A decision to delay the decision about MOD procurement as DE&S uncertainty continues

Last week, Philip Hammond, the UK’s Defence Minister, announced the next stage in the move towards turning the MOD's Defence Equipment and Support (DE&S) organisation into a “GoCo” – a government owned, contractor operated entity.  This whole initiative has been dragging on now for years . Bernard Gray, the architect of the plan, joined MOD in January 2011 but wrote his report (the beginning of this whole debate) in 2009, so it has taken some time just to get to this point of announcing – well, announcing that no real decision will be made for another year (at least)!

Whilst at first they might have seen this as news of real progress, there was a sting in the tail of this announcement for the potential private sector consortia who are looking to take this on. The MOD is launching a procurement process shortly, which will take around 12 months, and is likely to be for one part of the whole DE&S business – rumours suggest it could be the RAF ( the Air Force) element of DE&S’s work

But in parallel, further work is going to take place to scope out a “DE&S +” option by which the organisation would stay in the public sector. In 12 months time, the decision will be taken, either to proceed with whoever has won the competitive process, or to move to the DE&S+ option.

Here’s the official announcement.

“Throughout the next 12 months, MOD will continue to work with the Treasury and the Cabinet Office on the ‘DE&S+’ option to explore the extent of change that could be delivered whilst keeping the organisation fully within the boundaries of the public sector.

In parallel, a commercial process will be launched today that will enable the department to start discussions with potential industry partners about how a GOCO organisation would work in practice".

So it’s a real gamble for the potential bidders, who are likely to be consortia, each containing some combination of project management specialists (e.g. Bechtel, CH2M Hill), BPO firms ( e.g. Serco, Capita, Balfour Beatty),  consultants (e.g. EY, PWC, KPMG), defence industry specialists, logistics firms (e.g. DHL) and perhaps even some financial muscle.

It will be a hugely complicated bid, exacerbated by the need to get the consortium lined up and co-ordinated. Each will spend probably hundreds of thousands of pounds on the bid costs, knowing that there is some reasonable probability that no contract will be awarded at the end of the process. There’ll be some tough discussion taking place in boardrooms around the world right now, I suspect. But the prize is so great, I do expect that most of the key firms will decide to go ahead.

This decision – to delay even further making a final decision - reflects Hammond’s innate caution. An accountant by training, and a successful businessman before he became a politician, he is certainly not a gung-ho character driven by ideological desires to privatise. He is a pragmatist, as is the MOD Permanent Secretary Jon Thompson, which might in itself worry the market.

Personally, I think the chances of a full DE&S GoCo are still less than 50%. We’ll be back later in the week to explain why.

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Voices (5)

  1. bitter and twisted:

    Can anyone remind us what the benefits* of a GoCo are supposed to be?

    Do Capita buy tanks?

    Do DHL buy fighter jets?

    *(Apart from some new nice jobs for ex-MOD bigwigs and politicians of course)

    1. Final Furlong:

      No they don’t but it would be entertaining if they did. Perhaps they need an ‘online marketplace’ run by Tesco (Colin Cram’s model) where they could buy a kalashnikov with a range of optional extras, eg: with or without a magazine….(!)

      1. Sanity Check:

        Or army rations containing horse.

        GOCO is just about the stupidest idea that has been thought up so far. Bernard Gray should go back to journalism. Just how much money has this wasted?

        1. Peter Smith:

          Personally, I think journalists – particularly if they have some real life procurement experience – can make very good senior civil servants on £200K+ a year and a nice pension.. What, me? Well, I would not seek such advancement, but if it is in the service of my country….

  2. Stephen Heard:

    Interesting. When I was at what was OGC Buying Solutions we looked at the GoCo option when deciding our growth strategy and decided it was too risky as the chances of forming an organisation that was still in the public sector was too great and we would have destroyed one of the unique selling points. There is also the legality of setting up framework contracts as a GoCo without some commercial construct back into the public sector.

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