Labour targets privatisation of defence body

Plans to commercialise procurement organisation DE&S risk conflicts of interest, says Opposition

Labour is planning to ambush a parliamentary Bill that threatens to semi-privatise the defence organisation Defence Equipment and Support. DE&S has an annual budget of £14bn with which it buys bombs and bullets for Britain's armed forces.

The party's spokesman on the armed forces, Kevan Jones, told The Independent on Sunday that it will make a series of tough amendments to the Defence Reform Bill which will focus on acute conflicts of interest and concerns over foreign control of DE&S.

The Defence Secretary, Philip Hammond, wants to transfer the organisation's 16,500 workforce to the private sector, transforming it into a GoCo (government-owned, contractor-operated concern). He argues that this would enable it to use commercial nous to buy everything from aircraft carriers to explosives more cheaply.

However, unions are concerned that this would lead to thousands of job cuts at the Bristol headquarters of DE&S, while industry insiders are amazed that the scandal-scarred Serco is still in the running for the contract. The FTSE 100 services company is being investigated by the Government for alleged fraud in relation to an electronic tagging contract and recently referred to police staff who it believes falsified prisoner transfer records. It is dependent on government contracts, ranging from Ofsted schools inspections to running London's "Boris bike" scheme.

Serco is not allowed to win any government contracts until executives can show that they have reformed its internal controls, but it can still bid for work. It is in a consortium with the US engineering giant CH2M Hill and the UK's WS Atkins for the defence contract, but there is mounting pressure to axe Serco from a competition that would decide who controls a major area of national security.

In a recent parliamentary answer that was designed to put pressure on the consortium, the defence minister Philip Dunne said: "It will be up to the consortium to decide whether it will be appropriate for the consortium to go forward in the competition with that company. So it needs to decide if the company remains in the consortium for this competition."

However, all of the companies involved in the two bid teams have potential conflicts of interest. For example, the accountants PricewaterhouseCoopers is part of the team led by the US group Bechtel, meaning that it could end up handing out contracts to defence firms that it audits.

Kevan Jones said: "We will be tabling a number of amendments around these [conflict] issues, as well as other questions that need to be answered about things like protecting intellectual property and foreign shareholdings."

Alison Seabeck, Labour's policy lead on the Bill, added that there are "problems with the way the contracts are let and supervised", which could be a "potential risk to the taxpayer". Last week, the mastermind of the GoCo experiment, chief of defence materiel Bernard Gray, was grilled by the defence select committee. Dunfermline and West Fife MP Thomas Docherty said that Mr Gray was "asking Parliament to take a big punt" since "no other nation has done this".

Defending his plan, Mr Gray said: "I am finding it a difficult argument to say that when something is done for the first time that is a bad thing. The analysis we did in 2009 … says that our current way of doing things effectively costs us somewhere between £1.2bn and £2bn a year."

Mr Gray admitted that the Ministry of Defence is a month behind what is an unusually tight timetable for the GoCo bid process.

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