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Big boost to construction after £400m defence estates deal

Spending on construction by the Ministry of Defence’s property arm could rise to more than £1.2bn a year following a deal to outsource the management of its estate.

A consortium of outsourcing company Capita, engineer URS and professional services firm PA Consulting won the £400m contract to act as “strategic business partner” to the Defence Infrastructure Organisation this week after a procurement process of almost two years.

The winners beat a consortium of property managers Telereal Trillium, consultants KPMG and contractor Mace and another consortium of outsourcing firm Serco, property company DTZ and engineers Bechtel to take the deal.

The DIO currently spends about £700m a year on reconfiguration, refurbishment and new property but this figure could now rise to more than £1.2bn a year.

About £1.2bn a year will need to be spent on property to accommodate troops as they leave Germany by 2019.

There will be additional spending on construction of other projects as part of the reconfiguration of the estate.

Projects worth less than £50m will be tendered through the DIO’s Next Generation Estate contracts, which are a mix of prime contracts and frameworks. High-value projects will be tendered independently.

The MoD expects the Capita consortium to make savings of up to £300m a year in running the 230,000 ha defence estate during the 10-year contract.

The consortium is preferred bidder for the contract, which is expected to be awarded in the spring following further consultation with trade unions. It will become fully operational in summer 2014.

The announcement comes almost two years after the MoD announced its intention to bring in a private partner in May 2012.

The three bidders were shortlisted in August 2012 with the intention of awarding the contract in summer 2013. The MoD carried out an exercise to revise and confirm parts of the tenders in October 2013.  

Defence secretary Philip Hammond said: “Working with a strategic business partner will bring in private sector expertise to enhance the DIO and deliver value-for-money and potentially hundreds of millions of pounds of savings for the taxpayer.

“This is another step along the way in implementing Lord Levene’s reforms and will allow us to tap into the innovation and expertise of the private sector so that we can deliver the best possible infrastructure and services for our armed forces.”

Capita said it would begin the project by spending 18 months producing a blueprint for management of the estate and would then work with the MoD to change the DIO.

URS will contribute property and project management experience and PA Consulting will provide data analytics and knowledge of change management projects it has run for the MoD.

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