GOCO procurement arguments 'dubious'

27 July 2012

Plans to run Defence Equipment and Support as a government-owned, contractor operated (GOCO) body are based on 'dubious' arguments and are potentially costly and undemocratic, according to a defence thinktank.

The Royal United Services Institute's Acquisition Focus Group said that no other country has adopted GOCO procurement and that a similar arrangement in the USA, Lead Systems Integrators, had failed and been abandoned.

The group, which includes former military and procurement chiefs as well as industry figures and NAO director Tim Banfield, said that it was wrong to compare the DE&S plans to the Atomic Weapons Establishment, also operated under a GoCo arrangement, as DE&S – with an annual spend of some £16bn - was "much more diverse and complex".

Past failures on contract negotiation at DE&S did not bode well for a single privatised procurement arrangement, the group said.

"The GOCO proposal suffers from an inherent weakness, since it seemingly rests on an argument that, because the government is not very good at negotiating and managing contracts with the private sector, it is going to negotiate a contract with a private sector entity to undertake the task on its behalf. Persuasive arguments against this logic need to be marshalled."

The report also argued that if a company could seek profits from the arrangement while the MoD shouldered all of the risk in equipment programmes the arrangement would "certainly not be cheaper".

"History is littered with 'outsourcing' deals that either or both parties eventually find constraining and/or, in practice, more expensive," the report said. "After the G4S and Olympics episode, the privatisation of the railways is the most obvious example of this, but there are many others. It seems to us that the MoD may be embarking on one of the most complex cases ever attempted and it should do so with its eyes fully open. An important factor of military acquisition, frequently ignored, is that DE&S is but one aspect of the mix.

"Any real improvement must consider the entire process and the array of those with a part to play throughout the MoD and the remainder of the government, all of which have the power to negate any decisions made in Abbey Wood.

"…At present we cannot easily see how the DE&S as a GOCO would even work in practice, let alone why it would be a less expensive and better alternative to what is in place today."

"The government and the country cannot afford a wrong decision in this area.
In the meantime, we wonder if those tasked with making this solution work might use the questions above as an aid to a fuller examination. This might help them to avoid the unintended, and potentially huge, negative consequences that always emerge from complex and challenging undertakings, especially where the pros and cons have not been thoroughly examined."

The report also highlighted several other questions which must be asked before initiating a GOCO system, including how long a company would be appointed to run defence procurement for, whether the US would sell defence technologies to a private sector procurement body in the UK, and whether a corporate or MoD signature would appear on defence contracts.

If the decision was made to not allow the privatised DE&S to make decisions, the report questioned the point of changing the current system at all.