Destroyers and Power Stations – Ministers and Public Procurement

Two reminders of public sector procurement problems came into the light in news reports at the weekend. And there is an interesting connection between the two that raises questions about national preferences and major contract awards.

The Royal Navy’s Type 45 destroyers apparently have a disturbing tendency to lose power which can leave them defenceless and adrift, which could be embarrassing to say the least and potentially fatal at worst. This is allegedly happening because the engines that were chosen (from Rolls Royce) were not the best choice, and this is down to a political decision from the Labour Party Defence Minister at the time, Geoff Hoon. As the Times reports:

Mr Hoon overrode a recommendation to install American-built turbines in favour of a new design made by Rolls-Royce. The decision will be seen as another example of procurement failures by the Ministry of Defence. The navy confirmed that the six destroyers, which cost £1 billion each, would be fitted with new engines to provide more power less than three years after the final ship was commissioned”.

BAE Systems, the prime contractor, wanted to use GE gas turbine engines that were proven around the world and cheaper than the Rolls-Royce option. But the decision was over-ruled by Hoon. Somewhat ironically, Hoon is now a senior executive for another defence equipment provider – he is director of international business for AgustaWestland, the Italian-owned helicopter maker. But the allegation is that he forced through the Rolls Royce decision as a “buy British” decision which preserved jobs close to his own constituency. That is what the Times says anyway – Hoon has not commented.

There is a long history of Ministers interfering in defence procurement decisions of course and costing the taxpayer a fortune. The aircraft carriers decision, made by Gordon Brown again during the last Labour government, was described by a friend of mine, a lifetime and senior civil servant who was close to these things, as “the worst decision I’ve seen in 30 years in government”.

The second report is that the French firm EDF, who are building the Hinckley Point power station in the UK have not even allowed UK supplier Sheffield Forgemasters to submit a bid for the steelworks required. Anna Soubry, the Industry Minister involved, is now in trouble for saying that Forgemasters didn’t have the capability to carry out the work. As the Times reports:

In a letter to Iain Wright, chairman of the (select) committee, the minister said: “It is widely understood and accepted in the nuclear and steel industries that the UK does not have this capacity.”

Not so, say the Forgemasters management, it’s just that EDF haven’t asked us to even bid. We could produce four fifths of Hinkley Point’s components. “We heard about Hinkley Point and we approached EDF. They said they had already made the decisions. We would have quoted if we had been given the chance and we would have stood a fighting chance of winning work.”

We don’t have the whole story on this, but if it is true, one would have thought that the contract between the UK government and EDF should have contained conditions that at the very least forced them to give UK suppliers the chance to become sub-contractors.

We’re not in favour of a mindless national preference approach, and indeed the Navy example perfectly highlights the problem with that. But a contractual requirement for major prime contractors to carry out open and transparent procurement processes would be reasonable, including the chance for British firms to bid, and perhaps a requirement to take “social value” into account, just as public contracting authorities now do. Remember the policy document about buying local steel issued by Crown Commercial Service just a couple of months ago? How does that stack up with the EDF positon, we wonder?

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Voices (2)

  1. DrGordy:

    Hoon has a letter in today’s Times

  2. bitter and twisted:

    Isnt the real scandal that the Type 45s are pointless ?

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