situation, and that is why that is such a priority for us.
Draft Single Source Contract (Amendment) Regulations 2024
Debate between James Cartlidge and Maria Eagle(1 month, 3 weeks ago)
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The Minister for Defence Procurement (James Cartlidge)
I beg to move,
That the Committee has considered the draft Single Source Contract (Amendment) Regulations 2024.
It is a pleasure to see you in the Chair, Mrs Murray. There is a lot of tension in Westminster today—possibly not on this item, but it is very important none the less.
The Ministry of Defence’s preferred approach to procurement remains through open competition in the domestic and global markets, but we are often limited to a single supplier to provide the capabilities that our armed forces need, particularly when we have to procure equipment quickly, in the face of rapidly evolving threats. We also need to preserve key industrial and technological capabilities within the UK, for strategic reasons. The combination of those factors means that single source procurement amounts to about 50% of defence procurement spend on equipment and services, or some £13 billion per year.
Where there is a lack of competitive pressure, the MOD needs alternative ways of assuring value for money for the taxpayer, while ensuring that our suppliers are paid the fair returns required to preserve their long-term viability. Like many countries, the UK Government use a statutory framework, introduced through the Defence Reform Act 2014 and the attendant Single Source Contract Regulations 2014. These set out clear rules on pricing single source defence contracts, which place the onus on suppliers to demonstrate that their costs are appropriate, attributable and reasonable, and they define the level of profit that can be applied. Where there is a dispute about the price, either party can make a referral on the matter to the impartial Single Source Regulations Office for a legally binding decision.
Since their introduction in 2014, the single source contract regulations have generally worked well and have helped to ensure that the prices paid for single source contracts are reasonable. Under the regime, there are now some 575 contracts, with a total value of more than £90 billion. However, any set of regulations needs to adapt as the environment changes. In this case, we have found that the rules continue to work well for traditional defence procurement—for ships, submarines, aircraft and other platforms—but that they work less well for sectors such as software and digital. Moreover, the imperative to procure things more quickly means that we sometimes need to buy off-the-shelf items, without running a competition, either because we need compatibility with existing systems or because we do not have the time. To address that, we completed a detailed statutory review of the regime in 2022. That proposed a series of reforms in a Command Paper entitled “Defence and Security Industrial Strategy: reform of the Single Source Contract Regulations”, which was published for consultation in April 2022.
The changes made by these amendment regulations are the next stage in implementing the reforms. They will deliver improvements to the regime in three key ways. First, they will increase the flexibility on where the regime can be used, to ensure that more defence contracts can be single sourced without compromising assurance or value for money and fair prices. The amendment regulations introduce a number of alternative ways of pricing a single source defence contract, most significantly by allowing prices to be set with reference to market rates, rather than always having to use the bottom-up default pricing formula. Another example is where existing UK or overseas laws constrain the way in which prices are set, in a way that is inconsistent with the single source regime. In such circumstances, the amendments will allow the disapplication of the pricing formula, to the minimum extent necessary to comply with those other laws.
There are also cases in which it would be useful to disapply the pricing formula to part of a contract, particularly where a contract comes under the regulations significantly after it was signed. This will avoid the need to reopen the pricing of work that may have been completed and paid for years in the past and increase suppliers’ willingness to bring long-running contracts under the regime. The amendments will allow the pricing formula to be applied only to new elements of the contract.
Secondly, the reforms will speed up and simplify the way the regulations work in practice. The legislation currently states that for contracts that fall under the regulations, a single profit rate needs to be applied to the entirety of the contract when it is signed. For some larger single source contracts, it makes commercial sense to use different pricing types for different elements of the contract, meaning a single profit rate might be too high or too low for some elements. These amendment regulations will explicitly allow contracts to be split into different components where it makes sense to do so. They will also simplify the determination of an appropriate profit rate for a contract by reducing the number of steps in the profit rate calculation from six to four. The SSRO funding adjustment will be abolished, and the adjustment made to ensure that profit is only earned on a contract once will be removed from the profit calculation, to be considered as part of the assessment of allowable costs for contracts.
