The defence industry hopes to make large cost savings as a result of a partnering initiative outlined by the Government last week. The scheme apes practices pioneered in the construction, electronics and offshore sectors.
Put simply, the idea of partnering is to remove the traditional adversarial relationship between ministerial customer and private company, so that the MoD and industry can work together to the same end, with mutual benefits.
The Confederation of British Industry, which is helping to implement the partnering idea with the ministry, defines the purpose of the initiative as ‘oiling the wheels’ between customer and supplier, while also obtaining the best value for money.
This week, a series of workshops are taking place involving Ministry of Defence personnel who will implement the partnering initiative.
‘The exercise will make sure that key MoD players are fully briefed on the principles,’ says Neill Irwin, CBI director of partnership sourcing.
‘I’m bringing in partnering experience not just from the defence industry, but also from the construction, electronics, and oil industries, so that the MoD can learn from it,’ he adds.
The idea will next be taken to defence contractors in January for another series of roadshows.
The first overview document on the subject, Partnering between the MoD and its Suppliers, was released in September 1996 and published on the Internet. The purpose was to declare and legitimise the partnering process, making it part of best practice at the ministry, according to Irwin.
Building on the experience of that experiment, last week saw the publication of partnering guidelines in the unwieldily-titled report Partnering Arrangements between the MoD and its Suppliers a Practical Guide to Creation Agreement Management. The document has been signed off by Stan Porter, commercial director general of the MoD Procurement Executive, and David Sillitoe, the CBI Defence Procurement Panel chairman.
‘The MoD is committed to adopting better ways of working with industry to satisfy defence requirements, founded on cooperation and mutual understanding,’ says defence procurement minister John Spellar. ‘There is a need to create constructive relationships, working together to meet targets for providing quality equipment and services for the armed forces.’
‘Basically the guidelines are a how to document,’ Irwin says. ‘It’s looking at the restrictions that apply to any MoD contract and the rules and regulations. It’s taking the whole concept of partnering and making it practical inside an MoD environment.’
Aiding smart procurement
‘The main thing is that partnering is a good idea that will aid the smart procurement initiative. It is described as an exceptional process that is, it will be done by exception. There is no question of the MoD swinging over to buying everything under partnering. It will be done when it’s relevant and where it’s relevant.’
Examples of contracts which use partnering as a principle of operation include Vosper Thornycroft’s naval training contract and the Defence Fixed Telecommunications System contract awarded under the Private Finance Initiative (PFI).
Some, but not all, PFI contracts provide examples of overlap with partnering.
Foreign governments are also getting the UK’s partnering message, one example being Graseby Dynamics’ multi-year US Defence Department contract to supply chemical agent detectors.
The idea of partnering in industry came from the electronics industry, Irwin says. But he adds: ‘The most dramatic change can be seen in the construction industry. Quite a number of construction companies are now placing their contracts in a partnering mode.
‘This is noticeably different, as the process was traditionally absolutely adversarial.
‘In the electronics industry, companies such as ICL have been doing this for quite some time with all their key suppliers.’
There is no savings target as such, although ‘there are very clear cost savings project-by-project,’ Irwin promises, adding that the initiative will mean that ‘the ministry gets better systems faster and cheaper’.
Reg Shield, head of corporate affairs at DML Devonport dockyard, says examples of partnering agreements which have been reached at his company chiefly cover the supply of commodities.
‘We are now in the middle of our third partnership project with the MoD,’ Shield says. ‘The first one was with a short refit of HMS Trenchant. The second was the docking and assisted maintenance period refit of HMS Turbulent, and we have just started a revalidation and assisted maintenance period refit of HMS Trafalgar.
‘In our D154 (dockyard) redevelopment project, we have an alliance with five major contractors on the job, on the basis of shared cost, shared profit. That goes further than a partnership.
‘You trade at cost within a partnership with a defined and visible profit element,’ Shield says. ‘In an alliance, the various parties trade at cost and then the profit is shared among all the key players at the end of the job. It goes slightly further than the partnership.’
‘We are very happy with the partnership and alliance method of working, and we believe it will expand.
‘We haven’t had any problems, but it does require a change of attitude on the part of the contractor as well as the customer. Both partners need to understand that it only works if you genuinely try to take out the adversarial element and work together to mutual advantage to the benefit of all involved.’
Shield is keen to quote cost benefits. ‘The offshore oil and gas industry, which pioneered this type of partnering arrangement, can claim as much as 15 20% cost reductions as a result,’ he says.