Our union is stepping up our campaign against the MoD
proposals to turn DE and S into a ‘Government-Owned Contractor-Operated’ (GoCo)
entity. We do not believe there is a need for the government to privatise the
procurement arm of the Ministry of Defence and we will be using all means at
our disposal to campaign against the introduction of a GoCo.
The reasons for opposition
Our union has numerous reasons for opposing the introduction
of a profit-orientated organisation to run UK defence procurement. At Annex A
below is the detailed submission that our union has submitted to the House of
Commons Defence Reform Bill Committee. This gives our union’s comprehensive
position on GoCo; the headlines are as follows:
- The United States tried a private contractor
running their defence procurement. In a short period of time, they quickly
realised it was not working and cancelled the project in its entirety. The UK
must learn from this lesson.
- The potential conflict of interests is too
great. A winning GoCo bidder would have access to competitors’ prices and
technical information and would therefore be in a prime position to create a
defence monopoly for their own organisation.
- Profit would be put before the operational
requirements of the UK armed forces. This is too big a risk for the military
personnel our members work alongside and strive to deliver a world-class
service for.
- There would be little or no accountability. At
present as civil servants, we are responsible to the government of the day. A
GoCo would primarily be responsible to their shareholders and not the taxpayer.
Our union is quite clear – public services such as defence procurement must be done by public sector workers and not done for profit. We believe it is time the government properly resource and properly staff DE and S.
PCS at the Defence Reform Bill
Committee
Yesterday (Thursday 5 September), our group president, Chris
Dando represented our union and appeared in front of the Defence Reform Bill
Committee. Chris highlighted many of the flaws within the draft bill including
–
- The
lack of consultation with our union during the process including lack of
detail regarding the tender process and little knowledge of the programme
timetable.The
knowledge of how any GoCo would be constructed and how TUPE would apply if
our members were transferred.
- The
example of how the United States had tried an almost identical programme
but had completely rescinded that original decision. Chris promised to
send the committee full details of the failed US LSI programme (see Para’s
6-19 in Annex a below).
- The
issues around conflict of interests and how our union believe that
existing defence contractors will have massive worries about their details
and costings being passed to a rival private company.
Chris concluded by telling the committee about the pride our
members have in supporting the front line in DE and S and that unfortunately at
present, these members have had little reassurance from the MoD and this is now
causing great stress and uncertainty.
Campaigning works
PCS DE and S members need to look no further for evidence
that campaigning works than the members in the UKNCB in Glasgow – themselves part of DE and S.
Last week, we got
final word that the proposals to relocate the members in UKNCB from Glasgow to
Bristol had been formally withdrawn. Since the initial announcement of the plan
to relocate these jobs and families in 2011, our union has been campaigning
against them:
- We
contacted all the political parties and local and national media contacts and
from this we saw parliamentary questions placed north and south of the border,
all of which put pressure on the department.
- Internally,
the PCS comments to each stage of the consultation were extremely thorough and
in most cases couldn’t be answered by management. Our costing work was more
detailed and knowledgeable than the MoD’s and management had to admit at the
end of the process that there was no financial gain in moving from Glasgow to
Bristol.
- UKNCB
members were involved and led the campaign from the outset. They were visible
on every picket line and rally during the period of the campaign and contacted
press and politicians on a regular basis. They even walked out en masse in
protest at a meeting with senior DE and S management.
Our union knows that
campaigning works if we have coherent and robust arguments for our case. If
this is allied with members and reps who are engaged and motivated, then we can
and will win many more fights. The UKNCB members have shown this. It is now
time for all other members in the Defence Sector group to follow suit.
Conclusion
GoCo is not the answer for defence procurement and not the
answer for our armed forces. The GEC will meet next week and will decide on the
next stages of our campaign against any GoCo introduction, including actions
that members can take to express their concerns about the potential of being
outsourced against their wishes.
Privatisation will not improve morale across the department,
just as pay restraint, pension contribution increases and the new performance
management arrangements are demonising MoD civil servants and ensuring morale
is rock bottom.
Our members at Abbey Wood and across the DE and S tell us
that they do not want to be outsourced and do not believe that a GoCo is the
answer to their problems. We must listen to their views and experience and
build a case to retain DE and S in the public sector, accountable to us all not
to distant shareholders in the United States.
It is now time to take heart from the UKNCB
members and start campaigning and fighting again in our department – it is time
for a Fair Deal in Defence.
Annex
A
PCS submission to House of Commons Public Bill Committee for Defence Reform
Bill on Defence Procurement and Single Source Contracts
The
Public and Commercial Services Union (PCS) is one of the largest trade unions
in the UK, with over 260,000 members. We are organised throughout the civil service
and government agencies, making us the UK’s largest civil service trade union.
