Streamlining Defence Acquisitions: the UK experiment

Posted 28/06/2013 by Noemi Murphy

The struggle to control the cost and improve the effectiveness of acquiring defence capability has taxed successive Australian governments—but Australia is not alone. A new UK Government white paper outlines a plan to manage the purchasing of defence capability very differently to most other countries by stating its intention to move to a Government Owned Contractor Operated (GOCO) model for running the Defence Equipment and Support Organisation (DE&S).



It sets out the major reasons the DE&S struggles to provide capability on time and within budget and suggests a variety of possible solutions while noting the Secretary of State for Defence’s preference for the GOCO model. Critics of Australia’s Defence Materiel Organisation (DMO) will be familiar with the three ‘root causes’ of underperformance:
  • the DE&S attempts to carry out too many tasks and many of the capabilities are more highly specified than is necessary (referred to as ‘overheating’), compounded by the ‘conspiracy of optimism’ around cost and deadlines
  • an unstable interface between the MOD and DE&S in which changes are made to projects at various times during the development of the capability and by various people. The DE&S is not truly empowered to say no when it is unhappy with these changes and
  • the DE&S lacks the proper range of people with skills in project management as well as commercial and financial expertise and engineers. The report states that these ‘have a much higher market value than can be recognised within the civil service framework’.
This move to the GOCO model was first flagged by the Chief of Defence Materiel, Bernard Gray, in his 2009 report on defence acquisition reform. Gray’s conclusions were reinforced in a 2011 report which agreed with the previous report and noted the need for system-wide transformation.
 
If indeed the British Government decides to privatise the DE&S, it would be an unprecedented and potentially controversial move because all acquisition, from procurement to whole-of-life support and disposal, will be organised by a private contractor instead of a government department.
 
In general, the acquisition of military capability in the US, UK and Australia is handled by the public service. For example, Australian capability acquisitions are organised by two sections within the Department of Defence. Initially, the Defence Capability Group (CDG) researches capability needs. Once a suitable capability has been developed or sourced, the project is transferred to the DMO. The projects are managed by DMO Project Managers who closely collaborate with private contractors to deliver the desired capability.
 
In a bid to cut costs and streamline processes, the government proposes to transform the DE&S into a GOCO organisation over which the UK Government would retain strategic control, but which has substantial operating freedom and is incentivised through a performance-based contract. Aside from the fact that the contractor might be foreign-owned (provided it is registered in the UK), little else is known about how such a privatised system would work. In a February 2013 report released by the Commons Defence Select Committee, British MPs were highly critical of the move to privatise DE&S and raised 34 points they believed needed addressing.
 
Moreover, many critics have highlighted that project scope and budgets often change due to shifting requirements and it remains doubtful whether a private company would have the flexibility to cater for such changing needs. However, the UK Government believes that accommodating change has significantly contributed to cost blowouts and is a primary reason for creating a more rigid system. The money-saving element of this initiative is also being questioned, with critics arguing project costs will likely rise and parliamentary scrutiny of public expenditure and accountability will be removed.
 
The US Department of Defense is also concerned about the GOCO initiative, particularly because US military secrets will necessarily be divulged during the British acquisition of US military technologies and capabilities. The DoD and the UK MoD have established a small interagency team to study the impact of the change and how it might best be handled.
 
To argue the case for the GOCO model, Gray cites the British privatisation of nuclear weapons development. However, a study released in 2012 by the Royal United Services Institute concluded:


The DE&S acquisition and management function in defence is much more diverse and complex than the development, production and support of nuclear weapons. Thus the GOCO model of the Atomic Weapons Establishment, where industry works under close supervision on a limited range of tasks, cannot be taken as a model.

The same study highlighted that the US had previously unsuccessfully attempted a similar initiative and had returned to the traditional procurement model at great cost and time delays.
 
The privatisation of DE&S was due to be completed by 2013, but is now expected to be completed next year. Currently, requests for tenders are being advertised for lead companies. Following a cost benefit analysis of the new model versus the status quo, a decision about the future of the DE&S is expected to be made in 2014.

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