MoD poised to privatise part of troubled defence procurement process Defence secretary Philip Hammond is said to be 'queasy' about the proposal to part-privatise procurement under the 'government owned, contractor operated' model. Ministers are poised to announce the next stage of controversial reforms that will give private firms a chance to run the organisation that buys and supplies billions of pounds' worth of defence equipment to the British military. The Treasury has given the green light to proposals that will open up the possibility of part-privatising Defence Equipment and Support (DE&S), the body within the Ministry of Defence in charge of procuring everything from new warships to lightbulbs. Despite concern from union leaders, experts and former military personnel, the plan has been under consideration for almost a year as ministers and senior civil servants grapple with ways of saving money within defence. With an annual budget of £15bn and 15,000 staff, DE&S plays a crucial role for the MoD, and no other nation has ever privatised such an integral part of the military machine. But DE&S has been criticised for allowing expensive projects to run out of control, partly because of too much meddling from military commanders, prompting defence secretary Philip Hammond to consider private sector involvement. In an announcement expected on Thursday, ministers will say they are pursuing reforms in which DE&S will remain government owned, but not government run. Day-to-day management would be undertaken by a private company, possibly from abroad. During an assessment phase, the MoD will seek bids from firms in the hope this will show running costs can be slashed. A trial period is expected to last many months, but analysts suspect the so-called GoCo option (government-owned, contractor-operated) will probably get the go-ahead because it is the preferred option of the civil servant currently in charge of DE&S - Bernard Gray, the chief of defence materiel. One idea is for procurement in the RAF to act as the guinea pig for GoCo, before turning over the entire organisation to the private sector by 2015. Hammond has conceded it is "challenging" to recruit staff into DE&S to run complex projects worth billions of pounds when the MoD can only offer them civil service pay. Union leaders say this is a poor reason to hand over defence procurement to private companies and fear the MoD is being driven into risky cost-cutting exercises. "It's a sorry state of affairs when the Ministry of Defence decides to contract out control of £15bn of annual public spending for the simple reason that the Treasury won't allow it to pay its staff properly and enable it to hire and retain quality people with the right skills and experience," said a spokesman for Prospect, the union that represents thousands of defence engineers and scientists. The Royal United Services Institute thinktank has also raised fears about inviting contractors in to run DE&S. "Try as we did, we were able to discern only two clear arguments in favour of GoCo, neither of which is convincing and one of which may be undemocratic," a research paper concluded last year. The MoD could acquire the services of a better class of managers, because a company can pay higher salaries than the public sector. However, the prime minister could easily give dispensation for a limited number of such people to be brought into the MoD at special salaries. That would be a transparent approach, whereas if a company is brought in details of the salaries of its staff could be kept away from parliament, the media and the public. The study added: "A company might be more resistant to accepting proposals for changes [to equipment] from the [military]. That would help to control costs, but would also increase the chances that MoD forces would be equipped with inappropriate and inadequate equipment. In a separate report published in February, the defence select committee said that "GoCo is not universally accepted as the best way forward" and warned: "Failures in the acquisition process can lead to loss of life." MPs acknowledged defence procurement had "presented intractable problems" over recent years, but expressed anxiety that a foreign company might be chosen to run DE&S. The announcement is likely to say that ministers want to launch a competition in the private sector and then set up an "investment appraisal" that will compare the GoCo option against "an improved version of the status quo," known as DE&S-Plus. An MoD source said: "This is the culmination of a lengthy process across Whitehall to get the go-ahead for the assessment phase for a GoCo, and it now gives DE&S the ability to further explore opportunities. A white paper will be brought forward to outline our radical plans to reform defence procurement, which has been plagued with delays and cost overruns in recent history.