Britain ditches plan to outsource military buying

Britain's Chief of the defence staff, Nick Houghton (L) and Defence Secretary Philip Hammond arrive for a cabinet meeting at Number 10 Downing Street in London August 29, 2013. REUTERS/Suzanne Plunkett

LONDON (Reuters) - Britain said on Tuesday it had abandoned plans to engage a private contractor to run a multi-billion dollar defence procurement programme plagued by spending overshoots, delays and technical problems.

Britain's Conservative-led government had earlier this year trumpeted a reform of the way it buys equipment for its armed forces to help rein in public spending.

The plan hit problems when one of two bidders for the contract pulled out on November 19, leaving only a consortium led by U.S. engineering group Bechtel, and with PA Consulting and PricewaterhouseCoopers, in the competition.

"We do not have a competitive process. I have therefore concluded that the risks of proceeding with a single bidder are too great to be acceptable," Defence Secretary Philip Hammond said, confirming earlier reports of the cancellation.

Britain has been heavily criticised for its sometimes chaotic weapons programme. The costs of two new aircraft carriers, one of the biggest British defence projects ever, has risen dramatically and the project has been bedevilled by construction and design problems.

Major defence equipment projects that the MoD is planning to finance include 35.8 billion pounds on seven BAE Systems built Astute-class submarines and a replacement for Britain's Trident submarine nuclear deterrent, as well as 18.5 billion pounds on fighter jets and drones including Lockheed Martin's F-35 stealth jet.

Bechtel, which was leading the remaining consortium in the running, said it was disappointed the other team's withdrawal at this late stage had caused the competition's collapse, and said it would have helped Britain save billions of pounds.

"It's another embarrassing U-turn for the government," Labour defence spokesman Vernon Coaker told parliament. "His flagship policy on defence procurement has come crashing down around him."

In April this year the government launched a review of the Defence Equipment & Support (DE&S) unit, which accounted for almost half of the Ministry of Defence's (MoD) 34.4 billion pound budget last year. Britain expects to spend 159 billion pounds on military equipment between 2012 and 2022.

The government had initially intended to study the remaining team's proposal and to compare it with an alternative known as "DE&S" plus, an option which would keep the unit under government management.

Hammond said the government had decided to build on the DE&S Plus option, which would see the injection of private sector expertise, and would launch the unit as a "bespoke central government trading entity" from April 2014.

The entity would have a chairman-led board, and a chief executive who will also act as accounting officer accountable to parliament for the organisation's performance. It will also have significant financial flexibility over its ability to recruit, retain and reward staff, he said.

However he did not completely rule out the government-owned, contractor-operated option for the future, saying that it could still provide taxpayers' with value for money.

Hammond said that the government had spent just under 7.4 million pounds on the process and that it was clear from the start that the bidders would not be entitled to compensation or reimbursement of bid costs. A Bechtel spokeswoman declined to comment.

(Reporting by William James and Brenda Goh; additional reporting by Peter Griffiths; editing by Stephen Addison and Ralph Boulton)