Suppliers’ reluctance to use rules costs MoD savings, finds NAO

25 Oct 17

Regulations governing the non-competitive procurement of defence equipment could deliver significant savings but are being resisted by some suppliers, the government’s spending watchdog has said.

A National Audit Office report, published today, looked at the Single Source Contract Regulations, which were introduced in 2014 and apply to the 50% of defence contracts where a non-competitive approach is used.

This is often the case on the largest contracts either because of the highly specialist nature of the equipment means only one supplier can fulfil the demand or because of national security considerations.

In 2015-16, the Ministry of Defence spent £8.8bn non-competitively and, as of July 2017, 110 contracts have been brought within the single source regulations, overseen by the MoD and the Single Source Regulations Office.

The MoD estimates £313m has been saved following application of the regulations, equivalent to 3.9% of contract values.

However, the auditors highlighted resistance among some suppliers to working with the SSRO and difficulties persuading them to bring contracts within the scope of the regulations.

Some suppliers are failing to provide the SSRO with required information on costs and prices. Greater transparency on supplier information helps commercial staff drive down costs, the watchdog noted.

NAO head Amyas Morse urged the MoD to step up its negotiations with suppliers and scrutinise costs to ensure better value for money.

“To achieve this, the department needs to eliminate disagreements between key stakeholders and win the co-operation of all suppliers,” he said.

The report also found that the MoD does not have a systematic approach to its use of competition.

The number of non-competitive contracts has remains stable at around 50% and the quality of formal justifications for a non-competitive approach were “highly variable in quality”.

Morse said: “[The department] needs to maintain credible pressure for competition whenever possible, and be able to measure and demonstrate the effectiveness of the regime in securing savings.”

Skills gaps among commercial and cost assurance staff were flagged up as a problem.

The NAO said the department was 386 (24%) commercial posts short of its ideal complement.

“It is essential that the department has sufficient appropriately skilled staff in key areas to achieve value for money given the large amounts of money at stake and the lack of competition.”

Responding to the report, an MoD spokesman said: “Buying the best equipment for our armed forces whilst getting value-for-money is our priority.

“We work closely with the SSRO to help get the best deal in procurement and, as this report notes, our new rules have already helped reduce the cost of contracts by over £300m and strengthened our hand in negotiations.”

He added that the introduction of the single source regulations was the first major reform to non-competitive procurement in 45 years and would inevitably present challenges that would take time to address.

Yesterday, SSRO chief executive Marcine Waterman left her role after three years. Neil Swift, chief operating officer, has been named as interim chief executive.

  • Vivienne Russell

    Vivienne Russell is managing editor of Public Finance magazine and publicfinance.co.uk

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