MOD GoCo – really dead now, but why didn’t it happen?

So, the Ministry of Defence Government-owned, Contractor-operated idea (GoCo) is officially dead now, for the moment at least. But there will be some sort of trading fund structure, giving more flexibility to pay staff loads of money (see here). We'll come back to the alternative plans shortly.

Now before we analyse the reasons why ultimately this didn’t come off, I should just say that I’m not celebrating.  I know we tried to have a bit of fun with our dead parrot sketch, but honestly, GoCo  wasn’t something I was violently opposed to personally. If you go right back to our first major commentary on it, which we wrote two years ago, before pretty much anyone else was talking about GoCo, you’ll see I discussed the GoCo option, along with what became the “DE&S+” idea, and said that there were positives and negatives with all options. As I said about the GoCo then:

“It does have attractions though – as the report said, as well as bringing in private sector expertise, it would “also clarify the interfaces between DE&S, industry, the Requirements community and the Front Line Command military users. This arrangement would force each of the participants to formalise and cost significant changes to requirements or timescale.”

We’ll come back to that very issue in part 2, by the way.

But I did feel, as matters progressed, that one key question was never answered very satisfactorily. If MOD was struggling to manage its largest contractors now, how could they make sure they could manage the GoCo contractor properly in the new world?

I also felt, having met them both previously and then heard them speak about GoCo at a conference about a year ago, that both Philip Hammond and Jon Thompson, MOD Minister and Permanent Secretary, are intrinsically cautious men. That made me feel that the whole initiative was less likely to come to fruition – not a comment on my own thoughts, just an observation on the people involved.

So, what finally ‘went wrong’ with the GoCo concept?  We need to go back to the original drivers to try and understand – and do note that this is my interpretation, without any inside information from  MOD. My suspicion is that a number of issues coalesced, and ultimately it was the understandable commercial caution of the MOD, leading the bidders to believe that they weren’t going to be able to make enough money out of the contract to justify the risk they were being asked to take on.

For example, at the Public Accounts Committee the other week, ‘open book’ contracts were being presented as the saviour of public procurement. (They seemed to be Cabinet Office’s latest answer to all contracting problems). So if the view here was that the GoCo contractors would themselves be closely monitored, on an open book contract with restricted margins and so on... you can see how this could start looking less and less attractive.

Indeed, this is a real dilemma for the public sector and its suppliers now. If in the case of the GoCo we constructed a very effective risk / reward contract for Bechtel et al, such that they took a genuine 20% out of the MOD equipment budget through brilliant work, but got to keep half of that themselves, the tax payer should be delighted. But you know what would happen. The media, Public Accounts Committee and probably Cabinet Office would be complaining about “excess margins” and how MOD clearly didn’t know what they were doing when they set up the contract.

So, it may be that the potential GoCo contract ended up being not attractive enough for the potential suppliers in terms of return, with what might appear to be an effective “cap” on how much they would ever be likely to earn from the contract.  At the same time, MOD may have been looking for them to take on significant risk in the contract – and we’ll look at that issue in more detail tomorrow.

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