The UK Ministry of Defence (MoD) needs a “clear strategy for increasing competition” in its procurement, according to MPs.
In a report the Public Accounts Committee said around half of MoD contracts involved a competitive tender and it must increase this proportion if it is to hit a £1.7bn savings target.
“We accept that 100% competitive tendering is unlikely; circumstances can arise where only one supplier has the ability to meet demands for particular equipment, or security considerations mean the department has to contract with a trusted national supplier,” said the report.
“But there is little evidence yet of a coherent strategy to increase competition, despite the department’s claims that it is changing practices and the mind-set amongst staff.”
MPs said there were too many contracts outside the Single Source Contract Regulations (SSCR), which aim to increase transparency and strengthen the hand of commercial staff in negotiations, partly because suppliers are “still failing to cooperate”.
The report said there was a target to make savings of £1.7bn through SSCR over 10 years and the MoD claimed £313m had been achieved so far, made up of cost avoidance and cashable savings. But PAC disputed this figure. “Actual savings achieved to date are only £3m and realisation of further savings will depend on effective management of contracts over their lifetimes,” said the report. “We are sceptical about the robustness of the £1.7bn savings target.”
MPs said the Single Source Regulations Office (SSRO) needed stronger powers and they expected a target to be met that 100% of eligible contracts are brought under SSCR by 2019-20.
The PAC also expressed concern about the level of cannibalisation of parts between sea vessels, which has increased 49% in the past five years, and the lack of scrutiny of contingent liabilities in contracts, which expose taxpayers to “potentially huge liabilities in the future”.
Committee chair Meg Hillier said: “We are also concerned about the potential impact of Brexit on British defence contractors seeking to export their products or from the international alliances that are essential to their work.
“The ministry must give serious thought to what it can do to support UK suppliers while ensuring there is sufficient diversity in the market to promote competitive procurement.”
An MoD spokesperson said: “Buying the best equipment for our armed forces whilst getting value-for-money is our priority, and we do that through competitive tender wherever we can.
“Sometimes single source is the only credible option and in those cases we work closely with the SSRO, who have already helped reduce contract costs by over £300m and strengthened our hand in negotiations.”
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