LONDON — A government plan to hand over the running of Britain’s defense procurement and support effort to a private contractor is based on dubious economics and will be difficult to make work, one of the country’s top think tanks will say in a report due to be released in London on July 27.
“We cannot easily see how the Defence Equipment & Support [organisation] as a Government Owned Contractor Operated (GOCO) would even work in practice, let alone why it would be a less expensive and better alternative to what is in place today,” said the Royal United Services Institute (RUSI) in a briefing paper.
The Ministry of Defence is committed to reform the 14 billion pound ($21.7 billion) a year defense procurement and support effort, blaming it in part for a long series of delays and budget overruns to the equipment program.
On July 18, Defence Secretary Philip Hammond announced the MoD would do further work on a possible GOCO arrangement ahead of a decision on whether to proceed with a scheme heavily promoted by Bernard Gray, the DE&S chief of defense material.
RUSI’s Acquisition Focus Group said in the briefing paper that a decision in favor of a GOCO would result in the MoD embarking on “one of the most complex cases [of outsourcing] ever attempted.”
The Focus Group, which numbers among its members Sir Brian Burridge of Finmeccanica UK, McKinsey’s John Dowdy, National Audit Office Director Tim Banfield and former defense material boss Sir Kevin O’Donoghue, warned history was littered with outsourcing deals that either or both parties come to regret — the G4S security fiasco at the London Olympic’s being the latest example.
Government references to the Atomic Weapons Establishment, which is run by a Lockheed Martin-led GOCO, as a good model of how the scheme could be run, are wide of the mark because in that instance industry works under close supervision on a limited range of tasks, said RUSI.
Those considering the challenges that outsourcing can generate might do well to look at the MoD experience with the allocation of Joint Personnel Administration to a partnership over the past 15 years.
“The GOCO proposal suffers from an inherent weakness, since it appears to rest 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 an even bigger contract with a private sector entity to undertake the entire task on its behalf. Persuasive arguments against this logic need to be marshaled,” claims the RUSI Acquisition Focus Group.
Although it tried hard, the RUSI Group said it could only find two arguments in favor of a GOCO, neither of which was convincing.
The first was that the MoD could acquire the services of a higher class of program and project managers because a company can pay more than the public sector. RUSI said the government could easily give special dispensation to employ higher paid managers than it does at present.
“The second is that a procurement company might be more resistant than the current DE&S teams to accepting proposals for requirement changes from the users.
“That would help control costs but would also increase the chances that the MoD forces would be equipped with inappropriate and inadequate equipment,” said RUSI.