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Wednesday, May 22, 2013

Outsourcing defense procurement: an experiment

The UK is going to conduct an experiment, of sorts, with full and serious consideration being had, if not preferred, to privatize (or outsource, take your pick) the conduct of the country's defense spend.

It is a proposition, of course, that is controversial.

This article from supplymanagement.com (which provides views inside the world of government contracting as well as private sector contracting) describes the experiment.

Defence procurement outsourcing needs more examination
The Ministry of Defence (MoD) is to carry out a year-long assessment phase before eventually deciding whether to outsource defence procurement to the private sector.

In a statement to Parliament yesterday defence secretary Philip Hammond revealed the government will invite proposals from the private sector that will detail the provider’s capability and how they would operate a ‘government-owned, contractor-operated’ (GoCo) entity. In his statement, Hammond made clear he believes the GoCo option will prove preferable. “We have made no secret of our expectation that the GoCo option is likely to prove better value for money, but we need to test this assumption with the market, to see what can be delivered and at what cost.”

In parallel, it will assess a public sector comparator, described as ‘Defence Equipment & Support plus’ to decide which option provides greater value for money. Once the assessment phase has been completed, the government will decide whether to contract one of the bidding parties or to keep the purchase of military supplies - from helmets to helicopters - within the public sector.
Some consider this the Holy Grail, as in this next opinion piece by Andrew Pringle from The Telegraph.  Andrew Pringle is president of KBR’s UK defence business.  KBR provides defence work for the UK. One is reminded of Candy Rice-Davies.

It might be noted, as does the last mentioned article below, that this is a £14bn annual procurement programme. It is big bikkies, and big business, in anyone's currency.

The Ministry of Defence can get better value from the private sector
Good equipment saves lives, while failures in supply or specification can endanger or even cost them. Those on the front line do not care how it is procured, as long as they get the right equipment, in the right place, at the right time.

Yesterday’s announcement by Philip Hammond, the Defence Secretary, that private firms will be brought into the heart of the MoD’s procurement process – with the Defence Equipment and Supply organisation (DE&S) becoming, in the jargon, a government-owned, contractor-operated entity – has attracted criticism. But having been on both sides of the divide – as a commander at every level from platoon to division, and now the president of a global leader in the delivery of defence projects – I have no doubt that commercial-sector expertise could greatly enhance the way our Forces are equipped, and provide far better value for money for the taxpayer.

Lord Browne, the Government’s lead non-executive director, argued that by adopting best practice from the private sector, the country could save between 10 and 30 per cent of that total. This must start with the ethos. From the beginning to the end of the process, everyone must focus on that fundamental business concept: time is money.

Making defence procurement faster and more cost-efficient is not “privatising” or “taking over” the Civil Service. This is a model of equal partnership. It is about loosening the bureaucratic straitjacket to create the freedom for the thousands of excellent civil servants who work in the DE&S to do their job better.

How will this work? First, new skills. The existing staff are drawn from the Armed Forces, mostly with a background in operations, or the Civil Service, often with a background in policy. Their ability to run increasingly challenging acquisition programmes, on a £14 billion budget, can be enhanced by introducing individuals whose sole focus in their working life has been to extract the best deals from the supply chain and force it to deliver on time and to budget. This new partnership will level that playing field, and allow the ministry to cultivate, retain and recruit the best in the market.

The second great benefit will be private expertise in large-scale programme management. Lord Browne’s recommendations are again a good starting point. Projects must be held to a high level of scrutiny before the button is pushed, and no money should be committed without an experienced project manager and team in place.

The skills needed to run such projects translate directly into what’s required at DE&S to deliver the best possible kit to our soldiers at the best possible price. That is why this new approach may well prove a model for the world.
Others are far less sanguine, as reported in the Financial Times (you will likely need to register for a free, but limited, right to view this article, but you should always check the source, especially on this blog since I often extract, cut and rearrange and paraphrase to make a teachable moment of the item).

MoD procurement reform plan gets cool industry response
Howard Wheeldon, a veteran industry analyst, said on Thursday: “I have not heard of anybody who is in favour . . . I have not heard of one [defence] company that has put its hat in the ring.

“It still must be proven beyond all reasonable doubt that this is going to provide value for money for the taxpayer and to the armed forces and some benefit for those companies the MoD procures equipment from,” he added.

Sir Brian Burridge, vice-president of ADS, the industry trade group, said: “There needs to be a proper dialogue, a proper recognition of the legitimacy of the industry’s concerns and a proper resolution of those concerns.”

These include commercial confidentiality and intellectual property issues, especially if the job of running the Goco is given to a competitor.

However, the Royal United Services Institute, one of the UK’s most influential military think-tanks, expressed stronger doubts. “We cannot easily see how the . . . Goco would even work in practice, let alone why it would be a less expensive and better alternative to what is in place today,” it said, adding that history was littered with failed outsourcing deals.
I am supportive of this kind of experimentation.  Assuming the race is a fair one (and I question whether the defects in outsourcing this complex task will show up in only the first year), we need practical studies of the effects of the choices available to get the right balance of transparency and accountability against bang for buck and efficiency appropriate for the job.

But we cannot, in my mind, abdicate due process and public interest, especially when it comes to critical government functions and services, such as the defense of the country. We could, for instance, sell advertising space on uniforms, replacing the flag of the country for, say, a golden arches patch, and that would give us bang for buck. Sports teams do that, and it is a common private sector practice. But is that commercial model one we want for our military, our public works department, our school teachers?  

I get queasy with the thought of off-loading our governmental responsibilities to and conferring our sovereign immunity on the highest bidder, even the best value bidder. 




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