Public AdministrationWritten evidence submitted by Lord Levene (PROC 39)


I would like to make it clear that I am enthusiastic about GOCOs. In fact I believe that I may have been the first person to set up a GOCO within the MoD, even at the time before I was appointed as Chief of Defence Procurement when I was acting as a Personal Adviser to the then Secretary of State, who had asked me to address a solution to the ongoing problems of inefficiency and delay within the Royal Naval Dockyards, at Rosyth and Devonport.

I had come across the concept of the GOCO in the USA, where it had frequently been used, particularly in the defence area. The concept of the GOCO is to take an industrial/commercial organization which was being managed by civil servants, to transfer the responsibility for running it to an experienced company in the private sector, but to keep ownership within the Government department for which it worked.

This transfer worked very well for the Royal Naval Dockyards where it succeeded in reducing the workforce in the two dockyards from something in excess of 20,000 people to less than 5,000 people. The commercial management also managed to solve the long running problems with the trade unions involved, in quite swiftly dispensing with the many demarcation lines which had previously existed.

Senior civil servants and senior Royal Navy officers had been very cautious about the proposal because it would overturn a system which had been in operation at least since the time of Samuel Pepys. However, with the benefit of a very wise selection of contractors (there were different contractors for each dock yard), the results were impressive. These results were indeed so impressive that fairly soon, a decision was taken to privatize the two dockyards. By this time the fear of transferring these industrial operations to commercial operators, had subsided and they remain in the hands of commercial operators to this day.

With that clear level of success in the dock yards, why do I believe that to transfer DE&S to a GOCO would not be a good idea?

The long term and ongoing criticisms of the system of Defence Procurement which we have in the UK, is based on the view that the civil servants and uniformed personnel, both senior and junior, who are involved in its management, have a long record of failure and have produced commercial solutions which are overpriced and still lead to lengthy delays and indeed failures in the performance of equipment which has been purchased.

When I was first appointed by Margaret Thatcher and Michael Heseltine to be the Chief of Defence Procurement in 1985, it was at a time which closely mirrored our present situation of overspending, poor performance and late delivery. Indeed, before I was given this task, Ted Heath had called in the then Sir Derek Rayner, Chairman of M&S, to take over the procurement system on the basis that M&S were a hugely successful company who produced nothing themselves but had an outstanding procurement system for buying high quality goods at competitive prices linked with punctuality of delivery. It was Sir Derek Rayner who set up the procurement executive, which he then headed himself from 1970–73.

I went to see Sir Derek in 1984, and said that far from wishing to critique what he had done, it seemed to me to be an excellent solution but soon after he had left, it had fallen back into its bad old ways. I asked him what he thought was the cause and what the solution might be. He said that when he had taken it over, he did so as a businessman, and tried to run defence procurement along commercial lines. However as soon as he left the job, he was replaced by the bureaucracy which took charge again, and the system soon reverted to type. As to the question of what should be done to reverse the problem, Sir Derek said to me: “I ran the procurement executive on the basis of my experience as a businessman, and I do not believe that it will become effective again, unless and until it is run by a businessman once more.”

I duly reported Sir Derek’s words back. Thereafter, following some remarkable Whitehall infighting, I was duly installed in March 1985. The situation which I inherited was not very different in essence, from where the Coalition found itself on taking up office—marked by considerable overspending, late deliveries and poor performance.

This followed other initiatives which had been taken by the previous administration. Firstly by the McKinsey report, produced by John Dowdy, who set up what he called “Smart Acquisition”. I have to say that I never really went along with the idea of Smart Acquisition, since it seemed to be based on the concept of complete cooperation and unanimity of purpose between the buyer and the seller, with all the cards being played face up on the table.

All of my experience in business told me that this was an unrealistic concept, and that the real essence of commercial negotiations is for the two parties in a transaction—the buyer and the seller—each fighting their corner to obtain the best possible terms. My experience, and I am sure that of many other people, is that that is what commercial transactions are all about.

This indeed was the basis of my approach to procurement and one which was adopted with, I believe, considerable success. Opponents of this concept deemed it “The Levene era of confrontation”. I make no apology for this because, perhaps it is just playing with words, but when both sides are negotiating to obtain the best for themselves, that leads to confrontation and, certainly in my experience, a fair compromise between the positions of the two sides.

The era of Smart Acquisition was later followed by a concept which Lord Drayson introduced during his time as Minister for Defence Procurement, of The Defence Industrial strategy. The idea was to ensure that both the Government as buyer and the industry as seller came out of it fulfilling very parallel aims. Ideally, this would be a very attractive solution, but in real life this is not what happens. So we arrived at a situation where both Smart Procurement and the Defence Industrial Strategy were set aside, and in most recent times we were effectively back at the point at which I found myself in the spring of 1985.

One of the most widely held criticisms of the present system of defence procurement in the UK is that those working in it on the Government’s side, however well intentioned, have insufficient commercial background to be able to negotiate successfully with the major suppliers of defence equipment. The idea, therefore, of the GOCO is to give that process to a commercial company which will not be constrained by Civil Service limits on pay and conditions which can then recruit the best possible people and pay them well, on the basis that they will produce a better result. I am afraid that I don’t subscribe to this theory. Defence procurement requires significant experience in negotiations as a large procurer, coupled with a knowledge of Defence materiel and the purpose for which it is intended to be used.

