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2 years ago @ http://www.conservativ... - Andrew Griffith: How t... · 1 reply · +1 points
For an economic model that relies on voluntary exchange between buyers and sellers and seeks to deliver goods and services to everyone at a price they are willing to pay, vigorous competition among vendors on the basis of a level playing field is absolutely essential.
It is therefore heartening to learn that senior members of this government, including the Prime Minister, are self-confessed free marketeers and are willing to go out of their way to praise the virtues of the market over the State at every opportunity.
The central tenet of capitalism is that those participating in it do so in the expectation that they will profit from their own labour and initiative. Yet, the last several years has seen the widespread belief that individuals at the top of big business and corporate houses are benefiting at the expense of their customers, employees, supply chain partners and the local community.
The post-second world war experience has repeatedly vindicated the view that the single most powerful driver of prosperity is profit-seeking businesses trading within a law-governed and competitive market economy.
However, in the new millennium, the recently exposed frailties of capitalism are all too evident in markets in which the government is the main or only customer, which happen to be some the most closed in the world, with significant barriers to entry. In the UK, the government spends £284bn of taxpayers’ money each year to purchase goods, services and labour from the private sector, making it quite easily the single largest buyer.
The problem with markets in which the government is the only customer is the endless subsidies handed out to incumbent businesses, which insulates them from being usurped by agile and innovative start-ups, thereby preventing wealth being spread about.
This is further compounded by the fact that, such markets are highly susceptible to cronyism – the nexus between the governing elite and the business elite that contrives to put the interests of business first, ahead of the wants, needs and expectations of ordinary citizens. Not least, because the twin evils of lobbying and corruption rear their ugly heads every time taxpayers’ money crosses the boundary between the public sector and the private sector.
It is, as the economist Randall Holcombe puts in his book “Political Capitalism” a “system in which the economic and political elite cooperate for their mutual benefit.” The political elite tilt the economic playing field in favour of the economic elite, privileging them through subsidies, regulatory protections and targeted tax breaks. In exchange, the economic elite then help to ensure that the political elite remain in power. The rest of us pay the bill for this quid pro quo through higher taxes, higher prices, and a less efficient, less dynamic economy.
As the UK looks outwards beyond the EU, there is a fear among free marketeers that uncompetitive businesses will intensify their lobbying efforts during the transition period, to shield themselves from being exposed to foreign competition.
2 years ago @ http://www.conservativ... - Daniel Hannan: Does th... · 9 replies · +1 points
This government is doing exactly that. It has decided to align its equipment procurement activities not only to narrow the technological gap between UK/US forces during joint operations, but also benefit from the network effects of economies of scale.
In a free market of mass-produced products, it is widely accepted that purchasers of goods can benefit from greater buying power because manufacturers are able to offer lower prices for the same design configuration of a fully engineered product, due to large-scale production and economies of scale, underpinned by bulk orders from different customers, which allows longer production runs to be maintained.
The main reason behind this government’s decision to buy off-the-shelf equipment is that there already exists a fully functioning and verifiable production line, tooled-up for the product being manufactured, which also attracts the interest of other potential customers around the world. Therefore, it stands to reason that, for the government to negotiate the lowest possible price for the prime equipment (and its Support Assets package), it should hold back from taking the main investment decision until the price has fallen to an affordable level, by allowing other government customers to get ahead of it, before placing its order. This delay is further justified by the fact that the value of sterling has fallen significantly against major currencies since the EU referendum vote, making off-the-shelf equipment ordered from abroad a little bit more expensive.
In the event that the vendor subsequently receives further orders for the same equipment from other countries, then according to the laws of economics, the unit price of that equipment should come down by a proportionate amount, enabling all earlier government customers to demand and obtain a cut in the contract price already agreed.
So, relying on economies of scale is a pretty good reason why buying off-the-shelf equipment makes sense because it is the only type of procurement strategy that offers the prospect of a reduction in price after the supply and sustainment contract has been signed – unlike the other two approaches, namely procurement through open competition and simply handing out single-source, development contracts on a preferential basis to the usual suspects – which only guarantee an increase in costs, post contract award.
