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| A Harrier jet lands on the Ark Royal, an aircraft carrier ship, both have now been scrapped while spending on the FATs programme soars. Photograph: Luis Holden/MoD |
• Scheme was supposed to be cheap, but costs soared
• Internal report criticises poor controls and scrutiny
The
Ministry of Defence is one of the places in Whitehall where entire
conversations can be conducted with verbs and acronyms.
But even
for those with expertise in departmental jargon, the term FATs is something of
a mystery to all but a knowing few.
Yet over
the last two years, when the MoD has been cutting thousands of civilian and
military staff, scrapping ships and aircraft, and cancelling contracts for
replacements, one internal budget has soared; the money spent on Framework
Agreement for Technical Support.
The current
FATs scheme was introduced in April 2009 to help speed up the delivery of big
MoD projects – anything from building submarines to IT systems.
FATs was
established to help team leaders running these complex programmes, which are
often crippled by expensive delays, to hire specialist outside help, without
needing the endorsement of a government minister.
Under FATs,
money would be provided for "highly technical support requiring specialist
skills, usually from niche suppliers." The sums were expected to be small,
and strict "Gates and Governance" rules were established to control
spending.
Drawn up by
the Cabinet Office and the Treasury, these protocols were designed to ensure
two key things.
First that
money could not be used to hire management consultants, which is politically
toxic – and expensive. This still requires ministerial approval, and there is a
separate budget to pay for it.
Second,
defence officials had to ensure they shopped around before agreeing a contract,
to ensure value for money.
The clues
that suggested a coach and horses had been driven through these criteria were
evident to anyone scrutinising the bills.
In the
first year of the FATs arrangement, officials burned through £297m. This year
the total is forecast to be £267m.
There is no
separate money for FATs – the cash is drawn from the MoD's equipment budget,
which is already under huge pressure and is responsible for ensuring the troops
on the frontline in Afghanistan have what they need, when they need it.
The MoD has
always needed to buy in some technical support, but figures over the last five
years – obtained under freedom of information legislation – show exponential
growth, and that the current, more lax, system accelerated the rise.
In 2006,
the department spent just £6m on expert "outside" technical help. The
following year it was £52m, and then £169m. Add the figures together with the
FATs money and the MoD has spent £791m on "niche" suppliers in five
years.
By any
standards, that is a staggering amount, particularly for a department that has
been trying to find savings to cope with a 7% overall budget cut.
The MoD
states that 380 firms have been signed up under FATs, though it has given no
precise details about what services they provide, or how much they have been
paid. Some of the companies, however, do not sound very "niche" at
all.
They
include some of the big beasts in defence, such as BAE Systems, Boeing Defence
UK and the contractor Thales. The accountants KPMG and PricewaterhouseCoopers
are among other well-known names.
While these
contracts were being approved under the radar, the MoD was able to claim it had
cut the amount it officially spent on management consultants. This has been a
politically charged issue at Westminster, particularly in the run up the last
general election. In June, 2009, the then shadow culture secretary Jeremy Hunt
described New Labour as the "government of the management consultants, for
the management consultants, by the management consultants". And the MoD
was regarded as one of the worst offenders.
The
question that has troubled some civil servants and union leaders is; how could
the department with the worst auditing record in Whitehall be spending so much
less on management consultants, at a time when thousands of
"in-house" specialists were being made redundant, and services in
some areas were being stretched beyond breaking point. The answer could lie
with FATs.
Even a
cursory glance at the companies hired under FATs would raise eyebrows – 36
purport to be consultants of some kind or another.
Members of
the Prospect union, which represents thousands of civil servants at the MoD,
started to raise concerns about FATs this year, which prompted the department
to conduct an official review by the group head of internal audit, Amarjit
Aktar.
Between
March and June, his team of three investigated contracts in 20 areas. His
conclusions were clear, even for a report drowning in technobabble.
He said the
systems for internal control of FATs was "poorly developed or
non-existent".
He said
"major levels of non-compliance [had been] identified".
The report
adds: "Overall, there was weak governance in terms of policy, guidance and
scrutiny through the gates and governance process. These weaknesses were
compounded by poor execution within project teams".
These teams
also "failed to submit business cases for independent scrutiny and
approval in over half the cases reviewed … [and] where business cases were
submitted, the level of scrutiny conducted was not robust enough to ensure that
the tasks met all the criteria that needed to be satisfied in order to place a
contract under FATs."
Far from
shopping around to find the best deal from different firms, 75%of the FATs
contacts scrutinised were awarded to "single sources" – that is,
without any competition at all.
"As a
result, the ability to demonstrate VFM (value for money) was compromised."
Officials
did not even check whether there were specialists within the MoD who could do
the job.
"The
required investigation into the use of internal resources for completion of the
task was not fully completed in any of the tasks reviewed," the report
says. "On a task-by-task basis, the lack of competition and failure to
investigate internal resources meant that VFM could not be demonstrated."
The review
looked at a sample 22 contracts – 6% of the total – and found one that had been
awarded to a management consultancy, despite this being expressly against
guidelines.
"Control
was inadequate to prevent project teams from obtaining services via FATs which
should have been sought through a separate procurement route," the report
said.
There was a
risk that the teams were "inadvertently or deliberately" submitting
approval for consultancy contracts through FATs.
There is
anecdotal evidence at the MoD, not covered in the report, of so-called
revolving doors – defence staff who have taken redundancy being rehired on
expensive consultancy day rates to continue jobs they were doing before.
The timing
of the report raises further awkward issues. Though it began work in March, it
was commissioned in January this year. The draft report was completed at the
end of May.
Two weeks
later, however, the defence minister, Andrew Robathan, wrote a letter to Kenny
Warren, secretary of the MoD civil service unions, denying there were any
problems.
Dated 16
June, Robathan's letter says: "I agreed to look at your concerns regarding
the operation of FATs. A strict … process is in place to ensure that FATs is
not used to bypass the constraints imposed by the Cabinet Office and Treasury.
I am therefore content that safeguards are in place."
If Robathan
knew about the internal audit authorised six months earlier, then the letter
was misleading. And if he did not know about it, why did his civil servants not
warn him he was sending a letter which was untrue?
These are
some of the questions that union leaders want answered.
There are
more fundamental issues too, ones that most defence officials and service
personnel might want answered, especially those that have been forced out, or
taken voluntary redundancy, in recent months because of the department's budget
squeeze.
What did
not get paid for because almost £800m has been taken out of the equipment
budget to hire outside contractors? And why is the MoD sacking people at a time
when it can ill-afford to lose their expertise?
The final
version of the FATs audit was completed on 4 November – and it acknowledges
that its recommendations have been adopted.
A new FATs
scheme will begin in April next year, which should be more tightly controlled.
The unions, though, are not filled with confidence.
"The
MoD says it is addressing these abuses," said Steve Jary, secretary of
Prospect. "It says that the spend on FATs this year will be lower. We
welcome that. But we are not convinced. Because of the staff cuts, FATs is now
hard-wired into the MoD's thinking. Without it, the equipment programme
will falter.
"In
March, the government promised us that any savings which Prospect identifies
can be used to offset its planned cut of 25,000 civil servants by 2015. A
saving on FATs of just a third - £100m – equates to 5,000 jobs. We expect the
government to announce a reduction in its target so we save those 5,000 jobs
and ensure that the equipment programme does not implode."
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