Report by the Comptroller and Auditor General NATIONAL, AUDIT OFFICE Ministry of Defence: Reliability and Maintainability of Defence Equipment Ordered by the House of Commons to be printed 1 February 1989 Her Majesty’s Stationery Office, London E4.90 net 173 MINISTRY OF DEFENCE: RELIABILITY AND MAINTAINABILITY OF DEFENCE EQUEMENT This report has been prepared under Section 6 of the National Audit Act, 1983 for presentation to the House of Commons in accordance with Section 9 of the Act. John Bourn Comptroller and Auditor General National Audit Office 1 February 1989 The Comptrollerand Auditor Generalis the headof the NationalAudit Office employing some 900 staff. He, and the NAO, are totally independent of Government. He certifies the accounts of all Government departments and a wide range of other public sector bodies; and he has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies use their resources. MINISTRY OF DEFENCE: RELIABILm AND MAINTAINABILITY OF DEFENCE EQUPMENT Contents Pages Summary and conclusions 1 Part 1: Background and Scope of the NAO Study 8 Part 2: The Department’s R&M Policy and Initiatives 10 Part 3: The Department’s Arrangements for Implementing R&M Policy 15 Part 4: The Role and Performance of Contractors 19 Part 5: Contract Incentives and Warranties 23 Glossary of terms and abbreviations 26 Appendices 1. Major R&M studies and initiatives since 1978 28 2. Surveys by NAO consultants 30 MINISTRY OF DEFENCE: RELIABILm AND i&‘JiVTmABILITY OF DEFENCE EQUIPMENT Summary and conclusions 1. The Ministry of Defence have for many years been concerned about the reliability and maintainability (R&M) of equipment purchased corn Defence contractors. They have estimated that unreliability is increasing support costs by over El billion a year. While all unreliability cannot be eliminated the Department accept that considerable improvements could be achieved which would yield significant savings. R&M also affects the availability of equipment; for example, during peacetime between a third and a half of the Royal Air Force’s fast jet fleet is not available for training because of scheduled maintenance, modification action, inspection, or unscheduled rectification. There is substantial room for improvement in all these areas. 2. The problem of defence equipment R&M is not unique to the United Kingdom; the United States in particular have recognised the need for improvements in the R&M of their defence equipment. In 1979 the Public Accounts Committee (PAC) commented that an improvement in R&M was potentially the most cost-effective measure directly open to the Department in the equipment field. 3: This Report records the results of an examination by the National Audit Office (NAO) of the effectiveness of the Department’s R&M management and the achievements of both the Department and industry since the PAC last examined this matter in 1978-79. The NAO’s fieldwork was completed before publication of the Defence Committee’s Fifth Report of 1987-88 (HC 431). However, this NAO Report takes account of the evidence on this subject given to the Defence Committee by the Department. I intend to provide PAC with further details to supplement this Report, on a confidential basis. 4. There is one general point to be made plain at the start. The Armed Services and British contractors take pride in the performance of their equipment; many equipments perform superbly well at home and overseas. The NAO found that there is now a marked interest and concern on the part of both the Department and British contractors to make further progress. In co-operation - and co-operation is the key - they are working together to improve the quantity and quality of the resources directed to reliability and maintainability and to provide the working procedures, tests and contractual arrangements that will be conducive to this end. This general statement conditions the following account of the issues examined and the NAO’s detailed findings which are summarised below. Findings and On whether the Department have demonstrated sufficient commitment to conclusions their policy on R&M and have taken adequate action to influence its achievement 5. The need for good R&M has long been recognised by the Department and they have undertaken numerous studies in an attempt to improve 1 MINISTRY OF DEFENCE: RELIABILITI AND MAINTAINABILITY OF DEFENCE EQUEMEiVT their arrangements for achieving it (Appendix 1). In September 1987 the Procurement Executive Management Board endorsed the basis of a strategy for improving the reliability of equipment. This was followed, in March 1988, by a tri-service policy statement from the Department on the importance to be attached to the achievement of the proper balance between operational availability, performance, and whole life cost of defence equipment through the application of their R&M policy. This raises complex issues calling for difficult trade-off decisions against operational performance, scheduled in-Service dates and initial purchase cost. The NAO’s