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UK: Ministry of Defence (MoD) proposals for GOCO shelved in favour of DE&S Plus variant

    • Aerospace, defence and security
    • Industrials

    11-12-2013

    Introduction

    As was widely expected in recent days following the withdrawal of the Serco / WS Atkins bid for the GOCO competition and the subsequent statement to the House of Commons on 19 November by the Secretary of State for Defence (SoS), the SoS yesterday announced that he had decided not to continue the GOCO competition and instead to pursue a variant of the DE&S Plus model that was being developed as part of the GOCO competition (albeit with the door left open to a new GOCO competition in the future).

    While UK defence suppliers may be pleased to see greater certainty on the defence acquisition reform programme after the hiatus of the last few weeks, this announcement does raise many questions about the short and medium term plans for DE&S – as the SoS admitted, it is not the announcement that he wanted to make and many of the details are unsurprisingly absent given that these proposals appear to have been drawn together in the three weeks since his previous statement. Those in the defence community will no doubt watch with interest the evidence of the SoS and Chief of Defence Materiel (CDM) to the House of Commons Defence Select Committee on Thursday 12 December to see if this gives any greater clarity on what is proposed.

    The SoS said that, while the Bechtel-led bid was “credible and detailed” and that they had “engaged effectively” with the very challenging brief set for them, he had decided that advancing a single private sector bidder against DE&S Plus as the public sector comparator would not “generate sufficient competitive tension to ensure an effective outcome” and that “the risks of proceeding with a single bidder are too great to be acceptable”.

    While this decision is understandable in the context of the procurement process and the report by the Cabinet Office following the withdrawal of the KBR-led bid, it does nonetheless raise questions as to the strength and detail of the DE&S Plus proposals, given that it is those proposals onto which the MoD will now fall back. Questions were rightly raised in the House as to how developed the DE&S Plus proposals are at present (given that the original plan had been for the team tasked with developing those proposals to present them in broadly final form in Spring 2014 and it was reported to be running behind on that schedule) and DE&S Plus was described as to date the “poor relation” to the GOCO.

    More detail on “DE&S Plus Plus”

    The SoS made the following statements about the proposals for the future of DE&S under the proposed new regime (already being described as “DE&S Plus Plus”) but accepted that they would need to be further worked-up:

    • DE&S will become a “bespoke central Government trading entity” from April 2014.
    • Bernard Gray will be the first chief executive of this entity and that role will be an accounting officer, accountable for its performance to Parliament through the Public Accounts Committee (although Ministers will still also report on it to Parliament in the usual way).
    • The entity will have a separate governance and oversight structure with a board under an independent chairman.
    • The entity will have “significant freedoms and flexibilities … around how it recruits, rewards, retains and manages staff along more commercial lines” and these have been agreed with the Treasury and Cabinet Office – the intention is that this will enable DE&S (which is currently 800 staff “gapped”) to recruit key commercial and technical staff at “market-reflective rates” and with minimum bureaucracy.
    • The entity will tender for three support contracts to obtain private sector input:
      • Programme management support (described as the “spine” of DE&S);
      • HR support; and
      • Installation of additional financial control systems.
    • The intention is that the entity will move “earlier” to a “hard-charging” regime with its MoD Customer (although no timeframe for this was given).

    Indications for the future

    In the longer term, the intention is that the reformed DE&S will become “match-fit” to provide a “better and stronger baseline” for performance comparison against a revised GOCO proposition. The SoS reaffirmed his intention to proceed with Part 1 of the Defence Reform Bill as enabling provisions and the door was explicitly left open to a revised GOCO competition in the future, but no definitive commitments were made to a new GOCO competition and clearly much will depend on how these changes bed-down and the complexion of the next Government. It seems very unlikely that the GOCO competition will be re-launched in any kind of short-term timeframe.

    As noted above, the detail of the DE&S Plus proposals appeared far from finalisation at the time of this announcement and yet it is – essentially – those proposals which the MoD appears now to advance. The SoS said that “we have only seen the proposal that has been worked up by the DE&S Plus team in the last three weeks” and acknowledged that this proposal “is nowhere near as detailed as that put forward by [Bechtel]” – which suggests an ad hoc acceleration of their previous timetable. As a guide to the future direction of DE&S, the SoS said that (while clearly there are constraints on the use of such material) “the preliminary discussions we have had with bidders … have pointed the way to the future development of DE&S”. Some comment has suggested that the new entity could go further than DE&S Plus – given that so little was really known about DE&S Plus, it is hard to test this or see it as a guide for the future.

