MoD wasted £33m on botched privatisation attempts, report claims

DE&S executives believed that the benefits outweighed the issues

The NAO report reveals that civil servants were deeply concerned by the "GoCo" (Government-owned, contractor-operated) model’s business case (Getty)

The Ministry of Defence wasted £33m on botched attempts to semi-privatise the £14bn budget agency that buys military equipment, according to report being published by the National Audit Office today.

The Government had wanted to bring in a consortium of private sector experts to run the Bristol-based Defence Equipment & Support, but abandoned the reforms in late 2013 as only one group, led by the US engineer Bechtel, was interested in bidding.

Margaret Hodge, who chairs Parliament’s powerful Public Accounts Committee, today criticises the MoD for "throwing away" taxpayers’ money on the much-criticised plan.

The NAO report reveals that civil servants were deeply concerned by the "GoCo" (Government-owned, contractor-operated) model’s business case. They warned that it would take between eight and nine years to recoup the investment in the idea, leaving little room for the costs of unexpected problems, given the GoCo was only supposed to last nine-and-a-half years.

It is also reveals that the DE&S executive board had concluded that the risks and complexity of implementing the GoCo option were "high", though they believed the benefits, such as using the financial nous of the private sector, outweighed these issues.

The report also hints at previously reported concerns by defence ministries elsewhere in the world. The NAO said that MoD officials realised other countries would have to "agree that a GoCo could act as the Department’s agent on sensitive defence contracts", but added that the "undeliverable" plan at least helped DE&S gain "a better insight into its business needs". The NAO warned in the report that the MoD will need "a greater level … of continuous rigour" in making sure DE&S’s improvements are measured over the next few years.

The report had been due for publication last year, but it is rumoured that the MoD challenged many aspects of factual detail. Under NAO rules, those who are subjects of their reports are allowed to see and amend drafts.

Amyas Morse, head of the NAO, said that DE&S now needs to show it can “address systemic weakness in defence acquisition”. DE&S is expected to spend more than £160bn under its current 10-year spending forecasts.

Bernard Gray, the senior civil servant who masterminded both GoCo and DE&S’s more modest changes, recently received a one-year extension to his existing deal. However, the former Financial Times defence correspondent and businessman is expected to be replaced next year.

The Defence minister Philip Dunne pointed out that three-quarters of the £33m was "money well spent" as it helped in "informing" the more limited reforms that have since been introduced. He added: "This report acknowledges the real progress that has already been made in reforming defence acquisition, including stabilising and improving the affordability of the Equipment Plan.

"We are investing around £163bn in cutting-edge equipment over the next 10 years with our major projects coming in last year nearly £400m under budget, in stark contrast to the £4.5bn cost overrun in 2009."