Accredited official statistics

Background quality report: MOD trade, industry and contracts 2021

Updated 3 February 2022

1. Contact Details

The Analysis Directorate welcomes feedback on our statistical products. If you have any comments or questions about this publication, or about our statistics in general, you can contact us as follows:

Analysis Directorate (Analysis-Expenditure)

Telephone: 030 679 84442

Email: [email protected]

If you require information which is not available within this or other available publications, you may wish to submit a Request for Information to the Ministry of Defence under the Freedom of Information Act 2000.

If you wish to correspond by mail, our postal address is:

Analysis Directorate (Analysis-Expenditure)
Ministry of Defence
Oak 0 West, #6028
MOD Abbey Wood North
Bristol
BS34 8QW

For general MOD enquiries, please call: 020 7218 9000

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2. Introduction and Statistical Presentation

In this bulletin a range of Ministry of Defence (MOD) spending statistics are reported, covering spending on contracts within industry. The underlying data are used for a wide range of purposes both within the Department and externally to provide accountability and transparency to Parliament and the public.

Specifically, this bulletin is published to provide information on: Major Equipment Projects (the MOD’s largest projects); competitive and non-competitive spending by MOD; payments to organisations, holding companies and key suppliers; the number and value of new contracts placed (by competition level and SME status); payments on Private Finance Initiative (PFI) projects; and estimates of defence export orders. Where possible, numbers, types and values of contracts are provided, as well as spend on individual projects and with specific suppliers. Where noted, spending by the MOD’s Trading Fund (UK Hydrographic Office) and On-Vote Defence Agency (Defence Science and Technology Laboratory) is also included in the figures.

The bulletin comprises an HTML report which focuses on commentary and data visualisations, and Open Data Source (ODS) tables which contain the data behind the text and visualisations.

2.1 Publication Frequency

The Trade, Industry and Contracts bulletin is produced annually (as listed on the statistical release calendar) and contains figures from the most recent financial year for which data are available.

2.2 Publication History

The MOD have published statistics on trade, industry and contracts for more than 35 years. Historically, these were published in the Statement of Defence Estimates and subsequently in UK Defence Statistics (UKDS from 2010 to 2014). Since 2013, these statistics have been published as the Trade, Industry and Contracts bulletin.

Up until 2017 a table was included in this bulletin showing ‘Estimated Defence Expenditure in the UK’. Following an external consultation it was decided to remove the duplicate production of this table in this bulletin and publish it only in the MOD Regional Expenditure with UK Industry and Supported Employment bulletin, the latest version of which was published in January 2022. All information previously contained within the table in this bulletin can be found in the Regional bulletin.

Where possible, expenditure on and values of contracts let by competition have been provided. This follows interest from the Single Source Regulation Office (SSRO) in 2016.

A table showing the ‘Balance of Payments for Trade in Services’ was first removed in 2018. The data feeds into the UK Balance of Payments estimates, or “The Pink Book”, which is published quarterly by the Office for National Statistics (ONS). Production of the Balance of Payments was a statutory requirement covered by EU statistical legislation, however the introduction of a new Contracting, Purchasing and Finance (CP&F) online end-to-end procurement system within MOD has resulted in the Analysis Directorate being unable to identify whether some types of expenditure relate to goods or services. We are no longer satisfied that the quality of this data allows us to make robust estimates of how the expenditure should be allocated to produce this table. As such, the Balance of Payments table has now been fully discontinued from the Trade, Industry and Contracts bulletin.

In this year’s bulletin we have omitted the table on ‘PFI Projects with Planned MOD Unitary Charge Payments of over £25 million’ (formerly Table 7b). In previous releases this table was used to show forecasted MOD PFI project payments for the following year alongside the current PFI project expenditure. The underlying data are no longer published by HM Treasury and the Infrastructure and Projects Authority, and without updated forecasts the data will likely become increasingly inaccurate due to potential unexpected additional works and services albeit controlled and managed by agreed control procedures. Details on the historic forecasts of through life planned unitary charge payments of PFI contracts can still be found in the Private Finance Initiative and Private Finance 2 projects summary document, dated 30 May 2019.

