MOD, Bechtel, CH2MHill, the BBC and uncertainty about how new DE&S support contracts will work

BBC news in the West Country reported a few days ago on the story first covered by the Independent that Bechtel and CH2MHill are in pole position to win the managed service contracts for the MOD’s Defence Equipment and Support (DE&S). (See video below).

The BBC report picked up on fears from the staff union side at the Abbey Wood site in Bristol (pictured here), HQ for DE&S, that “up to 200 senior managers at the site might face redundancy” because “American companies are being brought in to oversee the work”. The unions tipped off the BBC, with concerns about the future of the senior management tier at Abbey Wood and that the US firms would “bring in up to 200 of their own experts”.   A local councillor also wasn’t very impressed by this.

MOD declined to be interviewed and said it would be inappropriate to comment at this stage as “the contracts will be announced next month”. However, we hear that after the broadcast, MOD weren’t very happy with the BBC. They have said that no redundancies are planned and that the report was inaccurate (in which case you might wonder why they refused to comment)?

This all led us to look again at the OJEU adverts for these contracts, which do make us wonder again just how this is going to work. As well as contracts to support IT & Finance, and HR, there are four “lots” valued at between £50 and 100 million each (over three years) to cover work with the Army, Navy, RAF and Joint Command support.

So are fears of redundancies misplaced? In which case, should we assume this £200 - £400 million in total is all incremental cost? And what will MOD actually get for this? This is perhaps the key sentence from the tender advert.

“The MSPs (managed service providers) will design, build, implement, help operate and embed a system of project management techniques and project controls across DE&S that will improve effectiveness and efficiency of its output delivery”.

So you could read that as an IT systems development project, but no, this looks more like a people based contract. The contractors’ staff will “have a key role in defining the behaviours required in the DE&S workforce and the MSPs’ personnel must be role models of ‘what good looks like’ as DE&S transforms”.

Therefore we assume the money is being spent on people on the ground (rather than goods or IT systems). So if we assume the annual value for each of the four domains as being £25 million, and also assume that the average Bechtel / CH2MHill person costs around £250,000 a year to MOD, then that would means 100 people for each of the four lots - more like 400 than the 200 of their “own experts” the union mentioned. On the other hand, if MOD negotiate as badly as they did with Alix Partners, then perhaps the average day rate will be £2000+ and that could mean “just” 200 people!

That’s a lot of pretty senior people hanging around, in addition to all the existing management. Now MOD might say that the contractors are going to be busy building this new process. But that can’t take three years, or 400 people surely. Or perhaps the existing DE&S executives will become contract managers, keeping tabs on Bechtel and CH2MHill? That needs doing, and doing well, but shouldn’t require many people. Of course, no planned redundancies doesn’t mean that core MOD headcount can’t reduce via natural wastage, and I’d be amazed if we didn’t see that happen as the contractors get settled in.

And if we are going to get two contractors here in the military space, are they each going to develop a different process? So the Navy and RAF will get the Bechtel system, whilst the Army and joint command get the CH2MHill approach? That doesn’t seem sensible. We also still have the fear that this will just exacerbate the squabbling between services around funding and priority that Bernard Gray, now Head of Defence Materiel, rightly indentified as a key issue back in his 2009 report. Picture Ali and Frazier, one with Bechtel in his corner, the other with CH2MHill.

Add to that the sensitivity around US firms telling the UK how to buy weapons (often from other US firms), plus the hostility we will see when the rates paid to these firms get exposed, including travel costs for flying over the US big-hats, and it’s hard to see this ending up well.

Finally, this coincides with Les Mosco’s retirement – not a great time for the most senior procurement person in MOD to be going, and we hear rumours that his deputy is likely to follow soon after. So a gap there, just at a time when MOD needs that top-level commercial and procurement nous to try and make this challenging approach work.

As a very senior ex MOD friend of my acquaintance asked me last week - "are you going to be writing any more about this DE&S dog's breakfast"?  We wish Gray and co well in this, but it doesn’t feel good.

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