Tag Archive for: Politics

, ,

Dossier of Defence Waste Published – But Who has the Answers?

Our attention bandwidth has been pretty much occupied by Covid for the last two years now, with some small space left for assimilating news about trips to Barnard Castle, Downing Street parties and maybe the goats in Llandudno for a bit of light relief.

That has led to many of the usual issues that might have got more media coverage slipping through the net, including some that might have been featured here as Bad Buying cases studies. Outside pandemic-related stories, government procurement has not really hit the headlines. Yet huge sums are still being spent, including in the defence arena.

The UK Labour Party recently published a “Dossier of waste in the Ministry of Defence 2010 – 2021”, a report looking at the projects that have cost the taxpayer “at least £13B in taxpayers’ money since 2010”. Many were fundamentally procurement-related and the report is a depressing litany of write-offs, overspent procurements and contract cancellations.  Often this sort of report is light on the analysis and heavy on the politics, but I must say that this one is worth reading – it appears to be thoroughly researched, using reputable source material and non-sensationalist analysis.

However, although the report covers the period starting with the election of the Tory-led coalition in 2010, the truth is that Labour has not historically had a great record on defence spending either. It has been a challenge for every government. Indeed, programme lead times are often so drawn-out, it is virtually impossible to pin the blame accurately on anyone – politician, official, consultant or supplier side.  

For example, the Nimrod maritime patrol and attack aircraft  “waste” of £3.7 Billion quoted in the report, based on 2013 MOD accounts and arising from final contract exit in that year, relates to contracts let way back in 1996 in the dying days of the John Major Tory government. But the significant issues and problems through the development phase happened under Labour, before the coalition finally (and probably sensibly) pulled the plug in 2010.

The other issue with this new report s that it is much stronger on putting numbers to the problem than it is in terms of offering solutions. The final words from John Healey, Labour’s Shadow Defence Secretary, are these;

This Government shows no serious intent to get a grip of these deep-seated problems. So as our first steps from day one, Labour in Government would:

  • Commission the NAO to conduct an across-the-board audit of MoD waste
  • Make the MoD the first department subject to our new Office for Value of Money’s tough regime on spending decisions.

Reforming the department will not be easy, but this report takes a crucial first step in revealing the unacceptable scale of waste in the MoD.

Well, he is certainly correct to say reform won’t be easy. But I’m not sure what an NAO “across the board audit” will achieve.  NAO can do little more really than verify the numbers. The organisation does on occasion also offer recommendations for performance  improvement, but has no resource to follow that through into implementation. And it is far from clear what the new Labour  “Office for Value for Money” is actually going to do that Cabinet Office, Crown Commercial Services, NAO and Treasury can’t already. (Although I am polishing up my application to be its CEO, of course).

We’ve had (and still have) some very capable procurement leaders in MOD and people such as Bernard Gray –  who had his foibles, but possessed a first-class brain – have had a go at running the totality of Defence Acquisition. They haven’t managed to improve matters much, because the issues are clearly deeply engrained in the whole of the military ecosystem. Problems go way beyond “acquisition” or “procurement” into very high level and fundamental issues such as the three services split, uniformed/civilian tension, the pressure on military leaders to lie to secure budget, arguments over domestic industry capability, and the unhealthy proximity of the buy-side and the supply-side in UK defence.

If these tough challenges aren’t addressed – and they probably won’t be given the short-term nature of British politics – then I’m afraid “waste” and “procurement failures” will continue. That applies whichever political party is in charge and whichever Defence Minister has his or her couple of years pretending to run things.

/1 Comment/by
, ,

The Worst Tank in the World?

(This picture is not the Ajax vehicle we’re discussing here of course. It is my photograph of one of the earliest tanks ever made, now in the Museum of Lincolnshire Life in Lincoln, the city where the world’s very first tank was designed, in a meeting room at the White Hart hotel).

The story of the Ajax armoured fighting vehicles (small tanks, if you like), bought for the British Army from US defence firm General Dynamics, looks like it will be a lengthy case study if I do produce a follow up to my first Bad Buying book.

