Mark Leftly: Can we outsource guns'n'ammo? We're still waiting for an answer

If he continues in the role, Bernard Gray could earn £500,000 a year plus bonus

Westminster Outlook Like a frustrated commuter pacing a railway platform, the defence industry is growing ever more perplexed and irritated about continued delays to a National Audit Office report on reforming the way in which the Ministry of Defence buys military kit.

A little over a year ago, ministers and officials embarrassingly failed in efforts to semi-privatise the £14bn-budget Defence Equipment and Support (DE&S) group under what is known as the GoCo (government-owned, contractor-operated) model. The Bristol-based agency is, nevertheless, in the process of bringing in more private-sector boffins to improve everything from payroll to the way in which it negotiates contracts with the likes of BAE Systems and Cobham.

Successive defence secretaries, including the current holder of the role, Michael Fallon, are convinced that DE&S needs more commercial skills to get better value for money on guns’n’ammo, ships’n’tanks, and even radios’n’cyber-security systems. The US engineers Bechtel and CH2M Hill, which were both in the running to take over DE&S under the GoCo plan, have been asked to run big projects across the armed forces. The accountancy giant PwC is now managing human resources.

Even under this less comprehensive outsourcing, the scale of these proposals has astonished experts and military folk worldwide. Many large defence groups are furious that their corporate peers will, in effect, be able to award, block and amend coming contracts.

Certainly, the NAO was right to take a good pry into these reforms, with a particular focus on the failed GoCo competition – a process that cost taxpayers and bidders tens of millions of pounds. The lesser reforms have turned the organisation into what the MoD calls “DE&S-Plus”.

But the report on all these defence upheavals was expected several months ago, then by the end of the year, after that January – and now the NAO is claiming “early 2015”. An insider promises it will finally, definitely, be ready before the general election in May.

Many leading defence figures think the report will be damning for both sets of reforms, which were masterminded by the Chief of Defence Materiel, Bernard Gray (pictured right). As part of that role, Mr Gray heads DE&S-Plus.

Regular readers of this column will know that I don’t believe the reforms are practical, particularly given the potential for conflicts of interest when the Government entrusts companies with awarding public sector contracts to other companies. That said, it is little more than rumour that the NAO will draw such negative conclusions – but it is a rumour that only grows louder the longer the delay.

The reason is that before an NAO report is published, the subject of the inquiry (in this case the MoD) is given the opportunity to clarify or amend factual inaccuracies. Oppo–nents of the process believe that what is almost inevitably constant back and forth often results in any criticisms being watered down.

If the process itself isn’t the cause, the NAO has also dismissed another plausible reason for delay: that it is badly under-resourced. The public spending watchdog, as you would hope, trains its staff to an incredibly high level – “too well”, laughs one senior Conservative MP – which means that these very clever, forensically skilled number-crunchers are often poached by the biggest accountancy firms.

Despite having a budget for about 820 staff, there are currently 790 in the NAO’s central London and Newcastle offices, though there are claims that the number was as low as 740 in recent months. A spokesman counters that the team behind the defence report has been together since the investigation started, insisting that staff shortages are “never allowed to affect” the organisation’s work.

Whatever has happened, the review will not be released before the announcement about whether Mr Gray will continue as the head of the DE&S, which could come as early as today. Sources believe that the former Financial Times defence journalist is up against one other candidate, who is also said to be from outside the military.

One source said Mr Gray appeared to have had his four-year term renewed, as earlier this week he was acting – “in the middle of rows” – like someone who knew they were staying in post. If he continues, Mr Gray could earn up to £500,000 a year, including a 100 per cent bonus, and become the best-paid civil servant.

We needed the NAO report to land before the end of this re-appointment process. If the findings are as critical as some expect, then early publication would have surely blocked Mr Gray keeping the role; later publication means he would be undermined weeks into a new four-year term. On the flipside, it would only have been fair that a supportive report could be used to justify Mr Gray staying in place. At the very least, timely publication would have stopped the industry gossip over why the delays have occurred. If defence reform is failing, the NAO should tell us now.

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