new MoD private finance unit

new MoD private finance unit

Ministry of Defence launches new Private Finance Unit

8 February 2005

On 8 February 2005, MoD formally launched its new Private Finance Unit. The new Director is Nick Prior.

At the launch, Ian Andrews (2nd Permanent Under Secretary) made a forceful speech in favour of change at MoD. He said MoD had recognised ?all was not well? with its private finance initiative (PFI ) programme, it had to raise its game; import greater expertise; produce clearer requirements; more flexible contracts, and take account of the costs of PFI for industry. Nick Prior had been brought in from Partnerships UK to make MoD as more intelligent customer.

The background was that MoD had been given an increase in budget of ?3.7 billion in the years to 2007/2008 but to comply with Gershon and other efficiency requirements, savings of ?2.8 billion must be found. The key initiatives they were undertaking were:

Review of the approvals process.
Clearer strategies for working with industry, following the Defence Industrial Policy.
Closer working with the Office of Government Commerce (OGC).
Procurement reform, recognising that customer behaviour shaped that of suppliers.
Setting up the Acquisition Policy Board (APB).
Introducing a new Business Management System (BMS), with a view to MoD?s civilian business being as efficient as its operational arm.

Enlarging on these points, he said that the work on Defence Industrial Policy was ?making good progress? and results should be seen in the second half of the year. On the APB, he showed a chart linking it to the NDIC, with the DIC plugged in from industry. He also said that the traditional MoD structure where the Defence Management Board oversaw the top-level budget-holders was in the BMS overlain by cross cutting responsibilities for 13 processes and specific senior responsible officer roles.

Mr Andrews emphasised that the BMS was still under development, but he already wanted to drive cultural change including messages that '80/20 solutions could be good enough'; 'risk management not aversion'; 'change in defence is unavoidable' so requirements that did not allow for change were unacceptable. Finally he urged industry to help implement smart acquisition and to improve the record in partnering, which was not good outside PFI, emphasising the need for a culture of openness and trust, and for nurturing innovative solutions.

Richard Abadie, head of the Treasury?s PFI Unit stressed five key PFI policy themes:

PFI was about value for money.
Evidence-based choice of procurement strategies; no bias to PFI.
Level playing field between normal procurement and PFI (PFI was only 15% of total HMG procurement).
Value for Money but not to the detriment of worker's terms and conditions and good quality design.
PFI was not suitable for the front line.

He also said Treasury was standardising PFI contracts and would be tough about amendments. This was for the general good of reducing the cost of processes. But he admitted that defence equipment projects were likely to be special cases.

Nick Prior said that he intended to bring in more secondees from outside MoD to enhance expertise. He repeated some of the Treasury points but added that he would be seeking improvements in:

better defined statements of requirements
elimination of BAFOs and 'Revise and Confirms' (signals of failure)
challenging high bid costs
balance sheet treatment
cross project procurement
streamlining approvals
performance and accountability of advisers.

MoD currently had 17 PFI projects worth ?7-8 billion. He would be engaging industry about existing and future work through the PPP Forum, through the Major Contractor?s Group and talking direct to companies.

For further information, please contact SBAC Aerospace Defence & Homeland Security.

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Notes to Editors:

The SBAC is the national trade association representing suppliers to the civil air transport, aerospace defence and space markets operating in the UK economy. It represents over 800 member companies, assisting them in developing new business globally, facilitates innovation and competitiveness and provides regulatory services in technical standards and accreditation.