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Levene: Reform UK Procurement Rather Than Use Private Operator

Dec. 5, 2013 - 03:45AM   |  
By ANDREW CHUTER   |   Comments
British Chairman of insurance giant Lloy
Peter Levene (Agence France-Presse)
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LONDON — A senior figure in the effort to reform Britain’s Ministry of Defence has come out in favor of a scheme to revamp the department’s procurement and support organization rather than adopting the government’s preferred plan to hand over running the operation to the private sector.

“In my opinion, the quickest and most straightforward solution would seem to be via DE&S plus,” Peter Levene told Defence Secretary Philip Hammond in a letter detailing progress on implementing a wide-ranging defense reform review he conducted in 2011 for the Conservative-led coalition government.

The British government has been considering whether to hand over management of its £14 billion (US $22.9 billion) annual equipment procurement and support effort to an industry consortium in a government-owned, contractor-operated (Go-Co) scheme, or opt for a strengthened version of the existing Defence Equipment & Support organization, known as DE&S Plus.

The MoD has been looking to bring in contractor skills and expertise in the hope of eradicating program delays and cost overruns that have cost the department billions of pounds over the last few years.

The Go-Co effort has been the preferred option for months now, and the MoD has been running a competition to appoint a contractor next year in the event the plan gets the go-ahead from Treasury and the Cabinet Office.

A defense reform bill that would allow a Go-Co to take over procurement is currently passing through Parliament.

Levene, an ex-MoD equipment chief and a senior figure in Britain’s financial sector, told Hammond a swift decision was required to allow officials and managers to focus on other issues.

“It needs to be brought quickly to a conclusion to end the current uncertainty, and the very considerable demands it is placing on senior management time and effort across defense,” said Levene, who is highly respected in government circles.

“The DE&S Plus bid needed to be developed to the very highest standards as a realistic option ... it is crucial that it also embraces the greatest possible employment and pay freedoms,” Levene said. “I understand that a proposal to this effect is currently with the Treasury, and this has my strong support.”

The MoD recently moved to strengthen the team putting together the in-house DE&S Plus bid.

Many industry executives and analysts here said the Go-Co effort is living on borrowed time anyway, following a decision by one of the two consortia left in the competition to run the Go-Co to withdraw.

“It’s surprising that somebody close to the MoD is finally voicing concern over the viability of the Go-Co and the likelihood of DE&S Plus emerging as the preferred option,” said Alex Ashbourne Walmsley, a director of consultants ASC here.

A consortium comprising CH2MHill, Serco and Atkins withdrew in mid-November, leaving only a bid from Bechtel, PA and the PwC consortium on the table .

A third consortium involving URS, KBR and Balfour Beatty pulled out earlier in the summer.

That prompted the MoD and the Cabinet Office to review the viability of a material procurement plan with only two bidders, which concluded the competition could continue, but with “significant risks attached.”

The most recent withdrawal prompted Hammond to tell Parliament the government was looking at “whether it is in the public interest to proceed with only a single commercial bidder and an internal option, or whether alternative approaches should be considered.”

Industry executives said Hammond’s statement suggested the possibility of other schemes coming into the equation.

Several options, including a government-owned company, were considered and rejected before the MoD narrowed its focus to the Go-Co and in-house bids.

Although not in the context of the Go-Co remarks, Levene’s reform progress report to Hammond points up the fact the MoD has already implemented other innovative deals aimed at securing superior commercial and program skills.

This includes a strategic partnering deal with industry in the field of internal corporate services that allows “private sector managers to be flexed in and out of the organisation according to need and performance.”

Similar solutions are being considered for the Defence Infrastructure Organisation in a three-way competition among industry bidders and an in-house contender. That competition is drawing to an end.

Concluding his letter, Levene said overall, the MoD had done well in delivering progress on defense reform in a number of sectors, “but I would again emphasize that a decision on the future of DE&S is needed urgently.”

Levene’s reform update was published at the same time the government announced further cuts to the defense budget.

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