The Analysis Directorate continues to work closely with colleagues to try and improve the quality of our available data sources. Up until 2017 the Trade, Industry and Contracts bulletin included tables showing both the number and value of contracts with Small and Medium-sized Enterprises (SMEs). Since 2015 the government’s aspiration has been for 33% of expenditure with third parties to be placed with SMEs, with MOD contributing to this by committing 25% of its expenditure to be with SMEs. In 2017/18, the SME tables were removed from the bulletin as the SME status of over 52% of the MOD’s 14,000 direct suppliers that year were unknown, and a decision taken that the data quality was not good enough to be included in an Official Statistic.

Following an extensive data gathering exercise, we were in a position to resume publication of these figures in 2021. Whilst there remains a small number of contracts in each financial year where the SME status is unknown, in each year from 2018/19 to present, data population is now greater than 95%. Further specifics on the missing data for each year can be found in footnotes of Table 6c. Additionally, we have worked towards a breakdown of MOD’s in-year SME expenditure with UK industry. However, whilst these statistics were previously published in the Trade, Industry and Contracts bulletin series, it is deemed that MOD’s Regional Expenditure bulletin, which specifically covers MOD spending with UK industry, is now a more suitable fit. As such, these figures are incorporated into the Regional publication from 2022.

3. Statistical Processing

3.1 Source Data

Many of the statistics in this bulletin use two datasets: HQ contracts and miscellaneous expenditure. The expenditure recorded in these two datasets are combined to produce MOD Core Department expenditure.

HQ contracts - These are formal contracts set up by MOD Core Department which have previously required a DEFFORM 57 to be raised. Now data is collected straight from Commercial Officers through CP&F. A range of information about individual contracts is obtained to produce this bulletin, including expenditure, total agreed contract value, supplier, contract start date and competitive indicator. HQ contract spend also includes a single payment to UKHO (MOD Trading Fund).

Miscellaneous expenditure - This is the payment method employed by DBS Finance (the MOD’s primary bill paying authority) for running service items such as the provision of utilities. These items are covered by “miscellaneous” transactions where no ‘MOD HQ Contract’ exists. These agreements for goods or services will have been set up locally between the MOD Branch and the supplier and are legally binding. The information obtained includes supplier, invoice amount and payment dates. Miscellaneous expenditure also includes a single payment to the Royal Bank of Scotland (prior to 2016/17 - Barclay’s Bank) to cover all electronic Purchasing Card (ePC) payments made by MOD. Also included in this category are payments made to some international projects such as the Organisation for Joint Armament Co-operation Executive Administration (OCCAR) as well as payments made to overseas governments and UK government departments.

3.2 Data Compilation

Below, the methodology and production for each section of the bulletin and its corresponding table number is described. Sections that use HQ contracts and miscellaneous expenditure data are indicated. Other sections that do not use these data sources are highlighted where appropriate.

Major Equipment Projects (Table 1)

These data are collated directly from the Defence Equipment Plan 2020 which is the MOD’s financial summary of the Defence Equipment Plan. Population of the Project Performance Summary Table which forms the core input for MOD’s Major Equipment Projects focusses on Category A procurement projects, i.e. those with a total value of over £400 million.

The table reports on the forecast cost of the project, the forecast timescales for achieving the in-service date, and the forecast achievement of the Key User Requirements (KURs), all of which are approved as part of the Main Gate business case or when the MOD commits to the manufacture of the equipment. The projects contained in the Project Performance Summary Table may change annually subject to new or existing projects continuing to meet approval criteria for inclusion.

MOD Expenditure by Type of Contract (Table 2)

These figures are derived by adding together HQ contract spend and miscellaneous expenditure. Competitive indicators are only available for HQ contracts; the remainder of the data fit into the ‘Other’ category.

A competitive contract is a contract awarded to a company following a bidding process, or competition, where the winning company is awarded the contract. Non-competitive procurement comes where there is either only a single provider or where there are very strong reasons for maintaining a national capability. ‘Other’ sources expenditure consists of payments made by means of miscellaneous transactions or where the competition status of a contract is not known.

Not included in this analysis of competitive spending are payments made by Trading Funds or payments made through alternate sources, for example British Defence Staff (Untied States) and through local cash offices.

