How would GOCO procurement work in practice?
17 August 2012
The possibility of a government-owned, contractor-operated defence equipment procurement model is yet another defence reform issue that appears to raise more questions than it answers, as Aman Pannu, analyst at Frost and Sullivan, tells DefenceManagement.com
The move towards government-owned, contractor-operated (GOCO) procurement has been called for by Defence Equipment and Support rejuvenator Bernard Gray and, until G4S and the Olympic Games security farrago happened, ministers appeared to be all-but committed to adopting it.
Brought in from the private sector as Chief of Defence Materiel by former Defence Secretary Liam Fox, Bernard Gray produced a report on defence procurement in 2009 which tore the bloated and wasteful processes of old to shreds. Sat on by the government at the time, Gray's report pinned down the key problems with Ministry of Defence's multi-billion pound procurement disasters. He succeeded in pigeonholing several major and costly areas of failure and allowed all sides to agree on the main changes that needed to be made.
Having identified the conspiracy of optimism, specification creep and the shortage of commercial skills in the MoD's procurement arm – among many other issues - Gray's efforts to fix defence procurement are culminating with his most radical idea yet: GOCO procurement.
There may be a few questions that remain unanswered, however. GOCO outsourcing at the Atomic Weapons Establishment, one of the major examples cited by ministers and the MoD, has, for obvious reasons, not been fully open to public scrutiny. A GOCO Defence Equipment and Support (DE&S) would also be on a much bigger scale than AWE, too.
Aman Pannu, analyst at consultancy firm Frost and Sullivan, said that the recent failures of security contractor G4S to deliver enough personnel for the Olympic Games could "push" the key decision makers to reconsider the momentum in favour of GOCO. Indeed, Defence Secretary Philip Hammond has already said he has reconsidered the benefits of privatisation as a result of the issues.
"While it won't stop government from outsourcing altogether, the G4S experience will make government "more reluctant to relinquish control without guarantees of efficiency," says Pannu.
"…The UK Defence industry actually has a good track record in outsourcing. However, having a technical service outsourced cannot be compared to having a deciding mechanism outsourced. What will be the impact on timelines, decision making process and autonomy? Will this increase or decrease bureaucracy?" he asks.
The scale of the task in managing a huge multi-billion pound supply chain also magnifies any considerations that face smaller outsourcing deals, Pannu says. With some £150bn to be spent on equipment over the next decade the contractors' responsibilities would be huge and almost without precedent.
"We are talking about a supply chain which is going vertically deep to different tier levels," says Pannu. "As it goes further down into the tier levels it becomes more and more complex and fragmented. To be able to provide an environment of outsourcing of procurement which can create opportunities through the supply chain it is essential that this decision is very carefully considered.
"Will outsourcing this have any impact on programmes or opportunities for smaller companies? How can the larger companies leverage this position in terms of providing a much more efficient solution for the government in terms of what they procure? I think that it is very complex and that there is a lot more to consider," he says.
"Our concern here is very simple: have we done our maths properly? Have we seen the pros and cons, the risk attached to it? An area that is not spoken about today, but could be of concern is that if one or two primes were to lead does it risk fairness in terms of competition in the market, could that be skewed moving forward. These are very natural concerns that the industry could have."
Pannu's concerns were echoed by a recent Royal United Services Institute focus group report which raised a series of questions on the move towards GOCO. RUSI produced a document listing 20 unanswered questions about the process. How would a lead company to run DE&S be chosen? How long would the contract be? Would they make decisions or simply provide advice? How could a DE&S company make money while saving money for the government?
There is also a "very valid point" to be made that DE&S has been put through so much upheaval and overhaul in recent months that the end product might be the MoD's procurement arm being privatised when it is running at its most efficient, says Pannu.
"Industry definitely has the experience of expediting change," says Pannu. "If they are given a clear mandate of what is expected of them, they will find the right ways and the processes and efficiencies to deliver it.
"Government as a structure does tend to be bureaucratic, it's the nature of government, there are a lot of stakeholders, there are a lot of decision makers, there are very refined processes which kind of become a complex web of decision making and hence would it be possible to find that efficiency within the current system in view of changes that are going, the restructuring that are happening within the current system?