Wasting a fortune as in this case is by no means a unique occurrence for the military, and we have seen similar disasters in many countries, as equipment turns out to be far more expensive than planned or fails to provide the capability that was desired. Sometimes, both of those failings are present. 

In the case of Ajax, the General Dynamics solution was chosen in 2010 and the contract agreed in 2014. The first vehicles should have been delivered in 2017, and the first British Army squadron should have been using them by mid-2019. However, problems emerged during testing. For instance, the vehicles were so noisy that crews were required to wear noise cancelling headphones and be checked for hearing loss at the end of operations.

The Times reported expert opinion that problems with Ajax were so serious, the government should consider cancelling the £5.5 billion deal to buy 589 of the vehicles. So far, the vehicles have cost £3.2 billion despite only 14 being delivered — all without a turret and of odd sizes.  A leaked report by the Government’s own Infrastructure and Projects Authority, which reports to the Cabinet Office, says that the problems with the Ajax vehicle do not seem to be manageable or resolvable within the agreed costs and timescale.

Recently it was revealed that trials of the Ajax armoured vehicle were halted from November 2020 to March 2021. Then trials were paused again in mid-June on “health and safety grounds” amid concerns that mitigation measures put in place to protect soldiers — including ear defenders — were not sufficient.  Excessive vibration and noise meant crews suffered from nausea, swollen joints and tinnitus, and soldiers were only allowed 105 minutes inside the vehicle, with a maximum speed of 20 mph (32 km/h).

Not very good in a real-life conflict, really. “Could you stop shooting at us, we have to let our chaps out for a bit of a rest now, they’ve been in there almost 2 hours!”  Amazingly, suspension issues also mean that the turrets could not fire while the vehicle was moving, and vehicles were unable to reverse over obstacles more than 20 cm high. I think even my Kia could manage that – we’re getting into the territory of “you have to laugh really, or you would cry”.

Another element of the Ajax story which would be amusing if the whole programme weren’t such a huge waste of public money came last week when the public announcement of the latest problems was made during the England versus Germany football match! Talk about timing a bad news story to avoid public focus.

Tobias Ellwood, chairman of the defence select committee, said that the vehicle’s weight had ballooned to 42 tonnes after many redesigns. It was now “heavier than any tank during the Second World War”, he said.  Some observers have suggested senior officers in the army may have hidden the extent of the problem over recent months to prevent it being axed as part of the government’s Integrated Defence Review.

But there is some debate about the underlying causes of this fiasco. There are claims that there was a “anyone but BAE Systems” view in the military when the supplier was being chosen.  Private Eye and The Times also suggested that General Dynamics just said “yes” to everything the Army wanted, without really being able to provide it. “They went to General Dynamics and said ‘Can you do it?’ and they said yes”.

But others see the fault sitting with the military, with the specification being continually changed and made more complex over the years, leading to that issue with the weight of the vehicle, as Ellwood pointed out.

Bernard Gray, who was Chief of Defence Material from 2011-16, has published some interesting comments on Twitter recently.  He suggests that the initial contract was fine, which might be understandable as his team must have been very involved in that phase. But changes to the specification driven by the Army after contract signature, on what should have been a fixed price, fixed spec contract, are behind the problems, he suggests. Gray said this;  “I don’t think that’s true if the product was not fit for purpose. The problem was, how much had MoD deviated from the 2014 contract by 2019… that’s what we need to explore”.

If that diagnosis is correct, it may prove hard to recover money from General Dynamics. If the firm has simply done what it was asked or required to do by the customer, we can hardly blame it if the end product doesn’t work.

Another thread on Twitter related to the decision by the Australian army not to select the Ajax product. Apparently, that was because when they took up references from the British army in 2019, they were told to avoid it.