Organisations paid over £5 million by MOD (Tables 3a and 3b)

The underlying data come from HQ contract spending and miscellaneous expenditure. In addition to this, information about payments to suppliers made by Dstl and UKHO are obtained from the respective organisations. For this statistic, the data obtained from Dstl and UKHO are used in place of the single MOD HQ contracts with Dstl and UKHO because it provides new information on how much money they then spend with individual suppliers. Similarly, data on individual ePC payments is obtained from Defence Commercial and used in place of the single payment to Royal Bank of Scotland listed in the miscellaneous expenditure data.

Information on spending with MOD Core Department including Trading Funds and Defence Agencies (Table 3a) and for the Trading Funds and Defence Agencies individually (Table 3b) is provided. Some organisations have not been included as their information has been redacted in line with agreed rules for government transparency.

MOD and its Trading Funds also publish information on contracts of £25,000 or more under the Government’s Transparency Agenda. For further information see Statistical Notice to Tables 1.17 & 1.17a UKDS 2011 which discusses divergence between contracts data contained in UK Defence Statistics and “transparency” data published on GOV.UK.

Holding Companies paid over £50 million by MOD (Tables 4a and 4b)

HQ contract expenditure, miscellaneous expenditure and the separated Trading Fund, Defence Agency and ePC payments are mapped to holding company structures using established Defence Equipment and Support (DE&S) company hierarchies and Dun and Bradstreet supplier information. An internal database listing holding companies and subsidiaries is then updated annually for all new companies appearing on the DBS Finance database (CP&F). Where a company is part of an identified Joint Venture, expenditure is attributed to the company based on their percentage share of ownership. However, expenditure with consortia involved in Private Finance Initiatives (PFIs) is not distributed amongst the members of the consortia.

Table 4a lists MOD Core Department expenditure with holding companies together with a breakdown of spending into the competition status of the payments. Details on the composition of the holding companies in terms of their subsidiaries as at 1 April 2021 is detailed in Table 4b. This table includes only those subsidiaries where the MOD, UKHO or Dstl have made payments during 2020/21 and therefore is not an exhaustive listing of all subsidiaries and joint ventures relating to each holding company.

Focus on Key Suppliers (Tables 5a, 5b and 5c)

This section of the bulletin builds on the former by providing further information on the top ten holding companies in receipt of the largest amounts of MOD expenditure in 2020/21.

Table 5a takes holding company expenditure from Table 4a and calculates the contributing percentage to in-year MOD expenditure for each of the top ten holding companies in 2020/21. Total percentages are provided for the current top ten suppliers as well as a total for the top ten suppliers in any given year to enable year-on-year comparisons to be made.

To find the dependency of the key suppliers on MOD business for Table 5b, the total revenue of the holding company is identified from the Dun and Bradstreet database (previously Avention OneSource database) and a calculation made as to the proportion of this total revenue that has originated from MOD.

The level of competitive expenditure with each of the top ten holding companies is calculated from HQ contract spend with a known competitive indicator only. This means that miscellaneous, ePC, Dstl and UKHO payments are excluded, as is HQ contract spend missing a competitive indicator. As a result, figures in Table 5c are not directly comparable with those presented in Table 4a.

New Contracts Placed (Tables 6a, 6b, 6c and 6d)

These statistics are compiled using the HQ contract dataset only. The total value of new parent contracts is presented in Table 6a and the total number in Table 6b. Both tables contain a breakdown of these figures by competition indicator and financial year.

The data is further assessed in Tables 6c and 6d to show the value and number of new contracts placed with Small and Medium-sized Enterprises (SMEs) by competition type. Suppliers are classified as per the Organisation for Economic Co-operation and Development (OECD) definition of SMEs as companies with an annual turnover of less than €50 million and fewer than 250 employees. This definition is consistent with that used by the Cabinet Office.

In all cases, the Contract Start Date field has been used to identify in which year a new contract falls.

MOD Payments on PFI Projects (Table 7)

The data underlying this statistic is obtained from the latest HM Treasury PFI Project Summary in the form of information on individual contracts. The spending for all contracts within each PFI project is collected from CP&F and put into payment bands.

