1.8 The Department commissioned an analysis of the potential forms the PPP could take and consulted widely on their suitability. A ministerial steering group was established to ratify all decisions. The steering group was chaired by the Minister of State for Defence Procurement9 and made up of senior officials from the Department, including representation from the main customer groups, and wider Government, including the Treasury and the Chief Scientific Adviser. External members were also invited from the private sector to provide a different perspective, these included Dr. Michael Lawrence10 and Sir Alan Rudge.11 DERA was also closely involved in the process and the chief executive officer of DERA also sat on the steering group. The Department established an internal team, the DERA Partnering Team, in September 1998 to manage the project.
1.9 After competition, the Department appointed PricewaterhouseCoopers and UBS Warburg to advise jointly on the possible route to a transaction and to support the process. Four principal PPP options were developed by the Department and its consultants as shown in Figure 3.
1.10 The Department and DERA management initially favoured the Reliance model, although the Department rejected this in May 1999 following consultation with international partners, DERA staff and trade unions, other government departments, the UK defence industry and academia. This was primarily due to concerns expressed by collaborative partners in the US Department of Defense over the sensitivity of privatising certain elements of DERA, such as those responsible for collaboration with foreign laboratories. The Core Competence model addressed these concerns as it retained around a quarter of DERA's staff, including the most sensitive elements of the business, within the public sector. A further consultation exercise on the Core Competence model was undertaken and this was eventually chosen as the preferred option in July 2000.
1.11 The House of Commons Defence Select Committee produced four reports looking into the decision to pursue a PPP for DERA between 1998 and 2001.12 Although some of the concerns held by the UK defence industry and the US Department of Defense were addressed over this period the Committee concluded that the risks associated with the chosen strategy outweighed the proposed benefits. The Department took note of these concerns but concluded that the PPP represented the best way forward for providing the UK's future defence, science and technology requirements.
3 | The Department considered four principal PPP models | |
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Model | Description | |
Reliance | The vast majority of DERA would be privatised but certain constraints would limit its ability to work with third parties | |
Core Competence | The Department would retain elements of DERA's capabilities in the public sector in order to safeguard its ongoing interests, and privatise the remaining business | |
Go Co plus | Discrete elements of DERA would be sold but the majority would be retained in the public sector | |
Trust | The majority of DERA's facilities and staff would be jointly owned by a retained public sector organisation and a privatised DERA; each would take the lead on different elements of work depending on their sensitivity | |
Source: DERA PPP options paper - interim report, February 1999 | ||
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9 At that time the Minister of State for Defence Procurement was Baroness Symons of Vernham Dean.
10 Non Exec Director London Transport; Chief Exec London Stock Exchange 1994-1996; Finance Director of Prudential Corporation 1988-1993.
11 Former Technical Director of BT; Chairman of Engineering and Physical Science Research Council; Chairman of WS Atkins; Founder and President of the Association of Independent Research & Technology Organisations.
12 The Defence Evaluation and Research Agency, 6 July 1998; Defence Research, 10 November 1999; The Future of DERA, 20 June 2000; The Draft DSTL Trading Fund Order 2001, 13 March 2001.