The future of MOD procurement – 15 firms consulted about DE&S plans

We’ve commented a number of times about the UK’s Ministry of Defence plans for their Defence Equipment and Support organisation – we’ve been waiting for something to be published for some time. Well, following a bit of detective work and some discussions with informed parties, we’re a bit clearer on what’s going on.

Firstly, the reason for the delay. It looks like the DE&S strategy will form part of the output for the 2012 MOD plan (PR12). That’s going to be an interesting and potentially controversial document anyway, independent of any DE&S material. Since Liam Fox announced in October that the MOD now had a “broadly affordable future defence programme”, we’ve been waiting to see just what that means. I wonder whether the Fox comment was somewhat premature – he was succeeded by Philip Hammond, a very analytical and cautious character, who has clearly spent some time poring over the figures!

So PR12 is late, and has now got caught up in the Easter recess and the local government elections next month – sensitive political announcements aren’t made in the run up to elections. Hence it will probably be May before we see both the detailed equipment programme and the thinking on DE&S.

However, despite the lack of formal announcement, it is clear that the three options we first featured here in October are being pursued. And it’s moved on recently, as MOD published a PIN (prior indicative notice) a couple of weeks ago, inviting organisations to comment on their plans as part of what they’re calling “soft market testing”. We're pleased to see this was openly advertised - we had the (incorrect) impression that this was "cosy fireside chats", which it clearly isn't.

MOD is asking for views on the non-departmental public body idea and the “GoCo” option (closest to full outsourcing). There is no mention of the third option, a Trading Fund, which always seemed to us like a weak option in terms of the changes that are probably needed. Here’s an extract from the PIN:

This programme of work has identified three key problems that need to be addressed to improve defence acquisition performance across MOD, DE&S and industry: the overheated programme; the sub-optimal interface between the deliverer (DE&S) and customer (wider MOD); and the gap in DE&S’ business capabilities to plan and execute equipment procurement, support and logistics. To address these, DE&S needs a new organisational structure and two of the options that are being explored include private sector involvement:
— an executive non departmental public body with a strategic partner,
— a government owned, contractor operated (GOCO) entity.

The MOD goes on to identify 8 areas of expertise – delivery of major and multiple project, procurement, organisational change and so on – where external expertise might be useful.

A briefing session was held last week, and we understand MOD is in the process of organising one to one discussions with around 15 of the organisations who have responded to the PIN. That won’t be just the “usual suspects” (i.e. the large defence firms) – the idea is to get a cross section of organisations who can put forward ideas.

To inform its decision on who to invite to the soft market testing process, DE&S will assess the responses and select a cross-section of respondents which, in its view, are together able to demonstrate a sufficient depth of experience and relevant track record in the kinds of business outlined in this notice.

Won’t this all bias the process if this does end up going to market as some sort of contractual opportunity? I’m assured not – MOD will make sure any future bidder has access to everything and anything that the chosen 15 get. And there is no guarantee that any ideas put forward will be incorporated in a competitive process. As long as this is managed properly, it looks to me like a fair process, and a good way of getting market input prior to competition.

As we said here, the GoCo feels like it might be a radical step too far. The NDPB model could take a number of forms, including the NDPB getting into a “partnership” with one or more private sector firms to help drive change and improved performance.

We’ve got reservations about some “partnerships” in the public sector (Surrey and West Midlands police comes to mind) and while MOD are certainly approaching all this in a much more considered manner than that example, we might still question whether a single “partner” is advisable. But I could see some sort of arrangement with perhaps a small number of partners in different areas (given DE&S does have a very broad portfolio of activities).

So we’ll watch with interest. And remember -  this organisation employs more procurement people than probably any other in the UK, probably Europe. So the ramifications here could go well beyond MOD itself.

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