Target setting, Accountability and Defence Procurement

Authors :  Hilary Cornish and Graham Spinardi

The recent discussion in parliament, which passed the motion to replace Britain’s Trident nuclear deterrent submarines, was a rare occasion where a defence procurement decision hit the headlines. The MoD’s current estimate for four new submarines is £31bn, with a planned contingency of £10bn, a figure that has already grown from the previous £25bn estimate.  However, whether the new submarines can be delivered within this budget, and crucially within the planned schedule, is difficult to predict given the realities of major defence procurement projects, as evidenced by the problems with procurement of the astute class submarine. More generally the past record of the MoD in delivering to targets set for procurement by Public Service Agreements (PSAs) highlights the difficulties faced in achieving cost and schedule targets.

Meeting the targets

The PSAs introduced under the Blair government in 1998 were intended to increase the accountability of the government in delivering public services, drawing on the new public management trend to set targets that were SMART – Specific, Measurable, Attainable, Realistic, Timely. In the case of the MoD these PSAs included targets for defence procurement. Whilst they varied a little during the lifetime of the PSAs they focused on ‘big ticket’ projects and set targets for three areas of performance – cost increases, in-service dates, and meeting customer requirements. They aimed to ensure the MoD was delivering the necessary equipment, on time and to budget. Reporting against the PSA’s was generally favourable. Customer requirements were always on target, never less than 97% met. Until 2001, schedule and cost requirements were also reported as either ‘met’ or ‘on course’. Slippage of In-Service Dates showed the most variation: the target wasn’t met in either 2002/03 or 2004/05, but was back on course in 2005/06 and 2006/07. For costs, the picture was also good, either meeting the target or ‘on course’ until 2003/04, where slippage was reported, and 2004/05, where the target was ‘partly met’. In the period 2005 to 2007 cost targets were not only met, but exceeded. However, in 2007/08 that trend changed, and the In-Service Date target and cost increase target were both missed by a substantial margin. Nonetheless, the overall assessment in 2007/08 was that the targets have been ‘partly met’, considering also that 100% of customer requirements had been met.

The “Black Hole”

Despite this rosy picture of how performance was reported as compared to the PSA targets, in 2009 the MoD’s own figures showed schedule overruns of around 80% or about five years, and cost overruns of around 40% or about £300 million. This led the Public Accounts Committee to report in 2010 that the MoD defence procurement programme was unaffordable, with ‘commitments exceeding forecast budgets over a ten year period by £36 billion’. The apparently disastrous state of defence procurement was effectively portrayed as an overall failure of the Labour government to control spending. The new coalition government made much use of rhetoric that emphasised the ‘black hole’ in the defence budget. What had only recently appeared to be successful management of defence procurement, as evidenced by apparently favourable PSA performance indicators, was now revealed to be the opposite. What could explain this?

Conflicting demands

One explanation is that defence procurement faces many intractable problems. The ‘big ticket’ items require state-of-the-art performance, often resting on the incremental improvement of existing technology. They are lengthy projects, with responsibility for delivery shifting as people change posts regularly.   Over-optimism is encouraged at the early planning stages, as once contracts have reached certain thresholds, cancellation is unlikely. Furthermore, a culture of resistance to external oversight and scrutiny was highlighted by our interviewees.

Balancing the books for defence in the short term often meant delaying projects or ‘shifting them to the right’, resulting in longer term cost increases. Alternatively, reducing numbers of items reduces short term and long term costs, but increases the relative overall cost per unit.   Taken together, these factors make for a complex environment for defence, with multiple actors – from Service Personnel, civil servants, defence industry and scientists – each having different incentives within the system.

Juking the stats?

The difficulty of defence procurement explains why cost and schedule overruns happen, but it does not explain why reporting of performance against the PSA targets appeared to miss the growing problem during the 2000s. In the award winning TV series The Wire, which deals with drugs, politics and much else in Baltimore, the local police cope with political demands for crime reduction by ‘juking the stats’. By reclassifying serious crimes as less serious ones the police are able to claim to have met targets to reduce crime, satisfying the demands of local politicians. “Juking the stats … Making robberies into larcenies. Making rapes disappear. You juke the stats, and majors become colonels.” Could the same be said of UK defence procurement? Does the apparent achievement of most of the PSA targets during the 1997-2008 raise the question of whether the Ministry of Defence was also juking the stats?

We have no evidence to support any suggestion that this was done deliberately, but what is clear is that the whole PSA process was seen as a peripheral activity within the MoD rather than something that was central in driving procurement reform. The MoD likely reported accurately on their performance against the PSA targets, but perhaps the real question is, what did those targets actually measure? In most cases the performance reported is based on predictions about on-going projects, and is thus prone to the over-optimism that was at the heart of the problem with UK defence procurement. Meeting annual targets or goals shows only a small piece of the picture, and can obscure or incentivise decisions with long term implications, potentially on someone else’s watch. The PSAs themselves had little traction for many working in defence procurement that we interviewed, who were largely sceptical of their impact. One described them as “an exercise in bureaucracy”. Rather than shed light on MoD performance for the general public, those looking for a deeper understanding of procurement need to look at a wider range of performance measures.

These issues with defence procurement hang over Parliament’s vote to pass the motion to renew Britain’s Trident replacement programme. Andrew Rosindell MP asked the Secretary of State for Defence “what steps his Department has taken to ensure that the actual cost of replacing Trident does not exceed the current estimated cost?” The answer from the new minister for procurement was fairly circumspect, highlighting recent reforms and commitments. It is to be hoped that these reforms prove more effective than the target-led approach of the PSAs. The complexity of delivering large projects on time and in budget will no doubt be played out in the renewal of Trident over the next decades.

This article draws on research carried out for the ESRC project The Politics of Monitoring.