The GoCo NoGo

Sorry, have been itching to use that one!

Statement from Mr Hammond

With permission, Mr Speaker, I should like to make a statement on the government’s plans for reform of defence procurement.

The 2010 SDSR set out the government’s vision of an agile armed forces designed to face the challenges of the 21st century. Central to delivering and sustaining that vision, is the ability to procure and support the equipment the armed forces need. There is a widespread acceptance that the present defence acquisition process is not good enough. While there have been notable successes, there have also been many examples of poor performance and sub-optimal outcomes for the armed forces and the taxpayer.

Bernard Gray’s report for the previous government identified three root causes of these problems:

  • an overheated programme;
  • a weak interface between Defence Equipment and Support and the rest of the MOD, too often leading to repeated changes to the requirement
  • and a lack of business skills in DE&S

This government has moved to address all three:

In May 2012, I announced that we had resolved the £38 billion black hole we inherited and balanced the defence budget, with over £4 billion of centrally held contingency to address risks as they crystallised, and a much more disciplined and formalised approach to investment approval, committing funding only when project proposals were properly mature.

As a consequence, DE&S effectiveness is no longer undermined by an overheated programme.

We have also strengthened and improved the interface between DE&S and its MOD customers. We have accepted and implemented the recommendations of Lord Levene’s report on Defence Reform more clearly to define the customers of DE&S as the front line commands, and to give them substantial responsibility for managing their own budgets and prioritising their own requirements. We still have further to go, but we can already see an improvement, and with a substantial reduction in the number of changes to requirements, this is already becoming less of a negative factor in DE&S performance.

We have also started to address the business skills gap within DE&S, through the appointment of Bernard Gray as the Chief of Defence Materiel, and by the recruitment of new senior finance and commercial staff from the private sector.

We are beginning to see the evidence of progress, and while I do not want to pre-empt the Major Projects Review report the NAO will be publishing in the New Year, I am confident that it will show significant improvement in respect of the period since we balanced the budget in May 2012.

But we recognise there is still a long way to go. The reforms we have already instituted are only a start and the challenge of recruiting and retaining the necessary business skills in DE&S is growing, not diminishing – and is likely to get bigger still as the economic recovery gathers pace. A more radical reform of DE&S is necessary if it is to sustain the skills it requires to support our armed forces effectively.

That is why we developed the ‘Materiel strategy programme’.

To address the skills challenge and improve the delivery of complex programmes, DE&S needs to have the freedom to shape its workforce to be world class and to engage effectively with the best of the private sector. The Materiel Strategy is about removing the obstacles to bringing in critical skills and exploiting the capabilities of the private sector, by exploring alternative models for DE&S.

I announced in April that the government had concluded that a ‘Government-owned, Contractor-operated’ model, a GoCo, might well be best placed to deliver the changes required in DE&S; but that we needed to test the market’s appetite for that model, and confirm that it would, indeed, deliver value for money, through a competition. In parallel, I announced that we would work up a public sector comparator, exploring the maximum extent of flexibility that could be achieved within the public sector, a model we have called “DE&S plus”.

The government has maintained an open mind as to which option would prove, overall, to deliver the best balance of risk and potential reward once bids were received.

On 19 November, I informed the house that we had reached the ‘detailed proposals’ stage of the competition, with only one proposal being received from the two consortia remaining in the process. That proposal was from the Bechtel-led Materiel Acquisition Partners. I further informed the house that the government would consider carefully how best to proceed in the light of this development.

I can confirm to the house today that I have decided not to continue the present competition.

The heart of our approach was to test the market’s appetite for delivering aGoCo along the lines we had set out, using the competitive process to drive innovation and value. We have always recognised that there are risks inherent in the GoCo approach. With only one bidder remaining in the competition at this stage, I have had to make a judgment about whether the public-sector comparator alone would generate sufficient competitive tension to ensure an effective outcome for the armed forces and value for money for the taxpayer.

