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The Ministry of Defence is at the forefront of best practice in some areas of contract negotiation but needs to achieve these high levels more consistently, the National Audit Office reported today.

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The report to Parliament by head of the NAO, Sir John Bourn, looks at the importance of good contract management and builds on the ‘gold standards’ model the NAO developed last year, which details criteria for best practice in project management.

As a way of assessing the MoD’s approach to contract management, the report also considers how commercial organisations such as Virgin, BAA, Toyota and Sainsbury’s operate in this area. Although there may be some lessons the Department could learn from industry, in many aspects they lead the way.

All stakeholders consulted felt the MoD had strong legal, financial, commercial and negotiation skills. However, there was scope for improvement in managing and sharing knowledge, which is particularly important in such a specialist area. One MoD project team tackled these problems by offering bespoke training to their contractors on the proposed pricing mechanisms or a particular model of weapon they were negotiating.

A high turnover of staff also meant that in some instances contracts were being managed and negotiated by staff without adequate understanding of the product or service concerned. In some cases this left the MoD having to bring in commercial specialists to provide this expertise.

“The Ministry of Defence is at the forefront in some areas of contract best practice and, when viewed against the constraints under which they work, that is a real achievement. However, they must now meet the challenge of ensuring that all of their contract negotiation is consistently at this high level.”

This is the second report in a series of studies and follows ‘Driving the successful delivery of major defence projects: effective protect control is a key factor in successful projects’, which was published in May 2005.

The NAO initiated the development of a contracting strategy tool which the Department will take forward to consider its use as a practical guide to help users identify key issues, particularly at the start of the negotiation process. Sir John Bourn, head of the NAO


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