The Ministry of Defence could struggle to make the most of procurement rule changes designed to help it achieve better value for money from non-competitive contracts because of a lack of key staff, the National Audit Office has said.
In an update on the MoD’s progress with obtaining better value through 2014’s Single Source Contract Regulations, the public finance watchdog said a 24% vacancy rate among staff with the necessary skills to exercise the powers risked undermining potential savings.
The MoD has non-competitive contracts worth £23.9bn agreed under the regulations – which cover situations where competition is either not possible because there is only one supplier of a single good or service, or where it is undesirable for reasons of national security.
The regulations give MoD project teams and other commercial staff greater access to supplier information, allowing them to challenge costings and secure agreement from contractors to amend costs in conjunction with executive agency the Single Source Regulations Office.
While the MoD estimates the regulations have secured contract-price reductions of £313m since they have been in place, the NAO questioned the department’s ability to reach its 10-year target of saving £1.7bn from existing Equipment Plan projects.
It said the realisation of potential savings identified from application of the regulations would “depend on good contract management” and added that the department “currently lacks good quality data on its portfolio of non-competitive contracts”.
The watchdog said that the MoD only had two-thirds of its non-competitive contracts under management as of the end of August, and added that the department could not show that it was taking a systematic approach to its commitment to using competition “wherever possible”.
On staffing, the report said the department and its arm's-length trading organisation Defence Equipment and Support were 386 commercial posts short of their “ideal complement”, a 24% vacancy rate.
“The effectiveness of the regulations could be undermined by gaps among key commercial and cost assurance staff,” it said.
“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.”
The report said the department had plans to only “partly address” the shortages, which it noted would come against the backdrop of the 2015 Strategic Defence and Security Review, which commits the MoD to reducing the civilian workforce by 30% by 2020.
NAO head Amyas Morse said the MoD’s ability to realise savings from the Single Source Contract Regulations was directly linked to enacting the entitlements they contained.
“The regulations regime has the potential to deliver significant cost reductions but the department must increase its ability to negotiate contracts and scrutinise costs to secure better value for money,” he said.
“To achieve this, the department needs to eliminate disagreements between key stakeholders and win the co-operation of all suppliers.
“And it needs to maintain credible pressure for competition whenever possible, and be able to measure and demonstrate the effectiveness of the regime in securing savings.”
The report had flagged disagreements between the SSRO and the MoD about the categorisation of acceptable costs on the part of suppliers.
The MoD said the single source regulations had been a major reform that replaced a framework in place for more than 45 years, and that “challenges” were an expected part of such an overhaul.
As spokesman said getting value for money when buying the best equipment for the armed services was a 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 said.
Earlier this week SSRO chief executive Marcine Waterman stepped down after three years in post. Chief operating officer Neil Swift is acting as interim chief exec.