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06 Dec 13. The FT has reported that the U.K. Ministry of Defence (MoD) is to drop proposals to privatise its £14bn equipment procurement operation. The GoCo scheme, which had been hailed as a radical way to improve the MoD’s unwieldy procurement process, will be mothballed after private contractors to run the scheme pulled out of the bidding war in recent weeks, leaving only one consortium, led by Bechtel, in place.

Under GoCo, MoD procurement would be undertaken by a government-owned but contractor-run independent company. Philip Hammond, defence secretary, had earlier stood by the plan, even as it became clear that private sector interest was flagging. The scheme was championed within the MoD by Bernard Gray, the ministry’s chief of defence materiel, in spite of opposition from MoD mandarins and other defence chiefs who warned such a project would be fraught with difficulties. Ministry officials have in recent weeks been trying to bring together proposals for the scheme’s favoured alternative.

The compromise plans include streamlining procurement teams and greatly increasing the pay and bonuses available to successful civil servants within the department to compete with the private sector.

“We think that there are some responsibilities that the government shouldn’t farm out entirely and defence acquisition is one of them,” said Trevor Taylor, professorial research fellow at the Royal United Services Institute, the UK’s leading military think-tank. “It is very difficult to understand just how GoCo would have worked in practice,” he added.

People familiar with the MoD’s plans stressed that the decision to abandon the GoCo scheme at this stage did not preclude it being resurrected in future, possibly after the next election. The viability of GoCo in its current form has been in doubt for several weeks.

Lord Lee, a defence minister under Margaret Thatcher, said the project was “dead in the water” in late November after all but one of the original three consortiums in the running to operate the project pulled out. The remaining Bechtel consortium has submitted a 1,200 page first-stage proposal for the scheme, a fact that highlighted the complexities and difficulties GoCo would have faced, according to Lord Lee.

A consortium led by CH2M Hill, which included Serco and WS Atkins, pulled out after deciding the risk of being held to standards by the MoD based on erroneous assumptions was too great and there was no way it could hope to make a profit. The bid was also hampered by a government investigation into Serco after the company was found to have been overcharging the Ministry of Justice for tagging criminals.

BATTLESPACE Comment: The writing has been on the wall for some time! The recent announcements that the Pentagon objected on security grounds, the IP issues, that Bechtel was the only one in the race and Lord Levene’s comments backing the alternative proposals, signalled that it was a matter of time before the axe fell, in our view quite rightly. This has been tried and failed once before in Canada in the late nineties when Lockheed Martin proposed a similar structure. For the future the MoD must look at its whole procurement process and stop developing tailor made systems which are expensive to procure and hugely costly to support. This announcement may also pave the way for more pan-European procurements, originally resisted by Philip Hammond. Where does this leave Bernard Gray, Head of Procurement who nailed his colours firmly to the GoCo mast? Arise Lord Gray?

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