Manoeuvres for the MoD's millions

Four consortia have until 6 July to return their bids for the fourth, and largest, regional prime contract, called the Central Prime, which covers establishments in Wales, the North East and North West of England, Yorkshire and the Humber. The Central Prime bundles £750m of work over the next seven years. Most of that (£600m) will be maintenance and the rest will be capital works.

Four consortia have been invited to bid. As you can imagine, they are the big boys and they consist of a contractor and a facilities manager. They are AMEC Turner (made up of AMEC Group and Turner FM), Carillion Enterprise (Carillion Services and Enterprise), Debut Services (Bovis Lend Lease and Babcock Support Services), and Prime Serve (WS Atkins FM and Balfour Beatty).

What it all means
Prime Contracting is the MoD's response to the Latham and Egan reports. The idea is to bundle many stand-alone contracts into mega-packages and let the work to companies who have good supply chains. It's supposed to engender the principles of partnering, with open-book accounting, shared savings and other mechanisms to encourage collaboration. It aims to avoid the waste and conflict inherent in repeated competitive cost tendering.

The MoD hopes to get better and better at procuring its built environment as project teams stay together and retain lessons learned over seven years. It has divided much of its maintenance, refurbishment and new-build work around the country into five major regional primes (see map, below right), but there are also primes awarded to major pieces of work, such as Project SLAM ('Single Living Accommodation Modernisation'), awarded to Debut last year. SLAM entails about £1bn worth of work over 10 years bringing dormitories up to date. In line with the goals of the Egan report, one of the project's aims is to deliver 9% savings in providing accommodation by March 2006.

The primes, they are a-changing
Two years ago the industry was frustrated with Defence Estate's (DE) use of prime contracting. Letting the Scottish Prime was a lengthy, expensive and, some would say, painful process. The £442m Scottish prime took 26 months from soliciting expressions of interest to contract award. In the midst of negotiations DE met with the Major Contractors Group in an attempt to streamline the process. It appears to have worked. The next regional prime, for the South West of England, took 17 months to award to Bovis' consortium, Debut. DE plans to shave the Central prime down to 16 months.

What did DE do? "The big lesson has been getting out of the client [the MoD] what is important to them and converting that to industry speak," said Mark Grant, integrated project team leader for the Central Prime. "But not taking responsibility away from industry to meet those needs," he said.

He added that while prime contracting had a lot of obvious benefits, some of the implications were scary. For instance, details about the MoD's estate had to be gathered and made available electronically to the contractor, which spelled a potential security disaster. The solution? DE built the database, owns it, and grants access to the contractor.

"They seem like obvious steps now but it was quite a learning experience," said Grant.

Another criticism levelled at Defence Estates is that too often the work they announced would somehow fail to materialise. This unpredictability in the pipeline made some contractors feel insecure about gearing up to bid for defence work. DE admits this was a problem in the past because its role was more of an advisor to the real client, the MoD, who controlled the budget and who was prone to last-minute priority shifts.

Learning curves
But not anymore. A year ago DE's status was altered, giving it control of the purse strings. Mark Grant says this will remove uncertainty: "We'll be shielding the contractor from the whims of the customer," he said.

A word of warning here. The Treasury has decreed that the armed forces will have to cut over £1bn from its budget. Equipment like ships and planes are on the hit-list, but it stands to reason that capital programmes will come under scrutiny as well. DE plays this theory down, though: "We've had nothing on this down from official channels," said DE's Central Unit business manager Steve Rice.

The MoD has come a long way. Some say that as a client it is unrecognisable from what it was two years ago. However, it can't be expected to do all the changing. "Industry has got to understand why it operates the way it does," said John Stokoe, Bovis Lend Lease's strategy director for defence, and formerly an Army major general. "It's a very demanding organisation with high standards because it is accountable to the public."

Another contractor, experienced in working with the MoD, said the private sector must keep in check its desire for independent innovation when dealing with the MoD. Mavericks are at odds, culturally, in the public sector, because one must get sign-off from the right desk at the right time. Contractors who are inexperienced in dealing with the public sector want to skirt these gateways because they slow everything down, but if you do that, you'll get sent right back to the beginning and told: "There's the gate, now go through it."

Want to win? get a chain gang
The winning consortium will have to put "boots on the ground", whether in building a new base at RAF St Athan, Wales, or giving barracks a new lick of paint in Humberside. The best way to do that is to engage local companies for at least some of the necessary services.

But contractors who play hardball with subcontractors may be in for a shock. The whole point of prime contracting is that it forces the contractor to get its supply chain together. And when DE talks about collaboration, transparency and trust, it means it. Chief executive Peter Dunt met with retentions-foe Rudi Klein recently and impressed Klein with his views on banning payment abuse. Can you pay subcontractors the same day the money appears in your bank account? At least one bidder says it can.

...and soften up
The consortium that wins the Central Prime will have to prove itself on soft issues. Quality is worth 70%, price a mere 30%. Quality comprises "hard" issues like health and safety systems and output specifications. But "soft" issues are gaining ground. DE will pick the consortium that can demonstrate it is genuinely willing to work together to deliver the solution.

DE will test the consortia's attitudes through gruelling role-playing days where bidders have to prove they can work together with DE people. A consultant observes and scores the bidders. DE started these workshops in the Scottish Prime, and it takes them very seriously. To pass you must demonstrate genuine collaborative instincts - and you can't send in your slickest charmers either. DE will be looking for representatives from across your entire supply chain.

"I don't know of any other client that goes that far down the Latham and Egan route," said the Central Prime's Mark Grant.