Defence body controlling £14bn nears 'privatisation'

Procurement agency with 17,400 staff could be put into private hands despite outsourcing doubts

A major step in what critics claim is the privatisation of the Ministry of Defence’s £14bn-budget equipment and support agency is expected to be taken next month. The MoD’s senior civil servant for procurement, chief of defence materiel Bernard Gray, is finalising a report to the Defence Board, the department’s top decision-making committee, justifying greater involvement of the private sector in the running of the agency.

The cost of business case study is thought to show that establishing a “GoCo” – government-owned, contractor-operated – agency would significantly cut procurement and project costs.

Under this idea, which is thought to have been heavily promoted by the US construction and engineering giant Bechtel, the 17,400-strong agency would be ultimately owned by government but run day-to-day by a private company.

In July, the Defence Secretary, Philip Hammond, said that he was supportive of the idea, but asked Mr Gray, a former journalist, to focus his “effort on developing and testing the GoCo option further”. If the board and Mr Hammond like what Mr Gray has found out since, a competition to select a private sector partner would soon get underway.

However, critics have pointed to G4S’s failure to provide sufficient security at this summer’s Olympic games and problems associated with the privatisation of the railways as reasons why outsourcing key defence decisions to a profit-making company might not be in the country’s best interests.

“Bringing in some high-cost people will possibly even mean costs will go up,” claimed one doubter.

“The challenge for Bernard Gray is come up with as much data as possible to support this concept. There are a lot of questions to answer.”

Separately, plans to radically alter how the Government’s submarine programme, which includes the next £15bn wave of Trident nuclear-warhead carrying boats, are speeding ahead. It is understood that potential commercial partners to help run the Submarine Enterprise Performance Programme have handed in submissions of interest to the MoD.

This was another idea of Mr Gray’s, as he wants to ensure that £900m of cost savings to build and maintain the fleet are met through private sector business acumen.

An MoD spokesman said: “We announced earlier this year that a GoCo organisation was our preferred option for improving Defence Equipment and Support. Analysis of this is ongoing and a final decision will be made in due course.”