Britain’s Ministry of Defence is expected to sell its equipment repair and maintenance arm next month as it presses ahead with handing billions of pounds of work to the private sector ahead of the general election.
The sale of the Defence Support Group, a team of 2,800 top-grade engineers who service military equipment including aircraft, armoured vehicles and tanks, was proposed in 2010. It has been delayed reportedly because the US was concerned that private sector suppliers would gain access to military technology shared by the allies.
Further cuts are expected for the department in the next parliament too, and with large projects in need of funding, such as the replacement for the UK’s nuclear deterrent, MoD officials are scrambling to reduce costs.
Staff at the DSG went on strike last week calling for an 8 per cent pay rise. They argue employees should receive a share of the £67m profit the DSG made this year, to compensate for the loss of their civil service pensions and altered working conditions when they transfer to their new employer early in 2015.
Under pressure to save money, the MoD is also determined to proceed with two other key outsourcing deals ahead of the election.
Two American companies – CH2M Hill and Bechtel – have won programme management contracts for the Bristol-based Defence Equipment and Support unit, which employs 16,500 government staff procuring equipment such as tanks, aircraft and communication technology.
Ministers tried to part-privatise the agency last year as a GoCo – government-owned, contractor operated – unit but were forced to cancel the process after the bidders withdrew.
Under current plans, rather than outsource management of the £14bn unit as a whole, the MoD is contracting out the running of individual departments, such as IT and finance, to the private sector.
The contracts are expected to be worth about £400m to each company over five years. Bechtel and Ch2M Hill declined to comment.
The government remains keen to revive its privatisation plans for DES. Bernard Gray, the chief of defence materiel, is said to regard the GoCo project as essential to streamline the ministry.
The unit has also won concessions from the Treasury giving its management the freedom to offer a small number of staff pay and bonus packages competitive with the private sector, far more generous than those available even to the best paid civil servants.
Meanwhile, the MoD is also expected before the election to let a crucial £3bn, 13- year contract to deliver supplies such as bandages, food and medical equipment to forces overseas and in the UK.
Babcock is thought to be competing against DHL, the German transport operator, and Leidos, the US defence group, for a deal worth £250m to £500m a year.
The tight military budget comes in spite of a range of new demands on the armed forces, including intervention in Iraq, the growing Ebola crisis in west Africa, and increased exercises and deployments in Europe in response to Russia’s aggression in Ukraine.
The MoD said: “The competition for the sale of Defence Support Group and the buyback of its services through a long-term contract is ongoing. We cannot comment for commercial reasons.”
It added no decision would be made until that process had finished this year or early in 2015.
Additional reporting by Tanya Powley