Uproar as MoD brings in American giants to manage military procurement

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Associate Business editor

Unions and industry insiders are up in arms because two US engineering companies have been asked to oversee the way in which the Ministry of Defence runs the £14bn arm that buys military kit.

The Independent can reveal that San Francisco-based Bechtel and Denver’s CH2M Hill have bagged the programme management contracts for the Bristol-based Defence Equipment and Support (DE&S). This agency buys and looks after everything from forklift trucks to Astute class submarines, but is being overhauled by the Government so as to get better value for the taxpayer.

The companies were told earlier this week that they had won the contracts to transform the way in which these crucial items are bought, in what are known as managed service provider (MSP) roles.

Bechtel will look after the navy and RAF, while CH2M Hill will work with DE&S on army and joint-command projects. Detailed negotiations start next week and these talks will be important as the roles are widely considered to be vaguely defined.

CH2M Hill, which worked on the 2012 Olympics, and Bechtel, which has overseen the construction of a 21-kilometre tunnel for London’s Crossrail, have few suitable British employees to fill these contracts. Industry insiders estimate that they will need 150 to 200 staff.

Sources said around half of these experts will be flown in from the US. This would cost around £5m more than just using British staff, with the remuneration including food and accommodation expenses.  An industry insider said: “Two US firms running this is not the ideal option – that’s what worries me the most. They don’t have the indigenous capability.”

The source added that the MoD had failed to pay enough attention to an area of such sensitive national security being awarded to overseas companies. However, MoD sources that “a fair and open competition” has been run.

A spokesman for the Public and Commercial Services Union said: “We are very concerned indeed that there isn’t the skills base in the UK to make this happen. We’ve asked again and again for a guaranteed skills transfer to the existing workforce.”

Separately, the reforms also involve the private sector taking over DE&S’s human resources department. It is understood that all of the Big  Four accountancy firms bid for this role and that PwC has landed the contract.

The MoD is highly sensitive about the reforms of DE&S. Last year, ministers tried to semi-privatise the agency in what was known as a “Go-Co” – government-owned, contractor operated – model.

This plan collapsed over lack of competition after CH2M Hill decided against bidding for the contract at the last moment, leaving Bechtel as the only bidder.

It was thought that CH2M Hill would struggle to win any further significant work in the more limited reforms that are known as “DE&S-Plus”. One industry source said he was “staggered” that it had won the two contracts.

An MoD spokesperson said: “Negotiations to bring in managed service providers are still under way in order to secure the best value for the taxpayer. It would be inappropriate to comment further at this point. We plan to award contracts next month.”

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