Feeds

Watchdog raps MoD over Qinetiq sell-off bonanza

Eyewatering Stealth raid by pinstripe execs

Maximizing your infrastructure through virtualization

Analysis UK gov watchdog the National Audit Office (NAO) has released a damning report into the privatisation of the country's top-secret defence research labs and facilities as Qinetiq.

The report, now available online from the NAO, severely criticises the Ministry of Defence (MoD) and some of the consultants which advised it during the selloff process - who themselves pocketed large fees. (Total spend on consultants was more than £28m.)

Sir John Bourn, NAO chief, said today:

"I believe more money should have been secured for the public purse."

That seems reasonable. According to the report:

The Department has received net proceeds of £576 million from the transaction to date... it also retained a 19 per cent shareholding [in Qinetiq].

The MoD has received £576m for 81 per cent of a business with annual revenues of £1.1bn (on which it makes approximately £120m profits). As the report also notes:

[The MoD is] still by far the largest customer [of Qinetiq], accounting for some 57 per cent of QinetiQ’s revenue in 2006. The majority of this business was awarded without competition.

And it will keep on being awarded without competition, because much of that business relates to operating UK test facilities and firing ranges which are effectively a monopoly which the MoD must use. Indeed, the MoD, as part of selling off Qinetiq, is tied into using these facilities until 2028 under a sweetheart deal called the Long Term Partnering Agreement, worth up to £5.6bn to Qinetiq just for keeping the facilities open. The MoD has to pay more on top when it wants to actually use them. And it's actually even worse than it sounds, because Qinetiq can crank up the price.

The MoD may be exposed to significant price increases... This risk is greater in year ten (and at each subsequent review), as QinetiQ has the right to terminate the contract if it does not agree to the outcome of the price reviews... If there are no other contractors that can supply these services in the market [and in most cases there aren't] QinetiQ may be able to negotiate significant price increases.

One reason that the test-ranges deal was such a big pillow for the MoD to bite was that the MoD has long failed to invest in the facilities and keep them up to scratch.

The LTPA was in part established to address the legacy of underinvestment in the assets used in the delivery of test and evaluation services. To this end, the contract is based on there being £136 million of capital and rationalisation expenditure in the first five years. QinetiQ receives funding for the depreciation of this capital expenditure through the contract.

In effect, then, the MoD still pays to fix up its old test ranges. It does so by borrowing the money from the private sector and then repaying over decades. At the same time it loses ownership of the assets it is paying to fix up.

This is a bit like being an Irish tenant of a rack-renting English landlord before the Republic became independent, paying for any necessary improvements of property you rent at extortionate terms.

Top three mobile application threats

More from The Register

next story
Arrr: Freetard-bothering Digital Economy Act tied up, thrown in the hold
Ministry of Fun confirms: Yes, we're busy doing nothing
Help yourself to anyone's photos FOR FREE, suggests UK.gov
Copyright law reforms will keep m'learned friends busy
Apple smacked with privacy sueball over Location Services
Class action launched on behalf of 100 million iPhone owners
US judge: YES, cops or feds so can slurp an ENTIRE Gmail account
Crooks don't have folders labelled 'drug records', opines NY beak
ONE EMAIL costs mining company $300 MEEELION
Environmental activist walks free after hoax sent share price over a cliff
UK government officially adopts Open Document Format
Microsoft insurgency fails, earns snarky remark from UK digital services head
You! Pirate! Stop pirating, or we shall admonish you politely. Repeatedly, if necessary
And we shall go about telling people you smell. No, not really
prev story

Whitepapers

Designing a Defense for Mobile Applications
Learn about the various considerations for defending mobile applications - from the application architecture itself to the myriad testing technologies.
Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Top 8 considerations to enable and simplify mobility
In this whitepaper learn how to successfully add mobile capabilities simply and cost effectively.
Seven Steps to Software Security
Seven practical steps you can begin to take today to secure your applications and prevent the damages a successful cyber-attack can cause.
Boost IT visibility and business value
How building a great service catalog relieves pressure points and demonstrates the value of IT service management.