,

Huge MOD Contract with Rolls Royce – Good Buying or Bad Buying?


The UK Ministry of Defence (MOD) recently announced a significant contract with Rolls-Royce, aimed at ensuring the continued operational readiness and effectiveness of the country’s nuclear submarine fleet. The eight-year Unity contract brings together all elements of research and technology, design, manufacture and in-service support of the nuclear reactors that power the Royal Navy’s fleet of submarines.

The Government’s press release contains a fair amount of hype as you might expect – this contract is not quite as ground-breaking as it at first sounds. It looks like it ‘tidies up’ a number of contracts with the firm, preserving 4000 existing jobs and there may / should be another 1000 by the end of the contract. The contract is worth some £9 billion and there are ‘savings’ claimed of £400 million over 8 years, although clearly we won’t know for some years whether those are real. And of course the process leading to the contract started way before the new Labour government came into power last summer. However, this is an important contract, with some interesting procurement issues thrown up along the way for us to discuss.

At a strategic level, the Unity contract is designed to ensure that the UK’s submarine fleet remains at the cutting edge of naval defence capabilities. (My late father in law was one of the key designers of Britain’s nuclear subs back in the 1960s, by the way). Given the critical role that submarines play in national security, including deterrence and intelligence-gathering functions, it is vital that these vessels are kept in optimal condition. The contract encompasses a wide range of maintenance activities, from routine inspections to major overhauls, enhancing flexibility, the operational availability and longevity of the vessels. Rolls Royce are of course already a key service provider and an established leader in this field – as well as one of relatively few leading edge UK-based defence champions.

Positives for the MOD

So the Unity contract presents several significant advantages for the Ministry of Defence.

1. Enhanced Operational Readiness

One of the primary benefits of the contract should be the enhancement of the operational readiness of the submarine fleet. The contract’s comprehensive scope means that all aspects of submarine maintenance are covered, minimizing the risk of operational downtime.

2. Cost Efficiency

By entering into a long-term contract with Rolls-Royce, the firm should be able to plan and manage resource better, which should translate to cost benefits for MOD. Long-term agreements often result in better pricing and more predictable budgeting, as opposed to ad-hoc maintenance arrangements. Additionally, the contract allows for economies of scale, with Rolls-Royce able to streamline processes and reduce costs over the duration of the agreement. In theory, anyway.

3. Expertise and Technological Advancements

Rolls-Royce’s extensive experience and expertise in submarine systems provide a reliable foundation for the contract. The firm is at the forefront of technological innovation in the defence sector. Through this contract, the MOD should ensure access to competent ongoing service performance AND new cutting-edge technologies and methodologies.

Potential Risks

While the Unity contract offers benefits, there are always risks with any long-term single-supplier-type contract.

  • Dependency on a Single Supplier  – One of the primary risks in all contracts like this where the supply market is limited is the dependency on a single supplier for such critical services. Should Rolls-Royce encounter operational or financial difficulties, the MOD could face significant challenges in ensuring the continuity of submarine maintenance.
  • Supplier complacency  – once any supplier is in possession of a long term contract, they can become complacent. (I know someone who worked in the RR submarine division quite recently, and based on their experience it was not exactly a beacon of dynamic, innovative and diligent work practices).
  • Cost Overruns – Long-term contracts can often result in cost overruns and budget-busting additional work, particularly if the scope of work evolves or unforeseen issues arise (almost inevitable in the case of defence).
  • Technological Obsolescence – The rapid pace of technological advancement in the sector means that there is always a risk of current systems becoming obsolete.
  • Geopolitical Factors  – These can also impact the execution of the contract. Changes in international relations, trade policies, or military priorities could influence the availability of resources or the strategic focus of submarine maintenance efforts.