The regime also applies to single source contracts under which the Secretary of State procures goods, works and services for defence purposes. While the meaning of “defence purposes” is usually clear, there are some cross-Government contracts that are used by both the MOD and other Departments. The amendments clearly set out the circumstances under which such contracts will fall under the regime, striking a careful balance between the need to ensure that prices are fair and avoiding unnecessarily extending the scope of the regime.
Finally, the amendments will clarify and generally tidy up the regulations based on the experience of those who use them, removing ambiguities that have come to light and making them generally easier to apply. We have consulted extensively with our suppliers on the policy underpinning the amendments; I thank them for their contributions, which have led to some useful improvements.
Overall, the amendments are designed to make the regulations easier and quicker to apply in practice. To ease their initial implementation, we will be flexible in the application of the reforms, particularly with the first contracts that use them. For example, we will waive many of the reporting requirements on componentised contracts before the beginning of 2025. We will continue to work with industry to address its specific concerns.
Maria Eagle (Garston and Halewood) (Lab)
It is my understanding that the necessary changes in reporting will not come into effect until October, a few months after the rest of the regime, so the Minister has to delay reporting to 2025 anyway, does he not? The law is not going to change until October anyway.
James Cartlidge
The right hon. Lady makes a fair point. We are trying to be flexible in introducing these reforms. The regulations cover some incredibly important defence contracts, from nuclear submarines to procurement for urgent operational requirements and so on, so it is good to have that bedding-in period. I think it makes sense to take this approach.
Finally, I draw the Committee’s attention to the correction slip issued in relation to the draft regulations as they were originally laid. This corrects a minor error—no doubt spotted by all members of the Committee—to a cross-reference in regulation 31(d) in the first draft of the regulations. I hope that Members will join me in supporting the regulations, which I commend to the Committee.
James Cartlidge
Thank you, Mrs Murray. My apologies—I have not done one of these Committees for quite a while, because there do not tend to be too many relating to the MOD, so I had forgotten the form.
I am grateful to the right hon. Member for Garston and Halewood, who asked some very good questions. I am more than happy to provide clarification. First, she asked a perfectly valid question about the balance between complexity and flexibility. In such cases I think one should always use a metaphor or a happy comparison. My first ever Adjournment debate as an MP was on part-time season tickets. That was before the pandemic, and I would argue personally that they have now become quite popular. One could argue that we should have a single rail ticket all around the country, but I do not think it would work in practice. The flexibility is a choice, and I think it is welcome to many people, with off-peak tickets and so on. I think that applies here, too. We could try to have a completely uniform regime, but it is a complex business; these contracts cover areas of procurement that are mind-bogglingly complicated, such as nuclear submarines and all the ancillary items that come with them through the supply chain. However, the right hon. Lady makes a fair point.
On the statutory guidance, let me placate the right hon. Lady. Again, she asked a very fair question; we are talking about parliamentary accountability, after all. Draft statutory guidance has been shared extensively with industry, and the formal statutory guidance will be published in four weeks’ time.
Maria Eagle
Given that the Minister has shared it with industry, might it not have been an idea to share it with the Committee, so that we could determine whether we are relatively happy with it?
James Cartlidge
That is a fair point, which I will reflect on. I shall ensure that the right hon. Lady and all colleagues on the Committee receive copies of the draft guidance as soon as possible, but to be clear, we think that this approach to statutory guidance is a fair one. On a subject of such complexity, if we did not do this, the legislation itself would have to be far more complicated in terms of definitions to ensure clarity for industry, which after all has to implement these relatively complex contracts.
There were some good questions about the SSRO. I have had lots of engagement with the office, which is a highly competent and focused, very professional, relatively small organisation compared with some of those we have in the MOD. It does excellent work and we are always engaging with it on what more we can do together, because this is such an important area. As the right hon. Lady rightly said, arguably it covers 50% of equipment spend and contracts. There is a good reason for that, given the monetary value of some of the big submarine or ship builds. As for resources, the SSRO has made some efficiency savings and has an efficiency target, which I have discussed with it. Those have enabled the office to absorb some extra pressure, which is the best way to deal with it without having to have recourse to further injections of funding. Obviously, we always keep that under review.
