How a Rock is set to shake up the defence sector

When outsider Jacqui Rock became commercial director for the Defence Infrastructure Organisation (DIO) just over a year ago, one thing quickly became clear to her: fundamental change was needed. But rather than immediately overhauling the Ministry of Defence’s (MoD’s) multi-billion-pound, hyper-traditional construction programmes, Rock adopted an evolutionary approach. A year on, the shift she heralded is making waves not just across the defence market, but in other government departments too.

Standing in Rock’s path is a sector mired in convention – one that had previously seemed unable to embrace better ways of delivering projects across a vast estate. This understandably sensitive market has a procurement pipeline that is splintered into overlapping frameworks; is hard to fathom; and is at the mercy of frequent delays. On top of this, a traditional procurement model based on price does not encourage collaboration and efficiency. Altogether, the issues create substantial frustration for firms tasked with delivering projects.

Regimented approach

Even for a sector specialist with a military background, Morgan Sindall director of defence Andrew Parker says it isn’t an easy place to do business. He explains that, on average, about £1bn of work is up for grabs annually, outside of concurrently running frameworks, of which Morgan Sindall targets about £600m worth. He adds that if you couple a lowest-price-wins ethos with a very regimented commercial approach – in a market that, while steady, isn’t massive – you have far from the perfect system.

In terms of clarity, at least, change is in the wind. In an effort to improve visibility, the DIO, which administers the £3.3bn annual budget for the defence estate, produced its first national framework of compiled capital works in late 2018.

“The national framework has been reasonably successful, but the pipeline that’s there just hasn’t materialised in a transparent fashion,” Parker says. “Every contractor will say visibility of pipeline [is important] so we can plan our resources, prepare and look at our supply chain. But the DIO has struggled with that transparency.

"Every contractor will say visibility of pipeline [is important] so we can plan our resources, prepare and look at our supply chain. But the DIO has struggled with that transparency"

Andrew Parker, Morgan Sindall

“If you [read what was published in] November 2018, you have the DIO procurement plan showing what’s coming up; unfortunately, some of the content in there is past projects – some of those had already been procured. There was scant detail. Unless you thoroughly understood defence and could interpret a lot of the language in there, it didn’t provide as much detail as the contracting community would have liked. Some key dates and key contacts [were needed] just to allow us
to plan and engage in the way that we like: relationship-based and collaborative.”

It’s a situation corroborated by Parker’s opposite numbers at other businesses operating in the sector, such as Atkins market director for defence Andy Albutt: “Over the last five or 10 years, the clarity of pipeline [has not been] good […] and the updates you get are not that accurate. It’s like every other government organisation. Everything is subject to changes and political and economic [forces] and, therefore, at the highest level, priorities change.”

Unlike other government departments, the MoD must also respond to global geopolitical influences. “In the defence market you’ve got the top-level budget holders of the Army, Navy, Air Force and PJHQ [permanent joint headquarters and a part of strategic command],” Albutt says. “And not only do priorities and equipment [requirements] change, depending on threat levels, but also [the senior budget holders] in the military change typically every 18 months. So one senior decision-maker may have a different priority than [another].”

Sector shake-up

Enter Rock, who joined the organisation just after the launch of the initial framework. For someone coming from a career in banking (see box, p28), she might seem a left-field choice for the role, and if surname alone is anything to go by, an anchor rather than a progressive influence. But it seems that shaking things up is precisely what the DIO wanted when it began looking outside the sector to fill key roles – and she has already made a positive impression on several of the interviewees for this article as a dynamic force for change.

“The DIO spends over £3bn a year on defence infrastructure,” she tells Construction News in a strong London accent, outlining the size of the prize. “There are at least a billion sterling capex [capital expenditure per year] costs on our multiple capital-works construction projects.”

Rock pulls no punches when outlining the opaque system for communicating the pipeline that was used before her arrival. “The way that suppliers found out about this – it used to be pretty bad,” she admits, adding that they were left asking: “‘Do we keep having to look out for it to land on an OJEU [Official Journal of the European Union, which includes public sector contracts above a certain value] or a framework?’ So, what we did a year-and-a-half ago, for the first time, was produce a procurement plan that listed everything that we are going to be buying in defence construction in the next five years.”

