Mark Leftly: Audacious they may be, but defence reforms look a complete mess

Outlook Bernard Gray is a yo-yo dieter, but when it comes to philosophical conviction he is as steadfast as the sturdiest dreadnought. Mind you, plenty of those super-battleships were sunk by undetected mines and enemies.

The former Financial Times hack holds the grand title of chief of defence materiel at the Ministry of Defence (MoD).

Mr Gray is the brain behind arguably the most dramatic set of reforms of any defence department ever seen anywhere around the world: a pair of ultra-ambitious quasi-privatisations so revolutionary they have spooked even our tough transatlantic partners who run the Pentagon.

However, the Defence Secretary, Philip Hammond, agrees with Mr Gray that Defence Equipment & Support (DE&S), the £14bn budget agency that buys the army's tanks and the navy's aircraft carriers, would be better run by the private sector. Only with that commercial nous could Bristol-based DE&S buy more things that go "bang" for its buck.

He also concurs that the Defence Infrastructure Organisation (DIO), which looks after the MoD's estate from airfields to training bases, should be handed over to companies which can make the best use of these facilities for the armed forces.

This is a breath-taking programme that earns top marks for both audacity and originality and gains bonus points for being a financially meaningful commitment to cutting the eye-watering cost of government.

Others argue it is folly to in effect privatise national security. And the unions are waking up to the fact that DE&S reform will mean thousands of job cuts, badly hurting the South-west economy.

We have previously reported that there is also potential for extreme conflicts of interest. For example, many of the companies involved could end up handing out DE&S contracts worth hundreds of millions to defence firms that are their major clients in other parts of their business. (I should declare my own conflict, of a sort, which is that I worked for the publisher that Mr Gray ran years ago, albeit he was on the top rung of a managerial ladder that I didn't even have a foot on.)

What happened this week was that one of the three consortiums bidding to oversee DE&S pulled out of the process, leaving just two teams. One of these groupings includes Serco, the FTSE 100 giant which is at the centre of the scandal that allegedly saw the taxpayer charged £50m to monitor non-existent electronic tags allocated to the dead and those who were back in custody; the other is led by Bechtel, the US engineer which is helping to dig the 21km tunnel under London that will be the centrepiece of Crossrail.

What is problematic is that these two firms are working together on a bid for DIO and are widely thought to be hot favourites. Should they win and Mr Hammond pursues his preferred plan for DE&S, that would mean one of Serco or Bechtel would be responsible for both agencies and more than half of the MoD's entire budget.

Even if the reality turned out to be that this is not a problem in practice, at the bare minimum the idea that a company – and in Serco's case, a company with a very chequered recent past – has that much control over national defence is distinctly unpalatable. Any decision that the company made would also be open to accusations of laziness through power or bias towards certain defence contractors, whether there was any truth in those claims or not.

There is another option for Mr Hammond, which is to just modify DE&S in what has been called DE&S-Plus. No one seems to know what this would actually entail and this seemingly minor change to the costly status quo is certainly not the defence secretary's preferred choice.

However, unless the bid teams are hastily swapped around or a party withdraws from one of the consortiums, it seems unfeasible that the MoD will be able to pursue DE&S reform should Serco and Bechtel indeed win the right to look after the department's estate. The only alternative would be to in effect exclude the pair from the DIO contract – and it is surely not in the best interests of the department to weaken the competitive process, let alone blank what is said to be an excellent bid.

In other words, defence reforms might be a good idea in theory, but in practice they look like a complete mess.

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