"We need to keep in mind that we are literally reducing our forces by say 20 per cent or so, but we are more and more buying, much more complex assets and of high value assets so to get that decision right is very essential."
HAVE YOUR SAY
17 August 2012
I always though "essential" was an absolute, not a matter of degrees. In any case I'd like to see what is promised to be delivered at these "different tier levels" - what freedoms can't be offered by HM Treasury to public service/Central Government that can somehow be magicked into existence by a private contractor? Will said contractor be able to recommend the award of PFI contracts, especially where conflicts of interest arise (e.g. a subsidiary, parent or partner company being involved or in a commercial relationship/joiny venture with the DE&S contractor - or expecting a future consideration of some kind; the civil service code of impartiality won't apply, and integrity is notoriously difficult to contract for). If contracts remain in the name of the D of S for Defence, how does a cabinet minister getting his decisions largely made by a multinational/overseas business conglomerate square with UK patliamentary democracy?
And are the Americans happy that their nuclear knowledge/materiel/sharing treaties will be void, all their ITAR stuff will potentially available to unvetted third parties, and their IPR and equipment/ammo designs and support strategies will be visible to companies whose shareholders include dodgy middle-eastern states? They may lose control over entire elements of NATO supply. Remember the dockyards and shares traced to Libya...
AlMiles - Bristol, UK
17 August 2012
Peter Wilby in today's Guardian summed it up with this evidence: "Opponents of outsourcing and marketising public services have made this argument for decades. Americans have long puzzled over why, after years of outsourcing, the federal government has more employees than ever. A book by two US professors, The Private Abuse of the Public Interest, gave the answer. When services are handed over to private firms, government has to create layers of monitors, regulators, inspectors, accountants, lawyers and so on to ensure they do the job properly and to respond to 'variously vexed' consumers and whistleblowers who complain that they aren't doing so."
AlMiles - Bristol, UK
20 August 2012
Surely as weapons systems become more Multi-task platforms than specailised any specs for new systems should require the amount of alterations we have seen with say type 23 frigates when built, Typhoon and others to be kept to a minimum at best. Obviously if something takes 20-30 years to get into production things will change, but instead of altering specs get the system into service and then update as and when.
If customer left final specs alone any cost slippage would be down to the supplier, this can/could be written into contract stating customer will only pay either fixed amount or a small increase, the rest would have to be found by the contractor. Giving open cheque contracts for systems has to stop!
As for g4s, they are a joke anyway and wouldn't be involved in system procurement but if government started using fixed price contracts, ie Japan-F35, things may get better (notice I say may and not will).
Still, a very tricky situation!
JC - UK
21 August 2012
If the customer stopped fiddling with the specs, JC, anyone could perform better than DE&S does - even DE&S.ALmils - the GoCo may be freed from Government (and some EU) procurement rules, covering propriety, green procurement, having to use the lowest bid supplier even if they didn't do well enough on a previous contract, etc, etc. As all these rules were, presumably, created to prevent abuse/misuse and waste of public funds, the problems they were created to manage will simply start up again.
Interesting to see Bernard Gray as a 'rejuvenator' since he seems to have laid the dead hand of bureaucracy even more heavily upon DE&S. I won't speculate upon his motives here. The mere fact he was appointed by Dr Liam Fox may suffice, given that gentleman's record in office.
Muddler - UK
26 September 2012
My personnel POV
As technology and associated tools and techniques in applying new technology to provide military benefit becomes more complex there is an case for a stronger role in the MoDs independent S &T role. By splitting DERA into a private company (2/3rds) QinetiQ and 1/3rd Dstl the MoD,and especially DE&S, lost sight of where to go for truly independent S&T advice. Coupled with making Dstl a trading agency within the MoD there is still confusion where to go for independent technical advice. I hope the lessons in the NHS PFI initiatives are taken on board as having read the 20 unanswered questions in this blog I see even more procurement problems ahead as industry will always,repeat always, do what industry does best and that is make money for shareholders and their self interested partners. In summary - invest a little more in providing truly independent S&T advice to the MoD decision making and you could improve procurement output significantly.( i.e. 100 - 200 scientists and engineers in each of the FLCs not the 2 or 3 planned currently)
Alasdair Gilchrist MBE - UK