MoD suppliers warn Government of risk to security of privatising budget agency

The Ministry of Defence’s biggest suppliers have privately joined the growing chorus of disapproval at the Government’s plans to effectively privatise the £14bn budget agency that buys ships and tanks.

Two consortiums are vying to take over running the agency – a move that Defence Secretary Philip Hammond thinks will introduce the commercial nous to help Defence Equipment & Support (DE&S) purchase guns and ammunition at cheaper prices.

US engineering giants Bechtel and CH2M Hill lead these bid teams, which also include big British names like troubled outsourcing group Serco and accountant PricewaterhouseCoopers.

However, one of the MoD’s most important suppliers told The Independent that it would be difficult for his company to negotiate with the private sector in delicate situations. Under national security guidelines, if something goes wrong with a major programme, such as a design flaw in a battle vehicle, the supplier is able to inform the MoD without being forced to report the incident to the stock exchange.

However, that position is less clear-cut if the supplier is talking to another private sector body in the form of the revamped DE&S. The source said it was likely the problem would have to be announce to the market, potentially revealing details that could compromise the country’s security.

DE&S’s reform could see thousands of its 16,500 workers axed, mostly from its Bristol base.

The Pentagon is concerned that sensitive, jointly-held information with the MoD could be seen by the consortium and risk being leaked out to political enemies and the wider world.

Meanwhile, it has been reported that ministers want to renegotiate the £5.3bn contract with BAE systems to build two new aircraft carriers. The cost of the carriers has escalated from £3.6bn in 2008 and ministers are believed to want to ensure that BAE shoulders some of the pain.