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National Audit Office report: Ministry of Defence: Accepting Equipment off-contract and into Service

Ministry of Defence: Accepting Equipment off-contract and into Service

"Acceptance is a critical stage in the procurement cycle, and therefore needs to be rigorously managed. If properly applied, Smart Acceptance should alleviate many of the problems identified in my report."

"Acceptance is a critical stage in the procurement cycle, and therefore needs to be rigorously managed. If properly applied, Smart Acceptance should alleviate many of the problems identified in my report."

Sir John Bourn

 

Sir John Bourn, head of the National Audit Office, today told Parliament that the Ministry of Defence (the Department) is introducing “Smart Acceptance”* procedures, which should, if applied with rigour, address weaknesses in existing processes for accepting equipment which have occasionally cost one or all of time, money and capability. For example, the report identifies £60 million of costs over 5 years, associated with equipments, which were accepted but did not fully meet their requirement.

* Smart Acceptance is part of the wider Smart Procurement Initiative for improving defence procurement to ensure that projects are delivered to time and budget without jeopardising capability.

Acceptance is central to the successful delivery of an operational capability to the end user. Traditionally acceptance has had two parts – off-contract and into service – reflecting the differences in responsibilities of those procuring and operating the equipment. The decision-making involved is complex and, in most cases, the Department has achieved what it assessed to be a satisfactory outcome.

The Department has accepted into service some 65 major equipments with a value of £10 million or above in the past five years, including Trident submarines, Challenger II tanks and Sea King helicopters. The National Audit Office analysed the majority of these equipments and found that:

  • Only 40 per cent of equipments accepted off-contract fully met the operational requirement.
  • In half of the cases where the requirement was not fully met, the Department did not require the contractor to rectify the shortfall either because it was judged that there would be no detrimental impact on operational capability or because of pressure from the user. In those cases the Department did not always receive financial recompense.
  • In some cases, where the contractor did not accept responsibility for rectifying the shortcoming at its own expense, the Department deleted parts of the requirement to enable equipment to be accepted into service in order to provide operational benefits.
  • There is little detailed guidance available on how to construct cost-effective testing and trialling regimes. However, the vast majority of projects had strategies in place for identifying, gathering and analysing the evidence required to demonstrate equipment performance. The Department’s considerable experience meant that most defects were identified and consensus was reached between stakeholders.
  • A number of contracts failed to cover important elements of the requirement, or did not do so clearly enough to allow remedies to be sought. For example, in one-third of cases, contract acceptance criteria did not fully reflect the requirement.
  • There are additional challenges involved in translating operational requirements into contract acceptance criteria where equipments are purchased from overseas, notably through the United States Foreign Military Sales system.

The National Audit Office report reinforces the need for the new “smart” approach to acceptance and makes a number of recommendations to further improve the efficiency of the acceptance process and the effectiveness of outcomes. In particular, the Department should:

  • Build on the introduction of Integrated Project Teams to ensure that all key players are brought into the acceptance process at an early stage to improve the design of acceptance strategies.
  • Continue the development of Smart Procurement techniques that offer potential for better management of the acceptance process, and examine the scope for more use of provisos to secure early operational benefits where there are performance difficulties.
  • Ensure that all significant procurement contracts include clearly defined provisions to enable the Department to obtain appropriate financial redress where performance requirements or delivery schedules are not met.
  • Generate quantified analyses of the financial and operational merits of contractual acceptance provisions to ensure that these are the most cost-effective in specific circumstances.

 

Publication details:

ISBN: 0105566594 [Buy a hard copy of this report from TSO]

HC: 204 1999-2000

Published date: February 11, 2000