§ Mr. Patrick Thompsonasked the Secretary of State for Defence what proposals he has to improve the value for money from defence procurement contracts by changing payment arrangements.
§ Mr. YoungerDuring this year, we have introduced a new approach to payment terms for defence contractors which aims to increase the incentive on firms to deliver goods on time and to the required specification with penalties for those who fall down on the job. Increasingly we will be moving away from terms which allowed contractors to be funded for all their costs, within the limits of the contract, with payments related to date rather than specific progress made.
One result, at least in the short term, will be greater uncertainty over the timing of our payments to 776W contractors. With the consent of the Treasury, arrangements are being introduced for a three-year period so that if, as a result of the new approach to payment terms, provision for procurement expenditure is underspent by more than the 5 per cent. limit of the existing end year flexibility scheme, up to an additional £400 million can be carried forward into the following year. This will be met, in the normal way, from the reserve within the public expenditure planning total for the year and will not increase overall defence expenditure taking one year with another. The new payment arrangements, coupled with the greater margin of flexibility, should help us to get better value for the money we spend, to the benefit of our defence effort.