Critics take aim at latest scheme to outsource MoD procurement

Reforms to try to control costs may force suppliers to deal with up to four project clients

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The Independent Online

Government contractors are dismayed at the latest mess that officials and ministers have made of reforming Defence Equipment & Support, the £14bn-budget agency that buys and looks after military kit.

After failing to semi-privatise DE&S last year, the MoD is now bringing in more limited reforms which will see commercial companies run parts of the agency, such as IT and human resources.

The most important deal, though, is programme delivery, which includes controlling costs, and this has been carved up into four along the lines of the three armed forces and combined command.

Huge US project management conglomerates such as Bechtel, British engineering groups like WS Atkins, accountants and management consultants are all believed to be in the running for the programme delivery roles. However, no one company would be allowed to win more than two of those contracts, meaning major suppliers across the military would, in effect, be dealing with between two and four clients.

This confusing structure is made worse as the programme delivery companies might also work for those huge suppliers in other areas of work, potentially provoking accusations of conflicts of interest.

An industry insider said that “you can’t have four different groups managing the likes of BAE”, while a source close to the defence giant confirmed that this was an area of concern. There are fears that there will be lack of communication between the two-to-four “managed service providers” on projects that cut across the armed forces, potentially causing budget overruns.

 Vernon Coaker, the shadow Defence Secretary, told The Independent: “The Government’s botched procurement plans have caused confusion and demoralisation at DE&S.

“The complaints from industry about unclear lines of communication and poor management of major projects can’t go unheard. The Defence Secretary needs to listen and act.”

A MoD spokesman said: “We are reforming DE&S to ensure that it can provide our armed forces the best possible equipment and support at the best price for the taxpayer. To do this we need to bring in essential private-sector skills to help deliver complex, multimillion-pound projects effectively. This is about preventing the waste we saw in the past.”

The need for reform was highlighted by a report by the Public Accounts Committee this month that revealed ministers could not explain whether a £1.2bn underspend on military equipment last year was because the MoD is becoming more efficient, or because project delays mean the bills have yet to come in.

The Defence Secretary, Philip Hammond, and the top civil servant Bernard Gray failed in widely criticised efforts to semi-privatise DE&S last year, which would have seen the Bristol-based organisation run by a private-sector consortium. They thought this would introduce the commercial nous necessary in negotiations to buy the best tanks, helicopters and weapons at reasonable prices for the taxpayer.

However, unions, DE&S staff, and even officials at the Pentagon were concerned about the state handing over such a sensitive area of national security, leading this huge outsourcing deal to collapse.