LONDON — Britain’s Defence Ministry says it favors turning its procurement and support arm into a contractor run organization but has stopped short of going ahead with the scheme and instead ordered further testing of the proposals.
Defence Secretary Philip Hammond told Parliament today that the ministry is focusing its effort on developing and testing a government owned contractor operated (GOCO) scheme for possible implementation at the Defence Equipment & Support (DE&S) organization.
The potential change to DE&S would put a private contractor at the heart of managing Britain’s defense procurement and support effort. Hammond said the government will make a decision later this year on whether to proceed with the scheme.
A MoD spokeswoman declined to indicate when a new organization could be in place.
DE&S boss Bernard Gray told the parliamentary defense committee recently that creation of a GOCO would likely require lawmakers to pass primary legislation. That process could take 12 to 18 months, said political analysts.
Some industry executives here reckon the decision to conduct more testing makes it unlikely a transformed DE&S will be up and running by 2015.
“This announcement is a holding operation. The chances of anything emerging before the next election now look very slender,” said Howard Wheeldon, the policy director at ADS, the sector’s dominant trade lobby organization.
DE&S oversees the spending of about 14 billion pounds ($21.8 billion) annually procuring equipment, services and support for Britain’s armed forces. The organization is held partly responsible for the string of delays and overspends on key equipment programs, such as the Nimrod MRA4 reconnaissance aircraft and Type 45 destroyer, which have cost billions of pounds.
In a statement, the MoD said it would work closely with the Treasury and the Cabinet Office over the summer to develop a conclusive value-for-money case.
“In parallel, we will be developing a commercial strategy, engaging with industry to hone our requirement. This work will support decisions later in the year on whether to proceed with the GOCO option, and whether to launch a competition for the private sector management company to run the organization,” said the statement.
Alex Ashbourne-Walmsley of Ashbourne Strategic Consulting, said Hammond’s statement pointed up government’s preference, but illustrated ongoing concerns about a GOCO approach.
“It has marked out the direction of travel but shows they are unwilling to go any further while risks, responsibilities and other issues remain,” she said.
MoD’s procurement arm is pulling together an interim management structure aimed at bridging the gap from the current organization and the new one being put in place. In a letter to staff today, Gray said significant work has taken place to “move DE&S towards an Interim Structure to ensure we deliver our outputs whilst achieving our share of the reductions set out in the strategic defence and security review.”
Thousands of jobs are being axed at the organization as part of wider efforts to control MoD’s spending levels.
Gray delivered his report to Hammond in November on a new defense materiel strategy, which included the possible transfer to a GOCO or an executive non-departmental public body (ENDPB). .
Earlier this year, the MoD narrowed its choice of potential restructuring candidates down to the GOCO approach or turning DE&S into an ENDPB with a strategic partner provided by the private sector.
“The work done to date suggests that the strategic case for the GOCO option is stronger than the ENDPB. Further value for money is under way to confirm this assessment,” said Hammond .
The ENDPB scheme would have seen DE&S and its employees remain in the public sector but at arm’s length to the government. Industry would be involved as a strategic partner.
The GOCO scheme is already used by MoD, most notably at the Atomic Weapons Establishment, which is run by a team led by U.S. contractor Lockheed Martin.
Before becoming the chief of defense materiel, Gray, then a businessman, produced an acquisition review for the MoD that heavily criticized DE&S performance. One of his recommendations to the then-Labour government was that DE&S should be transformed into a GOCO.
That recommendation was rejected by Labour but has resurfaced as the favored option as part of the Conservative-led government’s effort to maintain a balanced budget.
Gray’s 2009 report said benefits of a GOCO would include the introduction of significant private sector management expertise and processes, although there were issues to be overcome, such as the impartiality of any contracting partner.
Gray said that although there are a number of program management and project delivery companies capable of doing the job, some are not U.K. domiciled and therefore posed security considerations that would need to be “thought through carefully.”