main findings and related conclusions on this issue were that: (a] The Department’s ultimate goal is the achievement of high operational effectiveness with low whole life costs. For this reason it has for many years been their policy that R&M be afforded equal priority to performance. However, both the NAO’s examination and the Department’s own studies have indicated that R&M has consistently been sacrificed to performance, initial purchase cost and time. In view of the major impact of R&M on operational availability and life cycle costs, the Department need to ensure that sufficient weight is attached to R&M considerations when designs and specifications are being prepared (paragraphs 2.2-2.4, 2.14(c), 2.18- 2.20 and 3.23). (b) It is of considerable importance that R&M is adequately considered when procurement decisions are made. Organisational steps are required to ensure that this has been done. The NAO therefore endorse recommendations made to the Procurement Executive Management Board to strengthen the role of the Directorate General of Defence Quality Assurance on R&M, in particular to provide reliability inputs to Equipment Policy Committee papers. The knowledge that these inputs are required should help to ensure that proper attention is given to reliability problems at the earlier stages of project development. The NAO consider, however, that if real improvements are to be achieved there must be a will to delay or halt projects where R&M has not been fully considered, or where evidence points to levels of R&M below those specified (paragraphs 2.5-2.6). (c) The Committee for Defence Equipment Reliability and Maintainability (CODERM), the Department’s focal point for R&M, has exerted little influence in securing the implementation of the Department’s policy because it has no executive status or direct access to funds; furthermore it has a rapid membership turnover. The two committees to whom CODERM are accountable have themselves no executive responsibility in the area and have offered CODERM little direction. The Department need to consider how the promotion of R&M policy can be made more effective (paragraphs 2.7-2.13). (d) The many MOD studies on R&M have for the most part found a lack of commitment in this area, ineffective management, inadequate resources, a need for better information and scope for tighter contracting, particularly in the specification of R&M requirements. However, action to eliminate these weaknesses has generally been limited. The Department need to take concerted action to remedy the shortcomings highlighted by their own studies (paragraphs 2.14-2.16). MIMSTRY OF DEFENCE: RELIABILITY AND MAINTAINABILITY OF DEFENCE EQWMENT (e) The main underlying obstacles to progress have been the inability of the Department to quantify conclusively the costs and benefits of improving R&M; the fact that the financial consequences of poor R&M fall on the Services Support budget whilst the investment in R&M is met by the Procurement Executive equipment budget; the pressure from Operational Requirements and Financial staffs to meet cost and timescale constraints; the lack of sufficient top-level commitment by the Department and industry to the rigorous implementation of agreed R&M principles at project level; and practical difficulties in defining contract terms and enforcing them. Until these factors are addressed substantial improvements in R&M are unlikely (paragraph 2.17). (f) The NAO found that contractors on fixed price contracts can be reluctant to divulge the results of R&M programmes to the Department. There is also the danger that they may plan minimal R&M programmes in order to reduce costs. The Department should ensure that their requirements for information and demonstration of achievement are clearly spelt out in the specifications and that contractors’ R&M proposals are thoroughly analysed in the course of tender assessments (paragraphs 2.19-2.20). (g) The United States’ Armed Services have each taken major practical initiatives to improve R&M. They have sought to address three key areas where progress in the United Kingdom has been most limited: accountability by contractors to project managers and by them to the Services; high-level involvement within the Department; and commitment of all parties, particularly industry. The Department should examine the scope for implementing positive measures of the kinds employed in the United States (paragraphs 2.21-2.24). On whether the Department have established suitable organisational arrangements to ensure that their R&M policy is properly implemented 6. The Operational Requirements staffs specify equipment needs (including R&M) and project managers are required to meet them. Both groups are supported by advice from a number of Department branches. The NAO found that the arrangements for providing R&M advice were complex and involved a multiplicity of branches and personnel, and that the instructions and information upon which those responsible for R&M depend were not fully reliable.