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."