Private sector 'will hold MoD to ransom': PCS union warns MPs over proposal to outsource defence procurement

British soldiers in Afghanistan check equipment that could prove harder to procure under the Government’s proposed ‘GoCo’ policy (AFP/Getty Images)

The British government will be "held to ransom" by US and UK contractors if the Defence Secretary, Philip Hammond, pushes through with far-reaching departmental reforms, union leaders have warned.

MPs have been told that it could be difficult for the armed forces to get the weapons they would need at short notice should a territorial dispute similar to the Falklands War suddenly escalate. The warning is contained in a submission to the House of Commons committee probing the controversial defence reforms by the Public and Commercial Services Union (PCS).

Mr Hammond wants Defence Equipment and Support (DE&S), the government department responsible for buying everything from missiles and ammunition to communciation equipment for the British military, to be run by the private sector. He argues that the commercial nous of big business will ensure the vital kit will be purchased at a cheaper price than the state could negotiate.

Two teams, led by the US engineering giants Bechtel and CH2M Hill, are pitching for a contract that is expected to start next year. The accountant PricewaterhouseCoopers and Serco, the firm at the centre of two contractual scandals at the Ministry of Justice, are among the British names on these teams.

However, this globally unprecedented transformation has been widely criticised over fears that the nation's security could be compromised for the sake of being able to buy a few more guns and bullets with its budget. Britain's closest military ally, the US, is particularly sceptical that such sensitive information should be handed to big business.

The PCS argued that, with the winning bidder given a nine-year contract, it might garner so much expertise in that time that no other private sector consortium would be able to win a subsequent pitch process against the incumbent team.

As a result, the winning companies would be able to dictate terms to the Ministry of Defence, offsetting any financial benefits they might have introduced. The submission said: "The MoD has done no risk analysis on the ability of other contractors to re-bid in 2023. Without this risk analysis, there is huge fear the winning contractor will be able to hold the MoD to ransom in years to come."

The PCS added that it was not clear whether what will be called a "GoCo" – government-owned, contracted-operated – would be willing to "absorb" the additional costs of short-notice military operations. A union source said that this could result in delays to battle gear reaching the Army, though an industry insider argued there would be money ring-fenced for such emergencies.

Dougie Brownlie, a PCS defence sector officer, said: "What would happen if one of the contractors also worked for a country we were in dispute with? Wouldn't that be a conflict of interest? If it also worked for the Argentinians, who would that contractor supply, us or them?"

Labour is looking to ambush the Defence Reform Bill with a string of amendments to undermine the chance ofa GoCo becoming enshrined in statute. There are also concerns that overhauling the agency could result in more than half of DE&S's 16,500 staff, who are largely based in the South-west, being made redundant.