Is MoD’s Increased Reliance On Private Contractors A Model For DoD?

Even as the British Defense Staff and the U.S. Joint Chiefs of Staff held an unusual meeting in Washington last week to develop a common strategic vision, back home the U.K.’s Ministry of Defense (MoD) was moving forward with plans to outsource the management of its procurement and support functions. Faced with crushing budget cuts and at the same time the need to maintain the semblance of a capable, modern military, the MoD took the unprecedented and, some observers would say, risky step of converting its procurement and sustainment operation into a government-owned, contractor-operated (GOCO) entity. The brainchild of the Chief of Defence Materiel, Sir Bernard Grey, the GOCO approach was a response to both a series of major procurement failures but also to a recognition of the problems inherent in the old government-managed acquisition system such as requirements creep, the fragmentation of the acquisition and sustainment system and the lack of knowledge on the part of government officials regarding advanced technologies and commercial best practices. In addition, according to Grey, the private sector offered higher rewards, access to better skills, greater autonomy and protection from short-term political objectives. Over the weekend, the MoD announced that Jacobs Engineering had won the contract as the “delivery partner” to manage the more than $19 billion a year Defence Equipment & Support (DE&S) activity.

The MoD had long ago accepted the reality that it could not afford to maintain capabilities and infrastructure that duplicated those available in the private sector. Moreover, the MoD recognized that with intelligent oversight and smart contracting practices it could leverage the best of the private sector in terms of cost controls, incremental improvements and supply chain management to achieve high states of readiness while reducing costs. Preceding its decision to convert DE&S into a GOCO, the MoD had entered into a series of long-term performance-based agreements with private defense contractors to support major weapons systems such as the CH-47 Chinook helicopter, Tornado fighters and ISR platforms such as the E-3D AWACS and Nimrod MR2s.

The British approach of privatizing more and more of its defense acquisition and sustainment runs counter to the move in the U.S. Department of Defense towards increased insourcing and to greater government involvement in, oversight of and control over procurement and sustainment activities. Yet, the U.S. experience would appear to support the British decision. In 2011, Secretary of Defense Gates called a halt to his department’s efforts to insource sustainment activities, observing that no savings had been realized. Efforts to insource longstanding, successful logistics support activities such as for the C-17 were reversed when the Pentagon realized that it could not match the private sector’s ability to control costs and lean out supply chains. Private sector companies have also forged very successful partnerships with public sector depots and logistics centers leveraging their engineering talents and supply chain management skills to complement the public sector institution’s advantages in skilled touch labor and specialized infrastructure. As repeated studies have shown, including most recently by the Defense Business Board and Reserve Forces Policy Board, one of the best ways for the Pentagon to save money is by reducing the number of active duty uniform personnel and government civilians in positions that could be filled by the private sector. While inherently governmental activities must be performed by government personnel, most others, including management and oversight of ongoing contracts, can be done by private sector entities.

The British MoD has had to come to terms with the reality that government is lousy at providing goods and services whether for the public as a whole or in support of the military. The decision to “privatize” management of its defense procurement and support function is a logical extension of this recognition. As the U.S. defense budget continues to shrink, it should not be long before DoD realizes that if it is going to apply the principles of private sector economics to the defense sphere, it will have to align the defense acquisition system much more closely with the practices and incentives that operate in the commercial marketplace and even hire private sector concerns to manage and guide this process.