Public AdministrationWritten evidence submitted by the MOD (PROC 42)

Thank you for your letter dated 13 June 2013 in which you asked a number of questions related to the Public Administration Select Committee’s inquiry into central government procurement. Taking each of your questions in turn I am happy to provide the following information.

1. What Government Procurement Service (GPS) mandates apply to what procurements within the Department?

The MOD was originally mandated by the PEX(ER) decision of 31/3/11 to channel its procurement across nine “common” categories through centralised procurement services managed by GPS. As GPS have progressively built their services the Department has worked with them to transition spend to central management.

MOD spend through centralised arrangements has grown from £342 million in 2010–11 to £909 million in 2011–12 and has reached £1.728 billion in 2012–13. MOD accounts for around 30% of GPS spend.

However, the evidence to date is that GPS is not yet providing a full service against these categories, although it is continuing to build its capacity. Hence the MOD is working cooperatively with GPS, but sees transition as ongoing work in progress.

In January 2013 PEX(ER) agreed an expanded definition of common goods and services from nine to 25 categories, and that procurement of all common goods and services should be performed once “either directly by Government Procurement Service (GPS) or a select few ‘units’ within departments (such as RCUK within BIS) that are closely aligned to GPS”. The Spending Review announced the MOD would work to transfer significant further spend to GPS arrangements.

2. What categories of procurement does the Department consider to be “common” and therefore would be suitable for management centrally by the GPS within the Cabinet Office?

The scale and scope of MOD procurement is far greater than that of other central government departments. MOD accounts for around 42% of central government spend and many of the goods and services we buy are not purchased by other UK central government departments. Our experience of the nine common categories has been that whilst GPS have developed a service that delivers a large proportion, some of MOD’s requirements in any given category fall outside of the scope of GPS provision eg: secure ICT commodities, complex technical support requirements, provision of visas.

The Cabinet Office’s widening to the 25 categories (and numerous sub-categories) also include elements specific to MOD which are not purchased by other central government departments and therefore not assessed to be common. This relatively new requirement is being worked through in detail with GPS to agree the way forward, and the current estimate is that up to £4.6 billion of MOD spend could be in the common categories.

3. How does the Department determine which procurements to pass to GPS and which should be retained in house?

In response to the new PEX(ER) agreement, the MOD has analysed its 2012–13 expenditure across the 25 procurement categories and identified (in addition to our current £1.7 billion GPS spend), a further £2.9 billion spend that could potentially transition to centralised procurement, subject to more detailed analysis. That sum allows for the exclusion of spend in DIO (our infrastructure organisation), logistics and the Defence Support Group because their existing transformation/outsourcing/sale activities are well advanced and should not be diverted by the GPS activity. We have informed Cabinet Office of these exclusions, we await their response, and they may disagree. We are also working through the (voluminous) detail with GPS in relation to the potential additional £2.9 billion.

MOD now plans to engage with GPS to understand how GPS intends to:

Extend its capability beyond the nine common categories;

Develop a business case, including sourcing plans and benefits for its delivery of each category; and

Engage with departments to progressively build its delivery of centralised procurement through transition of services.

I look forward to reading your report when finalised.

Jon Thompson

Prepared 18th July 2013