Defence Suppliers Overcharging by up to £26m
Companies chosen as sole suppliers of military equipment could be overcharging the UK government by up to £26m, according to the watchdog created last year to tackle cost inflation on defence deals (source: Peggy Hollinger, Financial Times Jan 28th 2016)
According to the FT... "The Single Source Regulations Office — set up by the Ministry of Defence last year as an independent body — has secured cost reductions of £100,000 and identified a further £25.7m in potential savings after a review of 18 non-competitive contracts signed in 2015.
Jeremy Newman, chairman of the SSRO, said he expected the potential savings to increase as a new, standardised approach to scrutinising defence acquisition takes hold. The office’s first annual review of contracts had highlighted “practices that historically would have been regarded as acceptable that going forward we would not see as acceptable”, he said. These included allowing contractors to charge for redoing work, even if it was required after faulty work by the contractor first time round, he said. The SSRO’s first compliance report comes as the government prepares to step up the level of its procurement from single source suppliers — where there is a highly specialised or particularly urgent need that would preclude a competitive tender.
Some of the most crucial contracts that will be allocated under the single source regime include the £31bn renewal of Britain’s Trident nuclear deterrent, awarded to BAE Systems, Rolls-Royce and Babcock International, and the Type 26 global combat ship, estimated at a cost of more than £4bn. Single source contracts have also been awarded to foreign companies.
On average, about 49 per cent of the MoD’s annual equipment budget had been spent on single source procurement during the past nine years, the report found. This equates to about £87bn during the next decade and could rise to £100bn if the trend of the past three years continues, the SSRO said.
According to the FT... "The Single Source Regulations Office — set up by the Ministry of Defence last year as an independent body — has secured cost reductions of £100,000 and identified a further £25.7m in potential savings after a review of 18 non-competitive contracts signed in 2015.
Jeremy Newman, chairman of the SSRO, said he expected the potential savings to increase as a new, standardised approach to scrutinising defence acquisition takes hold. The office’s first annual review of contracts had highlighted “practices that historically would have been regarded as acceptable that going forward we would not see as acceptable”, he said. These included allowing contractors to charge for redoing work, even if it was required after faulty work by the contractor first time round, he said. The SSRO’s first compliance report comes as the government prepares to step up the level of its procurement from single source suppliers — where there is a highly specialised or particularly urgent need that would preclude a competitive tender.
Some of the most crucial contracts that will be allocated under the single source regime include the £31bn renewal of Britain’s Trident nuclear deterrent, awarded to BAE Systems, Rolls-Royce and Babcock International, and the Type 26 global combat ship, estimated at a cost of more than £4bn. Single source contracts have also been awarded to foreign companies.
On average, about 49 per cent of the MoD’s annual equipment budget had been spent on single source procurement during the past nine years, the report found. This equates to about £87bn during the next decade and could rise to £100bn if the trend of the past three years continues, the SSRO said.
The potential for contractors to exploit their exclusive position on such costly contracts, and repeated cost overruns on flagship projects such as aircraft carriers and submarines, has heightened public scrutiny.
Mr Newman said the SSRO’s annual review was aimed at building public confidence in the government’s procurement, while ensuring fairness for both the MoD and its suppliers. It would also set benchmarks for future contract negotiations by clearly defining what was an acceptable cost. “Single source procurement is more credible if there is greater transparency,” he said."
Read the fiull article in the Financial Times.....