The British Ministry of Defence (MoD) abandoned a radical plan for a commercial company to manage the UK’s defense procurement. Defence Secretary Philip Hammond admitted that only one bid had been received to run the Defence Equipment and Support (DE&S) organization as a “GoCo,” government-owned, contractor operated. Instead, Hammond said the MoD will proceed with an alternative plan for reform “through a significant injection of private sector skills”—the so-called ‘DE&S+’ option.
The single bid to run the DE&S came from American engineering company Bechtel, in partnership with British companies PA Consulting and accountants PriceWaterhouseCooper. Another bid was expected from CH2M Hill, also an American company, with British companies Atkins and Serco as minority shareholders, but it did not materialize. Serco is already a significant provider of outsourced services to the MoD and other government departments, but its reputation has been damaged by a scandal over false claim.
The semi-privatization of DE&S was the brainchild of Bernard Gray, a former businessman and journalist who was appointed Chief of Defence Materiel three years ago, after advising the previous government on the reform of defense acquisition. Gray’s plan was widely criticized by the defense establishment and outsiders. A report by the Royal United Services Institute, a Whitehall-based think tank, noted, “The extensive privatization of public bodies and outsourcing to the private sector of services funded by government has taken place with little explicit discussion of what responsibilities the government cannot pass across.”
Hammond said that Gray will become chief executive of a reorganized DE&S that has a new status and is free of the cumbersome civil service staff recruitment rules. It would benefit from support contracts that would be let to commercial companies, possibly including Bechtel, Hammond said. Bechtel would not be compensated for the cost of working up its bid (which was reported to be 1,200 pages long). The MoD’s own costs in seeking a GoCo were £7.8 million ($12.5 million), Hammond revealed.
The DE&S has borne the brunt of criticism for the UK’s poor defense procurement record. But the director of the team responsible for developing the DE&S+ option told staff there recently, through the DE&S magazine desider, that they had been “doing an effective job.” Many of the core reasons for cost overruns and delays “come from externally driven interference, lack of change controls, or political considerations,” he added.
Hammond himself claimed that the effectiveness of the DE&S “is no longer undermined by an overheated [procurement] program.” He explained that the front line commands had now been given responsibility for managing their own budgets and prioritizing their requirements. As a result, the number of changes to requirements had become “less of a negative factor in DE&S performance,” Hammond added. Surprisingly, though, he did not rule out “retesting the market’s appetite for continuing the DE&S evolution into a GoCo…[after]…more robust” financial control and management information systems” had been introduced.