Defence Single-Source Procurement – NAO Report and CEO Resigns

Marcine Waterman has resigned from her post as Chief Executive of the UK’s Single Source Regulation Office (SSRO), the body that regulates defence procurement when there is a lack of competition. We have previously reported on what appeared to be tensions between the organisation and not just the defence industry on the supply side, but also between the SSRO and the Ministry of Defence.

No reason was given for Waterman’s departure, and she has been in the role for over two years, but it did appear to be quite sudden, and follows previous short tenures for two Chairmen of the organisation. Rumours suggested that they may have been frustrated by the lack of enthusiasm and co-operation from the MD itself for the work of the SSRO.

In terms of Waterman’s departure, coincidentally – or perhaps not – the National Audit Office published a report last week looking at the work of the SSRO and how the MOD manages single-source contracts generally. It is another interesting report from NAO, although some of the issues it identifies are somewhat intractable.

The NAO summary explains the need for the SSRO. As at July 2017, 110 contracts (95 contracts and 15 sub-contracts) had been brought within the Regulations, with a combined value of £23.9 billion.

Competition is the best option to drive value, the report says, however “such competition is frequently absent on the largest defence contracts where there may be only one supplier or where security considerations require the Department to contract with a trusted national supplier, for example, for nuclear-powered submarines or complex warships. In 2015-16 the Department spent more than £8.8 billion non-competitively”.

Most suppliers are now accepting the need to work within the Regulations devised by the SSRO, but some are resisting them and failing to provide the required information about costs and prices. As NAO says,

“The Regulations give the project teams and other commercial staff greater access to supplier information than ever before, putting them in a stronger position to drive down costs. A particular challenge is gaining agreement from contractors to bring existing contracts brought within the regime ‘on amendment’, although these can be the highest-value ones”.

You might expect the buyers to put pressure on suppliers to play ball, but it may be that some do not relish the additional attention that the SSRO might bring to “their” contracts, or it may be a case of trying to avoid additional work. But it does seem that sometimes MOD does not support the SSRO as might be expected.

The NAO report also yet again stresses the need for good contract management. The MOD claims that the SSRO has saved lots of money - “The Department estimates that by July 2017 the Regulations had achieved reductions in contract prices of £313 million through application of the Regulations. This represents some 3.9% of total contract values. Part of this is cost avoidance, and part contributes towards the Department’s ten-year target to save £1.7 billion from existing projects in the Equipment Plan through application of the Regulations”.

However, the NAO report points out that realising these savings will depend on effective contract management, and as it also highlights some inconsistency and weakness in the data available, there must be a question mark as is often the case when it comes to public sector “procurement savings”.

The report also questions whether the MOD is approaching its stated desire for competition as often as possible in a structured manner. It says it wants more – but cannot show exactly how it is going about trying to achieve that goal. The percentage of spend not competed is stuck at around 50% for equipment contracts.

So, while the SSRO as an initiative is to be applauded, and is having some success, there is more opportunity, according to the NAO. That sounds like another priority area for new Chief Commercial Officer Andrew Forzani to consider!

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