Summary data was last published on PFI projects in the Private Finance Initiative and Private Finance 2 Projects report. Included in this document are the historic forecasts of through life unitary charges for currently signed PFI contracts as at 31 March 2018. Although this report has not been subsequently updated, we can be sure of capturing ongoing PFI spending since we have a record of current PFI contracts and the Chancellor announced during the 2018 Budget that the UK government would no longer use PFIs for new government projects.

Estimates of Identified Export Orders (Table 8)

This data is taken directly from the Department for International Trade’s UK Defence and Security Export (UKDSE) figures.

4. Quality Management

4.1 Quality Assurance

Both datasets (HQ contracts and Miscellaneous expenditure data) are obtained from CP&F, which is the online end-to-end procurement system used by DBS Finance. CP&F was introduced mid-way through 2016/17 and, at the time of publication, the data quality obtainable from CP&F is lower than from the previous system, particularly in regard to the HQ contracts data. To improve data quality and coverage, information from legacy systems, along with ad-hoc data from other sections of MOD has been manually captured.

4.2 Quality Assessment

The MOD’s quality management process for Official Statistics consists of three elements:

1. Regularly monitoring and assessing quality risk via an annual assessment.
2. Providing a mechanism for reporting and reviewing revisions/corrections to Official Statistics.
3. Ensuring Background Quality Reports are published alongside reports and are updated regularly.

5. Relevance

5.1 User Needs

The data in this bulletin has a wide reach externally, being used by researchers, academics, politicians and journalists. Additionally, the bulletin has featured on blogs, such as Think Defence. Furthermore, this bulletin is the only source for much of the data contained within it and thus strongly contributes to public accountability for MOD.

There are many specific uses for the individual statistics reported here. The ‘Focus on Key Suppliers’ section of this bulletin is used specifically by the Single Source Regulation Office (SSRO).

This bulletin is also used widely within the Defence Industry. Specifically, these users include ADS group (who use the data to establish their membership thresholds), the Defence Industrial Council, BAE Systems, Babcock International and the Royal United Services Institute (RUSI).

Additionally, the HQ contracts and miscellaneous expenditure data gathered to produce this bulletin is used to provide input to questions from the Office for National Statistics and to answer a high volume of external correspondence (Parliamentary Questions and Freedom of Information requests) relating to commercial/contracts data. Common requests include: spending with suppliers (overall and for specific companies); details of suppliers providing specific types of service such as Consultancy and Training; contract expenditure by industry sector and details of contracts in specific location of work areas (normally associated with Ministerial visits or base closures). The production of this bulletin builds up the data and expertise to answer these requests, further contributing to public accountability.

Two of the tables in this bulletin (Major Equipment Projects and Identified Export Orders) are based on figures published elsewhere. However, they are visualised and summarised differently in this bulletin to provide high level clarity.

The MOD has previously held consultation meetings with users of Defence Official Statistics which provided a forum for user feedback on their needs and perceptions. Internal publication reviews have also taken place. Proposed changes were set out at the consultation meetings to gain feedback from both internal and external users.

We continually monitor the requests for information that we receive and identify any common themes in these requests. Tables 3a and 3b were developed and published at the request of external users.

Previously, we have had requests to subdivide spending with the top suppliers into a specific spend category, such as consultancy and legal advice. However, it is not possible to accurately link the contracts data to accounts data which would be required to answer this type of question.

The MOD invites users to provide further feedback to the statistical output teams on any of their publications or reports using the contact information at the end of each publication.

6. Accuracy and Reliability

In this section, the accuracy and reliability of the two main datasets, HQ contracts and miscellaneous expenditure, will be detailed (the statistics that rely on these underlying data sources have been identified in the Statistical Processing section of this Background Quality Report). Following this, any issues specific to each section of the bulletin will be detailed.

The HQ contracts and miscellaneous expenditure cover a significant subset of MOD expenditure, excluding pay and personnel costs. These two sources provide information on those contractual bills paid directly by the MOD’s bill payments centre to defence suppliers. It is estimated that the data contained on the database covers around 95% of all payments made to defence suppliers. It does not, for example, cover those payments which may have been made by (a) British Defence Staff (United States) and (b) locally by the Department through local cash offices.