I wish to place on record, Mr Speaker, that ‘Materiel acquisition partners’ have engaged effectively with the very challenging brief we set out. They have presented us with a credible and detailed bid, but we do not have a competitive process. I have therefore concluded that the risks of proceeding with a single bidder are too great to be acceptable.

We have gained many valuable insights from bringing the proposition this far and understanding the issues raised by bidders and potential bidders. 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.

We are clear that the only realistic prospect of resolving the challenges facing DE&S in an acceptable timescale is through a significant injection of private sector skills. I have, therefore, 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 resource, thus ensuring that the organisation becomes “match-fit” as the public-sector comparator for a future market-testing of the GoCo proposition.

To do this:

We will recognise the unique nature and characteristics of DE&S as a commercially-facing organisation by setting it up as a bespoke central government trading entity from April 2014;

We will give the new entity a hard boundary with the rest of MOD, a separate governance and oversight structure with a strong board under an independent Chairman, and a Chief Executive who will be an Accounting Officer, accountable to Parliament for the performance of the organisation, delivering another of Levene’s recommendations;

And crucially, we will permit the new organisation 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.

We will of course consult with trades unions on the practical arrangements for implementation.

These changes will reinforce the customer-supplier interface between the military command customers and DE&S, facilitating a more business-like approach, allowing us to move earlier to a hard-charging regime and thus further addressing one of the weaknesses identified in the 2009 Gray report.

They will allow DE&S to procure crucial private sector input through a series of support contracts to deliver key changes to systems and processes, and to strengthen programme management while organic capabilities are built. And they will permit the recruitment into DE&S of key commercial and technical staff at market rates and with minimum bureaucracy.

Mr Speaker, Bernard Gray has agreed to become the first Chief Executive of the new trading entity, thus providing a vital thread of continuity between the original Gray report and the continuing DE&S reform agenda.

Alongside the changes to DE&S, we will continue with the reform of MOD’s wider acquisition system, which is focusing on up-skilling our customer capabilities, a key role for our military, alongside the important role they will continue to play within DE&S.

Mr Speaker, these changes will drive significant incremental improvements in DE&S as well as delivering the mechanisms that will give the organisation a robust performance baseline. That will allow MOD, at a future date, to re-test the market’s appetite for continuing the DE&S evolution into a GoCo, and its ability to deliver value for money against a significantly enhanced public sector comparator.

On both counts, this course of action represents the best way forward, both for our armed forces and for the taxpayer, and I commend this statement to the house.

And that was that

When all but one bidder bails out it should be pretty clear that despite the bid costs they decided against pursuing it, the reasons are likely to be many but fundamentally, what the MoD was asking was unachievable within the risk and financial envelope on offer

Unrealistic expectations, too much control from the centre, excessive governance or demands on IP, security, financial risk management, transfer of undertakings or any of the hundreds of other requirements likely in the 2 foot thick requirements document.

I always had an open mind on this, it is not as mental as it sounds but it was always a non starter when the principle cause of major project delay sits outside of DE&S, i.e. government, politics and service rivalry.

 

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x
x
December 10, 2013 3:26 pm

So procurement reform up the tube and AR recruitment and reform destined for a similar fate. Thank God war isn’t imminent (in a 1938-esque way) because we would have no leadership in defence matters do we? As I said somewhere else you can’t privatize what you can’t define. Who would want the job? The Army can’t buy a vehicle even after spending a billion. Shipbuilding is governed not by need by government/party political whims. The RAF have to put up with FSTA; their Airships (!) surely only signed off on it because they had no option?

Peter Elliott
December 10, 2013 3:29 pm

Overall sounds like good news.

