Defence procurement organisation Defence Equipment & Support (DE&S) is to be turned into a “central government trading entity”.
The body will come into effect from next April after plans to outsource procurement to a semi-private organisation were scrapped yesterday.
The Ministry of Defence (MoD) said the new organisation would be created “using insights gained from the process and hard work undertaken to form the DE&S+”, which was one of the options previously under consideration for the future of defence procurement.
Defence secretary Philip Hammond told the House of Commons the government-owned, contracted-operated (GoCo) procurement model would not be pursued at this stage. The move came after one of the two consortia of bidders for the contract to operate the GoCo pulled out of the competition process.
Hammond told the House of Commons yesterday: “With only one bidder remaining in the competition at this stage, I have had to make a judgment about whether the public-sector comparator alone would generate sufficient competitive tension to ensure an effective outcome for the armed forces and value for money for the taxpayer.
“I have therefore concluded that the risks of proceeding with a single bidder are too great to be acceptable.”
He said £7.4 million had been spent on the GoCo process.
Instead DE&S will be made “match fit” through a “significant injection of private sector skills”, Hammond told MPs.
This will include giving DE&S a “hard boundary” from the MoD with a separate governance and oversight structure, a board under an independent chairman and the appointment of chief of defence materiel Bernard Gray as chief executive.
Hammond said: “These changes will drive significant incremental improvements in DE&S as well as delivering the mechanisms that will give the organisation a robust performance baseline.
“That will allow MoD, at a future date, to re-test the market’s appetite for continuing the DE&S evolution into a GoCo, and its ability to deliver value for money against a significantly enhanced public sector comparator.”
Shadow defence secretary Vernon Coaker said: “This is another embarrassing and costly u-turn. A combination of incompetence and arrogance has led to the collapse of the government’s flagship proposal for the reform of defence procurement and wasted millions of pounds of taxpayers’ money.
“It’s clear that the government’s plans for much-needed reform of defence procurement are in disarray. The Defence Reform Bill has already passed through the Commons, but now Philip Hammond is having to announce to MPs a previously unheard of proposal which hasn’t been subject to any scrutiny or discussion.”