Think Tank Shoots Down MOD’s GoCo Procurement Outsourcing Plans

I was asked the other day about the Ministry of Defence (MOD) senior procurement roles that were advertised recently in the context of the proposal to convert Defence Equipment & Support  into a Government Owned Contractor Operated (GOCO). How quickly might it happen, the prospective (and potentially very strong) candidate asked me?

Not very quickly, was my reply. Two years at least from now, I suspect, and – I said – the chances of it actually going through are still no better than evens in my opinion.

One reasons for that is the considerable opposition that will be marshalled against it, for both genuine and selfish reasons. On the “genuine” side, we saw on Friday a heavyweight think tank report (available here) from the Royal United Services Institute (RUSI). Here is Defense News reporting it.

RUSI’s Acquisition Focus Group said in the briefing paper that a decision in favor of a GOCO would result in the MoD embarking on “one of the most complex cases [of outsourcing] ever attempted.”

"The Focus Group, which numbers among its members Sir Brian Burridge of Finmeccanica UK, McKinsey’s John Dowdy, National Audit Office Director Tim Banfield and former defense material boss Sir Kevin O’Donoghue, warned history was littered with outsourcing deals that either or both parties come to regret — the G4S security fiasco at the London Olympic’s being the latest example".

These are serious people. Dowdy was the key Partner behind McKinsey’s Smart Procurement / Acquisition concept that was implemented as MOD’s strategy for some years. (I also had a big argument with him when I was CPO at NatWest but we’ll leave that for another day!)  General O’Donoghue is fairly recently retired – he was Bernard Gray’s predecessor and ran defence acquisition amongst other things.

The Group has identified the most basic weakness in the plan. As we said back last October, when we were the first publication to confirm that the GoCo was being seriously considered,

“The big operational danger with such a radical option may be that handing over so much power to private sector organisations requires a retained and highly skilled MOD “intelligent client” organisation, in order to manage the Go-Co(s) effectively.  Is MOD up to that?”

This is how the RUSI group put it.

“The GOCO proposal suffers from an inherent weakness, since it appears to rest on an argument that, because the government is not very good at negotiating and managing contracts with the private sector, it is going to negotiate an even bigger contract with a private sector entity to undertake the entire task on its behalf. Persuasive arguments against this logic need to be marshaled,” claims the RUSI Acquisition Focus Group.

The group does see two  - and only two – advantages.

The first was that the MoD could acquire the services of a higher class of program and project managers because a company can pay more than the public sector. RUSI said the government could easily give special dispensation to employ higher paid managers than it does at present.

The second is that a procurement company might be more resistant than the current DE&S teams to accepting proposals for requirement changes from the users.“That would help control costs but would also increase the chances that the MoD forces would be equipped with inappropriate and inadequate equipment,” said RUSI.

Another problem with the paying more argument is how it might be perceived by the public. We reported earlier this year on the average cost of the staff employed by CLM (the Olympic Delivery Partner) and a model perhaps for DE&S. The average cost per person to the public purse was £289,000 a year. Will the media and the taxpayer stand for that sort of cost for staff in the GoCo,  if that’s what it takes to get really top class project, programme and commercial managers from a private sector firm?

I have my doubts. Not that in itself does not invalidate this idea - but I suspect there's going to be a lot more debate before any final and firm decisions are made here.

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