Defence Transformation

Thursday 1st March 2012 Written Statements

[The Secretary of State for Defence (Mr Philip Hammond)]

As part of the defence transformation project, MOD has been developing a new operating model to implement the changes recommended in Lord Levene’s defence reform report. This includes considering how to deliver acquisition and enabling services more efficiently, effectively and professionally through Defence Equipment and Support (DE&S), the newly created Defence Infrastructure Organisation (DIO) and Defence Business Services (DBS). In doing so, we are looking to make use of relevant private sector expertise.



The Defence Infrastructure Organisation (DIO) was created on 1 April 2011, bringing together all aspects of defence infrastructure, asset management and facilities management under one organisation. The DIO transformation programme will determine both the future operating model and the most appropriate corporate structure for DIO to deliver the support our armed forces need at the best value for money while delivering savings in operating costs.

The DIO has recently conducted ‘soft’ market testing to explore prospective roles for the private sector, determine likely levels of interest from industry and review the commercial principles on which the private sector might be engaged. This exercise gave prospective partners the opportunity to examine a range of delivery options with varying degrees of private sector involvement. The results from the soft market testing process will be used to inform an analysis of the scope for greater private sector involvement in the delivery of DIO services to deliver value for money, and of the appetite of the private sector to enter into such contractual arrangements with MOD.

MOD is also committed to improving performance at Defence Equipment and Support, and ensuring that the organisation has the structures, management and skills it needs to provide the right equipment to our armed forces at the right time, and at the right cost. I have asked the Chief of Defence Materiél to examine options for increasing the role of the private sector in the management of DE&S. These options will be developed and tested further over the coming months, and I will update the House as our thinking matures.

The Defence Business Services (DBS) organisation was created on 4 July 2011 to provide a high quality and professional service to the Department across a range of corporate services, covering civilian human resources, finance, information and security vetting.

As the next step in improving efficiency and effectiveness in these services I now propose, following a competitive process, and subject to a 10-day standstill period, to appoint an external management team from Serco to take over the leadership of DBS. Serco will work with DBS staff to transform the organisation into a lean and effective shared services centre, building on private sector best practice. DBS will continue to be part of the Ministry of Defence and personnel working in DBS will be employed in the same way as all other MOD staff, with the same terms and conditions.

Over its four-year duration, the value of the contract is around £36 million; there is an option for the Department to extend this for a further year. The contract is based on a zero management fee with all Serco’s earning being performance related. Serco will be strongly incentivised to drive down costs and deliver efficiencies and we expect savings of around £71 million to be achievable over the life of the contract.

Together, these three initiatives comprise a significant step in implementing the transformation of defence so it can best support Future Force 2020 as set out in the 2010 Strategic Defence and Security Review.