Hard on the heels of the prediction in Stephen Bush’s post of 21^st September comes news that in order to try to protect its proposed surrender deal with EADS, the hapless BAE Systems Board has proposed that its American subsidiary BAE Systems Inc should be “ring-fenced” in the deal with 13 of its 14 directors being American, with only one British director – its current chief executive, accountant Ian King. In effect, as predicted, BAE Systems Inc would become virtually a separate company in which BAE Systems retains a shareholder interest only.

Outsourcing the management of Britain’s defence equipment programme

Along with this self-defeating nonsense comes news that the Government is seriously considering giving the £14 billion per year weapons and equipment budget to an American company to manage.  As noted in Stephen Bush’s post, the civil service organisation currently carrying out the function – the Ministry of Defence (MOD) – is incredibly overstaffed with 18,000 at Abbey Wood in Bristol, and about 5,000 elsewhere in the UK meaning £600,000 of contract value handled per person per year.  The Israeli Defence Force totals 176,000, not far short of the present UK army, navy and airforce of 188,000 combined (due to fall to about 160,000 under the present defence review), but manages with about 480 in its equipment procurement function (or about £10 million of contract value per staff member).  Even allowing for the multiple theatres the MOD has to cover, its staffing is hugely disproportionate to its essential tasks.  The US companies apparently in the frame for replacing the MOD in its weapons and equipment function are reportedly Brown and Root, Fluor, Jacobs Engineering, Bechtel and CH2M Hill.  There is a solitary British candidate – SERCO, a support services and facilities management company with no experience of running engineering design and delivery projects – presumably left in the last six to show that British firms had applied.

US Companies are not obviously competent to do the job

For all the British Tory obsession with things American, it is worthwhile for Government ministers to recall the results of the two most recent US supplied projects, in the IT field: the £800 million “e-borders” project and the “Connecting for Health” £12.7 billion National Health Service (NHS) project.  The e-borders project was to record entries and exits at British airports and ports.  The NHS project was to make available every patient’s health record to every point of the NHS medical services in the UK.  Both of these projects have had to be cancelled amid much acrimony after about one quarter of the budgets have been spent.

Data complexity is the key factor

The amount and complexity of data to be handled in the NHS case is comparable, at 10 Terra Bytes, with that involved in the design and construction of a Boeing 747[1].  The total of the UK defence design and delivery programmes is at least 10 times as big.  Moreover, the data parts specifications, plus test results, plus assembly instructions are often highly individual – rarely repetitive.  To be actually managed, i.e. components to be found out about, recorded, progress chased, installed in subsystems and then into the main system, requires managers to actually know the components and their technology: it cannot be done just by importing general concepts from totally different fields.  A company new to a field of 10 Terra Bytes would have to hire hundreds of engineers of its own and put them through intensive technology programmes to work with suppliers and their designers if it is to make any improvement over what already exists.

The American company CH2M Hill is essentially a civil engineering site construction and clearance company with no obviously relevant experience in managing military equipment projects like the Astute class nuclear submarine programme, Typhoon and Lightening II (F35B) aircraft projects and the future armoured land vehicle project.  The nearest CH2M Hill has come to military hardware is its 2007 contract to relocate US bases in Korea where it was responsible for packing and unloading equipment.  Presumably it commended itself to the selection committee because it is a programme partner overseeing the London Cross-rail project and was a partner in the Olympics delivery programme.

The other four American companies have distinguished international process engineering experience in the chemicals and energy sectors.  Equipment procurement in these fields is mainly pipes, pumps, heat exchangers, boilers, instrumentation, vessels, steelwork on the scale of thousands of tonnes per plant, vital to their field, but a million miles from the intricate machining and electronics of guided missiles, supersonic aircraft, radar systems, submarines, armoured vehicles and their control and guidance systems.

Concepts of Project Management

Presumably the five American companies put themselves forward for the role of managing such programmes because of the emphasis in Lord Levene’s[2] 2011 defence reform group report on project management – in Lord Levene’s view a subject poorly tackled in the MOD.  It is one of the particular conceits of Anglo-Saxon management that its skills can be readily transferred from one field to another, from say a retail business, to insurance, to factory businesses, to railways, etc. and in the present case apparently, to extraordinarily intricate mechanical and electrical equipment, operable at extremes of weather, altitude, depth of ocean and acceleration.

This conceit is the number one reason, along with the cult of amateurism[3], why the top ranks of British industry are overwhelmingly dominated by the two professions which have actual expertise: lawyers and accountants.  This in turn is why so much of British industry has been surrendered to foreign companies who are, on the whole, led by competent people who combine a knowledge of finance with an understanding of the design and manufacture technology and sales processes in their particular industry, so tragically lacking in many British chairmen and chief executives.

The madcap desire to “outsource” the very basis of our defence programmes arises from the Conservatives’ simple-minded ideology[4] that anything labelled “private sector” is always superior to anything in the civil service and the daft idea that procuring equipment is much like procuring food or clothing, or any other thing.  But it isn’t.  If the Government were to outsource its defence project management to one of the candidate companies, it would (a) have to pay out perhaps £300 million in its own staff redundancy costs, and (b) send the Americans on innumerable courses to find out what they were supposed to be managing.

What the MOD should do

Rather than do any of this the MOD would benefit the long-suffering British taxpayer by seconding its more promising engineering staff to good American and British companies for one or two years to gain exposure to their project management methods and concepts – then they could come back and fix things at the MOD.  There could be a long-term MOD programme of garnering project management skills in this way. These considerations are reinforced by the external assessments of MOD project management made in 2011 by Human Systems Ltd. They placed the MOD’s Integrated Project Teams in the first ten of the 56 organisations rated, which clearly indicates a sound basis for improvement.

The cost of this would be a few million pounds over a two year period and Britain would end up with all the programme savings envisaged by the outsourcing project at hugely less cost.  The motto for all organisations at all levels should be: if you have a lack of expertise, obtain it by selective recruitment and secondment of your own promising people – engineers and scientists – to organisations which do have the expertise.  Then bring your people back and give them responsibility for deploying their expertise to the organisation’s benefit.

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