Indeed, the government is so enamoured by the utility of this network effect mechanism of economies of scale that it wasted no time in putting it to use whilst procuring one of its most important off-the-shelf pieces of equipment, the Apache AH-64E attack helicopters manufactured by the US defence contractor, Boeing.
Instead of placing an order directly with the vendor, the UK government has deployed an innovative approach. It signed a Foreign Military Sales agreement with the US government for 50 Apache AH-64E helicopters, which the latter then combined with its own considerably larger order as a ‘job lot’ without necessarily telling the vendor, to leverage its enhanced buying power and negotiate the lowest possible unit price from Boeing, thereby securing best value for money for both, the US and the UK. For confirmation, see this answer from the then Parliamentary Under-Secretary of State for Defence Procurement to a written question in the House of Commons, shown in this illustration: pic.twitter.com/KG9vuKcBhp.
Here is an excellent example of the UK and US governments working together, in their mutual interests, to exert maximum pressure on the private sector so as to extract significant price concessions which they would not otherwise be able to do in the absence of competition. It will come as no surprise to learn that the P-8A Poseidon maritime patrol aircraft have also been bought in this clever way.
2 years ago @ http://www.conservativ... - Allan Mallinson: What ... · 2 replies · +1 points
That is in an ideal world.
However, the harsh reality is that the Integrated Review, led by the Cabinet Office, will be tempered by what is realistically possible within the constraints of a Treasury-specified funding envelope, which is certain to be severely cut back in the current FY 2020/2021, and beyond, due to the downturn in the economy brought about by the Covid-19 pandemic.
Even more importantly, it will be driven by this government’s unwavering determination to raise the lot of its people through pursuit of an independent trade strategy – most notably, a comprehensive free trade agreement with its ideological, freedom-loving partner and closest defence, security and intelligence ally on the other side of the Atlantic.
To this end, the Integrated Review needs to focus on this economic, military and technological relationship with the United States and ask why this country has increasingly come to rely on the US for most of its new defence equipment, how this state of affairs has come about and what it portends for the future of the defence manufacturing industry – given that decades of early engagement, collaboration and cosy partnerships with the defence industry has only achieved one outcome – persistent delays and cost overruns on defence procurement programmes.
It is safe to say that the defence manufacturing industry is ill-equipped to help realise the government’s vision of a thriving and globally competitive defence sector trading freely with countries beyond the EU, post Brexit.
2 years ago @ http://www.conservativ... - Daniel Hannan: Politic... · 3 replies · +1 points
Dominic Cummings sees the Integrated Review as an opportunity to drive down equipment procurement costs and tackle waste by bringing new thinking to the farcical defence procurement process which, he says, has squandered billions of pounds, enriched some of the worst corporate looters and corrupted public life via the revolving door of officials/lobbyists.
In addition to visiting secret MoD sites around the country, he also needs to go on a fact-finding mission to Bristol if this vision is to be realised. To be able to understand and appreciate the reasons why MoD has got itself in this terrible mess, it is instructive to look at the recent history of defence procurement in the UK.
Such was the intense focus of attention and diversion of resources onto examining alternative management models for MoD Abbey Wood during the 2010-2015 Parliament that, the urgent need for the existing, flawed procurement process to be replaced by a new acquisition policy which deals with the usual delays and cost overruns was completely ignored by the then coalition government.
The main reason why the government went down the GOCO route (the so-called Government-Owned, Contractor-Operated governance model) is because it was deemed not to have the necessary skills in-house, to undertake its procurement duties with confidence and was accordingly persuaded to outsource this role to the private sector instead. However, the inability of the government to find and install a private sector operator to run MoD Abbey Wood on a for-profit basis has left it in the worst possible situation – the status quo – which guarantees ongoing failure on defence equipment procurement programmes.
Indeed, the quality of management skills in the public sector is so poor that there is not a single person in the pay of the State who is equipped with the necessary blend of leadership/communication skills, specialist knowledge, cross-discipline expertise or prior experience to, not only correctly identify the deep-seated problems associated with the existing procurement process but also come up with simple, workable, easy-to-apply solutions which will tackle these shortcomings – yet, it is the responsibility of government to shape, and then implement acquisition policy which will deliver equipment to the Armed Forces that is fit for purpose, adequately sustained in-service and constitutes value for money through-life.
