In my statement of 14 May 2014, Official Report, column 24WS, I outlined plans for the Defence Equipment and Support organisation (DE&S) to procure a set of specific private sector skills through contracts for managed service providers (MSPs). We made good progress on this work over the course of the summer and I can confirm that on 3 November, we made formal offers of contract to three companies. I am announcing this development today, in anticipation of a final contract award. In line with standard commercial practice, the offer of contracts triggered a stand-still period which will last for at least 10 calendar days. Subject to the successful conclusion of this period, we expect contract signature to take place on 17 November.
The MSPs are being brought in to help DE&S with its transformation programme. Unlike the approach being followed under the last year’s competition for a Government-owned contractor-operated (GoCo) entity, we are not placing contracts with the MSPs to run the DE&S business. What we need is an injection of highly specialised advice to support some specific areas of the business. The MSPs will be working alongside the DE&S work force to achieve aligned transformation goals.
The project delivery MSP contracts have an initial term of three and a half years, with the option of two one-year extensions. They will be awarded in four lots covering each of the four DE&S domains. The commercial approach was designed to allow a maximum of two of the four lots to be won by any one company, and following a rigorous competitive process, we have offered the land and joint enabler domain contracts to CH2M Hill, and the air and fleet domain contracts to Bechtel.
The project delivery MSPs will be required to provide high-quality advice in the fields of project management and project controls over a defined period. They will support DE&S in driving the necessary organisational, behavioural and cultural change designed to establish enduring improvements in project delivery approach, systems and outcomes across the organisation in support of the equipment and support plans.
The human resources MSP contract has an initial term of three years with the option of two one-year extensions. It is a single lot and has been awarded to PricewaterhouseCoopers. This MSP will be required to help DE&S establish a bespoke and business-relevant HR function and deliver the required HR transformation. It will support DE&S to attract, develop, manage and retain high-performing individuals through a new performance management, incentivisation and career management system.
The competition for the third MSP, which will cover finance, management information and information technology is planned to begin in the next few months. Sequencing the procurements in this manner will ensure maximum coherence across all three MSPs, and will allow the assessment and application of early lessons identified through the first MSP contracts.
The House will recall that when DE&S became a bespoke trading entity on 1 April this year, it secured a range of freedoms, agreed by HM Treasury and the Cabinet Office, to allow DE&S to manage its work force better. This included the ability to pay 25 members of staff at a rate higher than the senior salary cap; and flexibility around how DE&S recruits, rewards and manages its staff to optimise its business needs. The MSPs are not party to these freedoms, and are being brought in to the business as external contractors, procured via standard commercial practices.
The offer of these contracts represents an important milestone in the transformation of DE&S. We are moving ahead at pace, and this development underlines our firm intent both to build on recent project successes and deliver genuine and sustainable improvement to defence acquisition. Once contracts are signed, the MSPs will play an important role in this, working with DE&S to deliver the substantial change programme, which is itself designed to deliver improved value for money for taxpayers, and the best possible support for the armed forces.