She agrees with Parker’s view that the plan, launched just before she joined the DIO, was far from being a refined solution. “It was still a bit basic, to a certain extent. I’d be saying to the suppliers, ‘I’m sorry it’s not live yet or interactive; you’ve got to sit down with your highlighter and go through what you’re interested [in] and what you’re not.’ But for the first time, defence and indeed government put out that plan of procurement and this did make a big difference to everyone because they could see what was coming down the pipeline and where our intention is – when we’re going to start these very large capital-works programmes.”

Perfect it wasn’t, but with an imminent second version covering the next five years expected to land in March or April this year, Rock has been given the opportunity to improve the system further. It’s something she will undoubtedly be measured against. “I’m just about to launch that procurement plan again in a week or so,” Rock says. “We’ve been ready for quite a while but the Cabinet Office and Number 10 makes the decision on when they want to launch it. What’s interesting in that plan is that [Cabinet Office permanent secretary] John Manzoni has now dictated that all ministries should launch procurement plans, which I think is really quite exciting.”

Value over price

Whether it bears fruit remains to be seen, but there are plenty more issues that need fixing.

Another such challenge is around the MoD’s historically inflexible approach to procurement. Again, it’s not something the DIO is unaware of. Rock summarises some historical issues: “Three points about where we were: we were focused on price – pushing everyone’s margins down. We were not very [smart] with scoping and knowing what it was we wanted to buy in the first place. And the third thing, a lack of collaboration – [we were] very, very stand-off and not in partnership with the supplier.”

How can defence procurement improve? Rock has a clear view of what success must look like in this regard. “A focus on value and not price. It wouldn’t be about cheapest wins, it would be about that entire value, that whole-life cost of everything we’re putting in place,” she explains.

“We would have such firm relationships and partnerships with the construction supply base that it would be just second nature to us that we would work with early engagement [and partner] all the way through the entire process together. Not us dictating what we want. What I mean by that is much more intelligent contracting. I can see the shocked faces around the table when I turn around and say ‘what do you want the contract to look like?’ They go ‘what? Really?’ I say ‘what is going to make this so appealing for you? Because you’re going to have to take that to your board and convince them that you want to bid for this. How do you need it to look in terms of length, risk and reward?’ That would be an absolutely normal part of our drumbeat so that we’re much more intelligent buyers and we’re using much more intelligent contracting instruments.”

Single-stage versus two-stage

Kier managing director for strategic projects James Hindes is one supplier who is fully on board with Rock’s vision: “I 100 per cent agree with Jacqui Rock on that point [that defence procurement needs to evolve]. While we’re familiar with two-stage tendering with other clients, it’s relatively new for DIO. I strongly believe that you get better value and a longer preconstruction period to work with the client to hone requirements. Where you’ve got complexities in defence specifications and standards, it gives you time to work through those, nail them, price them and get greater clarity around the time-cost-scope triangle that all clients desire. It’s something that we’ve worked through on [RAF] Lyneham and we’re currently working through on [RAF] Lakenheath. I’m a strong advocate of second-stage tendering [over] single-stage.”

He explains that, at Lakenheath, Kier’s work is not for the use of the UK’s military forces. “We’re building new facilities for DIO, but essentially for the US Air Force. There are new buildings for simulators, squadron-operations buildings for the new fleet of F35 fighter jets that are being delivered in November 2021, and new taxiways. There are 15 separate assets that we’re progressively designing, pricing and then building.”

Akins’ Albutt believes things are starting to move in the right direction at last: “Jacqui Rock was brought in from an external [environment] to look at different ways of procuring. She’s been very successful in starting to look at it in a less traditional manner, in looking at all the options. For example, many of the ways that Morgan Sindall and Atkins have got onto that [Crown Commercial Services] framework have been through a collaborative process of procurement, as opposed to the old-fashioned way of 80 per cent cost and 20 per cent technical. She’s changed that and I’m sure she’s looking at different ways of procuring, whether it be single-stage or two-stage.”