This lack of leadership talent and management capability in Whitehall would explain why there is a massive void in defence procurement policy.
In response to this deficiency, the governing elite has concluded that there is an urgent need to inject private sector skills and practices into the business of government. However, the policy of replacing just the top man at MoD Abbey Wood with someone from a private sector background, in the expectation that the commercial acumen he brings will “rub off” onto people around him has not worked at all, nor has it delivered dramatic improvements in efficiency hoped for, and demanded by the political elite.
What is urgently needed is injection of tried-and-tested private sector skills not only at the top, but right down every level of the hierarchy at MoD Abbey Wood – but especially at the coal-face level, where it matters most, in numbers large enough to make a tangible difference to performance outcomes.
In addition, this top man should be given the power to choose lower-tier post holders ‘in his own image’ (as well as releasing the existing lot) so that he can assemble a delivery-orientated management team which is focused solely on results.
2 years ago @ http://www.conservativ... - Morgan Schondelmeier: ... · 1 reply · +1 points
Whereas it is reasonable to expect the State to fund early, high-risk research work into the technologies that will power tomorrow’s economy, there should be a mandatory requirement for its private sector partners to also make a contribution – chief among them is the defence industry.
Whereas new-economy tech firms have been putting significant amounts of their own money into research & development, innovation and creation of intellectual property in recent years, old-economy oligopolists like defence contractors are doing no such thing. And yet they say that they want to work with government, but don’t want to rely upon it. But the fact of the matter is that they are entirely dependent on taxpayers’ money for their very existence.
Recognising the crucial link between R&D, productivity and competitiveness in this important sector of the UK’s manufacturing base, the government makes the following observation (on page 13) of its Defence Industrial Policy published in December 2017:
“Industrial investment in defence research and development has declined markedly since the early 1990s, blunting productivity, competitiveness and innovation in the defence sector; government and industry have a mutual responsibility to reverse this trend. Where we can, we are acting to nurture competition in the defence market and throughout the capability life-cycle, supporting productivity, while strengthening our dialogue with industry about the challenges and needs of modern defence to ensure effective investment.”
For some years now, defence contractors have repeatedly expressed their eagerness to invest private sector investment capital in MoD equipment procurement programmes, provided MoD reveals more information about its spending plans.
Yet, defence contractors’ behaviour is contrary to declarations of intent made in public because they have been found to be hoarding mountains of cash clandestinely and then sitting on it, instead of using it to fund in-house R&D to gain a competitive advantage, boost productivity and ready off-the-shelf products – by advancing the developmental status of their staring-points for the technical solution from its existing condition, to a point where it will satisfy the qualitative and quantitative requirements expressed in the invitation to tender, which will also serve to ease the burden on MoD’s equipment budget.
This amounts to duplicitous behaviour – saying one thing and doing the exact opposite!
The nub of the problem is that defence contractors’ business model is founded on lies and deception; perpetrated by the few upon the unsuspecting many – governments, shareholders, Members of Parliament, employees, academics, the military, supply chain partners, journalists and the wider community – over several decades. Not a shred of honest intent is to be detected anywhere.
An innovative proposal on how to elicit private sector investment capital into defence procurement programmes is set out in a written submission to the Public Accounts Committee of the UK Parliament which has just completed its inquiry into “Defence Capability and the Equipment Plan 2019-29”.
The pdf copy of this paper can be downloaded from:
2 years ago @ http://www.conservativ... - Tory MPs, Downing Stre... · 0 replies · +1 points
“It was embarrassing when our troops have ended up with very bad build quality equipment because domestic suppliers have been shielded from competition.”
Competition is the essence of enterprise and free market capitalism. For an economic model that relies on casual interactions between buyers and sellers and seeks to deliver goods and services to everyone at a price they are willing to pay, vigorous competition among vendors on the basis of a level playing field is absolutely essential.
In markets in which the government is the main or only customer, it is the responsible duty of government to apply the instrument of fair and open competition to select the private sector player who will be awarded the contract to supply goods and services for public use. How it goes about applying the competition process to achieve its policy objectives is a matter entirely for government – it cannot be outsourced to outsiders.
