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U.K. Committee Raises Doubts on GoCo Acquisition Proposal

Feb. 4, 2013 - 07:01PM   |  
By ANDREW CHUTER   |   Comments
The Houses of Parliament in London.
The Houses of Parliament in London. (File photo / Getty Images)
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LONDON — Appointing a foreign contractor to run Britain’s 13 billion pound-a-year ($20.4 billion) defense equipment and support (DE&S) arm could pose problems, according to a report due to be published Feb. 5 by the parliamentary defence committee.

“There are particular concerns about how the Government’s overall responsibility for acquisition could be maintained within a Government Owned Contractor Operated [scheme]. In particular, we believe problems might arise if a non-U.K. company were given responsibility for U.K. defense acquisition,” said the report.

Potential bidders, including U.S. contractors Bechtel, Fluor, Jacobs and KBR, participated last year in what the MoD calls “soft market testing,” alongside local companies CH2M Hill and Serco.

The committee didn’t spell out in detail the reason for its concerns.

The report also said that ahead of any implementation of the proposals, it was “vital” that consultations were satisfactorily concluded with allies “to ensure that there is no adverse impact on co-operation.”

One senior industry executive said the U.S. government had expressed some concerns about a possible Go-Co arrangement in Britain.

The committee raised the question of just how much support the scheme had at home.

“It is clear that the GoCo is not universally accepted as the best way forward,” the report said.

Analysts here said there were indications support for the scheme was patchy in other government departments and industry.

MoD Permanent Secretary Jon Thomson told a Feb. 4 Public Accounts Committee hearing into major defense projects that the business case for reform of DE&S had already been presented to Ministry of Defence ministers.

Thomson appeared to signal the GoCo scheme would move forward in one form or another.

“Given the scale of the proposed reform,” ministers in other departments, including the Treasury, also need to approve the business case. That would take two to three months, he told the Public Accounts Committee.

Philip Dunne, the British defense equipment and support procurement minister, said the reform of DE&S will further improve the procurement process here.

“As announced last year, a GoCo organisation is our preferred option but further analysis is being carried out before a final decision is made,” he said in a statement.

The analysts said the MoD might consider running a GoCo trial to measure what benefits the plan could bring in making Britain’s defense procurement more cost effective. But that might further delay an implementation date that is already being looked at for post-2015 and beyond the next election.

GoCo is one of three options the MoD has considered in recent months to increase the effectiveness of its poor performing Defence Equipment & Support arm. The other two contenders involve retaining DE&S in something like its present form or adopting a scheme called DE&S Plus. Details of that arrangement have yet to be released.

The committee also said British defense companies are disadvantaged by the government’s refusal to adopt an industrial strategy.

“We believe that the absence of a defense industrial strategy which supports appropriate national sovereignty puts the U.K. at a disadvantage against competitor countries.” said the committee.

The committee urged the Conservative-led coalition government to “reconsider the wisdom of not having a defense industrial strategy.”

The previous Labour administration introduced an industrial strategy in 2005 but much of the arrangement failed to survive the incoming coalition government of 2010.

The current government came out with a white paper of its own in early 2012 that advocated more open competition at home and help for British industry in an export drive overseas.

Alex Ashbourne-Walmsley, a director at the consulting firm ASC here, said the Defence Committee report “highlights the fact that the choice of a GoCo as a new model for acquisition is neither unanimously accepted, nor are its implications fully understood. Does the U.K. want to entrust a company from one of its allies with its defense acquisition?”

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