The right hon. Lady asked about value for money. Frankly, we could spend all day talking about that, but as we have the Budget later and that will be the theme today, I will not detain colleagues long. I just make the point that the single source procurement regime exists to protect sovereign capability, but that is not its only role. For example, we may be purchasing something at very short notice and there is only one supplier. If we were to competitively let contracts in very sensitive areas, such as nuclear or some of our key naval contracts, there is of course a risk that they would be won by a company that we did not want to win them, so there is no point starting the process in the first place. I think there is a broad consensus on that point. That is why the regime exists and why it has become much more relevant.
The right hon. Lady made some interesting comments about speed, implying that I am a man in a hurry, but I seem to recall that when responding to my statement on acquisition reform she said that we were not going fast enough. We appear to be seeing one of those Leader of the Opposition-style flip-flopping processes under way, which is rather confusing to behold. She did ask a fair question, though: how does this reform fit in with wider reform of procurement? As I announced the other day, our new integrated procurement model is all about the threat we face as a country. We need to procure more quickly, because our competitors in military terms are moving at a frightening pace on some quite extraordinary capabilities that will pose a threat to the United Kingdom.
The purpose of our reforms is to ensure that we have the most effective procurement model, but this will never be completely straightforward, simple or swift; it is a highly complex area of procurement. Were we to undermine the single source regime and make it unfit for purpose, fewer companies would come forward and we would reduce the potentially available supply even further, not only from the big primes but right through the supply chain.
I engage constantly with industry. I had a small and medium-sized enterprise forum in Rosyth last week with Scottish SMEs. The week before I had one of our first engagements with industry at “Secret” in MOD Main Building. For me, that is a critical example of the new system. What it means is that industry is in the room, hearing military secrets of the most sensitive kind—obviously subject to the usual security, which we follow as closely as possible on this side of Europe—ensuring that firms understand what is coming down the track, what our plans are and what the likely security requirements are. That is moving much more quickly than before.
We talk about a three-week implementation time. At the moment, we have got companies in Ukraine that are spiralling capability within days. In that sort of context and with the need for speed because of the military scenario, we should not be afraid of acting swiftly. It is in the national interest.
I take on board the points that the right hon. Lady made. We want to make the regulations effective because they cover arguably the most critical procurements this country makes, in relation particularly to the deterrent, so I am grateful for her support.
Defence Acquisition Reform
Debate between James Cartlidge and Maria Eagle(2 months ago)
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Maria Eagle (Garston and Halewood) (Lab)
Let me begin by thanking the Minister for his statement and for early sight of it.
Defence procurement matters. It provides the vital kit that our forces need to fight, as well as supporting hundreds of thousands of UK jobs. We need to get this right as a nation, both for our national security and for economic growth. However, defence procurement is a mess. It needs deep and major reform. The Public Accounts Committee describes it as
“broken and repeatedly wasting taxpayers’ money.”
It has been a mess for the last 14 years. Since 2010, the Conservatives have wasted £15 billion of taxpayers’ money through mismanagement of defence procurement programmes; £5 billion has been wasted in this Parliament alone. With 46 of 52 major projects not on time or on budget, this Government are failing British forces and British taxpayers.
Time and again, this Government have been criticised for poor performance on defence procurement. There have been 17 National Audit Office reports on procurement in the MOD since 2019, four reports by the Defence Committee and eight reports by the Public Accounts Committee. They have all been critical—some highly critical—of this Government. It is right that the Minister proposes some changes—we welcome that. He mentioned Ajax; can he explain how his proposals would have stopped the disasters of the Ajax procurement? That was supposed to see vehicles in service in 2017, but now they will not be on operational deployment until 2026. More than £4 billion has been spent, but just 44 vehicles have been delivered to date. That is 70% of the budget spent for 7% of the vehicles ordered. That cannot be described as good value for money.
The MOD’s Command Paper refresh, which sets out the policy for acquisition reform, does not even tackling waste or value for money, so how would the Minister’s proposed changes stop what happened to the E-7 Wedgetail procurement? That programme, vital to enabling the UK to meet our NATO commitments, was cut from five planes to three by a ministerial decision to save money, but the changes mean that the RAF gets only 60% of the capability it wants while paying 90% of the original price. The Minister mentioned Morpheus. How would his proposals stop cost overruns, such as those that occurred in the Morpheus communication system procurement? That £395 million contract, awarded in 2017, was cancelled just before Christmas having delivered nothing at a cost of £690 million. It leaves our forces in the field having to use the ageing Bowman system for another decade.
