The U.K. Ministry of Defense has dropped plans to have defense acquisition delivered by a government owned-contractor operated (GOCO) entity because the effort was non-competitive–there was only one bidder.
From an initial flurry of interest and a high of three bidding teams, only one, led by San Francisco, Calif.- based Bechtel [BEK]–Materiel Acquisition Partners–remained in the bidding.
Thus, Secretary of State for Defense Phillip Hammond told Parliament, “I have therefore concluded that the risks of proceeding with a single bidder are too great to be acceptable.”
The MoD procurement agency, Defense Equipment and Support (DE&S), yearly manages an approximately $23 billion budget.
One of the companies bidding earlier in the competition was Serco Group plc, which has a number of valuable contracts with MoD. However, a swirl of controversy over those contracts led to a series of separate investigations, and the company dropped from the bidding.
The whole effort has cost MoD some $11 million, according to published reports in the United Kingdom.
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Hammond told members there is widespread acceptance that the current defense acquisition process is “not good enough.” Even though reforms are in progress, there’s more to do.
The government’s materiel strategy program aims to remove obstacles to “to bringing in critical skills and exploiting the capabilities of the private sector, by exploring alternative models for DE&S.”
In April, Hammond said the government decided that a GOCO model might be the best way to make the needed changes in DE&S, but the market needed to be tested to see if such a model would work and deliver value for money through a competition.
At the same time, Hammond said the government would explore the maximum extent of flexibility that could be achieved within the public sector, a model called DE&S Plus.
The government did not lean toward one option or another, but wanted to deliver the best balance of risk and potential reward once bids were received.
On Nov. 19, Hammond told Parliament the competition was in the detailed proposal stage, with only one proposal being received from the two consortia remaining in the process–from Bechtel.
“My conclusion is that a GoCo remains a potential future solution to the challenge of transforming DE&S, but that further work is necessary to develop DE&S financial control and management information systems to provide a more robust baseline from which to contract with a risk taking GoCo partner,” he said.
Now, the government believes “the only realistic prospect of resolving the challenges facing DE&S in an acceptable timescale is through a significant injection of private sector skills,” he said.
Thus, Hammond decided to build on the DE&S Plus proposition, transforming DE&S further within the public sector, supported by the injection of additional private sector resources.
To do this, he said, the unique nature and characteristics of DE&S as a commercially-facing organization will be enhanced by setting it up as a central government trading entity in April 2014. The new entity would have separate governance and oversight structure with a strong board under an independent chairman, separate from the rest of MoD, and a chief executive who will be an accounting officer, accountable to Parliament for the performance of the organization, delivering on another recommendation from an earlier report.
Crucially, Hammond said, “we will permit the new organization significant freedoms and flexibilities, agreed with the Treasury and Cabinet Office, around how it recruits, rewards, retains and manages staff along more commercial lines to reflect its role running some of the most complex procurement activity in the world.”
Details for implementing all this are still to come.
MoD believes these changes will reinforce the customer-supplier interface between the military command customers and DE&S, facilitating a more business-like approach, an earlier move to a hard-charging regime and thus further addressing another weakness identified in a 2009 report.
Alongside changes to DE&S, MoD will continue to reform the wider acquisition system.
In the future, Hammond said, MoD could potentially re-test the market for continuing DE&S as a GOCO.