Britain holds talks with consortiums to outsource arms buying

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THE defence ministry is in talks with two consortiums – led by US engineers CH2M Hill and Bechtel – that are competing to run its £159bn equipment buying programme to cut delays and cost overruns.

A Ministry of Defence (MoD) spokesman said yesterday it was taking forward commercial negotiations with the CH2M Hill-led group that also consists of British firms WS Atkins and Serco Group as well as with Bechtel, supported by PricewaterhouseCoopers and PA Consulting.

Reuters reported last month the government was set to choose firms for formal discussions and would cut down the number from a list of about 20 interested parties that included QinetiQ and Balfour Beatty. Britain will be the first country to outsource negotiations with arms makers such as BAE Systems and Finmeccanica should it proceed with plans to put the Defence Equipment and Support unit in the hands of a private contractor.

At a time of austerity, the government wants to reform the way the unit buys equipment, a process that has been beset for decades by cost overruns. It is still considering another option known as ‘DE&S plus’, for which it has not provided details but has described as an “improvement of the status quo.”

The DE&S accounted for almost half of the Ministry of Defence’s (MoD) £34.4bn budget last year and Britain expects to spend £159bn on military equipment between 2012 and 2022.

CH2M Hill’s chief executive Lee McIntire resigned as a non-executive director of BAE Systems on Tuesday to avoid any potential conflict of interest due to the bid.

An August 15 notice published on the government’s Defence Contracts Online website showed that the government hopes to issue the contract on September 17 next year. The value of the contract has not been disclosed.

n Singapore’s sovereign wealth fund GIC is in exclusive talks to buy Blackstone Group’s stake in the Broadgate office and retail complex in London for £1.7bn, it was reported.

Reuters said on Monday that the private equity firm was selling the stake in the 30-acre site in London’s financial district to an unnamed sovereign wealth fund as it gears up to raise $5bn for a new European fund. The Times said yesterday that the agreement with GIC was still in the very early stages.

Blackstone bought the stake with £77m of equity in 2009 from British Land, which still owns the other half-share.

British Land said in January that it intends to retain its stake in the site, whose tenants include Swiss bank UBS.