Albutt acknowledges that it cannot be a case of one approach fits all, though: “Every project needs to be looked at to see where’s the best value in procurement. You also need to look at whether the project is well defined, where the risk sits and where the potential changes will come. I don’t think there’s a general answer [on whether projects should be single or two-stage], they need to be looked at individually. One of the reasons it doesn’t go down two-stage often is that sometimes, when they get the business case approved, they just get it for the initial design stage and have to traditionally tender it and then get funding approved in the second tranche, so that may also dictate why two-stage tendering doesn’t happen.”

A chance for rational thinking

One of the MoD’s medium-term goals is to reduce its estate, which currently covers about 1.8 per cent of the UK’s landmass. This rationalisation will offer work for firms that are active in the sector.

"Conversations [on MMC] are ongoing, but on a project-by-project basis, so where they’ve got the space to set up an assembly facility on the base, there’s an appetite to do it"

James Hindes, Kier

Galliford Try defence director Keith Yarham lays it out: “We have a new [framework coming out] called the Defence Estate Optimisation (DEO) Programme that will start coming to market in 12-to-18 months’ time and that’s another £4.6bn of work. They are planning on reducing the overall estate by 30 per cent and currently that means 91 establishments being disposed of. The benefit to us is anyone who’s currently on those sites needs to be relocated, and there are 60 receiver sites that are going to have that £4.6bn spent on them. That DEO programme runs to 2040, but the vast majority of the construction work is in the next five years.”

However, he points out that businesses that want to win work in the sector must meet cyber-security standards, a task that the main contractor is actively involved with: “We have to educate the supply chain and pass on that responsibility, legally. We have a requirement through the contract to ensure we have trained and provided all the information to our supply chain under [cyber-security] defence standard 05-138, which is relatively new, and that ensures that there is a track of the security right the way down through the supply chain to demonstrate that they can handle sensitive information.”

Security may stymie innovation

It is an interesting point insofar as it raises the question of how military security might hinder the advanced construction techniques that are emerging in other markets. Hindes explains that where Kier might put forward a preconstruction or offsite solution, security issues mean that what is assembled offsite would need to be monitored by the DIO, making the process more complicated. “It tends to send you down the route of traditional build purely because it can be built in a secure environment. It’s one of the hurdles we’re finding at Lakenheath at the minute,” he says. “Conversations [on modern methods of construction] are ongoing, but on a project-by-project basis, so where they’ve got the space to set up an assembly facility on the base, there’s an appetite to do it. Where it’s more of a challenge is where you have to set up something outside the base.”

Rock is an enthusiast nonetheless. “There’s a real buzz in defence at the moment to move into that space. I just need the suppliers’ help because we don’t know what we don’t know. That was my challenge, because I look at some of the bids that I get back and ask ‘where’s the innovation here? Where’s the sexy stuff that we can do in construction now?’ Look at the size of our estate – you’ve got so many opportunities with the appetite from the commands [Navy, Army, Air Force and strategic command] and the DIO.”

It’s not just modern methods of construction of which she’s an enthusiast. “DIO has got a strategy – a roadmap – around how we bring digitalisation into our future construction,” she says. “We absolutely recognise that it is the way forward. Within our asset-management programme, we’ve got a whole transformation workstream on that. A lot of our suppliers will know about this because I’m getting all the information from them. What can I do? [Get my suppliers to] come in – myself and general Nick [Cavanagh, director of strategy and planning] are constantly saying ‘show me how these [building] sensors would work in a secure environment’. We’re now starting to run things like sensors through our information-security function within defence to see what we need to do to make it compliant. We’re really deep into our discovery phase so that we can set that digitalisation roadmap and that future procurement that enables us to use all of the things [that are out there].”

If one thing is clear from what interviewees for this feature say, it is that the conservative nature of the sector has frustrated those working within it.

But if Rock’s perspective as an outsider can help shake things up, the market may be on the cusp of real change.