Britain picks U.S. firms for defence equipment buying contracts-source

LONDON, Aug 4 (Reuters) - Britain has selected Bechtel and CH2M Hill, two U.S.-based companies, as preferred bidders to run parts of its military equipment buying programme, an industry source said.

The Ministry of Defence (MOD) is trying to change the way it buys equipment for its armed forces to help rein in public spending.

Its latest plan is to revamp its multi-billion pound Defence Equipment & Support (DE&S) arm, which has been criticised for cost overruns and delays, by splitting its operations into smaller contracts.

Bechtel has been named preferred bidder for the Navy and Royal Air Force equipment buying contracts with CH2M Hill named for the army and joint command contracts, the industry source told Reuters on Wednesday, adding that detailed negotiations were under way.

The MOD said the contracts, under which the companies will be known as "managed service providers", are due to be awarded next month. In its contract notice, the MOD estimated the value of each of the four contracts at between 50 million and 100 million pounds.

"Negotiations to bring in managed service providers are still under way in order to secure the best value for the taxpayer. It would be inappropriate to comment further at this point," an MOD spokeswoman said.

Bechtel and CH2M Hill, both of which are working on London's 15 billion pound ($25 billion) rail project Crossrail, declined to comment.

Britain last year failed to outsource DE&S activities to one company, after one of the two remaining bidders pulled out, prompting it to try again with the current plan.

Industry sources told Reuters in April that firms such as Atkins, Balfour Beatty (Other OTC: BAFBF - news) , Fluor Corp and KBR (NYSE: KBR - news) could be among those interested in the MOD contracts.

The MOD is also looking for bidders to run its finance and I.T. services, for which a competition will start later this year, and a separate human resources contract, for which bidding is already under way.

DE&S has a 14 billion pound 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 the MoD is planning to finance include 35.8 billion pounds for seven BAE Systems (LSE: BA.L - news) -built Astute-class submarines, a replacement for Britain's Trident (BSE: TRIDENT.BO - news) submarine nuclear deterrent, and 18.5 billion pounds on fighter jets and drones including Lockheed Martin's F-35 stealth jet. ($1 dollar = 0.6007 British pound) (Reporting by Sarah Young; additional reporting by Li-mei Hoang; editing by David Clarke)