Conclusion

While Rolls-Royce is known for its innovation, and frankly there probably wasn’t much alternative here, MOD will need to:

  • remain vigilant and ensure that the contracted maintenance work incorporates the latest technologies and best practices;
  • closely monitor expenditures and ensure that the work remains within budget, and that change processes are fair but do not lead to major additional costs for the taxpayer;
  • have contingency plans and alternative suppliers in place as far as possible. MOD must also  remain adaptable and responsive to external influences; and
  • manage the contract and the supplier in a positive, structured, close but not oppressive manner.  

The benefits of the contract, including enhanced operational readiness, cost efficiency, access to technological advancements, and reliable expertise, seem substantial. However, it is equally important for the MOD to be mindful of potential risks such as dependency on a single supplier, cost overruns, technological obsolescence, and geopolitical factors. Good luck!

 

















































/0 Comments/by
,

Beware the Fake CFO!

I have mixed feelings about Ove Arup. One the one hand, they are an engineering company with a strong track record, great achievements, and one of my best friends worked for them for many years. On the other hand, they wrote me a nasty letter threatening legal action after I mentioned their role in the London ‘Garden Bridge’ scandal which involved some VERY dodgy procurement by Transport for London (still have the lawyer’s letter in my files somewhere…) 

That scandal was driven by Boris Johnson and Joanna Lumley, two individuals who suffer from poor judgment.  At least Lumley is not driven by arrogance, but her public persona gives her more power then she deserves – her ‘support’ for the Gurkhas for instance did not increase global happiness, I’d argue. Anyway, that’s for another day and another website.    

Going back to Ove Arup, I tried to resist feelings of schadenfreude when I read that the firm has been conned out of more than £25 million last year. Their recently published annual report confirms that the firm (as The Times reported) “revealed in May that it had been the victim of fraud in Hong Kong, with criminals using “fake voice, signatures and images” to convince a member of staff to deposit money into several accounts’. Project delivery was unaffected, however.

This is being positioned as a ‘cyber-attack’ I guess because that is very contemporary and it sounds like the firm is relatively blameless but really this is a classic invoice misdirection fraud, just enhanced by the use of deepfake technology.  A cyber attack uses technology to gain access to a company’s internal systems and data. It does not sound like this is the case here. This is presumably the classic fraud play which consists of a message to a mid-level finance executive saying, ‘hi, this is your CFO, please send £25 million to this bank account because we’re working on a top secret acquisition project’.

I am not claiming that this is the case here (I don’t want another lawyer’s letter, please) but sometimes this sort of fraud is enabled by someone on the inside, who can claim they were misled but in truth is part of the fraud-committing gang. What it always means is that the firm has been sloppy in terms of its process, systems and training.

So all suppliers and bank accounts (or any other organisations to whom money is going to be paid) should be authenticated and validated before any money is paid to them. Any alleged changes in bank details from an existing supplier must be verified by a phone call to a known individual on an established phone number.  (Also, if you’re doing a private transaction through a lawyer e.g. buying a house, and you get an email saying ‘we’ve changed our bank account’ the day before you are due to make the payment, PHONE THEIR OFFICE).

Significant payments should have multiple authorisations. In his case it may have been several payments rather than one £25M hit, but even so, this is serious money, so you must have multiple involvement and sign-off to guard against the lone internal fraudulent collaborator. All staff in roles where they have access to the firm’s money in any way must been trained in the right approaches. processes and policies. 

At least this isn’t quite as bad a case as the Essilor Luxottica (huge ophthalmic lens firm) Thailand invoice fraud, where the firm lost up to 190M euros, basically their entire annual turnover in that country. That really was one of the most breathtaking examples of process incompetence I have ever seen in a major company.

So if you work in procurement or finance, do make sure your processes for paying suppliers (or other organisations, or even unknown bank accounts that are supposedly linked to your own organisation) is watertight. In particular, any one-offs, emergency payments and similar must go through a really strong checking and verification process. Just because someone who looks and sounds like your CFO sends you a WhatsApp message telling you that it is vital you help the firm NOW by authorising a payment, you should not rush off and send them loads of cash.

