1.23 The Department had identified and consulted on the risks posed to UK defence interests by the privatisation of elements of DERA, and it developed measures to address these risks. A special share was created within QinetiQ that confers certain powers on the Department. These comprised the right to:
■ require QinetiQ to operate and maintain the Compliance Regime (paragraphs 1.24 and 1.25);
■ exercise stewardship over strategic assets used in QinetiQ's business but strategically important for UK defence purposes; and
■ have powers of veto over any contract, transaction or activity where, in the opinion of the Department, it would constitute unacceptable influence or control over the company contrary to the defence interests of the UK.20
1.24 One of the Department's key concerns was maintaining the impartiality of QinetiQ's advice. Conflicts would exist where QinetiQ sought to advise or bid on the supply side of a procurement project while also acting as an independent advisor to the Department. To mitigate this, the Department established the Compliance
5 | QinetiQ was established with a balance sheet of £346 million | ||
|
|
|
|
| £ million | £ million | |
Tangible fixed assets | 548 |
| |
Current assets | 240 |
| |
Current liabilities | (230) |
| |
Provisions | (56) |
| |
Long term loans | (156) |
| |
|
| 346 | |
Share capital | 346 |
| |
|
| 346 | |
Annualised turnover for the year ending 31 March 20021 |
|
| |
Turnover |
| 870 | |
Source: National Audit Office examination in February 2002 of the transfer of assets and liabilities from DERA | |||
NOTE 1 QinetiQ was established on 1 July and therefore only traded for nine months to 31 March 2002. | |||
Regime. Under this regime, QinetiQ is legally required to inform the Department of all potential conflicts of interest arising through each contract it advises or bids on and how it proposes to mitigate the risk. QinetiQ must prepare a 'firewall proposal' which is then approved by the Department. The firewalls typically require QinetiQ to maintain separate teams for each role as well as separate IT and filing systems. The Compliance regime is overseen by a committee of the Board, the Compliance Committee, and the Department has an observer on this committee.
1.25 The Department has legal rights to a robust set of remedies under the Compliance Regime. These include the right to force QinetiQ to withdraw from bidding for supply side work where the conflict of interest cannot be managed satisfactorily and QinetiQ is the sole source of independent advice to the Department.
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20 In the lead up to the flotation there were several amendments to the special share; these are explained in paragraph 3.8.