And I suspect that a hard headed pragmatist like Hammond always had this in mind as a very attactive possible outcome.

wf
wf
December 10, 2013 3:51 pm

@TD: “major project delay sits outside of DE&S, i.e. government, politics and service rivalry”. Well, yes, but what about the small and medium sized projects? There have to be massive gains to be made by standardizing and simplifying the processes there. Just removing DE&S from the loop for unit centred work would help

Desk Jockey
Desk Jockey
December 10, 2013 4:36 pm

Despite Mr Hammond’s attempt to honey the pill, this just confirms what people have been saying for ages. This is a very risky way to try to solve a tough problem. As for using smaller projects to trial this sort of thing, DE&S project teams already do so on various projects such as UKMFTS, MARSHALL, FSTA etc. The results are mixed to say in the least!

I think TD’s concluding comments hit the nail on the head. People keep making the mistake of thinking DE&S is solely responsible for procurement, it isn’t. The best way to understand it is to think of the four points of failure for any Defence procurement project that fails.

From the bottom to top, the points are:
– Contractor fails to deliver the contract
– DE&S screw up the project management or the contracting
– The MOD CAP (Capability) area or the military screw up the writing of the requirements (often ignoring advice from DE&S in the process)
– Political intervention eg. A Ministerial or Defence Board Force Majeure or being in an international procurement

GOCO only addresses the DE&S side of things, the Levene reforms addresses the inside MOD points and Cabinet Office (or just plain politics) and wider UK/EU regulations can prevent effective management of contractor failure. DE&S pretty often gets blamed for stuff it had no control of.

Keeping DE&S as an improved version of what is there, but giving it more autonomy from MOD Centre is something a lot of people agree with and only now that Gray and Hammond have started to realise it and shelve the grander GOCO plans.

Red Trousers
Red Trousers
December 10, 2013 7:14 pm

“We have gained many valuable insights from bringing the proposition this far and understanding the issues raised by bidders and potential bidders. 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.”

In other words, despite the unrelated issue / risk of there only being a single remaining bidder, DE&S were recognised as so totally crap that change is going to be forced on them anyway. I completely concur.

I hope all 3 original bidders are reimbursed their bid costs. Apparently it has cost us £7m to get to this point. Throw in another £10m for reimbursed bid costs, and the resulting £17m will still be good value if it forces those useless tossers hard working but commercially naive good people in Shabby Wood to sort themselves out.

Opinion3
Opinion3
December 10, 2013 10:27 pm

Personally I could never see how this could work. TD’s comments are spot on.

The problems of commercial, technical, ITAR, lack of flexibility seem immense. If we winge about FTSA – which we do – imagine the rage if we can’t order any kit without it meeting the contractual letter of the COGO agreement.

We need better project managers, that is if Government IT projects are a clue. I struggle to see why HMG has so many problems with setting up a National Database for [purpose chosen], Google, facebook, Tesco clubcard all work. They should not need COGO to solve the problem of lack of expertise and good management.

CBRNGuru
CBRNGuru
December 10, 2013 11:17 pm

I have to disagree with Red Trousers analysis of Abbey Wood. Obviously his concept of organisational structure is bias to completely write them off and comments like that which are consistently pushed down the throats of Team Leaders at Abby Wood only serve to cement common misplaced views. They are constantly told they are useless but as I am sure he is aware, in any organisation you have really good and really bad. You can only work with what you have and what you are allocated with and what you decide to pay them. Most personnel there only want the best for the military but they have many factors stacked against them. One being DE&S Commercial is outgunned every time by industry. Some poor individual sod has to put T’s and C’s in place against an Industrial Organisation that has a whole floor full of personnel who are there to run rings around any tender. Other factors include certain military personnel who come in and either sit on their arses for two years and try to do sod all then piss off with a tick in the box or those that want the gold plated solution all the time and cannot understand the dynamics of costs or those that come in, start a project then piss off before it is brought to fruition then pass to another person who starts the whole process again because he or she has been to some trade show and seen something better that could be inserted into the solution. The other factor can be DSTL who decide to screw everything up just to grab as much money as possible.
I do not work at DE&S, but have had many dealings with them in the area that my company works and all I can say is positive. Yes, that area has had its screw up’s but not all caused by Abbey Wood, but they as a collective end up getting the blame for someone or some organisations cock-ups including Industry who can sometimes be useless tossers as well.
To answer TD’s point, there have been plenty of trial runs using SME’s that have involved Primes. Key Strategic Partnering is one that springs to mind. In a nut shell and keeping the story short, it failed because industry were trying to rip off DE&S by changing Abbey Wood for the consulting information that they stole from the SME’s that they pressurised out of them by indicating that they might not be considered for any possible tenders. They got found out when several SME’s complained direct to the various Departments in DE&S.

