December 6, 2013 4:00 pm

Ministry of Defence shelves plan to privatise procurement

British Paratroopers Conduct Operation 'Southern Beast' In Afghanistan©Getty

The Ministry of Defence 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 was to 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, despite opposition from MoD mandarins and other defence chiefs who believed that such a project would be fraught with difficulties.

One MoD source said: “No final decisions have been made, but it is looking increasingly likely that the defence secretary will end the commercial competition.

“If that were to happen, we would then announce our alternative plans for reforming defence acquisition. Given the history of defence procurement, it is clear that the status quo is not acceptable and reform is needed to bring in private-sector skills and experience.”

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.”

People familiar with the MoD’s plans said 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 former defence minister, 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.

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