We also organise widely in the private sector, usually in areas that have been
privatised.
PCS represents around
12,000 members working in the Ministry of Defence and those employed in
the wider defence sector. Our submission focuses specifically on the GoCo
and Single Source proposals. We would be happy to provide the Bill
Committee with further written or oral evidence on request.
- The GoCo concept
originally emerged from a review by Bernard
Gray. However the then defence secretary, Bob Ainsworth, rejected
this, stating: “we are not
convinced that such a change would ultimately lead to better outcomes for
the armed forces or defence generally.”
- Bernard Gray was then appointed head of DE&S in January
2011, resurrecting his GoCo proposal.
- We will not be the first
western country to try using the private sector for defence procurement.
- In 2009, the US Department
of Defense (DoD) announced the cancellation of the US Army’s Future Combat
System (FCS) contract and directed the Army to takeover the FCS contract.
The FCS programme was initially undertaken by a US Lead System Integrator (LSI’s).
- These are contractors, or teams of contractors, hired by the
US government to: “execute a large, complex, defense-related acquisition
program, particularly a so-called ‘system of systems’ (SOS) acquisition
program. LSIs can have broad responsibility for executing their programs,
and may perform some or all of the following functions: requirements
generation; technology development; source selection; construction or
modification work; procurement of systems or components from, and management
of, supplier firms; testing; validation; and administration.” In other
words, broadly what the UK government are looking for from a GoCo.
- The LSI for the FCS
program was a partnership between Boeing and Science Applications
International Corporation (SAIC). This experienced multiple problems,
among them cost and schedule overruns, and were the subject of multiple
Congressional oversight hearings before the contract was rescinded in
2009,
- The US DoD turned to the
LSI concept for FCS because at that point they lacked the in-house
technical and project-management expertise needed to undertake complex
procurement projects. One of the primary reasons for this lack of in-house
expertise was the downsizing of the DoD acquisition workforce. (In comparison, UK DASA stats show that
DE&S civilian numbers have shrunk from 16,150 on 1 April 2010 to
12,550 on 1 April 2013 – a 22.3% loss of experienced procurement staff in
just three years).
- The US DoD also subsequently believed that
they had insufficient visibility into programme and overall system
performance. In the US LSI arrangement, the US government had a
contractual relationship with the LSI prime contractor, not with any
subcontractors that report to the prime contractor. A lack of transparency
in this area made it more difficult for the US government to adequately
manage and conduct effective oversight of their acquisition programme. It
is also believed that this lack of transparency increased the risk of cost
overruns, schedule slippage, poor product quality, and inadequate system
performance.
- Mirroring the problems we have with British
military tour lengths, the DoD were concerned about the three-year rotation cycle
of most US senior military officers when using an LSI meaning that their
ability to make independent assessments of programmes being carried out by
LSI’s had been reduced.
- The
US government also had major concerns that LSI arrangements would create
conflicts of interest for an LSI in areas such as determining system
requirements and soliciting, evaluating, and hiring contractors. They were
concerned that an LSI might tailor system requirements to fit the LSI’s
own products, or that in selecting another contractor, the LSI might
favour one of its own subsidiaries (or a favored supplier firm) over other
potential suppliers. This would lead to an increase in the government’s
costs or reduce technical innovation, particularly if a more innovative
solution offered by another firm would compete with a core business line
of the LSI.
- The
US believes it would be extremely difficult for an outside company to
successfully challenge an incumbent LSI that has managed a programme for
several years. The incumbent’s greater knowledge of the program and the
potential disruptions to the program that might be caused by switching to
a new LSI would likely pose a barrier to another contractor’s ability to
take over the contract. This could make it difficult for the government to
terminate such a contract and as a result, the government of the day will
have very little leverage to re-compete the contract.
- These
problems are likely to be magnified in a GoCo. With an initial contract
length of nine years,. the MoD has done no risk analysis on the ability of
other contractors to be able to rebid in 2023. Without this risk analysis
there is a huge fear the winning contractor will be able to hold the MoD
to ransom in years to come.
- US media reports estimate it
cost up to $1.5 billion to close down the ill-fated FCS programme. Probably most important is the fact that
the US Congress has banned it from ever happening again. PCS believes the UK
government MUST learn from this.
- In the House of Commons
debate on GoCo on 10 June 2013, defence secretary, Phillip Hammond stated:
“The United States,
contrary to some media reporting, is relaxed about this process. It
recognises that there will be some technical issues that we need to
resolve, but I am glad to be able to tell him that the Chief of Defence
Materiel received this morning, by coincidence, a letter from his
counterpart, the Under-Secretary for defence procurement, in the Pentagon
confirming that the United States is confident that it will be possible to
make these arrangements work. We have set up a joint working group to work
through the issues that will need to be addressed before a decision is
made.”