Opinion3
Opinion3
December 10, 2013 11:31 pm

CBRNGuru

Not jumping one way or the other but is there something the DE&S could do to demonstrate more accountability and where relevant, put the blame firmly at the Politician / Strategy / Commercial Operator’s door?

Maybe they are on a hiding for nothing but they can’t do nothing at all. More GAO/SC type secrutiny maybe?

Chris
Chris
December 10, 2013 11:52 pm

Don’t know if it would work, but for a long time I have suggested the procurement exec (currently called DE&S) climb down from their fine ivory tower and embed themselves in cooperative teams in industry as productive players, not auditors. Obvious sticking point is IPR – if jointly developed then who owns it? That aside, I can’t help thinking there’s a lot to be gained from peer-to-peer trust between MOD & supplier, not least a speeding up of projects and totally transparent costs. It ought to evaporate the Us & Them attitude that leads to the mindset that the other side deserves to be taken advantage of to the Nth degree. I doubt the big corporations would want the MOD to see what they get up to though…

CBRNGuru
CBRNGuru
December 11, 2013 12:10 am

Unfortunately Opinion 3 there is more to the story that cannot be divulged in a public forum. Let’s just say political masters, under the carpet sweeping and a ticking off to certain Industry Primes. Who in turn dismissed several personnel over said allegations. Sacrificial lambs and all that.
Transparency can only run so far when it is required.
Talking about masters who control, one area I did not mention in the previous post is that there are not many organisations that have to work in an environment that is designed for 4,600 but now has 12,000 working in it. If you don’t book a desk two weeks in advance then you have no work area. That work area could well be nowhere near the department that you work for and can be in a completely different building. Brings a whole new meaning to hot desking!!

x
x
December 11, 2013 12:43 am

designed for 4,600 but now has 12,000 working in it

Gosh. Explain how this came about. Please. :)

Does the sign at the gates say HMP?

Red Trousers
Red Trousers
December 11, 2013 12:48 am

@CBRNGuru

My experience of Shabby Wood has been over about 12 years, from the time that the Downey Cycle was replaced by “Smart” Procurement. Some of that time was Government side as the SO1 Capability for Land C4ISTAR, some in industry. Possibly in total 100 separate programmes.

I genuinely believe that DE&S is unfit for purpose, and indeed as time moves on gets worse. The Commercial negotiators regress annually in their ability to strike a good deal for the Government. The programme managers seem like children, and are serially replaced on a six monthly basis, even for important programmes. The quality of civil servant reduces annually. Anyone good is routinely offered £25000 on top of their pay to work for the Defence industry quite locally.

I once led a bid team for a major 7 figure multi year programme. We went from being one of 38 PQQ respondents to coming 2nd. Someone has to. I got the pretty standard internal chat, named my price to carry the can and was officially sacked. Not much fussed as it was SOP: lose a big bid and you walk the plank. But the reality was that the procurement was totally cock-eyed by a 24 year old little child of a PM in the IPT who was utterly effing clueless about running a programme and who concocted a competition so bad that even the incumbent walked away. Three years on, the winning company is trying to walk away, and the end user is bitterly resentful of the IPT being involved at all.

Chris
Chris
December 11, 2013 8:06 am

Repeat post because it got eaten last night….

