MoD faces growing pressure over £600m consultants' bill

The Ministry of Defence was on Friday under growing pressure to launch a broader investigation into the £600m that was spent on outside consultants , as ministers conceded that some of the contracts should never have been approved. The chair of a powerful parliamentary committee said she would be demanding answers from the department, and union leaders urged the defence secretary, Philip Hammond, to refer all the deals to the MoD's internal fraud unit. The scale of spending by the MoD on hired help was underlined by documents seen by the Guardian, which appear to show the department spent more than £10.5m in the last two years on legal advice from some of the UK's top law firms. One firm of solicitors was paid more than £1.7m in fees for nine months' work. Another secured a contract for £2.9m. Questions over the amounts being paid to private firms emerged when the Guardian published details of the sums spent by the MoD over the last two years to hire technical consultants. Under a lax arrangement introduced in April 2009, officials have been able to award contracts for "niche" technical support for big MoD projects without ministerial approval. But spending in this area has ballooned. The department paid £564m to 380 companies in the last two years – in 2006, it spent £6m. All the money was drawn from the MoD's over-stretched equipment budget, which has been squeezed by cuts in defence spending that have already led to thousands of civilian and military personnel being made redundant. An internal audit of the contracts completed this month concluded that guidelines were broken or ignored, and that most of the contracts were awarded without any competition. Controls on spending for the programme, called Framework Agreement for Technical Support (FATs), were "poorly developed or non-existent", the report concluded. The disclosures forced Hammond to defend the need to buy in outside help, though he admitted this had got out of control. He said there was "a culture of sloppiness" at the MoD, which he blamed on the last Labour government. He also conceded that four of the 18 projects examined by the audit "were non-compliant with policy". He said: "In other words money was not spent as policy would have dictated." The defence secretary claimed that the money being spent by the MoD on management consultants, which comes from a separate budget, had fallen. "We are getting to grips with these problems, but we are dealing with a legacy of mismanagement that is deep and will take some time to turn around." The MoD said that all the officials responsible for awarding contracts "have been reminded of the proper processes to be followed", but that nobody had been reprimanded over the issue. Union leaders, who have been raising concerns about spending on FATs contracts for almost a year, said Hammond could save thousands of jobs if he brought spending under control. Steve Jary, national secretary of Prospect, which represents MoD civil servants, said there needed to be a broader inquiry so the department could rule out fraud as a reason for the massive spending rise. Unions also fear that management consultants may have been hired using FATs money – an action expressly forbidden under government rules. Jary said: "We continue to suspect some fraudulent behaviour under cover of FATs. This has to be investigated further. The coalition cannot simply blame the previous government. "It is the MoD that is at fault. It has been cutting its in-house capability without cutting its outputs. It has had no choice but to get this work done elsewhere at huge additional cost. "And it has been dishonest. Ministers were not told what would happen if they cut specialist staff, and FATs was designed to keep the real costs out of sight." Prospect has asked the public accounts committee (the parliamentary spending watchdog) to launch its own inquiry into the issue. Though the committee has not had time to consider the request, its chair, Margaret Hodge, said the matter would be raised at forthcoming hearings. "We are due to take evidence from the MoD about its 15 major projects shortly. I have no doubt this issue will be raised during those hearings." The MoD said the internal audit had found no evidence of fraud. It believes all the companies hired under FATs were providing technical consultancy, not management consultancy. Officials said that Andrew Robathan, the defence minister, was aware of the internal audit when he wrote to union leaders in June telling them there was nothing wrong with FATs. "He was aware that an audit was being undertaken, and that concerns had been raised. He had not seen its final conclusions," a spokesman said. Matthew Elliott, chief executive of the TaxPayers' Alliance, said: "It's appalling that the MoD has been managing its budget so catastrophically badly. This level of spending on consultants is disgraceful, and worse still is the fact that correct procedures were allowed to be so consistently ignored. "Some larger or more technical projects may require consultants to be brought in for their specialist expertise, but this should be in moderation."