Defence procurement reform: GOCO versus DE&S+

Secretary of State for Defence The Rt Hon Philip Hammond MPAs government continues to tighten its belt and drive efficiencies, so defence is actively seeking ways to become a more commercially viable sector. Two potential models of procurement reform are currently being considered by the Ministry of Defence: GOCO and DE&S+. Here, MOD DCB features writer Julie Shennan examines the evolution of the rival models.

In 2009, Bernard Gray’s ‘Review of Acquisition for the Secretary of State for Defence’ identified three actions to tackle defence procurement overspending. The first was to bring the Defence Equipment Plan into line with future available resources. The second was to streamline relations between Defence Equipment and Support (DE&S), MOD Head Office and the capability staffs, making them more business-like. And the third was to provide DE&S with better tools to deliver the Equipment Plan effectively.

A business strategy was subsequently outlined to implement these actions, by developing a more robust relationship between MOD Front Line Commands and Head Office. The Materiel Strategy programme, launched in 2011, examined options to improve defence procurement, including a radically transformed DE&S that remained in the public sector (DE&S+) and a Government-Owned, Contractor-Operated organisation model (GOCO).

The GOCO model involves the selection of a DE&S lead company that would oversee the delivery of a programme of projects by other firms. This could include collaborating on or competing for defence projects in the UK. This lead company would provide acquisition services to MOD as its agent, but would not control the £15 billion Equipment Programme, which would continue to be overseen by Crown servants working in MOD. Government and parliamentary oversight would be retained.

The analysis of both GOCO and DE&S+ began in May 2011 with then Chief of Defence Materiel Bernard Gray working as its Senior Responsible Owner.

In October 2012 a sister programme to the Materiel Strategy, Customer Design, was established to ensure that the acquisition system across MOD was optimised for whichever defence procurement operating model is ultimately chosen.

Following Initial Gate Business Case approval, the Materiel Strategy entered its Assessment Phase in April 2013, when the commercial competition was launched for a prospective GOCO provider. When the Invitation to Negotiate (ITN) was released on 25 July there were three prospective bidding consortia, reducing to two shortly thereafter. However, since then one of the two remaining competing consortia has withdrawn from bidding.

Now MOD must decide whether it is in the public interest to proceed with only a single commercial bidder and a public sector comparator. In parallel, the DE&S+ team will continue to refine and enhance their proposition.

Both DE&S+ and GOCO projects are due to submit final proposals in early 2014 and a Main Gate Business Case will be submitted next spring with a final decision expected in the summer.

In a written Ministerial Statement, Secretary of State for Defence Philip Hammond said: “Bids were required from the two commercial consortia in three phases and the second of those was due to be received on Friday 15 November. MOD has received a bid from one of the consortia but the second (Portfield – comprising CH2M Hill, Serco and Atkins) has decided to withdraw from the competition.

“This is regrettable and the reduction in competitive tension will make it more challenging for the Department to conclude an acceptable deal with the remaining bidder, notwithstanding the competition from the DE&S+ bid, which will be received shortly.

“The Department, with the Cabinet Office and HM Treasury, will now study the detailed proposal received from Materiel Acquisition Partners (led by Bechtel with PA and PriceWaterhouseCoopers in support).”

Speaking at last month’s Defence Procurement Research, Technology & Exportability (DPRTE) 2013 conference, Steven Morgan, Director of Commercial Operations, DE&S, said: “Some fairly significant changes are under way, whether we have a GOCO that operates as DE&S or a DE&S+. We are looking at alternatives that would make DE&S behave and operate more like a company, with a different approach to recruiting people.”

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