Ministry of Defence's procurement
  • The evolution of procurement in the Ministry of Defence is entering a new phase of development to secure major cost reduction on a year-on-year basis
  • Professional services will be treated like any other part of the MoD's supply chain and only the consultants who will adapt to the new market will be able to succeed
  • A conference was held by the Ministry of Defence at the Barbican in London recently entitled Rethinking Construction for the Defence Estate. It unveiled the latest stage in the evolution of construction procurement in the MoD since its split from the Property Services Agency in the late 1980s.

    The defence estate comprises almost 1% of the UK Land area with a valuation in excess of £13bn. More than £1.5bn is spent on estate matters every year. This is a substantial customer for the construction industry and one that is capable of driving changes in the way that the industry operates.

    Since 1989, the organisation of works in the MoD has followed a course of almost constant change that has mirrored management orthodoxies of the age. In many areas, MoD's initiatives have belied the traditional conservative image of government and have set the pace for the corporate world to follow. The story has been one of decentralisation and empowerment, outsourcing and market testing.

    From a single service level agreement with PSA, the MoD has embraced the market culture and currently has more than 800 live contracts. But are they happy? The answer seems to be a pretty clear 'no'. Such a large number of contracts means a lot of management, fragmented service delivery and value improvements hitting a ceiling.

    The new steps are set to embrace the partnering culture advocated most recently by Sir John Egan's Construction Task Force. The buzz words here are prime contracting, single-point responsibility, strategic alliances, supply-chain management and continuous improvement. There are many interesting issues raised by these moves, including what the changes tell us about future trends in the demand for professional consultancy services.

    It is anticipated that once the new arrangements are implemented, the number of firms used by the MoD will be cut by 90%. Those contracts that remain will be substantial, broad-based and placed with a modest number of financially sound companies on long-term contracts of six to seven years.

    While there will remain a number of advisory commissions, the business of procuring implementation – such as design and specification services – will be via the prime contractors and consultants will very definitely become part of the supply chain.

    There are few surprises here because there has been a trend towards 'contractorisation' of professional services for some years. The privileged role of advising the client is slipping from our collective grasp as we become just another service provider to be procured. The growth of the design-and-build and facilities management sectors have been instrumental here.

    In many areas, MoD’s initiatives have belied the traditional conservative image of government and have set the pace for the corporate world to follow

    It is instructive to speculate on the shape of the 'firms of the future' that will prosper in these new times.

  • Niche providers of highly specialised skills which are required on an infrequent basis.

  • Advisory firms helping their clients to select and appoint their business partners and then to measure (Benchmark) how they are performing.

  • Large practices which enter into market-oriented alliances with contractors. The emphasis here will be on sharing systems and research.

    Those firms that recognise their interest in the last category will find that the view is different from this vantage point in the supply chain.

    This is where the cultural changes have to come in. The objective behind Egan and the MoD is to secure major cost reduction on a year-on-year basis.

    Research by BRE and BSRIA suggests that a staggering 50% of total construction costs result from inefficient processes. Supply-chain management is one formula for salvaging some of this cost through 'smart' purchasing and investment.