MoD set to opt for GoCo model for Defence Equipment & Support

The Ministry of Defence (MoD) is expected to choose a "government owned, contractor operated" (GoCo) organisation as its preferred type of model for the military procurement organisation Defence Equipment & Support (DE&S) to drive better value from the defence budget. It follows a statement by defence secretary Philip Hammond in the House of Commons on the various merits of the GoCo and Executive non-departmental public body with a strategic partner from the private sector (ENDPB/SP) models. Hammond said: "A core element of the transformation process under way in the MoD is reforming its acquisition system to drive better value from the defence budget. This includes changes to the DE&S organisation to ensure it has the structures, management and skills it needs to provide the right equipment to our armed forces at the right time, and at the right cost. "This is essential to tackle the legacy problems in defence acquisition that led to cost and schedule overruns, and which have resisted previous reform. The people at DE&S work hard to provide battle-winning equipment, support and logistics, but the current system does not work for them, does not always support them, and is not delivering value for money for the taxpayer. Over the last year, said Hammond, Bernard Gray, the chief of defence materiel, has analysed the root causes of the current situation and identified three interlinked issues. These are a historically overheated equipment programme, where far more projects were planned than could be paid for; a weak interface between DE&S and the wider MoD with poor discipline and change control between those setting requirements for equipment and those delivering the programmes; and insufficient levels of business capability at DE&S for the scale and complexity of the portfolio it is asked to deliver. The result, he said, has been significant additional costs in the defence budget of hundreds of millions of pounds each year, with money spent managing the consequences of delay rather than delivering maximum capability for the armed forces. "The MoD is now engaged in a process of transformation to deliver the behaviour-changing incentives and structures that will maintain the budget in balance in the future. The restructuring of DE&S is key to this process," said Hammond. "Earlier this year, I therefore asked my officials to focus their efforts on considering the comparative benefits which could be derived from changing DE&S into either an ENDPB/SP, or a GoCo entity. "The work done to date, suggests that the strategic case for the GoCo option is stronger than the ENDPB option. Further value for money work is under way to confirm this assessment. In the meantime, as resources and commercial appetite constrain our ability to pursue these two options simultaneously to the next stage, I have decided that MoD should focus its effort on developing and testing the GoCo option further. The work to determine value for money between the options will take place over the next few months. "This work will support decisions later in the year on whether to proceed with the GoCo option and whether to launch a competition for the private sector management company to run the organisation. "Provided that the further work demonstrates that the value for money case for GoCo over ENDPB/SP is conclusive, this will be followed by an investment appraisal that will test the GoCo against a public sector comparator, following which a decision on whether or not to proceed will be taken." Josh Hewer, defence analyst at public sector market intelligence firm Kable, said: "It isn't necessarily a done deal but a GoCo is the preferred option. The challenges with GoCo will be connected to the current state of defence procurement which has a complex supply chain and numerous legacy programmes. "I would suggest that the two touted options are not mutually exclusive. One of the most important aspects of the GoCo status will be the transition from the government body, and the MoD could consider a strategic partner to assist in the transition to a new way to manage defence procurement." He added: "We have already seen this touted in how the MoD is to deliver ICT in the future, with the DCNS programme looking to appoint a strategic partner to assist in the move to a towers model with the partner possibly being appointed to a SIAM role later. Could defence procurement emulate this strategy in its move to a GoCo model?" This article is published by Guardian Professional . Join the Guardian Public Leaders Network free to receive regular emails on the issues at the top of the professional agenda.