Don’t know if it would work, but for a long time I have suggested the procurement exec (currently called DE&S) climb down from their fine ivory tower and embed themselves in cooperative teams in industry as productive players, not auditors. Obvious sticking point is IPR – if jointly developed then who owns it? That aside, I can’t help thinking there’s a lot to be gained from peer-to-peer trust between MOD & supplier, not least a speeding up of projects and totally transparent costs. It ought to evaporate the Us & Them attitude that leads to the mindset that the other side deserves to be taken advantage of to the Nth degree. I doubt the big corporations would want the MOD to see what they get up to though…

x
x
December 11, 2013 9:44 am

I once led a bid team for a major 7 figure multi year programme. We went from being one of 38 PQQ respondents to coming 2nd. Someone has to. I got the pretty standard internal chat, named my price to carry the can and was officially sacked. Not much fussed as it was SOP: lose a big bid and you walk the plank. But the reality was that the procurement was totally cock-eyed by a 24 year old little child of a PM in the IPT who was utterly effing clueless about running a programme and who concocted a competition so bad that even the incumbent walked away. Three years on, the winning company is trying to walk away, and the end user is bitterly resentful of the IPT being involved at all.

You are going to have explain some of that again. It was like reading a French newspaper. I got the gist of it. But I think I missed something somewhere. The only TLA I knew was SOP.

Chris
Chris
December 11, 2013 10:06 am

I always thought PQQ was where MOD verified the company was BAE (or of similar corporate size) because all other smaller businesses were beneath MOD contempt. But I may be wrong. Questions like ‘prove your turnover was big enough to be a credible supplier’, ‘prove your company has adequate funds to cover all programme risks’, ‘prove your company has a full set of departments (each with over 100 staff) and offices on at least three continents’…

x
x
December 11, 2013 10:11 am

I didn’t think PM was something as simple as Project Manager. I thought it was going to be some weird and wonderful Civil Service title.

So RT got the sack from a private company for not getting a big contract? Did the other 36 get sacked too? Or something a lot worse? Seems a bit rough getting the sack for coming second.

wf
wf
December 11, 2013 10:52 am

@RT: sounds to me like DE&S need to operate a policy of only hiring ex-industry (not necessarily defence industry preferably). Of course that means junking Civil Service pay rules, but I thought MOD(PE) was included in “Next Steps” in the 80’s and so became an agency. Doubtless the rules all re-imposed…

B
B
December 11, 2013 11:11 am

t

Desk Jockey
Desk Jockey
December 11, 2013 1:39 pm

Argh, my earlier post vanished. Swallowed by the spam monster?

@ RT

You are being pretty unfair labelling the whole of DE&S as useless based on what sounds like past experience as an outsider. There are good and bad teams like any other big organisation. SO1 Capability doesn’t exactly have a sterling reputation either, having been slagged off by Abbey Wood staff themselves (the complaints are vaguely similar to yours), past Defence Ministers (I considered this to be very un-professional, but it happened) and by Bernard Gray himself in his 2009 report where he put the blame for the overheated equipment programme squarely on CAP’s shoulders. Stones and glass houses and all that.

As soon as I saw you mention ISTAR I knew where you were coming from. Up to about 5 years ago they were rather notorious. Since then they seemed to have really pulled their socks up and quite a few of their teams have won awards for good project management etc. There are still a few bits that I would not want to go near, but as far as I am aware most of them do a pretty good job, especially the UOR and small projects teams. Nobody is perfect, but at least they have stopped just roping in DESG grads fresh out of university to fill their vacant posts!

The Hammand and Gray announcements about moving to a trading fund IS about escaping civil service pay constraints and bringing more industry bodies into the organisation. Scuttlebutt says the Abbey Wood crowd may have to sign up to new terms and conditions and presumably this will mean bumping up the pay of those who do the job well to stop industry poaching as well as trying to attract industry in.

