My Lords, Schedule 2 in its current form is necessary to allow a GOCO to have access to existing confidential information provided by defence suppliers that is held by DE&S so that the GOCO can take over management of existing MoD contracts. If the GOCO does not have access to that information, it will seriously curtail the contracts that GOCO will be able to manage. It will not be able to manage contracts that involve the need to access confidential information provided by a supplier. If the MoD provides confidential information from existing programmes to the GOCO without the protection conveyed by Schedule 2 in its current form, the supplier of the confidential information may claim that the MoD has no legal right to do so. The MoD could seek to negotiate amendments to contracts or obtain licences to supply the necessary information to the GOCO; however, the volume of information concerned, the amount of time and resources required to undertake the negotiations, the costs in licence fees that may be incurred and the possibility of the owner refusing mean that this is not a practical proposition.
Schedule 2 as currently drafted provides protection for owners of confidential information because there are only limited circumstances—essentially where necessary or expedient for defence procurement—when the MoD can share the information with the GOCO. Schedule 2 also provides that the GOCO is then subject to the same confidentiality obligations as the MoD. For example, some of the information the GOCO has will be classified as “UK eyes only”, the classification applied to certain information that cannot be shared with non-UK nationals due to national security issues. The GOCO would not be able to share this information with any employee or parent company that does not meet the nationality requirements.
If the GOCO misuses the confidential information, the owner can bring an action directly against the GOCO in the same manner as it could have done if the MoD had misused the information. This is in addition to confidentiality obligations that the MoD will place on the GOCO through the management services contract. The GOCO will be contractually required to maintain the confidentiality of supplier information and not to disclose it to third parties without the permission of the MoD. The GOCO’s parent companies will be third parties, so the GOCO will not be able to disclose the information to them without the MoD’s permission. The Official Secrets Act will also apply to the GOCO and its staff. The information will therefore receive essentially the same protection from disclosure as it does in DE&S today.
The proposed amendment to Schedule 2 involves deleting the existing schedule in its entirety and replacing it by what is largely a replication of paragraph 2 of Schedule 5, which creates an offence of disclosure of confidential information provided to the Single Source Regulations Office. The creation of such an offence is reasonable in the context where the information is
highly detailed supplier information that will be received under the single-source pricing regulations and which suppliers are required to provide by statute. However, the situation is very different from the GOCO situation, and it is not appropriate for a criminal offence to be created for the disclosure of information acquired in the normal course of defence procurement on individual projects and programmes, where any confidentiality is capable of being protected by the GOCO contract coupled with the Schedule 2 constraints. We do not want to create new offences unless it is absolutely necessary to do so. The single-source provisions cover a supplier’s future financial performance, anticipated business plans and planned subcontracting activity. It is highly unusual for the MoD to receive access to information covered by Schedule 5. The offence and tariff proposed is consistent with that applied to other price-regulated industries such as water, utilities, telecommunications and railways. It is not appropriate to day-to-day defence procurement business, which is best conducted as a commercial relationship between the MoD and suppliers.
The new statutory framework outlined in Part 2 has been designed to help ensure that we get value for money on an average £6 billion a year of single-source procurement. Our single-source suppliers can price in the knowledge that they will not be undercut by a competitor—a highly unusual position, and one that is not conducive to getting good value for money. We need to address this, and to do so we need information about a supplier’s actual costs.
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Information alone is not enough. We need enough detail to be able to use this information to negotiate with suppliers on price, comparing their forecast costs with our experience from other projects. We need to be able to track and manage our many hundreds of large single-source contracts, so the information must come in a standard format. We need enough detail to uncover where suppliers have charged us costs that are clearly unreasonable—sadly, not a rare occurrence, as recent press articles have made only too clear.
To get value for money, we require a quantity and detail of information that is much greater than would be necessary in a typical competitive or private sector environment. Our single-source suppliers recognise this, even if they may not particularly welcome it. In return, we recognise that we have a responsibility to our suppliers to treat their information with the care it deserves. Much of it will be commercially sensitive, and some of it market-sensitive, and it could do significant commercial damage if it were to get into the hands of their competitors or market analysts. This is a responsibility that we take very seriously, as the new criminal offence in Schedule 5 makes clear.
In making the new criminal offence, we considered its scope very carefully. The new offence carries with it significant procedural consequences. New processes will have to be put in place to ensure that Crown employees do not inadvertently create a situation where they are suspected of a criminal offence. We need to ensure that the additional overheads and processes involved would not overly constrain the
operation of government; for example, we have allowed the information to be shared across the Crown domain if this is needed.
The amendment would place additional burdens and responsibilities on the MoD, the GOCO and the SSRO in handling industry information; for example, by extending the scope of the criminal offence to Part 1 and through the unusual suggestion of allowing industry audit rights over how the Government handle this information. We are resisting this amendment as we believe it does not strike the right balance between protecting sensitive industry information and enabling the Government to fulfil their functions efficiently. I hope that I have addressed the points that the noble Lord made.