Indeed, in its latest policy statement on defence procurement expressed in the Defence Industrial Policy, the government makes it absolutely clear that military equipment is to be procured through fair and open competition – the only exceptions being off-the-shelf purchases and single-source development contracts, the latter to be handed-out on a preferential basis (to the Select Few).
However, instead of facilitating a competitive market in defence goods and services, governments of all persuasions over the last several decades have succeeded only in presiding over market failure in defence procurement.
This government has admitted as much. Indeed, the government is very frank in its DIP, where it says (on page 23):
“Competitive tension is the greatest driver for innovation, productivity and earning power in any economy. It is our policy to develop and foster competition, and to preserve strategic choice in the market, including over the longer term. There are, nevertheless, particular challenges and constraints in doing this, causing various levels of market failure in defence procurement.”
What’s more, in the very next sentence, the government comes clean and acknowledges that 42% of new MoD contracts by value were placed via open competition in 2016/17, down from 64% in 2010/11 – which leads one to conclude that the trend is towards more of the same.
So, it seems that less and less use is being made of the market-based instrument of fair and open competition – notwithstanding its role at the very heart of the government’s policy on defence procurement. There is a suspicion that senior executives seconded from the defence industry and embedded within MoD, who remain in the pay of their employers, may have exercised their maligned influence to interfere with implementation of policy to serve their narrow commercial interests. Or is this a clear-cut case of the senior civil servants subverting the will of the party of government, and policy set by Ministers? What Trump calls the “deep state” which is out to frustrate his administration. One thing is for certain – there is reluctance on the part of some people in the pay of the State in leadership roles to use the instrument of competition as a tool, because it creates winners and losers – reflecting their deep-seated socialist tendencies.
It would explain why the defence industry has failed so miserably to deliver equipment which is fit for purpose, adequately sustained in-service and constitutes value for money through-life.
2 years ago @ http://www.conservativ... - Johnson prepares for h... · 5 replies · +1 points
“The Whitehall procurement system is embedded in the dominant framework of EU law (the EU law is bad but UK officials have made it worse). It is complex, slow and wasteful. It hugely favours large established companies with powerful political connections — true corporate looters … It is horrific for SMEs to navigate and few can afford even to try to participate. The officials in charge of multi-billion processes are mostly mediocre, often appalling. In the MoD corruption adds to the problems.”
To spread prosperity around, it is government policy to widen the participation of SMEs, specifically, it is committed to spending 33% of the central government procurement budget on SMEs by 2022, either directly or indirectly via its top-tier contractors. The target for MoD, which spends about £15bn a year on procuring new military equipment, is a modest 25%.
The clear message behind the government’s defence procurement policy is that equipment is to be purchased through fair and open competition – the only exceptions being off-the-shelf purchases and single-source development contracts, the latter to be handed out on a preferential basis (to the Select Few).
By handing out taxpayer-funded contracts in this way, MoD has shown leadership and set an example by inadvertently directing prime contractors to adopt the same method of hand picking their first-tier supply chain partners, for each dissected workshare part of their evolving technical solutions.
But unlike MoD, which has been disbursing such contracts on national security grounds, prime contractors have been using the tried-and-tested old boys’ network to choose their first-tier subcontractors, usually during a gathering at the 19th Hole limited to the great-and-the-good from subsidiary companies wholly-owned by the prime contractor, or some other favoured, old school-tie chums – which has allowed corrupt activities, characterised by artificially inflated subcontract prices and the obligatory kickbacks that go with them to flourish. It is the stupid act of disclosing the budgeted expenditure figure in the invitation to tender that has given prime contractors the opportunity to “divvy up” this money in the same way as they dissected the technical solution into its workshare parts, thereby offering leeway for discretionary payments.
By its very nature, this type of clandestine activity in the defence industrial supply chain is very difficult to unearth, because the extremely small number of people right at the top who benefit from it will go out of their way to keep it under wraps, citing the excuse of commercial confidentiality whilst skilfully covering their tracks.
It is truly a bizarre situation, where the buyer tells the seller (confidentially) the price level at which he should pitch at, so that they can both profit. A scenario which can only occur on government-funded contracts – only because public servants are asleep at the wheel!