It is all a huge mess anyway, not just financially but also operationally, as this is a pretty essential and fundamental piece of kit for our soldiers. As usual, the taxpayer takes the hit, and as usual we will never find out exactly who should carry the can for this in the military, civilian MOD or political worlds, or indeed on the supply side. Will anybody get fired? You must be joking. Strangely enough, it always seems impossible to place the responsibility for Bad Buying in the public sector on anyone in particular.  

/0 Comments/by
,

Retroactive Inducements – Greensill Capital, David Cameron and a Threat to Democracy & Capitalism?

We wrote about the collapse of Greensill Capital here, and more information has emerged on a daily basis over the last couple of weeks. It seems increasingly clear that the talk of innovative new supply chain finance models was nonsense, concealing some old-fashioned dodgy lending to unstable companies. (after I drafted this article, the Sunday Times of March 28th had yet more about Cameron’s involvement and that of others, including Bill Crothers and Jereny Heywood, head of the civil service).

For instance, Greensill’s financing of the Gupta group of companies was based (in part at least) on a notional future income stream. But there were no actual orders, no contracts and not even any named customers in some cases! That is a million miles away from traditional invoice factoring. The way this very high risk lending was then dressed up and sold by firms such as Credit Suisse as low-risk bonds will I suspect keep the courts occupied over coming years.

But another interesting aspect has been the role played by the UK’s ex-Prime Minster David Cameron. He appointed Lex Greensill as his “crown commercial representative” for supply chain finance back in 2014. Greensill got his CBE in 2017 and Cameron then took up a role as an adviser to the firm when he left office. His share options were rumoured to be worth tens of millions. Last year, he is alleged to have lobbied the Treasury and the chancellor of the Exchequer Rishi Sunak to try and obtain government grants and loans for Greensill. To the credit of senior civil servants, most of Greensill’s applications were refused.

That has led to questions about the propriety and ethics of Cameron’s intervention. But it raises some broader questions too. In an excellent article in the Sunday Times (behind the paywall unfortunately), columnist Mathew Syed raises the general issue of ex-politicians and their activities post-politics.

For instance, as Syed says, “ Robert Rubin, former US Treasury secretary, helped introduce a law that allowed banks to merge with insurance firms, something lobbied for by Citibank. He left the Treasury the day after the law was passed and, three months after that, was hired by — you guessed it — Citibank. He earned $126 million (£91 million) over eight years as the bank loaded up on risk, then used his connections to secure $45 billion in taxpayer bailouts when it failed”.

The former Danish Prime Minster Thorning-Schmidt says that she is still independent, despite co-chairing Facebook’s Oversight Board. But she now argues that an aggressive regulatory approach could “infringe freedom of speech”.  She won’t say how much she is being paid in this role – but we know that Nick Clegg, ex leader of the UK Liberal Democrats, now VP of Global Affairs at the firm is on something around $1 million a year. Ex UK Chancellor Philip Hammond now has 14 jobs including with the finance minister of Saudi Arabia, whilst his predecessor George Osborne has nine jobs including at the world’s largest investment firm.

Syed points out that what we are seeing is dangerous and calls this sort of process “retroactive inducements”. It is undermining our faith in capitalism and democracy as politicians see that their route to future wealth is to help market incumbents, Syed argues. “Unconsciously or otherwise, the revolving door is lubricated”.

I would slightly disagree with Syed in that it does not need to be an “incumbent” – Greensill was a relatively new market entrant. But the concern is that those in positions of power might see future benefits coming to them if they do favours for a firm now.

It’s not just the politicians…

And of course it is not just Cameron and co that we should worry about. Bill Crothers became vice-chairman of Greensill having been government’s Chief Commercial Officer from 2012-15.  Now I don’t think for a moment Crothers did particular favours for Greensill in that role – I didn’t pick up any hint of that at the time. In fact, I have heard it suggested that Crothers may have actually put money into Greensill himself, so may be a personal creditor.

But you can see the danger here of senior decision makers looking to their futures.  I know it is an issue in the Ministry of Defence. So many senior people, particularly uniformed mid-level officers who leave the forces in their forties or fifties, end up working for defence suppliers. Are they tempted to help those firms whilst they are public servants, or be gentle with them if they are a contract manager with the firm as a supplier, because of what they might get in the future?

