Can MOD afford to follow the ODA “delivery partner” model?

We had some good comments on our post about the cost of CLM – the Olympic construction “delivery partners”. Their staff cost the Olympic Delivery Authority on average £289,000 per annum.  “Final Furlong” raised a very good point that I confess, I hadn’t really considered.

So that will be 472 ‘external’ staff who have been significantly trained and developed (and are now experienced) to source and project manage a major construction programme in government. All of whom will disappear once the programme is complete.

How true and what a shame!

Anyway, we mentioned the other day that this model was one that the Ministry of Defence were considering for their procurement / contract management organisation, Defence Equipment and Support (DE&S).

So let’s say MOD goes down this route. Are the public and media ready for a model where the “Delivery Partner” might be paid around £300K a year per person? Where staff earn around something approaching £100K on average? (Probably 2 to 3 times more than the average MOD person currently engaged in this type of work).

Because that may well be what it takes to get skilled private sector folk to manage huge, difficult and sensitive programmes (like aircraft carriers) successfully. Indeed, a real danger I can see is MOD going ahead with this sort of model but trying to do it on the cheap – with a partner who think they can do it with people on MOD wages. Outsourcing MOD staff to Serco, calling them a delivery partner and hoping for a magical transformation in capability is unlikely to work in our opinion.

But there’s the cost, if MOD do follow the ODA model. At the moment, DE&S costs about £1.5 billion a year in running costs, and manages a construction programme worth around £15 billion a year. So DE&S costs around 10% of the total acquisition budget, not dissimilar to the cost of the Olympic Delivery partner compared to the construction costs in that programme.

BUT… there’s a big difference. CLM worked a little on procurement, but mainly on contract management of the large construction projects. DE&S however has a much wider span of responsibilities. That includes some totally non-acquisition related activities, like military catering, and management of various bases. Then, even within the acquisition sphere, DE&S are involved – and spend money on – acquisition strategy, design, R&D, testing, and the whole end to end procurement process, as well as contract / construction management.

So the contract management element of DE&S is only a fraction of their total budget and span of responsibilities. If a delivery partner followed the CLM model, then MOD could spend as much on just the contract management element as they currently do on their entire operation.

Maybe that’s why it has all gone very quiet in terms of Bernard Gray’s plans for DE&S? We’ve been expecting announcements for some time, although our sources suggest we might actually hear something next week. Perhaps the idea of greater involvement of the private sector, attractive though it is to many (and I’d put myself in that camp), is proving financially difficult?.

The argument would have to be made that spending more on contract management will save money from the full acquisition cost - so increase the 10% current management spend in order to reduce the 90% supply chain costs. Of course that argument requires a leap of faith and an upfront cost, and it will take some years to see if it has paid off. That will be tricky given the current financial climate, but the alternative is very challenging for MOD – is it feasible to reduce the cost of DE&S AND improve its performance simultaneously? We'll see.

Voices (2)

  1. huhh?:

    The reason you hire people in for high profile work is simple. If they f**k-up, then you have somebody handy to blame, pillory and fire. Hire in permanent people and it’s an HR, PR and career nightmare.

    That’s what drives the multi-billion management consultancy industry – the ego of senior managers. Nice.

  2. bitter and twisted:

    If its really a skill problem – which i doubt – why cant the MOD just hire better people at higher wages?

    Seems to me that fundamentally, the government has to be prepared to crush – sue, bankrupt, and nationalise – a defence supplier that doesnt deliver the contract.

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