HQ contracts

The basis of the HQ contracts data was the DEFFORM 57, which was the data collection form used as the authority to start paying invoices in relation to a newly set up contract. It was a requirement that the Commercial Officer who signs off a contract also completed a DEFFORM 57. However, since the introduction of CP&F it has become the individual Commercial Officer’s responsibility to add the data directly to CP&F themselves.

The introduction of CP&F was designed to improve data quality with information being input at the start of the contracting process and being contained within one system. However, since its introduction in late 2016 there have been problems with missing data. To improve data quality for this bulletin, HQ contracts data from CP&F was combined with older data extracts held internally that still contain relevant information, and extracts from ASPECT, another legacy data entry system for Commercial Officers. The Analysis Directorate has been engaging with interested parties to improve the quality of the CP&F data. Work is currently being undertaken with commercial teams to ensure that the data does get populated via commercial focus groups, CP&F briefings and contract management teams. Once the data becomes better populated it is planned to provide briefings to new and existing Commercial staff and write articles to be included in Commercial newsletters highlighting the importance of the information collected through this process.

In the 2021 bulletin, the Analysis Directorate initially took the decision to not include a competitive/non-competitive split for the number and value of new contracts let due to the level of contracts missing the competition marker, as this could lead to misleading conclusions being drawn from the data. As set out above, processes were in place to improve the quality of the data and the bulletin has subsequently been revised to show this split.

Although expenditure on international collaborative projects is recorded on the database, neither the suppliers providing the service, nor the agreed contract type are known. The absence of these data is a concern to us as these can relate to significant amounts of expenditure. We note, however, that the sums involved are not identifiable from the MOD’s bill payments centre. As collaborative procurement continues to expand, the need for these data will grow.

A further issue raised by the introduction of CP&F was the appearance of ‘parent’ and ‘child’ contracts. Child contracts have the same contract number as the parent, but with the addition of hyphenated numbering (i.e. -1, -2, etc) at the end of the contract number, and will eventually have a value equal to the value of the parent. When calculating annual expenditure against a contract, both child and parent contracts are included in the count. However, when calculating total contract values or the number of contracts, only parent contracts are used.

Miscellaneous Expenditure

Annually, payments of around £5 billion to £6 billion are made to miscellaneous contracts on the database, yet the details retained on these individual payments are particularly limited. There has been a move to bring more of these types of payments under HQ contracts in recent years, such as payments to NETMA, however this has not resulted in improved data quality as these HQ contracts still lack the supporting data you would usually find with a HQ contract. Typically, miscellaneous transactions are used to pay collaborative projects such as OCCAR, payments to foreign governments and other government departments in the UK; in addition, smaller amounts of expenditure are made to thousands of small suppliers using this method as one-off payments.

For Specific Statistics

Organisations paid over £5 million by MOD (Tables 3a and 3b) and holding companies paid over £50 million by MOD (Table 4a)

The main accuracy issues for these statistics relate to those described for the HQ contracts and miscellaneous expenditure. In addition to this contract data, information is also drawn from Dstl, UKHO and ePC systems. This data has been sought to improve the quality of supplier spending figures, as it allows us to identify spend with individual suppliers rather than using the large lump sums paid to each Trading Fund, Defence Agency and the Royal Bank of Scotland. The Dstl and UKHO data are obtained directly from the payment system of these two organisations. As such, we cannot control the quality of this data. The ePC data is obtained from within MOD. Suppliers that have been paid by both MOD Core Department and at least one of Dstl, UKHO and ePC are identified, and payments to these suppliers from all sources are summed. This is possible for Dstl and UKHO, which have fewer suppliers. However, it is not possible for all of the suppliers paid through ePC payments as it would be too labour intensive for the subsequent marginal improvement in the coverage of the data.

Prior to the 2020 release, ePC data was included at supplier level only for those suppliers paid more than £1 million through the ePC system. To improve the quality of data included within Tables 3a, 3b and 4a, in 2020 ePC data was matched down to a much lower level, such that we were confident any ePC payments excluded had little or no impact on the published totals for each supplier or holding company.

