Union leaders raised fears of fresh cuts at the Ministry of Defence tonight after a private company was awarded a lucrative contract including a “strong” incentive to drive down costs.
Defence Secretary Philip Hammond said outsourcing parts of human resources, the finance department and security vetting at the MoD to Serco would save the taxpayer £71 million in the next four years.
Ministers have also conducted a "soft" marketing exercise to determine whether private companies could supply equipment to troops and manage military facilities.
In a written ministerial statement, Mr Hammond said: "Serco will be strongly incentivised to drive down costs and deliver efficiencies and we expect savings in the order of around £71 million to be achievable over the life of the contract."
The Public and Commercial Services union, which represents staff affected by the announcement, said it feared job and pay cuts, adding that it found out the contract had been finalised when Serco placed a recruitment advert for a service delivery manager.
The union said it had previously raised concerns that it looked like a "done deal" before significant issues were resolved.
General secretary Mark Serwotka said: "It's outrageous that the first we knew that this contract had been awarded was when the company advertised to fill a post.
"This appears to confirm that this was a politically driven decision that does not take into account what is best for the department."
Unions have been fighting a series of defence-related job loss announcements in recent months.
Steve Jay, national officer of the Prospect union, said: "The decision to contract out the senior management layer to Serco is the subject of a formal disagreement with the Department and will be pursued.
"Prospect sought a meeting with the minister before any announcement, so that we could ensure he was aware of the reasons for our opposition.
"We know that the value-for-money case put forward to keep the work in-house was 'marginal' and we are concerned that the decision has been taken against official advice."
A spokesman for the Prospect union said: "We believe that buying-in the senior management sends all the wrong signals to the rest of the MoD's staff: 'Ministers don't trust you to run your own operation'."