A radical revamp of the UK’s dysfunctional defence procurement process is now being considered. RAeS Head of Research, Professor KEITH HAYWARD assesses the options.
In April, UK Secretary of State for Defence Philip Hammond announced a comprehensive review of the way the MoD manages its £14bn annual equipment and support programme. This could include privatisation; a Government owned, contractor operated (GOCO) approach is one model under consideration. Alternatively, the Defence Equipment and Support Agency (DE&S) could stay in public hands but subject to a wholesale re-structuring of its organisation and financing. The GOCO approach would be by far the more radical solution — indeed unique in the world of defence procurement. When first recommended by the current head of DE&S, Bernard Gray in an otherwise very well received consultancy report, the GOCO solution was met with official scepticism. Well, times have changed. Mr Hammond has built up a reputation as a hard-headed numbers man at the MoD. Privatisation might just suit his determination finally to nail down an effective reform of the way in which the UK buys its weapons and life time support. The UK National Audit Office has noted solid improvements in cost control and delivery time of new equipment but there are still persistent and politically sensitive problems over cost escalation and delays to key projects. Their effects will be made worse by the growing austerity- driven pressures on the Defence Ministry budget.
Tightening up the process
Hammond is certainly looking to tighten up the procurement process and to infuse it with a much more powerful sense of commercial direction, perhaps breaking the ‘conspiracy of optimism’ that has linked customer and suppliers in making unrealistic cost and delivery estimates to get prized projects to a point of no return. The majority of possible contractors are overseas companies, mainly American, and the idea of a foreign-owned procurement agency might be a difficult concept to sell politically. Industry is adopting a wait and see attitude to developments, and wants assurances on commercial confidentiality and intellectual property protection from any competitor who might be awarded the job. Maintaining public accountability, the protection of national industrial and technological assets and export promotion will be other difficult issues to consider over the next 12 months. The US Government is also concerned about protecting its government-to-government technology agreements. In general, conflict of interest may inevitably pose potential problems but these might be finessed by creating strong firewalls. A decision is expected by the summer of 2014 — just as the parties will be warming up for a General Election.
This article previously appeared in the July edition of AEROSPACE. Read Keith Hayward’s incisive commentary on the global aerospace secotor every month in the RAeS flagship magazine, AEROSPACE.