But what is especially disturbing about this epic story of bribery and corruption is that, it is instigated and perpetuated by people who were previously in the pay of the State – given that the workforce on defence contractors’ premises, large or small, is made-up entirely of former public servants who came across in overwhelming numbers, via the ‘revolving door’ to pursue a second career in the private sector.
What’s more, MoD’s green lighting of this practice has prompted first-tier subcontractors to also select their lower-tier suppliers in the same manner, paving the way for the entire defence industrial supply chain to be corrupted, right down to the lowest level of piece-part & component manufacturers.
2 years ago @ http://www.conservativ... - What the abolition of ... · 7 replies · +1 points
The good news is that the Prime Minister’s chief adviser, Dominic Cummings, has already recognised that there is an urgent need to bring back a sense of purpose and mission to the civil service and to this end, he has set out his ideas on how to go about doing exactly that.
Thanks to his blogposts, his views on policy priorities and governance are well known. He wants to repurpose the machinery of government to make it more responsive to the wants, needs and expectations of ordinary citizens and the left-behind – as opposed to serving the interests of big business, financiers and those who shout loudest in the corridors of power. The so-called “levelling up” agenda.
In particular, he wants to make the massive central government procurement programme more efficient at delivering what the civil service has contracted for – that is to say, purchasing of goods, services and labour from the private sector to the tune of £284bn per year.
But there is a major hurdle getting in the way of this aspiration. It is the civil service.
The government’s much heralded Industrial Strategy finds that the skills and capabilities of those employed in the private sector need upgrading, if the UK is to realise its vision of a Global Britain and pay its way in the world, post-Brexit. But there is no recognition that people in the pay of the State – the other party to this Industrial Strategy, on whom its success is wholly dependent – are equally ill-equipped for their public sector roles. This lack of acknowledgment is not a surprise. The Industrial Strategy was, after all, written by people in the pay of the State!
It would explain why there is very little confidence in the ability of big government to fix market failures, use the instrument of regulation to curb anti-competitive behaviour, manage outsourced public service contracts or secure value for money for investments made in infrastructure.
Indeed, the reputation of people in the pay of the State is further diminished by the fact that their ability to innovate, solve problems, learn from past mistakes and adapt to change, which is a distinctive characteristic of people in the private sector, has been erased in the public sector due to incessant conditioning of the mind from an early age. And, of course, people in the pay of the State are very good at talking a “big game” but they can’t “do it”.
But, what is especially worrying about people in the pay of the State is that they haven’t got a clue about what it is that drives the behaviour of for-profit organisations in the free market – not least, because they have not spent a single day of their lives in the private sector – and yet, they have been put in charge of spending taxpayers’ money to buy goods, services and labour from non-public sector organisations.
Worse still, in specialised markets such as that in military equipment for the Armed Forces, the role of the regulatory authority and sponsoring agency has been combined in one department of state – the Ministry of Defence – which means that the independent scrutiny function, free from political interference, is non-existent.
So, successful capture of a department of state by the defence industry amounts to taking control over both roles!
In no other field of human endeavour are such ill-equipped people allowed to ply their trade as in defence procurement – which would explain why the government has been getting appallingly poor value for money these last several decades.
2 years ago @ http://www.conservativ... - George Bathurst: We mu... · 1 reply · +1 points
This philosophy is as true for the market in defence equipment as it is for the market in consumer goods and services.
To this end, the government has made it absolutely clear, time and again, that it would like see the competitiveness of the defence industry improved significantly, both in the domestic market and globally, so that the UK can pay its way in the world post-Brexit.
But the reason why this constant badgering is not yielding any results is that defence contractors, on whom the government has become totally reliant for all its military equipment needs, are competition-averse – not least, because they are staffed (from the very top to the bottom) by people who were previously in the pay of the State where they never had to face any competition and consequently, have no experience whatsoever of what it is like to ‘feel the heat’ of competitive market forces.
This total dominance of the payroll has come about because the last several decades has seen the transfer of tens of thousands of people in the pay of the State to the private sector via the ‘revolving door’, largely due to the resounding success of the policy instituted by Defence Secretaries of all political persuasions – to encourage for-profit organisations in receipt of government defence contracts to take-on people who were previously in the pay of the State.
