Around 50% of the Department’s procurement of equipment is not subject to competition. We recognise that there are sometimes valid reasons why procurement cannot be done competitively and the Department must use a single supplier. Nevertheless, while the Department should not introduce competition for the sake of it, there is scope to do more to reduce levels of non-competitive procurement in line with stated government policy.
The Single Source Contract Regulations, introduced in 2014, have led to some improvements in transparency around contract costs. However, there are still too many contracts which the Department has not brought within the scope of the regulations, with some suppliers still refusing to be subject to the regulations or provide all the required information.
So far, the financial savings arising from application of the Regulations are very limited, and the Department will need to ramp up progress and have a clear strategy on increasing competition if it is to achieve its 10-year savings target of £1.7 billion.
We would also like to see stronger powers for the Single Source Regulations Office.
Cannibalisation in the Royal Navy
The Department invests heavily in supporting its vessels, but experienced problems when bringing into service the Type 45 destroyers and Astute-class submarines. In the Navy, the levels of 'cannibalisation' (taking parts from one vessel to keep another going) have increased 49% in five years overall, and there has been a particular issue with the Type 45s and the Astutes.
The Department does not have the data, controls and processes to routinely monitor cannibalisation and its costs across the Navy. The reasons behind the increase need to be better understood and managed so as not to adversely affect operations and increase costs.
The Department has repeatedly failed to comply with long established procedures when identifying a contingent liability in a contract, denying both Parliament and the Treasury the means to scrutinise the extent to which the taxpayer might be exposed to potentially huge liabilities in the future.
Four cases were identified in 2016 and 2017 before a review was undertaken, which identified 12 more cases within Defence Equipment and Support.
Comment from Committee Chair, Meg Hillier MP:
"This wide-ranging report highlights a need for the MoD to toughen up oversight and scrutiny of the way it conducts aspects of its business.
In particular it is concerning that the Ministry still lacks a clear strategy to drive competition in its procurement of equipment—something that will be vital if it is to make planned savings of £1.7 billion.
Some suppliers are refusing to fall into line with contracting regulations that have been in place since 2014. This is unacceptable and Government must ensure the Single Source Regulations Office has the teeth to do its job properly.
We are also concerned about the potential impact of Brexit on British defence contractors seeking to export their products or form the international alliances that are essential to their work.
The Ministry must give serious thought to what it can do to support UK suppliers while ensuring there is sufficient diversity in the market to promote competitive procurement."
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