MOD GoCo – our readers comment on the White Paper

Our post last week on the Ministry of Defence  White Paper drew some interesting and perceptive comments.  One major theme – not surprisingly – was around the whole issue of skills. One of the benefits suggested from moving much of MOD procurement into a GoCo (government owned, contractor operated) entity is the issue of skills. The GoCo will be able to make use of better and presumably higher paid staff.

Bitter and Twisted made the core point, summarising the GoCo idea as this:

“It’s impossible to pay civil servants enough money... so we have to privatise it”.

But that then leads on to the question of who is going to manage the GoCo once it is in the private sector. As PlanBee put it:

“unfortunately the civil service will still be unable to afford the kind of resource required to keep GoCo on their toes; we’ll just have to trust them”!

That’s a fair point – if DE&S can’t attract the right people now, how will MOD ensure it has the staff to ensure it is an intelligent client of the GoCo?  And maybe it is not just around the best people.. Dan said

Basically, it’s a case of “we can’t afford to pay enough to attract the best people and we’re too scared to get rid of the under-performing people so we’re going to outsource it and effectively pay a private company to do it for us”.

However,  “Public Sector Refugee” ( a very senior one, I suspect)  identified another driver which, as he says, may not be fully understood by the politicians.

The fundamental flaw in all of this, which Ministers have not yet twigged, is that defence procurement is a high risk proposition: it is technically risky in terms of engineering; it is risky because the military requirement keeps changing; and it is risky because budgets are constantly being squeezed to meet short term needs, leading to irrational programme management decisions.

 At the moment all that risk is borne for free by DE&S but that leads to cost over runs, delays etc. A GoCo will require a high risk premium which in the end will either make the same equipment programme cost a great deal more or require a much smaller equipment programme. The danger for the MOD is that a Bechtel will low ball their bid and, in the time honoured fashion, make their money on change control every time Ministers want to change the requirement or save money in the MOD.

 Bernard Gray in his original report on MOD procurement identified the constant changing of requirements as an issue – whether driven by politicians, the military themselves or indeed the sheer pace of technological change. As our perceptive reader says, in the new “contractorised” world, the result could be huge “cost of change” invoices from Bechtel or whoever.

Now I think Jon Thompson, Bernard Gray and indeed Philip Hammond are smart enough to understand  this. So perhaps they feel they can put the right intelligent client safeguards in place – very clever contract management processes – to avoid it. Or perhaps they feel this is the only way to get the stakeholders to behave properly?  If the result is a bill with a lot of noughts every time some future Minister or Chief of Defence Staff demands a change in specification for a major programme, then perhaps they will stop demanding such changes?

Or perhaps GoCo still won’t come to anything. And it is interesting to see MOD announcing a huge procurement recruitment drive in parallel to the GoCo developments.

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Voices (3)

  1. Mark James:

    Trust me, all the risk lies with the Department, there is no private sector operator that would underwrite the nature of the risks associated with defence procurement.

  2. Mark:

    It doesn’t solve your problem to privatize it. Grays biggest problem is the business case for/ against GOCO, it just isn’t proven. The numbers don’t stack up because there aren’t any, his arguements are aphilosophical based on private is good, public is bad. He hasnt even tried to reform the system we have, which is weak.



    Bernard Gray certailnly saw a more contractual realtionship between the GOCO and the MOD as the key to less dysfunctional behaviour by the latter. But there is not much evidence that Ministers have taken on the risk issue-its almost complete absence from the Defence Sectretary’s statement in Parliament is perhaps indicative of the fact that the uncomfortable debate around risk is being ducked yet again.

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