WASHINGTON AND LONDON — The US Defense Department is expressing concern over a UK initiative to consider outsourcing management of its defense procurement and support operations, roles traditionally filled by government employees.
Britain plans to select a contractor to fulfill acquisition oversight duties by mid-2014 and is poised to begin a 12-month assessment of the government-owned, contractor-operated (GOCO) framework. The plan is part of broader overhaul of the UK Defence Equipment & Support operation (DE&S).
“We do have some concerns over an option that would put contractors in roles normally filled by government employees and the effects this would have on ongoing and future cooperation,” said US Lt. Col. Melinda Morgan, a spokeswoman for Frank Kendall, DoD’s top acquisition official.
Kendall and Bernard Gray, British chief of defense materiel, have set up a “joint, bilateral, interagency team to explore how a GOCO DE&S organization would affect our current relationship and what changes may be needed in order to maintain the current level of cooperation,” Morgan said. “This team will examine key processes and topics that will lead to any issues that we may have to address with Great Britain as they proceed with their GOCO design phase.”
Kendall and Philip Dunne, Britain’s minister for defense equipment, support and technology, discussed the GOCO arrangement when Dunne visited Washington last week.
Asked about DoD’s perception of the GOCO effort, Dunne said: “I think the best way to characterize it is that they are watching with interest.
“They are being very helpful that we recognize that for government-to-government contract and relationships, it is very important we take our government allies, have the opportunity to express any issues that they have in what we are ready to do,” he said in an April 23 interview.
The UK and US frequently share sensitive technology, and US officials wonder how government-to-government deals would work with a corporate intermediary.
The British — considered America’s strongest defense partner — are about to become the only foreign operator of the RC-135 Rivet Joint intelligence plane. The two nations also share nuclear and ballistic-missile technology.
At DoD, government employees oversee procurement efforts. Senior DoD officials have expressed concern that the British might allow contractors access to sensitive information, traditionally handled through a government-to-government exchange.
But Dunne said the UK has precedent for GOCO involving sensitive information through the Atomic Weapons Establishment, a group that builds and maintains warheads for Trident submarine-launched nuclear ballistic missiles.
“We’ve been working closely with the US on the Materiel Strategy for over 12 months and our US colleagues understand our objectives and are sympathetic to them,” Dunne said through a spokesman. “My team continues to engage with DoD and other agencies to work through this and I’m confident that we’ll continue to have a close and harmonious relationship with the US just as we’ve enjoyed for decades.”
The British DE&S organization oversees about £14 billion (US $21.4 billion) in acquisition annually.
UK Defence Secretary Philip Hammond said in a written statement to Parliament on April 25 that the government will make a final decision about whether to go ahead with the GOCO outsourcing plan next year after it runs an assessment phase.
If the UK goes with the GOCO model, it plans a phased implementation, Dunne said.
A Defence Ministry spokesman said if the plan 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.
The spokesman said no decision had been made on which part of the DE&S operation would be taken over first by the contractor, however British sources said the air sector is being targeted.
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 said a two-phase implementation of the GOCO plan was the MoD’s preferred method to try to erase the cost and time overruns that have dogged British defense procurement for years.
During an April 23 speech at McKenna, Long and Aldridge, a law firm in Washington, Dunne said there are “insufficient skills and freedoms” within the DE&S organization.
“The skills and expertise which our procurement agency called DE&S needs to perform its role effectively are very different to those required and valued by much of the rest of the Civil Service, skills which often have a high market value, and therefore are easily poached by the very defense industry companies with whom they are negotiating,” he said.
Dunne said he believes the private sector can help and perhaps lead to cost savings in acquisition.
Paul Everitt, the chief executive of ADS Group, the British defense trade lobby group, acknowledged industry needs to deliver military capability at a price the country can afford, but warned there are outstanding issues that suppliers still want 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,” Everitt said.
One British-based executive said industry remains skeptical the plan 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 GOCO could be complicated by an upcoming general election, likely in 2015.
Gray, the chief of defense materiel and the architect of the GOCO initiative, first raised the issue of a GOCO in 2009 during the Labour Party’s tenure in office.
But his plan, 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 has never been tried.
In a report last year, the Royal United Services Institute think tank 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,” the think tank said.
US-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 the focus has been on the GOCO solution.
The MoD spokesman said that, assuming the GOCO gets the all-clear, the plan is to present 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 in the UK called the government timetable for implementation of the plan “racy.”
Bechtel, CH2 Hill, KBR and Fluor from the US, along with Serco and Atkins in the UK, are expected to be among a handful of consortia forming to address the controversial requirement to hand over running of DE&S.
Gray believes a contractor would be better at squeezing realistic and affordable agreement from suppliers.
Marcus Weisgerber and Vago Muradian in Washington; Andrew Chuter in London.