Where are these qualities most likely to be found? In my view they were and are most likely to be found within the MoD. If this is indeed the case, the result could well result in the GOCO employing the same civilian and service individuals, but paying them considerably more, which with a further markup would then be added to the bill that MOD would have to pay. and I certainly found, to when I first joined the MoD in 1985, that there were many senior personnel in both the civilian side of the MoD and the military side, who had an outstanding understanding of the technical and operational requirements. Again, in my experience, they worked very hard and in the most part they were very bright. What, therefore, you may ask is lacking? To me it was clear as soon as I took up the post and had a number of discussions with my senior staff, that what they were lacking was a commercial understanding of how to deal with large companies and how to try to ensure that they would deliver on time and on cost. That, I think, was my job to bring to the party.

At the time I joined the MoD, the procurement executive (as it was then called) employed 36,000 people and incorporated all the research establishments which were certainly industrial operations coupled with the Royal Ordnance factories.

I have to say that I found a number of very uncommercial practices on the commercial side, but as soon as these had been exposed to view and I was able to discuss them with my staff, they were rapidly able to take a more commercial approach to these practices producing very good results. Certainly, many of the procedures which had been imposed by the Treasury or other Civil Service rules mitigated against cost effective procurement in a number of areas. I found that by ensuring that I had the right people in the right positions—and this did not involve bringing in people from outside—we were soon able to make a radical difference. We were, at that time also faced with a considerable percentage of MoD contracts being let on a cost plus basis, which, in my experience, was really a recipe for the contractors to make more money at no risk, and for the MoD as buyer to have to pay out large sums of money with no guarantee of success. This had to be changed.

To cut a long story short, by having constant interface with the senior staff within the procurement executive, they were soon able to adopt similar attitudes themselves and, after five years of this, the result by 1991 as reported in the Defence Major Projects Statement read as follows:

Extract from a report by the Public Accounts Committee into the Ministry of Defence Major Projects Statement dated October 1991:

“The department has undertaken a review of a total of 37 projects, each valued in excess of £100 million started in the last five years … the cost to date was just under one% less than the department estimated when the orders were first placed. And … 28 of the 37 projects were expected to be completed on time, one was ahead of schedule and of the rest, only three had delays that were expected to exceed one year, the delays would not result in additional costs falling on the department.”

COMPARISON 1991 V 2002



Ahead of time



On time



Within one year late



More than one year late




Cost out-turn v estimate



*6 up to 2 years late, 4 up to 5 years late, 5 more than 5 years late

By comparison, as can be seen, the result in the 2002 Statement after the introduction of Smart Procurement showed a very different picture.

So what, I now ask, is it thought can be achieved by setting up DE&S as a GOCO? What I see instantly is that it will give the freedom to pay more commercial salaries. I acknowledge that this is an issue but with a very small number of people at the top of the organization and when I say very small, I mean less than 10. That having been said, however, I was the only person at the time brought in from the outside and paid what was perceived to be an outrageous amount of money (£95,000 per annum), and so far as I can remember, we didn’t bring in another person from the outside to become part of the Government system.

But even if it is true that a small number of people need to be brought in on a higher rate, and I am fully aware of the constraints on pay at senior levels for Government staff, it seems to me to be an extraordinary price to pay necessitating the change of the whole system of Government procurement, by transferring it to a private company, in a move which has not been carried out in any other country in the world, simply in order to be able to pay a handful of people more money. The figures that I have seen showing how much can be saved by handing over to a commercial company are, I believe, fanciful, particularly when set against the real cost of introducing a GOCO.

There are, of course, other issues relating to a GOCO which would require very careful consideration. How would such a system be regarded by our Allies?—the US has already expressed concerns about it; how would the GOCO be able to cope with the economic and political effects of a decision to place a contract with one contractor as against another?; how would the service input be included in the GOCO? Would serving officers be, in effect, seen to work for a private company and, if not, how would the interface be managed?

When I was asked by Liam Fox, the then Defence Secretary, to chair the Defence Reform Review, I agreed to do so on condition that DE&S formed no part of our study. I felt that I had deep seated views on the matter which perhaps ought to be first considered by others, and I also felt that the appointment of a new CDM should take place without his having to inherit a new organisational structure into which he had had no input.

So some two years later, we now have the proposal of either setting up a GOCO or having an enhanced DE&S, the advantages and disadvantages of which are going to take another year to study.

My view unreservedly is that an enhanced DE&S, hopefully with a certain relaxation on pay levels for the few people at the very top (cf—the new Governor of the Bank of England) would, I believe, offer us the best solution.

The GOCO for this purpose is untested anywhere else in the world and I believe would lead to considerable problems in a number of different areas, which I have tried to address briefly.

I hope that these reflections on the proposal may be of assistance.

Peter Levene

May 2013

Prepared 18th July 2013