As the Minister said in his statement, he has just announced the invitation to negotiate on the new medium helicopter. It has taken him since September 2022, when that announcement was first expected, and three subsequent delays to get the announcement finally made. Why has it taken so long and how will his integrated procurement model prevent delay after delay to expected invitations to negotiate? He expects the contract to be signed in 2025. Does it really take three years to invite negotiations and write contract specifications? Will his new integrated procurement model speed that up, or will it slow things down at the front end?
How does the Minister’s announcement today tackle the waste, poor value for money and delays that appear endemic in the current MOD procurement system? He says the new integrated procurement model will be implemented this year in respect of new procurements, but when does he actually expect to see better value and faster, less wasteful procurements? He talks about procurement anchored in pan-defence affordability, but his 10-year equipment plan is already £17 billion over budget. What adjustments will be made on that?
The long-standing failures on procurement in the MOD matter in an increasingly dangerous world. They send a message, just as over the past 14 years the Government’s hollowing out of our armed forces, creating a recruitment crisis and shrinking the Army to its smallest size since the Napoleonic era, send signals to our adversaries. Labour believes that defence procurement can strengthen UK sovereignty, security and economic growth. Defence procurement reform will be a top priority for a Labour Government to ensure that our troops have the kit they need to fight and to fulfil our NATO obligations.
James Cartlidge
I am grateful to the right hon. Lady for her comments. Some issues are above party politics and playing politics, especially when we look at the threat we face and our need for more competitive military procurement, but she is aware, for all she said, that we have seen a one-year reduction in procurement time from December 2020 to December 2022. There have been extraordinary efforts in DE&S in particular to get equipment into Ukraine. We should never understate the way we have gifted our own stocks and scoured the world to find an enormous amount of munitions, not least 300,000 artillery shells. That is very positive procurement and in the hour of need as far as Ukraine is concerned.
The right hon. Lady asked a perfectly fair question. Obviously, we cannot say how any of the measures would have worked in the past, but let me take one of her hypothetical questions: how would Ajax—the key example, given the Sheldon report—have been helped? I can only speculate, but the emphasis on exportability, for example, will be robust and from the start of programmes. That applies more pressure where requirements are overly exquisite, because it will be balanced out by international demand. The reason we want to promote exportability is ultimately to strengthen the resilience of our industrial base. Our market is not big enough. If we have that check in place, it will reduce the tendency towards the exquisite.
Secondly, we will have a new set-up in terms of the expert advice we receive at the beginning—the second opinion, as I call it—in particular from scientists at the Defence Science and Technology Laboratory, export experts at the Department for Business and Trade, and our own civil servants on finance and so on. We will have very clear advice, which will look at the technical issues around potential platforms. At the moment, to be frank—I appreciate this is only possible to say from internal knowledge—we do not get that level of balance and challenge against the primary requirement coming forward from the frontline command.
The right hon. Lady asked how the new model would apply to the new medium helicopter and whether it would add time at the beginning. I cannot comment on the specifics of NMH, because it is commercially sensitive, but talking in generality, I would trade more time at the beginning, thrashing out the big issues, working out and locking down the policy on, for example, industrial production, so that those issues do not find themselves being reopened later. Of course, I am talking generically and not about specific programmes, but if such things are not locked down, there is a real habit of them coming back later and creating the biggest delay, putting the programme in question. So, that is crucial.
Finally, the right hon. Lady asks about the affordability issue in the equipment plan, which I think is the most important part. I spoke about the munitions strategy. We could simply ask the single services to come forward with their priorities for new munitions, but the best way is to look robustly at the threat we face. That is the most important issue: to work back from that and prioritise at a pan-defence level the most urgent requirements for new munitions. I think many people would think that that is common sense, but it has not necessarily been how the system has worked.