- This however seems to contradict statements made by other senior
US defence procurement officials. Melinda Morgan, a spokeswoman for Frank
Kendall, the department’s top acquisition official, recently told Defense
News magazine: “We do have some concerns over an option that would put
contractors in roles normally filled by government employees — and the
effects this would have on ongoing and future co-operation.”
- PCS believes we need to learn from the US LSI debacle and stop the
GoCo process now. At the very least, the government should ensure that
this working group conducts a transparent review of the failed US attempt
at privatising defence procurement.
- One of the key recommendations of the Haddon
Cave report into the loss of Nimrod aircraft XV230 was that, to avoid a
conflict of interest, those responsible for the regulation of safety
should be independent of those responsible for delivering output. A GoCo
would compromise this position because each of the bidding consortia
already have a multitude of defence contracts between them.
- MoD has stated that: “From the outset,
bidders have been required to declare any perceived, potential or actual
conflicts of interest, together with proposals for how they would manage
them. The MoD has the right to exclude potential bidders if new conflicts
of interest arise during the process.” To ensure transparency, we would
ask that this information be placed in the library of the House.
- PCS
also wishes to understand how any winning GoCo bidder will deal with existing
contracts, many of who will be with industry competitors.
- PCS
is also unsure how the GoCo will deal with classified information and intellectual
property belonging both to the UK and to our overseas allies.
- Defence procurement is a high risk
proposition: it is technically risky; the military requirement keeps
changing and budgets are constantly being squeezed to meet short term
needs. Changes in Governments and defence reviews also bring uncertainty.
-
is that: “international partners do not accept the proposed changes at
all, or that the limitations put upon the scope of the GOCO through
negotiation with our international partners mean that the GOCO no longer
offers value for money.” MoD has said they are talking with our
international partners, but we have seen no outcome.
- UK military forces have
been involved in numerous conflicts, many at very short notice such as the
Falklands crisis in 1982. We have seen nothing to demonstrate that a GoCo
would absorb such additional costs attributed to such short notice requirements
and not seek to renegotiate additional remuneration at a time of
conflict.
- At present, DE&S and the government
bear all of the defence acquisition risk. However a GoCo will price risk
into their bid and will charge the department every time senior military
personnel or ministers decide to change requirements.
- The
operational and financial risks of delays and over-runs will remain with the
government, compromising any benefit from a private sector partner.
- It is not clear
how and to whom a GoCo will be held accountable. Civil servants operate
within a constitutional framework, enforced through a series of safeguards
ranging from the civil service code to various parliamentary audits and
inspections.
- The NAO,
Parliamentary committees and Parliament itself have limited authority to
call companies to account and the electorate’s democratic control is
thereby neutered. Instead there is managerial control and accountability
to shareholders and to the wider markets, despite the reality that the
ultimate responsibility and risk continues to rest with the Government.
- PCS further understands that, as the GoCo will now be acting as an
agent on behalf of the MoD, there will be less transparency as to how and
with whom the GoCo contracts.
- PCS is also yet to understand who will own any value for money
savings and any profits generated by the GoCo.
- PCS’s primary
role is to protect and promote the interests of its members, including
their job security. We are therefore concerned by references to
redundancy, for example in the Impact assessment, signed by Philip Dunne
on 2 July 2013, which says: “Recurring costs include the introduction of new
IT/MIS, upskilling and redundancy costs and fees.” To date PCS has been unable to ascertain
the extent of any proposed redundancies.
- PCS
does not believe there is any justification for job losses in DE&S as
a result of GoCo or DE&S+. In the Aug 2013 issue of Desider
(DE&S in-house magazine), defence secretary, Philip Hammond states; “The
gradual erosion of skills and capability in the organisation over recent
years cannot be allowed to continue if we are to ensure the MOD’s ability
to deliver equipment to the front line.” PCS agrees with this statement
and seeks assurances that there will be no redundancies and investment in
the development and training of all staff.
- Any GoCo bidder needs to restore staff
morale and incentivise the workforce, who have seen their pay frozen and
increasing attacks on their terms and conditions. The investment appraisal
hints at a two-tier workforce, stating that: “The Contracting Entity would be free to
provide new recruits to the Operating Company with a different employment
contract.” With morale already at rock bottom, creating a two-tier workforce
will make the chances of a GoCo succeeding even slimmer.
- The
perceived problems of recruitment and retention are symptoms of civil
service pay restraint, which can be solved by removing the constraints on
pay, terms and conditions.
