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LONDON — The British government plans to hand over the first phase of a scheme to outsource the management of its £14 billion-a-year (U.S. $21.4 billion) defense procurement and support operation by the end of 2014, and is using a just-announced 12-month assessment phase to run a parallel competition to find a consortium to run the government-owned, contractor-operated (GOCO) scheme.
Defence Secretary Philip Hammond said in a written statement to Parliament on Thursday that the government will make a final decision about whether to go ahead with the GOCO outsourcing plan next year after it had run an assessment phase to compare the benefits with a restructured Defence Equipment & Support operation known as DE&S +.
A Ministry of Defence spokesman said if the scheme is approved, a contractor would be appointed in the summer of 2014 and take over the first phase of the GOCO by the winter.
The second phase of the management outsourcing would kick in two years later, he said.
The spokesman said no decision had been taken on which part of the DE&S operation would be taken over first by the contractor.
Sources here, though, said the air sector is being targeted as the most likely part of the procurement and support organization to first move under GOCO control.
Hammond said the assessment phase and a competition to appoint a contractor would take place in tandem.
“In parallel, a commercial competition will be launched that will enable us to determine with potential private partners how a GOCO would work in practice, and what costs and benefits would be. By the end of the Assessment Phase we would expect to have proposals in a form capable of being contracted if we decide to proceed with the GOCO model,” he said.
Hammond made it clear that a two-phase implementation of the GOCO scheme was the MoD’s preferred method to try and erase the cost and time overruns that have dogged British defense procurement for years.
Paul Everitt, the chief executive of ADS Group, the British defense trade lobby group, acknowledged industry needed to deliver needed military capability at a price the country can afford, but warned there were outstanding issues that suppliers still wanted to see resolved.
“Whatever option is put into place following this final assessment phase, it is important that the structure is fully debated with all stakeholders and legitimate issues are appropriately addressed,” said Everitt.
One executive here said industry remains skeptical the scheme will work and has been quietly lobbying against a GOCO.
A second executive said he doubted the ability of the MoD to meet the timescales laid out for the program given the history of program slippage at DE&S.
Any delays to the timetable for the GO-CO could be complicated by an upcoming general election, likely in 2015.
Bernard Gray, the chief of defense materiel and the architect of the GOCO scheme, first raised the issue of a GOCO in 2009 during the Labour Party’s tenure in office but his scheme, which was part of wide ranging acquisition reform recommendations, was rejected.
Executives continue to raise concerns over a raft of issues around intellectual property ownership and exactly who will bear the risk on defense programs.
Others said they were concerned that a GOCO on this scale in a sector of this complexity had not been tried previously.
In a report last year, the Royal United Services Institute think tank here came out strongly against the GOCO option.
“History is littered with outsourcing deals either or both parties eventually find constraining and/or in practice, more expensive,” said RUSI.
U.S.-based contractor Jacobs Engineering has been appointed as the MoD’s delivery partner to assist the ministry in developing the business model for the handover of procurement activities to a contractor.
Jacobs is best known in the defense sector here for its role in the Lockheed Martin-led GOCO that runs the Atomic Weapons Establishment.
Hammond said the MoD expects to publish a white paper “later in the spring” setting out the nature of the procurement problem, options for potential solutions, and the reasons why the focus has been on the GOCO solution.
The MoD spokesman said that assuming the GOCO gets the all-clear, the plan is to lay legislation before Parliament in the next few weeks to allow the change to proceed with a contractor or consortium in place to start operations by December 2014.
Industry sources here termed the government timetable for implementation of the scheme as “racy.”
Bechtel, CH2 Hill, KBR and Fluor from the U.S., along with Serco and Atkins in the U.K., are expected to be among a handful of consortia forming to address the controversial requirement to hand over running of DE&S.
Gray reckons DE&S doesn’t have sufficient skills to negotiate and manage often highly complex deals whereas a contractor would be better able to squeeze a realistic and affordable agreement from suppliers.