/0 Comments/by
, ,

UK Public Procurement – Six Months In, How Is Labour Doing?

The election of Donald Trump in the US was one of the biggest global news stories of 2024, but our election back in July was significant for the UK, as voters rejected the Conservative government which had been in charge for some 14 years. The feeling that it was ‘time for a change’ was overwhelming, and the last few years felt chaotic with infighting and clear incompetence in evidence from the ruling party.

However, six months into the new Labour government, initial public enthusiasm has already worn thin given tax rises, stories about Ministers receiving gifts and entertainment and some dubious policy decisions.  But how is Labour doing in terms of public procurement?

In truth, it is too early to say. The implementation of the new Procurement Act was postponed from October to February 2025, and we are waiting for the ‘National procurement policy statement’ which in theory will set out the overarching priorities for public procurement.

But the early indications have not been too promising. Labour came to power promising better governance and a fight against corruption, but have done very little. The much-vaunted ‘Covid Corruption Commissioner’ has turned out to be a part-time appointment for 12 months, with limited resources behind him, and a wider brief than expected.

Other areas of potential corruption have not been tackled. The way money has been spent and some very dubious public procurement up on Teesside, which Private Eye has been going on about for years, really needs proper investigation, but there has been nothing at all from Labour. (The mayor, Ben Houchen, is a Tory, although maybe Prime Minister Starmer thinks Houchen could defect at some point – that is the only reason I can see for not taking a look at his activities).

The furore over tickets for events and gifts of clothing to politicians demonstrated a lack of awareness of how this would be perceived, and some very silly comments from Labour supporters saying, ‘oh well, everyone in the private sector behaves like that’. That received swift rebuttal from many of us pointing out that firms we worked for had pretty strict policies on such matters, and no, I’d never had a pair of glasses bought for me by a supplier!

Then we have the spending review announced in December with  goal to find “efficiency savings within government spending of 5%”, which looks like an unchallenging re-tread of previous approaches.  But hang on a minute, “departments will be asked to reach this figure over the three-year review period, and will be able to reallocate money saved within their budgets”.  So not really savings at all then, just moving the money around to give the impression of activity!

 It also demonstrated a general lack of understanding of procurement (and business generally) amongst Ministers. Not one member of the Cabinet has any real business background, sadly. The Treasury said that external experts would be brought in to help the review, to “include former senior management of Lloyd’s Banking Group, Barclays Bank and the Co-operative Group”.

Having been a procurement director in the financial services sector, I know that banks have not exactly been the best-run businesses from a procurement and general efficiency point of view. Far better to have looked to sectors such as automotive, pharma, or consumer goods to get some more advanced ideas.

A naivety about commercial matters was evident elsewhere too. To Labour’s credit, they set out plans in November to prevent companies that run children’s homes from making excess profits, as many appear to do whilst also providing sub-standard services.  But the mechanisms proposed are naïve.  The BBC reported that “will require major care home providers to share their finances with the government, so it can challenge what it describes as profiteering. This will also include a “backstop” law that would place a limit on those profits, which the government can put into effect if the companies do not do so voluntarily”.

But this only applies to large providers who account for about a quarter of the market. And the lack of commercial understanding comes through in the suggestion that the answer is to ask those firms nicely to charge fair prices, and take action if they are ‘profiteering’ (whatever that means).

Of course, any of us who have been in procurement for a few years can immediately think of half a dozen ways in which a supplier can disguise or manipulate profit figures. Just pay the directors more for instance… or use inter-company loans … or set up subsidiaries to move money around… 

This lack of commercial experience and capability at the political level is a problem for Labour. It also suggests that the appointment of a successor to Gareth Rhys Williams as government’s Chief Commercial Officer is even more important than it might have been. Of course, one person can’t be expected to fix everything, but I suspect the new GCCO will need to spend a lot of time educating Ministers and explaining how the world of commercial and procurement matters really works.

/0 Comments/by