    Previous consultation has focussed much more (almost exclusively) on the GOCO proposals, and the shadow SoS raised the question (which was not answered) whether and the extent to which there will be consultation on these new proposals. Given that the SoS has announced that the new entity will be in place by April 2014, it seems unlikely that any material further consultation with industry and others will be conducted (and the SoS did not answer that question in his response). Despite this, we can expect (and have already begun to see from the PCS) significant friction with the unions at the creation of what will be – potentially – a two tier workforce within DE&S at odds with most of the wider civil service (even though some exceptions, such as the Debt Management Office, do already exist).

    The SoS said that he was confident that the process was giving “a clear and consistent signal” to the defence industry. Readers will no doubt have their own view on this. We will also be interested to see what, if any, guidance is provided in the coming months as to how the new DE&S will interact with the industry – in particular, will its new standalone status, the “hard charging” and/or the incentivisation proposals cause it to behave more like the GOCO was expected to than DE&S has to date? - and how will any change affect positions taken by DE&S on existing contracts and negotiations? This may be for better or worse: DE&S might have more autonomy and be more decisive or it may be less likely to engage flexibly with contractors and be more intent on extracting short-term financial benefits from contracts. Clearly, less decisiveness and a harder stance would be the worst of all worlds.

    Staffing proposals

    The SoS expressed confidence that the new entity would be able to recruit and retain in a way that the current DE&S has struggled to, but it remains to be seen how the freedoms which appear to have been negotiated with the Treasury and Cabinet Office will be implemented in practice and whether they are sufficient to retain and recruit staff of the correct calibre into an organisation in considerable flux and with the prospect of significant future change not ruled-out. It will also be interesting to see whether these freedoms extend to changing the terms of existing DE&S staff (or just relate to new recruits) and how those on new terms will affect those DE&S staff who remain on their current terms: will “upskilling” these legacy staff really be effective? will DE&S be entitled to incentivise them in the same or a similar way to a GOCO? and will the prospect of this re-education and possible incentivisation be sufficient to retain these “legacy” personnel? The SoS made clear that military secondees to DE&S will remain on their existing terms – but how will they be affected by working alongside much better incentivised colleagues? All of this will be critical to the new entity’s success but remains necessarily uncertain at this stage. The SoS rebutted suggestions that the entire GOCO competition was a “Trojan horse” to elicit these compromises from the Treasury.

    The new structure

    The SoS drew a significant distinction between the new entity “where private sector skill sets are employed to advise but civil servants make decisions” and the GOCO model where the private sector is “at risk in the structure” (as opposed to receiving flat fees). The line between advising on, deciding on and implementing policy was always somewhat unclear in the GOCO structure (once one moved beyond high-level principles and into the detail of how it would be effected). Industry and other observers will no doubt be watching carefully to see how this line is drawn in the new entity between DE&S employees and private sector contractors (particularly those described by the SoS as providing its “spine”).

    Arguably, the “hard-charging regime” the SoS describes will make one of the biggest differences to current procurement dysfunction. The SoS made the point that, under the new proposals, the MoD could in fact move to this regime faster than under the GOCO proposals – but he gave no indication of when this would happen or how exactly it would be implemented. These details will be crucial – in particular, how these “hard charges” will impact the MoD Customer’s budgets and the extent to which they become a real driver of change rather than a “fudge” between the current model and the GOCO proposals.

    Conclusion

    The announcement gives welcome certainty of direction after a period of considerable uncertainty, but the proposals for the new DE&S entity are necessarily summary and unclear. The extent to which these new proposals will be successful, and how they will affect industry, will depend very much on the development of their detail and the manner in which they are implemented – in particular, now that the pressure of the GOCO competition has been removed, will DE&S relapse into a modified form of “business as usual” or will the SoS and CDM be able to continue to drive change with the same vigour as they have promised to date? We look forward to seeing some more of this detail at tomorrow’s Defence Select Committee hearing.