Cost of outsourcing MoD estate quadruples

The Government stands accused of cutting too fast and too quickly after it emerged that the expected cost of outsourcing the management of the Ministry of Defence's property estate had spiralled to at least £40m a year – four times the original estimate.

The MoD's plan to bring in a "private sector partner" to manage its 93,000 acres of barracks, airfields and training areas forms a key part of the Government's wider drive to cut costs by outsourcing to the private sector.

However, barely a week after advertising a £100m, 10-year contract last month to manage and dramatically cut costs at the MoD's property division – known as the Defence Infrastructure Organisation (DIO) – potential bidders were informed that the project would now be worth at least £400m, over the same period.

Alison Seabeck, shadow Defence minister, said the sudden change in the contract value was an "indication of mistakes being made by acting in haste".

A DIO spokesman said that the fee was "revised upwards following industry feedback on the scale of potential savings that the MoD might deliver in its infrastructure management. This contract is over 10 years and highly incentive-based; no delivered savings equals no incentive payment."

The DIO, which was formed last year through the merger of Defence Estates and the MoD's other infrastructure arms, is close to completing a redundancy programme that will have reduced staff numbers from 7,000 to 2,000, and forms part of a broader "transformation plan" to cut costs.

According to Building magazine, which revealed the fee hike, the DIO also admitted that it does not have enough staff left to drive through the transformation programme and has been forced to advertise for up to five outside consultants to help with the workload.

A DIO spokesman said: "To draft in sufficient staff to deliver the transformation programme would have meant that DIO was unable to deliver our day-to-day business. This is why we sought ministerial approval to use consultancy support."

The DIO has an annual budget of £3.3bn, and owns more than 4,000 sites worth about £20bn.