Capita edges rival Serco in 10-year UK defence contract race

By Li-mei Hoang

LONDON, March 10 (Reuters) - The British government named outsourcer Capita (LSE: CPI.L - news) as the preferred bidder for a 10-year, 400 million pound ($669 million) contract to manage its military estate on Monday, gaining an edge over rival Serco.

The move comes as a blow to embattled rival Serco, which had hoped to win the contract to help ease fears over the state of its relationship with the British government following a series of high profile contract failures.

The Ministry of Defence instead said it had chosen a consortium, led by Capita, as the front runner to work on overhauling the 21-billion pound Defence Infrastructure Organisation (DIO) which accounts for 1 percent of the country's land mass.

"Working with a strategic business partner will bring in private sector expertise ... and deliver value-for-money and potentially hundreds of millions of pounds of savings for the taxpayer," said Defence Secretary Philip Hammond in a statement.

The Ministry of Defence said the contract has the potential to deliver substantial savings of up to 300 million pounds a year from the DIO's 3.3 billion pounds annual running costs.

Capita, which runs services ranging from the Ministry of Defence pension scheme to police radio systems, will work with American engineer URS (Frankfurt: URS.F - news) and PA Consulting to manage the DIO's 230,000 hectare estate encompassing barracks, airfields and weapons ranges.

"The partnership will help to unlock the knowledge, skills and resources that already exist within the DIO, while adding capability to tackle the significant cost-saving targets currently facing the Ministry of Defence," said Capita Chief Executive Andy Parker. ($1 = 0.5981 British Pounds)