This mass migration would explain why the workforce, at every level of the hierarchy within defence contractors’ organisations (right across the full spectrum of defence engineering businesses, government outsourcing contractors and foreign-owned entities, large and small) is now made-up entirely of people who were previously in the pay of the State.
To add to this blunder, the government is inviting precisely this sort of people into its policy-making forums in Whitehall to try to get a handle on what has gone wrong with defence procurement, because its own civil servants are not up to the job. So, it will come as no surprise that these outsiders, seconded from the defence industry and treated as ‘one of us’ will never bring themselves to prescribe more competition as the medicine to the ills suffered by defence equipment manufacturers.
And yet, the government’s default policy is to procure military equipment for the Armed Forces through fair and open competition. It confirms this stance in its most recent policy statement on defence procurement expressed in the Defence Industrial Policy published in December 2017, where it says (on page 23):
“We strive to provide our Armed Forces with the capabilities they need at the best value for money, obtaining this through open competition in the global market, wherever possible. Competitive tension is the greatest driver for innovation, productivity and earning power in any economy.”
However, those lower-down the hierarchy underneath the governing elite who are hostile to competitive markets have fought tooth and nail to prevent this policy from being implemented fully, which would explain why only 42% of new MoD contracts by value were placed via open competition in 2016/17, down from 64% in 2010/11. Reinforced by fierce opposition from vested interests outside Whitehall, there seems little chance of it being applied anytime soon.
So long as defence contractors carry on with the practice of recruiting only people who were previously in the pay of the State, they will continue to be competition-averse.
2 years ago @ http://www.conservativ... - Jesse Norman: My revol... · 0 replies · +1 points
During his ten-year term as Comptroller and Auditor General completed last summer, Sir Amyas Morse had a ringside view of the inner workings of government. To this end, he is well-qualified to say that policymakers in Whitehall keep making the same mistakes over and over again, because they have failed to learn from past errors.
In the last Parliament, the Public Administration and Constitutional Affairs Committee held an inquiry into the Government’s Management of Major Projects, to find out how these projects are being managed.
As part of the inquiry, PACAC heard evidence from Sir Amyas Morse, who led NAO audits of government departments on behalf of Parliament. He found that people managing such projects keep making the same mistakes over and over again, like for instance, revealing how much the government is going to spend on a particular public works programme, right at the outset. He says that, in so doing, the government “loses a lot of negotiating leverage with the people it might contract with”.
There are signs that the government is learning from blunders like these. For the last several decades, successive Secretaries of State for Defence have sanctioned the practice of disclosing publicly, the budget set aside for the procurement of new military equipment for the Armed Forces, both to Parliament and in the invitation to tender released to defence contractors.
However, in a major reversal of policy, this government is now refusing to reveal the total budgeted expenditure figure or associated year-on-year financial funding profile, on the grounds that to make the such cost estimates public would be prejudicial to the commercial interests of MoD.
This is because hitherto, defence contractors have taken this information as an indication of how much MoD can afford and responded accordingly – by simply taking a commercial decision to price their proposals to match this figure, instead of working out what it will actually cost to execute the Programme of Work to bridge the shortfall between the starting-point for their technical solutions and the requirement – which is what it ought to be! See this illustration pic.twitter.com/wP25sESOIw.
Quoting identical bottom-line selling prices in this way amounts to price-fixing on a grand scale, with the active connivance of the Secretary of State for Defence. See this illustration pic.twitter.com/BQV4KUgdNg. What’s more, MoD’s Project Team Leader at Abbey Wood, Bristol has been denied the opportunity to choose the single preferred Contractor on the basis of price competitiveness, and therefore value for money.
The narcissistic tendency of self-serving politicians wanting to capture the headlines for the sole purpose of elevating their profile in the media and attracting plaudits from the wider party membership is what has caused them to act in this reckless manner – which, ironically, has only served to wrongfoot their own side whilst delighting producer interests.
Now that the government has seen the error of its ways and made amends, the question arises – how long has this been going on and what was the reason behind it surviving this far?