- The White paper, quite
correctly, states numerous times that one of the aims of the GoCo is to
get better value for money for the taxpayer.
- However, in response to a question where the
winning bidder would pay tax from Angus Robertson of the SNP in the House
of Commons debate on Defence Reform on 10 June 2013 , the defence
Secretary, Phillip Hammond stated: “the entity with which we contract will be UK-registered and
domiciled, and will pay its tax in the UK.”
- It is clear, from the
bidding consortia, that any GoCo entity will in reality be American owned.
If, as PCS believes, the winning consortium cannot be forced to pay all of
the tax liabilities in the UK, this will skew the cost/benefit analysis of
the GoCo proposals as the award of a substantial contract to a foreign
owned entity could see significant tax losses to the UK exchequer and
taxpayer.
- PCS is concerned that very
little has been said regarding the relationship between any winning GoCo
consortia and the UK armed forces. Contracting for military availability
is completely different to contracting for anything else, either in the
public or private sector.
- A major underlying factor in the problems with defence
procurement has been identified as the issue of the ‘revolving door’ approach of military
tours where military personnel come and go at regular intervals. The lack
of coherence and consistency that comes from these short tours does, as
the MoD has seen during the years, lead to multiple changing of requirements
and this subsequently adds time and costs to any given procurement
project. Moving to
four-year, rather than two-year terms from the rank of colonel upwards, as
has been proposed will help, but instead of tinkering round the edges, PCS
believes the MoD must come up with much more robust sustainability and
succession planning to resolve these issues for future generations.
- Unfortunately, in recent years we have seen a
very rapid rise in the numbers of ex military personnel and ex MoD
civilian staff, usually from the senior ranks of both, who have left the
department and in a very short period re-appeared employed either by
defence contractors or setting up on their own in a defence related
business.
- Whilst there have been instances of
wrongdoing, these are (hopefully) relatively few. PCS is looking for
assurances that during the GoCo tender process and evaluation (should the
decision be to proceed with GoCo) that no ex military or ex MoD personnel
will be involved in these processes on behalf of bidding companies or
consortia.
- These waters have already been muddied by the
appointment by Bechtel of Richard Freer, described as on of the prime
thinkers behind the previous Strategic Defence and Security review.
- The government should lead the rest of the
country by example when they are letting public sector contracts. It is
therefore disappointing that two of the bidding consortiums have chequered
histories. In the US, CH2M Hill paid an $18.5 million (£12.2m) fine
for fraud on government contracts and Bechtel paid a $458m (£301m) fine
for shoddy work - leading to a death - on a public contract.
- When the CH2M Hill fine
was announced the US Department of Justice said: "This sort of
systemic fraud is an appalling abuse of the trust we place in our
contractors." Does the MoD now really wish to deal with such
companies and run even more risk if the department is brought into
disrepute.
- Whilst PCS would
always have a preference for competition to ensure the best outcome for
the front line and the taxpayer, we do welcome the second part of the bill
in relation to tightening how we contract using single source procurement.
However we do wish to know how this will work if we go down the GoCo
route.
- At present,
approximately 45% of the UK’s defence procurement is done through single
source. Have the companies who we use for single source contracts been
asked if they will find it acceptable that another private company, and in
all likelihood, a defence industry competitor will have access to not only
details of the goods and services they provide to the MoD, but the prices
they charge?
- PCS believes the
vast majority, if not all of these companies will be extremely unhappy to
see industry competitors having access to this sort of information. We
believe there may be downright refusals to share this information. If this
happens, what plans have the government and the MoD taken to overcome this
and ensure that we are still able to contract with these companies?
- At present, PCS is opposed
to the introduction of a GoCo, as we believe the government will be better
served ensuring DE&S is properly resourced and properly staffed.
Moving to a GoCo will in our opinion cost the taxpayer more money and adds
too much risk in delivering capability to the front line.
- If the government’s argument is that because government departments
such as the MoD are not very good at negotiating and managing contracts
with the private sector, it seems perverse that the self same government
is going to negotiate a contract with industry to undertake the task on
their behalf. PCS believes investment in existing and future civil
servants will deliver the world-class procurement support our armed forces
need and deserve.
- We will leave the last
word to the pioneer of the DE&S GoCo proposals, Bernard Gray, who we
believe in his interview with Civil Service World in July 2013 said, “If we save £20,000 on
somebody’s salary, and it costs us £200m in a failed project, is that
really good value for money?”
- The answer is clearly no. PCS believes the
correct answer is to properly and fully reward and incentivise public
sector workers to do what is clearly now and must remain a public sector
function.
For more information please contact PCS
campaigns officer James Davies on 020 7801 2820 or james@pcs.org.uk.
