Britain to outsource military buying through smaller contracts

By Brenda Goh

LONDON, April 10 (Reuters) - Britain, which failed last year to put its defence equipment buying programme into private hands, plans to try again by breaking the multi-billion pound operation into smaller contracts, the government said on Thursday.

The Ministry of Defence (MoD) told Reuters it would seek bidders to run its land, fleet, air and joint command arms, alongside separate contracts for human resources and finance.

The move would complicate the buying process. But it could also strengthen the hand of defence suppliers such as BAE Systems that, under the previous plan, would have had to deal with one buyer with the power to enforce a deal across all sectors.

Industry sources said the government would send out notices as soon as next week to companies interested in taking part in its latest attempt to revamp its Defence Equipment & Support arm, which has been criticised for cost overruns and delays.

Britain abandoned the plan to engage a private contractor to run all of DE&S after one of the only remaining two bidders pulled out.

In December, the government said it would set up the unit as a "bespoke central government trading entity" headed by a chief executive appointed by the government and would tender out three support contracts for project delivery, human resources, and financial responsibilities.

In response to questions from Reuters, the MoD said it now planned to divide the project delivery further.

"To meet the specialist requirements across DE&S, we are seeking proposals from the market to support Fleet, Land, Air and Joint activities," it said.

It declined to comment on when the letters would be sent out but said companies would not be able to run more than two units.

"It's a lot more fragmented than the original plan, a lot weaker," one industry source said.

Firms such as Fluor, KBR (NYSE: KBR - news) , Bechtel, CH2M Hill, Balfour Beatty (Other OTC: BAFYY - news) , Atkins which had all previously expressed interest in the contract to run the DE&S unit, were likely to look at the new proposal, industry sources said.

DE&S has a 14 billion pound ($23.49 billion) annual budget to buy and support all equipment and services used by the navy, air force and army. Britain expects to spend 164 billion pounds on military equipment between 2013 and 2023.

Major defence equipment projects that the MoD is planning to finance include 35.8 billion pounds on seven BAE Systems (LSE: BA.L - news) -built Astute-class submarines and a replacement for Britain's Trident (BSE: TRIDENT.BO - news) submarine nuclear deterrent, as well as 18.5 billion pounds on fighter jets and drones including Lockheed Martin (Dusseldorf: LOM.DU - news) 's F-35 stealth jet. ($1 = 0.5961 British Pounds) (Reporting by Brenda Goh)