Defence Infrastructure Organisation

Lord Hammond of Runnymede Excerpts

Monday 10th March 2014 Written Statements

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

On 24 May 2012, I informed the House that the Defence Infrastructure Organisation (DIO) would commence a procurement process to assess whether the involvement of a strategic business partner offered the best value-for-money solution for defence. Today, following the successful conclusion of the competitive stage of the procurement process, I am pleased to announce our decision that the appointment of a strategic business partner does represent the best way forward for the DIO and value for money for the taxpayer. After analysis of the proposals received, I can inform the House that Capita, which is working in conjunction with URS and PA Consulting, is the preferred bidder. Final negotiations will now be concluded with a view to contracting in the spring.

Following the establishment of the DIO in April 2011, a significant transformation programme was put in place to ensure that the organisation would deliver better value for money for taxpayers. Alongside this process, the defence board considered the outline case for the introduction of a strategic business partner for the DIO. The case set out the potential financial and wider benefits of adopting a different business model in the DIO whereby a strategic business partner would be engaged to drive the transformation of the DIO further and deliver rationalisation and efficiency improvements.

A private sector strategic business partner will enable the DIO to make a significant contribution to departmental savings and asset realisation targets, as set out in the 2010 strategic defence and security review and will strengthen and enhance the service the DIO provides across defence. The strategic business partner will focus on improving the skills base across the DIO, enhancing commercial expertise and change management skills and will bring additional capability to the DIO, including access to market-competitive knowledge and skills via the partner’s parent organisations; better incentivisation and management of staff against performance through the introduction of a more commercial approach to the business and access to private funding for “spend-to-save” efficiency improvements.

Capita has been selected as the preferred bidder for a 10-year contract, with payment for services to be made through an incentive-based arrangement. Following contract award in spring 2014, the strategic business partner will integrate an executive management team into the DIO and assume full executive responsibility for the organisation once the mobilisation activities have been completed. For the first phase of the contract, the DIO will remain fully within the Ministry of Defence. During this period, however, the strategic business partner will help the DIO prepare to move to an incorporated model, currently assumed to occur in 2016, which will entail the creation of a Government Company (GovCo) to manage defence infrastructure. This would be a separate legal entity, 100% owned by the Secretary of State for Defence and managed by the strategic business partner under contract. Under this innovative arrangement, the MOD will oversee the activities and performance of the new company through a governing authority set up within the Department.

The selection of the preferred bidder to be the strategic business partner to the DIO, represents an important step in the fundamental reform of defence following Lord Levene’s independent review in 2011, which recommended that

“enabling services should be delivered as efficiently, effectively and professionally as possible.”

It demonstrates the Department’s continuing commitment, and ability, to bring in private sector skills, where doing so will increase efficiency by cutting costs and improving delivery.