6.1 Data Revisions

Revisions to this bulletin were made in February 2022 due to both late reporting of new contracts with a start date in 2020/21 and improved cleansing of the competitive indicator field. We have followed the Ministry of Defence Revisions Policy while making any corrections. The revision was also timed to include the latest DIT UKDSE figures.

7. Timeliness and Punctuality

7.1 Timeliness

This publication is aimed to be released in September each year. The exact release date is announced in the calendar of upcoming statistical releases, as set out in the Code of Practice for Official Statistics.

7.2 Punctuality

There is a five-month gap between the end of the financial year and publication of this bulletin to allow for data collation and analysis.

8. Coherence and Comparability

Currently, there is a single break in series in sequential years of data in the defence exports data. This specifically affects figures on ‘Estimates of Identified Export Orders: Defence Equipment and Services’ presented in Figure 13 and Table 8 between 2018 and 2019. In 2019 there was a change in the methodology used to count the number of exports. Prior to this date, collaborative exports were not counted (for example, Typhoon aircraft exports to partner nations such as Germany, Italy and Spain). The break in the data is marked with “//” in Figure 13 and “[b]” in Table 8. UKDSE estimates that in 2019 this accounted for an additional £600 million in UK defence exports.

In earlier publications and prior to the range of data displayed in this bulletin there may have been further breaks in series. Where this has occurred, information can be found in the Background Quality Report for the relevant year.

9. Accessibility and Clarity

The statistical bulletin can be accessed on the GOV.UK website where it is available to download in HTML format. Its release is noted in the ‘Finance and Economics’ section of MOD’s list of national and official statistics by topic and can also be found by using an internet search engine.

All tables and data behind any graph or chart in the report are available as accessible Open Data Source (ODS) tables.

The main report begins with initial key points and introductory comments, and after this is split into sections, with statistics on industry and contracts listed first, and trade last. Visualisations have been chosen to best display patterns and trends within the data. Terms used in the commentary are defined within the glossary of the HTML bulletin.

Figures within the bulletin and ODS tables are often rounded to aid with clarity. In these instances, we have followed the Ministry of Defence Rounding Policy.

Should you have any feedback on the accessibility of any part of the bulletin or accompanying data tables then the Analysis Directorate encourages you get in touch via any of the means noted in the Contact Details section.

10. Trade-offs Between Output Quality Components

Table 3a presents supplier expenditure information for those organisations receiving £5 million or more by the MOD Core Department, Dstl or UKHO. Similarly, Table 3b shows organisations paid £1 million or more by Dstl and UKHO. While these tables provide the actual payment data for suppliers above these thresholds, there remain a large number of organisations below the respective total payment values. Due to time constraints, only information on the largest suppliers is provided and so there remains an issue with balancing the desire for transparency against the publication of information that might be commercially sensitive.

11. Cost and Respondent Burden

In producing these statistics, our main data sources are administrative data which are used for many purposes. On occasion the data has required manual cleansing due to missing or incorrect information following the introduction of CP&F. However, this cleansing cannot be avoided as it is the only way to improve data quality to the standard required for this publication. Going forward we intend to use wider education methods in consultation with Commercial Managers to improve data quality.

12. Confidentiality and Security

12.1 Confidentiality - Policy

In producing these statistics, we adhere to the MOD Analysis Directorate Confidentiality Policy. A disclosure policy for commercial data has been agreed and a process now exists for deciding on the release of data that is consistent with the Transparency Agenda and the existing rules relating to the answering of Freedom of Information requests.

We adhere to the principles and protocols laid out in the Code of Practice for Official Statistics and comply with pre-release access arrangements. The MOD Statistics Pre-Release Access Lists are available on the GOV.UK website.

12.2 Confidentiality - Data Treatment

The Analysis Directorate maintains good links with policy colleagues to ensure that these statistics are understood and to prevent misuse. We regularly review our commentary and visualisations to ensure the data is presented in the best way possible.

12.3 Security

The team operate a secure environment for the storage of sensitive commercial data and other linked data. All data used in this bulletin is stored and managed securely on an internal SQL server.