Syed calls for change. The solutions are simple, he says.  He wants “stronger constraints on lobbying and donations, together with new rules on monopolies and moral hazard. Crucially, we should also raise the pay of ministers and regulators, with the quid pro quo of longer periods that prevent them from working for corporations after leaving office”.  I don’t agree that these are “simple” issues though – higher pay for Ministers would not go down well with many! But he is absolutely right when he says this.

“Above all, though, we need a transformation in values of the kind that has (partially) changed medicine. For until seemingly decent people can see that their actions are unethical, we cannot hope to win. It is, I think, the only way to save capitalism from itself”.

And I would extend that beyond politicians, to the ranks of the senior public, military and civil service too. If key people are constantly thinking about what might be in it for them at some future stage of their career, we’ve got big problems.

(On the day I published this article, the Sunday Times of March 28th had yet more about Cameron’s involvement and that of others including Bill Crothers and the late Jeremy Heywood, ex-head of the civil service. So we may come back to this story again once I have digested that!)

/1 Comment/by
, , ,

Fraud, Charities and Steve Bannon – Where’s the Money Going?

The arrest of Steve Bannon, President’s Trump ex-adviser, hit the headlines this week. Along with several other men, he is accused of siphoning off funds that were given to a charity which sought private donations to support the building of the Trump-promoted wall (fence, barrier, whatever) between Mexico and the USA.

Without getting into the mentality of the donors who would give their hard-earned cash for that cause, the case does point out the difficulties of knowing exactly where you money is going when you had it over to any charity.  There have been many examples over the years of charities that do genuinely support good causes, but appear to be just as interested in spending money on fancy offices and big salaries for executives.

Even an organisation as reputable as the Australian Red Cross ran into controversy recently when it had to defend its decision to spend up to 10% of bushfire relief donations on administration costs. That doesn’t seem too unreasonable to me, but in the past, it had promised to put 100% of all money raised directly to a cause.

Then there are the actual fraudulent “charities” that act as a front for criminal activities. For instance, four men were found guilty recently of fraud in the UK when they expropriated over £500K of donated money rather than using it for genuine purposes.  Collectors in camouflage trousers and “Save Our Soldiers” shirts rattled collection tins and conned people at railway stations into thinking they were giving to support disabled troops. But the  money went to fund the lifestyles of David Papagavriel, Terence Kelly,  Ian Ellis and Peter Ellis. That’s the reason I never put money in collecting tins if I don’t know the charity, by the way, even if it looks like a great cause.

The third type of charity-related fraud comes when a charity itself is the victim. Every organisation that sees large amounts of money flowing through it can be a target for what I define as “procurement related fraud”, and charities are no exception. There are some interesting examples of this in my new book, Bad Buying – How organisations waste billions through failures, frauds and f*ck-ups (to be published by Penguin Business on October 8th).

The fraud may originate from outside the organisation, but often there are insiders involved, or in some cases it can be a purely internal affair. For example, one story in my book covers the exploits of the CEO of an education charity, Philip Bujak. He was sentenced to six years in jail in 2018 at Southwark Crown Court in London for swindling some £180,000 out of his organisation. Using a company credit card, false invoices to Fake “suppliers” and other routes he got the charity to fund his honeymoon, and family events at hotels. One bill for a “charity conference” was really his mother’s 80th birthday party, and he was also keen on buying and restoring paintings.

So don’t think that everyone who works within a charity is automatically a good person. There can be the odd bad apple, which means that charities (like every other organisation) need to take strong anti-fraud measures to protect against internal or external villains. I haven’t got the space here to go through all those suggested steps, but my book goes into that in more detail, with seven key principles to avoid buying-related fraud and corruption listed and explained.  And we will come back to those here at a later date as well.

Meanwhile we will watch the Bannon case with interest …

/0 Comments/by