Let me finish by saying that perhaps the most positive experience I have had as the Minister for Defence Procurement was visiting one of our small and medium-sized enterprises, which was bringing forward a drone we were using in Ukraine. It was receiving data from the frontline and, based on that data, spirally developing the platform within days to go back into service so it was competitive against the threat it was facing. I want to create a constant loop between industry and the MOD, where we are sharing data and frontline knowledge, so that we have a far more rapid period of technological innovation. The equipment plan, which was very static over 10 years, will look like an old fashioned way of doing things. The priority is to get technology into the hands of the military. That will increasingly be on the software basis and that is how we strengthen our armed forces overall.
Oral Answers to Questions
Debate between James Cartlidge and Maria Eagle(2 months, 1 week ago)
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Maria Eagle (Garston and Halewood) (Lab)
The Government have delayed producing the information required for the invitation to negotiate for the new medium-lift helicopter four times since September 2022. Can the Minister explain what has caused this 18-month delay? Given the reports last week about his Department freezing capital spending until at least the new financial year, when will the Government get their act together to get this competition under way? Can he promise that the delay will not push back the delivery date for this vital capability for our forces?
James Cartlidge
I am pleased to say two things to the hon. Lady. First, we will have the announcement on the next stage of the new medium helicopter very soon. I am also pleased to confirm that we have been clear on our spending position. To echo my right hon. Friend the Minister for Defence People and Families, if the hon. Lady wants to talk about stuff that is rumoured in the press—we do not have those sorts of capital spending controls—can she confirm whether the shadow Chancellor will honour our defence spending commitments?
Oral Answers to Questions
Debate between James Cartlidge and Maria Eagle(3 months, 3 weeks ago)
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Maria Eagle (Garston and Halewood) (Lab)
Let me make clear that AUKUS pillar 1 and pillar 2 have Labour’s full backing. However, we are concerned about whether the Government’s current focus on implementing AUKUS is sufficient and we want more UK leadership for this national endeavour. The latest list of ministerial responsibilities, from October 2023, does not even mention AUKUS or Australia, although it does mention the USA. Ministers have agreed that pillar 1 should have only a part-time official responsible for its implementation. If AUKUS is not even in his job description and his officials are working on it part time, how can we take the Minister seriously when he says it is important?
James Cartlidge
The way we take it seriously is not by judging the number of officials or what we are doing in that regard, but by looking at what we are actually delivering in the real world in terms of military capability and for British industry. As I just said, the US has reformed ITAR and there are thousands of jobs across the UK, boosting our Indo-Pacific capabilities. This is an extremely important project. We are making huge progress and the Government are very proud of the partnership.
Oral Answers to Questions
Debate between James Cartlidge and Maria Eagle(5 months, 1 week ago)
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Maria Eagle (Garston and Halewood) (Lab)
May I confirm again that Labour’s support for our nuclear deterrent, which we maintain on behalf of our NATO allies, is total? However, following reports in newspapers about a malfunctioning depth gauge on a Vanguard submarine at sea, can the Minister explain what steps he has taken to ensure that such an incident never happens again?
James Cartlidge
First, I am delighted to hear confirmation of Labour’s total support for the deterrent. That sends a very powerful message to our adversaries about our national endeavour to support the deterrent and its renewal. On the specific story that the hon. Lady mentions, she will not be surprised to hear that we do not comment on operational matters in respect of our submarines.
Oral Answers to Questions
Debate between James Cartlidge and Maria Eagle(7 months, 2 weeks ago)
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Maria Eagle (Garston and Halewood) (Lab)
Thank you very much, Mr Speaker.
The Government have wasted £15 billion through the mismanagement of defence procurement, while failing to deliver vital equipment and overseeing the loss of 30,000 highly skilled jobs in the defence and aerospace industry since 2010. Does the Minister accept that preventing another 13 years of Tory failure is key to increasing the number of UK-based jobs in the defence sector, backing British industry and British military resilience?
James Cartlidge
I welcome the right hon. Lady to her new position as my ministerial shadow. We are very proud of our record, because in the past year or so we have been faced with a war on our doorstep in Europe, and procurement has risen to the occasion. Defence Equipment and Support in Abbey Wood has delivered kit to Ukraine in record speed. We have seen the acquisition of equipment such as the Archer on a quick basis, to fit our requirements. I absolutely confirm that we are committed to maximising the number of jobs that come from our procurement, while balancing that with the need to give our armed forces the best possible capability.