MOD procurement – White Paper published

The UK’s Ministry of Defence published a White Paper this week laying out some of the changes ahead for the procurement and commercial activities of the Department. The Paper, issued ahead of legislation, covers two main areas of interest.

1. A move to a new structure for handling single-source procurement, with the aim of saving £200M a year. The MOD has a fair bit of this, some 40% of its £10B + annual equipment spend. I've never in my consulting career got close to this element of the MOD work, perhaps not surprisingly, so I don't have much insight. But a typical example for single source quoted by MOD is:

“A manufacturing contract for an additional nuclear submarine, to add to the existing fleet, where it would be impractical to either have a different type of submarine or to pay for another supplier to replicate the same design”.

So the Paper talks about “replacing the Review Board for Government Contracts with a stronger arms-length body to be known as the Single Source Regulations Office (SSRO)”. And there’ll be a stronger regulatory framework to encourage suppliers to play ball, and some other fairly technical changes. As a taxpayer, a robust negotiating approach with the suppliers is hard to disagree with, but I'm not really clear how changing the body responsible will facilitate this. We’ll see.

 2. The White Paper prepares the ground for the possible GoCo structure for Defence Equipment and Support  (DE&S) that we’ve written about extensively including recently here.  It also clarifies how the GoCo will work. One interesting point is the clarification that the GoCo will act as an Agent for MOD in procurement terms. So MOD will still contract with the suppliers directly rather than the GoCo acting as a prime contractor. That avoids issues around funding and transparency that the GoCo might have had - but it does mean that the GoCo will still be bound by EU procurement regulations. (It's the way in which NHS Supply Chain works, which is run by DHL).

I think that is sensible, but of course it does restrict the GoCo's potential to be innovative and flexible in its procurement, or perhaps to implement some  cost-cutting efficiencies. And whilst the Minister appears to be positive about the GoCo, reading his comments and the documents issued this week, the MOD is still pursuing the in-house “DE&S +" option which will be the benchmark against which GoCo proposals will be compared. So whilst the odds in favour of the GoCo happening may have tilted slightly in favour, I still don't think this is a done deal.

I'm still open minded about the GoCo, but I did like this comment from the Spectator blog website. An article by a Tory MP, which was in favour of the GoCo but (in my opinion) not particularly insightful included this remark -

"A GoCo model will provide a more appropriately staffed and incentivised workforce and an environment that is able to appoint the necessary and sometimes more expensive resources to keep defence contractors on their toes."

One of the comments on the article, from "Ricardo's Ghost",  was this:

"So, we think that we have a problem of recruitment and retention of well-qualified staff in defence procurement because we make them stick to civil service pay grades which cannot compete with the private sector. Instead of dealing with this by changing the pay and conditions of defence procurement staff, we think we might privatise defence procurement (probably bringing in a foreign company) to get around the Treasury / Cabinet Office pay rules. Doesn't that sound completely barking mad?"

That's not a bad point, Mr or Mrs Ghost...

Voices (9)

  1. Dan:

    One word (well, an acronym): TUPE.

    The people doing the procurement now will be the people doing the procurement for the GOCO.

    1. Final Furlong:

      Ah! Also known as a NOGOCO

    2. Final Furlong:

      Mind you Dan, they’re going to have a ‘top-up’, just before they outsource it all….

      http://www.supplymanagement.com/news/2013/mod-engages-in-biggest-ever-purchasing-recruitment-campaign/

      1. Dan:

        Basically, its a case of “we can’t afford to pay enough to attract the best people and we’re too scared to get rid of the underperforming people so we’re going to outsource it and effectively pay a private company to do it for us”.

  2. PUBLIC SECTOR REFUGEE:

    .The fundamental flaw in all of this, which Ministers have not yet twigged, is that defence procurement is a high risk proposition: it is technically risky in terms of engineering; it is risky because the military requirement keeps changing; and it is risky because budgets are contantly being squeezed to meet short term needs, leading to irrational programme management decisions. At the moment all that risk is borne for free by DE&S but that leads to cost over runs, delays etc. A GOCO will require a high risk premium which in the end will either make the same equipment programme cost a great deal more or require a much smaller equipment programme. The danger for the MOD is that a Bechtel will low ball their bid and, in the time honoured fashion, make their money on change control every time Ministers want to change the requirement or save money in the MOD.

  3. PlanBee:

    Quote from above

    “A GoCo model will provide a more appropriately staffed and incentivised workforce and an environment that is able to appoint the necessary and sometimes more expensive resources to keep defence contractors on their toes.”

    the paragraph should have continued

    ” unfortunately the civil service will still be unable to afford the kind of resource required to keep GoCo on their toes; we’ll just have to trust them”

    Oh Dear

  4. bitter and twisted:

    skimming the white paper.

    1.

    Its impossible to pay civil servants enough money and freedom, so we have to privatise it.

    2

    Its possible to stop single-source defence suppliers from ripping off the tax payer through statutory regulation.

    Wow

  5. Paul Wright:

    B&T, probably they were, but if you think politics rather than procurement you don’t want options but firm committments. If you have an option and don’t use it the opposition can call this a “cut” in spending, or there may be pressure to exercise it to safeguard jobs when it is not really needed, and the option will be added to the budget when the opposition want to critise how much is being spent. This tactic works whichever tribe is in power.

  6. bitter and twisted:

    “A manufacturing contract for an additional nuclear submarine, to add to the existing fleet, where it would be impractical to either have a different type of submarine or to pay for another supplier to replicate the same design”.

    So they were too stupid to negotiate an option for additional orders in the first place ?

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