LONDON — The organization responsible for policing single-source defense contracts in Britain is to look at whether US foreign military sales (FMS) and other government-to-government (G2G) deals should be scrutinized to ensure taxpayers' money is being spent effectively, a top Ministry of Defence (MoD) official has told Parliament.
Britain introduced legislation in 2014 to set up a Single Source Regulations Office (SSRO) tasked with securing better value for money from defense contracts awarded without a competition. But the MoD ruled against including FMS and other G2G deals.
Now the SSRO is set to raise the issue again as part of a wider review now underway on the effectiveness of the current Defence Reform Act legislation.
"The  SSRO  will make recommendations to the secretary of state for defense in June 2017 on changes to the legislation. They have indicated that they will review this exclusion [of G2G deals]," recently appointed Defence Procurement Minister Harriett Baldwin said in response to a question in Parliament.
A decision by the defense secretary, currently Michael Fallon, on any changes to the regulations is expected by December 2017, Baldwin said.
The MoD has a statutory obligation to review the regulations within three years of their introduction, but while the SSRO can make recommendations, it's MoD ministers that have the final say whether the proposed changes are implemented.
Aside from adjudicating on allowable contract costs, the SSRO is also responsible for recommending the annual base profit level that industry can earn for single-source contracts.
Single-source contracts are big business in Britain. Last year alone the MoD spent £8.8 billion (US $10.8 billion) on noncompetitive contracts like the F-35 combat jet — more than half of the entire annual equipment and support budget.
While British and foreign companies can be referred to the SSRO by the MoD for scrutiny of their contracts for things like non-allowable costs, any deals done on a G2G basis, predominantly FMS arrangements with the US government, currently escape investigation.   
Concerns over the lack of transparency on British FMS deals have primarily revolved around the more than $5 billion worth of contracts announced at the Farnborough air show in July for the purchase of Boeing Apache attack helicopters and P-8 maritime patrol aircraft. 

Other FMS deals could be in the pipeline. Earlier this year, Defense News reported the British were in discussion with the United States over the possible purchase of Oshkosh-built Joint Light Tactical Vehicles.

The SSRO declined to comment on their move to bring G2G deals into the regulations.

But in the summary of a document published in September, titled "Perspectives on non-competitive defense spending," the organization argued that FMS generates transparency and justification issues that need scrutiny.

"Foreign military sales (for example, Poseidon P-8A and Apache helicopters) are decisions to award single source contracts which do not fall under the regulations and therefore do not benefit from the transparency brought by the regime. It is vital that there is transparency in all these cases and the reasons are fully justified," according to the SSRO.

Failure to open up G2G contracts can be counterproductive, according to Jon Louth, the director of defense, industry and society at the Royal United Services Institute think tank in London.  

"The lack of transparency drives uncertainty and cynicism. Some of these deals are really good for the operator and can be good for the taxpayer as well. Having a light shine on these kind of contracts would not necessarily be a bad thing," Louth said.

Elements of an FMS contract may not get a nod of approval were they subject to the rules and regulations applied to a straight commercial deal with a company, Louth reckons. But, he said, there is another reason these deals need an independent review.

"Why are we having these deals unless we can point to them being specific and exceptional? Something like P-8 is a good example. It's difficult to see why it trumps other potential solutions other than the operators really wanted it, there's nothing wrong in that, but let's at least put it to some kind of scrutiny if we are going to have uncontested solutions" the analyst said.

In theory, at least the SSRO is meant to be independent of government, but questions are still raised over its relationship with the MoD. Louth said the legislation review will help bring the issue into view.

"There is a significant debate going on in and around Whitehall and Parliament as to the role of the organization. SSRO itself is very bullish and articulating the view that it wants to be an independent regulator and thinks there is an important role for it to play in that regard," he said.

"Other people have been pointing to a position within MoD which appears to drive it away from that independence. The fact that it has to take almost everything back to the defense secretary for approval makes for a really interesting agenda being played through the review at the moment. G2G and FMS is part of that debate," he added.

In an article on the "Perspectives on non-competitive defense spending" document, Louth questioned whether an independent regulator and adjudicator should be "subject to Ministerial whimsy."

"Credibility is key as the SSRO develops and the debate on where it sits within government should continue," he said.

Though not everyone agrees independence is an issue.

An article in the March edition of an in-house publication of ADS, the main aerospace and defense lobby group here, said industry reservations about the independence of the SSRO had "not materialized."

Earlier, the SSRO criticized industry and the MoD for failing to meet the new regulations and said it had identified up to £61 million in non-allowable costs claimed by contractors working under single-source contracts. These included costs for charitable donations, Christmas parties and staff welfare.

Andrew Chuter is the United Kingdom correspondent for Defense News.

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