Queen’s Speech

Lord Lee of Trafford Excerpts

Wednesday 15th May 2013 Lords Chamber

[Lord Lee of Trafford]

My Lords, nobody disputes that many of the defence procurement overruns in cost and time terms have been a national embarrassment and that substantial improvements and changes are imperative. However, whether a GOCO, a government-owned and private sector-operated solution, is the answer, is highly questionable.

I have nothing against GOCOs in principle. Indeed, when I was a Defence Minister in the 1980s, I was heavily involved in the Bill to contractualise the dockyards, taking it through the Commons. But that was for a specific operation; what we are now talking about is a whole new order of magnitude—£14 billion of procurement with, currently, 16,000 civil servants. What the Government are effectively saying is that we cannot put our own house in order; it is just too big a job for us. That is a very substantial admission of failure.

No other country outsources its defence procurement through a GOCO route. Can you imagine a large plc such as Shell or Tesco or even BAE Systems putting out their purchasing to a third party? Of course, defence procurement is complex, and technological changes are rapid, but with the right systems, disciplines and quality of management, it surely could be substantially improved in-house. Indeed, the MoD is clearly still unsure about the GOCO option itself. We are now apparently in what is called the final assessment phase, scheduled to last 12 months, comparing the public sector option, DE&S plus, with the GOCO alternative. Could my noble friend tell us what the plus is, in DE&S plus? What is the change here from the current situation?

According to a recent article in the Financial Times, the US-based contractor, Jacobs Engineering, has been appointed by the MoD’s delivery partner to help to develop the business model for the handover. How was Jacobs selected, and at what cost? Indeed, how many MoD personnel are spending the majority of their time on the GOCO option?

A GOCO option would add a fourth player into this already complex arena. First, we have the customer, our Armed Forces. Secondly, we have a body, let us call it MoD Purchase, which will presumably place the order with the GOCO and, ultimately, check the procurement on completion. Thirdly, there is the GOCO itself, and, fourthly, the defence contractor with which the contract is placed. That is four bodies rather than the current three.

I turn to the GOCO itself. I have a number of questions for my noble friend and I fully understand if he is not able to answer them tonight and has to write to me. How will the GOCO operator be selected? Will overseas countries, particularly American-controlled companies, be considered? Will companies that are already involved with the MoD be considered, and will companies that already work or provide services for defence contractors be eligible? In today’s Financial Times, the chief executive of Babcock has ruled that company out. Perhaps our old friends, G4S, are champing at the bit.

What will the basis of the financial arrangements be between MoD and the GOCO? Will the GOCO receive a block of money and a list of spending requirements and be told to get on with it, or will the arrangement be fee-based, perhaps with an incentive? How many of the 16,000 MoD personnel will the GOCO be required to take on? What about those left? Will the GOCO be free in future to hire and fire as it sees fit? How long will the contract between the MoD and the GOCO operate, and in what circumstances can the operator be terminated? What restrictions will be placed on the GOCO’s freedom to operate—specifically, as between buying off the shelf and sustaining our national strategic capabilities?

How will collaborative programmes with our allies, joint procurement, be handled in the GOCO world? What cognisance will the GOCO take of regional employment issues and the need to encourage SMEs rather than support our major national contractors? What are the attitudes of our allies to our going down the GOCO route? An article in the Financial Times on 7 May headed “MoD outsourcing plan stokes US anxiety” refers to the United States’ concern that shared information between the two forces could be at risk. We are told that the UK and US have agreed to,

“establish a joint, bilateral, inter-agency team to explore”,

the new situation. Could my noble friend confirm this? Is it currently at work?

With regard to single-source contracts, where there is no competition for whatever reason, what would the interface be between the new Single Source Regulations Office to be implemented in 2014-15 and the GOCO? Will the GOCO’s remuneration be varied, dependent on whether a particular contract is single source or competed for? As I understand it, to facilitate the original shipbuilding merger between BAE and Vospers, a programme of future naval work was guaranteed. How long does that run on for, and how will it work if the GOCO is established? How will cancellations of major programmes be dealt with between MoD and the GOCO, such as the Nimrod disaster or the carrier aircraft fiasco—initially STOVL, then cats and traps, then back to STOVL? To put it bluntly, who pays? Who picks up the pieces?

On the delicate area of the revolving door, with MoD personnel and members of the Armed Forces being recruited by defence contractors it is already difficult enough to police. What is the future position going to be in the new GOCO world? Will any restrictions be insisted on?

We now come to the very important area of national emergencies and urgent operational requirements. Our defence contractors have a very proud record of responding to our nation’s needs, as we saw in the Falklands, Afghanistan and, more recently, in Libya, with financial considerations being put to one side to be sorted later. Will our Armed Forces and the MoD be free to go direct to defence contractors in such circumstances, or will they have to go through the laborious route of the GOCO?

Finally, given the inevitability of disputes between the MoD and the GOCO, with changes of specification, extras, variations in quantities and so on, will it not be necessary to establish some form of independent arbitration—perhaps an Office of Defence Procurement Arbitration—to handle disputed issues?

Outsourcing MoD activities has provided very lucrative revenue streams for the private sector. A GOCO is a major opportunity for the private sector but, I would suggest, a huge risk for the taxpayer and our Armed Forces. Many questions need to be answered. My noble friend Lord Levene, who was Chief of Defence Procurement and, of course, drove the defence reform agenda, has considerable misgivings—I spoke to him yesterday—and so do I.