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Philip Hammond had planned to replace MoD equipment agency despite opposition from industry and military figures
Philip Hammond, the defence secretary, has abandoned a highly controversial plan to give the private sector responsibility for spending £14bn a year on military equipment, including ships, aircraft and weapons.
In a move described by Labour as an "embarrassing U-turn", he told MPs that only one private bidder was left and so there was no longer a "competitive process". The risks of continuing were "too great to be acceptable", Hammond said.
Despite opposition from senior industry as well as military figures, he had planned to replace the in-house Ministry of Defence equipment agency with a "government-owned, contractor-operated" (GoCo) body in an attempt to improve efficiency and provide better value for money.
However, one original bidder – a consortium of US engineering firm CH2M Hill, WS Atkins and Serco – backed off, deciding it could not meet the commercial targets the government required. That left only a consortium of US engineers – Bechtel, PriceWaterhouseCoopers and PA Consulting – in the running.
Hammond said just under £7.4m had been spent on the now-abandoned competition process.
Defence officials on Tuesday rejected reports that the process was seriously hampered by Serco being embroiled in a Serious Fraud Office investigation relating to a contract with the Ministry of Justice involving the electronic tagging of prisoners.
A streamlined version of the MoD's existing defence equipment and support agency – DE&S Plus – will be set up at as a separate arms-length "trading entity" within the MoD. The agency would get a "significant injection of private-sector skill", Hammond told MPs, ensuring it would be "match-fit".
It would be able to recruit and manage staff "along commercial lines". Its first chief executive would be Bernard Gray, the architect of the original GoCo plan.
Shadow defence secretary Vernon Coaker described the move as "another embarrassing U-turn for the government." He added: "You can't run defence and security on an ad hoc basis … Your flagship policy of defence procurement has come crashing down around you. Not so much as GoCo or DE&S Plus as NoGo".
Steve Jary, national secretary of Prospect, which represents specialists employed by the MoD, said: "It is truly astonishing that the Treasury would have preferred to contract out control of the UK's defence procurement rather than give DE&S the flexibility to pay its highly skilled staff properly and hire and retain people with the right skills and experience."
The government has been repeatedly warned that its plans to outsource to the private sector responsibility for buying military equipment carried huge risks. A hard-hitting report by the Royal United Services Institute, Rusi, said in October that the plan flew in the face of practice elsewhere, notably the US. The provision of defence had long been recognised as a central task of government, it said.