What people don’t believe is the mantra that all this will cost less. The harsh truth is that the military (green or blue or pink or whatever) are like gullible children when it comes to procurement (why should they be otherwise, it is not what they are trained to do) and Capability is often not much better. DE&S often acted as free consultants in setting their requirements and keeping them out of trouble. Now that MOD will have to pay for their services costs will go up. And no you cannot just remove DE&S (or civilian/industry equivalent) from the process because whenever that was tried before the whole thing became a disaster as industry (or foreign governments) fleeced the MOD blind. Someone has to help the user get what they want and using DE&S is cheaper than paying consultants or lawyers to do it. The spiralling costs of the NHS hospitals who paid consultants to arrange those PFI style robberies is a good example of what happens.

Chris.B.
Chris.B.
December 11, 2013 6:53 pm

If you think the MoD is bad at least its not a problem exclusive to them, as the DWP has just written off several millions worth on botched project management in the last year, with £150 million written off over the next few years on IT. Oh, and around 2% of the payments they make to claimants (excluding pensions) in an average year are erronously high, while they’re having to pay people back around 1% of their budget (excl. pensions) for under payments, the total sum of the mistakes being around £5 billion! All in a days work for DWP.

As for Hammonds statement, to me it read a lot like this; “we had our answer already, but we underestimated the complexity of the process and so we lost the bidders needed. We’re now going to go back and reorganise, so a future competition can be held that will work. Likely by breaking the organisation up into chunks which can be farmed out, which will give people experience in running them and also make the bidding process a little easier next time”.

This isn’t the death of GOCO for defence. This is just the end of the beginning.

Opinion3
Opinion3
December 11, 2013 10:21 pm

I am prepared to put money on the best ‘run’ projects are those where

1. The end user has a real stake in the outcome. UOR would be an excellent example
2. Industry involvement is extensive and as such a partnership. I’d use the CVF / and Bae TOBA as an example, another such example could be the SPEAR development.

CBRNGuru
CBRNGuru
December 11, 2013 11:45 pm

@ Desk Jockey, I think RT was at Abby Wood for a number of years before jumping ship to the Industrial sector and making the unfortunate failed bid.

I also think that your post relates to mine but done a bit more eloquently. There has been quite a bit of arse kicking at Abby Wood and as you state procedures and personnel in certain areas are better. I would also suggest for every negative that comes in about Abby Wood I can relate a horror story from Industry in the sector that I am interested in. You can read a particular gory story in CBRNe World magazine in 2008 about how to fleece £22 million out of MOD and deliver the total sum of nothing due to total industrial incompetence.

CBRNGuru
CBRNGuru
December 11, 2013 11:47 pm

@ Desk Jockey, I think RT was at Abby Wood for a number of years before jumping ship to the Industrial sector and making the unfortunate failed bid.
I also think that your post relates to mine but done a bit more eloquently. There has been quite a bit of arse kicking at Abby Wood and as you state procedures and personnel in certain areas are better. I would also suggest for every negative that comes in about Abby Wood I can relate a horror story from Industry in the sector that I am interested in. You can read a particular gory story in CBRNe World magazine in 2008 about how to fleece £22 million out of MOD and deliver the total sum of nothing due to total industrial incompetence.

Ant
Ant
December 13, 2013 7:45 pm

Bernard Gray and Philip Hammond giving evidence to the Defence Committee 12th December 2013.

See from 11.33h: Confirms setting up a GOCO will be attempted again.
Bechtel’s bid did not materialise because there was insufficient financial data available to de-risk the proposition for the taste of their Board (though not their negotiators apparently).
Therefore there will be further efforts to bring DE&S to “match fitness”. The DE&S+ structure will act as a (leaner, more de-risked) baseline comparator for another competition.

They will:
a) install systems to gain a fine more grained view of financial risk, using “earned value accounting” (whatever that is)
b) address the “skills gap/deficit”