The Ministry of Defence (MOD) is "in denial" about the state of its equipment programme and needs to reduce the number of people involved in procurement, according to leaked documents.
A summary of the official review of defence procurement by former defence adviser Bernard Gray have been published by the BBC.
The MOD has refused to comment on whether the documents are accurate copies of the report, commissioned by former defence secretary John Hutton, or on claims that a unit has already been set up under defence minister Lord Drayson to act on the findings.
Papers obtained by the BBC begin by criticising the MOD's attitude to the appointment of Gray, who worked on the 1998 strategic defence review for the government.
The "initial MOD response to Bernard's appointment was: 'the process is nearly perfect - if it is not perfect in some areas, the department is well on the way to making it so.' It is clearly not perfect and is overheated", states the document.
It describes how the "MOD does not really know the price of any kit", how "project management does not exist in the department" and how the ministry is "always late in admitting there is a problem".
The "top 40 programmes annually expect an 80 per cent overrun on time, 40 per cent on cost", it states, describing the MOD as "in denial of the [equipment] programme". The document claims that the "current programme will exceed any likely MOD funding profile".
Failed reforms
Attempts to improve the procurement process have had little effect, the papers state, as "issues are pervasive and not significantly reduced by measures taken in recent years". 'Smart acquisition', introduced after the 1998 strategic defence review, "has made little impact". "If anything, time issues are worse", it adds.
The papers also complain that a 12 year interval between defence reviews "is too long". The last one was completed in 1998 and the government has promised that this latest report will form the basis of another major review after the general election. "In industry it would be every 18 months, or 60 months at the outside", the papers note.
A major problem identified in the documents is the MOD's habit of making changes to the project specification. "New requirements set by the MOD during the procurement process are not unusual and cause delay, cost and time overruns", the document states.
The "re-profiling of programmes destroys industial capability, ties up funding, causes delay and cost increases as money goes on overheads rather than output - and it is not all industry's fault", it adds.
Endemic "over-optimism" is also identified and criticised because it "causes further slippage", the document explains.
Fewer and better people
A number of solutions are suggested, including reducing the number of people involved in the process and demanding that those who remain "must be better at their jobs".
The MOD must also learn to say no to some equipment requests, speed up the approvals process and introduce a mechanism to constrain spending across the department.
The documents call for a senior procurement body to be created, chaired by the second permanent and undersecretary of defence, Ursula Brennan, and made responsible for the forward plan.
Reforms are also suggested for the Defence Equipment and Support (DE&S) body which was formed two years ago from a merger of the Defence Procurement Agency and Defence Logistics Organisation.
Interestingly, the report notes that the "MOD puts unreasonable pressure on DE&S 'uniforms' to make unreasonable requests of industry".
Organisational reforms
Roles with DE&S should be clarified, the document continues, and its information management and processes should all be developed. Skills, such as cost-benefit analysis and cost-estimating, should be improved and accountants should be recruited, the document adds.
"DE&S must be a proper delivery organisation", the document concludes.
The government has denied claims that the report's publication was delayed because of the level of criticism, with defence minister Lord Drayson insisting that the report "is currently in draft format". He said he was working with Gray on the issues identified ahead of a green paper on defence procurement.
Ministerial statements on the matter have been questioned by Commons defence select committee chairman James Arbuthnot, who has insisted that the report has been ready for printing since July. He said that the MOD had been "happy" to have the document published, but had been overruled by Downing Street.
Arbuthnot praised the report's recommendations, saying that it had "some extremely sensible suggestions" for how to tackle the "perverse incentives in the MOD to buy things in the wrong way". "Those incentives need to be got rid of and the MOD needs to do that now," he added.
The reports findings were no surprise, Arbuthnot said. The select committee chairman described how there was a "conspiracy of optimism where the MOD pretend that the equipment is going to cost less than it will in order to get it in the programme; industry pretend it is going to cost less that it will in order to get in on their books and the whole thing becomes completely unrealistic and as a result they have to spend the rest of the budget trying to cut things out".
