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Serco Bids for UK Contract Amid Controversy

Oct. 18, 2013 - 03:45AM   |  
By ANDREW CHUTER   |   Comments
UK firm Serco supports early warning activities at the Fylingdales anti-ballistic missile warning system in the UK.
UK firm Serco supports early warning activities at the Fylingdales anti-ballistic missile warning system in the UK. (Wikimedia Commons)
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LONDON — Troubled British support services contractor Serco was one of three bidders to lodge proposals with the Defence Ministry on Thursday as a competition to become the private sector business partner managing military infrastructure entered its final stages.

Serco submitted the bid under the shadow of a wide-ranging investigation by the government into all the contracts it holds with the company in the wake of allegations the support services provider defrauded it on two contracts related to electronic tagging and transport of prisoners.

The investigation is due to report by the end of next month. The company has also been given until the end of November to transform its business practices or face being frozen out of further government outsourcing competitions.

Serco is one of Britain’s biggest support services group with total revenues of US $7.5 billion. In the defense sector here, the company is involved in outsourcing everything from the Royal Navy laundry service to aircraft maintenance and supporting early warning at the Fylingdales anti-ballistic missile warning system, along with the intelligence mission for the UK and US at Menwith Hill.

Its US operation employs around 10,000 people and has annual revenues of $1.2 billion.

As things stand, Serco can bid and be selected for defense deals with the MoD, but cannot actually sign a contract ahead of the issues it is facing being resolved.

Despite that, this week Serco secured a one-year extension on a training contract for the armed services due to expire at the end of this year.

A decision on a strategic business partner for the Defence Infrastructure Organisation (DIO) is not expected until early next year.

Before that, though, Serco faces a decision by the MoD on whether it will retain its position as the service supplier at the Royal Air Force Fylingdales missile detection and early warning base.

Serco is in competition with Babcock as it tries to hold on to a contract it has held for decades providing 24-hour maintenance, operational, engineering and logistics support to the base, a key part of the UK and US ballistic missile defense screen.

Contract selection is expected by the end of the year.

The DIO, which manages everything from naval bases to troops accommodation and catering is looking for a private sector partner to improve the skills and efficiency of its £3.3 billion (US $5.2 billion) a year operation.

The deal is set to run for 10 years and could be worth up to £400 million to the winning bidder.

Consortiums led by Serco, Telereal Trillium and Capita originally submitted proposals in June and the new submissions delivered this week are a further refining of the bid.

A spokesman for the DIO confirmed the revised bids have been submitted by the contenders

“DIO recently carried out a short exercise to revise and confirm aspects of the tenders. DIO must receive responses from the three consortia competing to become its strategic business partner by Oct. 17. Its business partnering team will now carry out further evaluation of the bids, backed by the continuing support of a wide group of subject matter experts from across the organization and wider government,” he said.

Serco leads a consortium that includes US contractor Bechtel.

Bechtel is also the lead on a consortium vying with a CHM2 Hill/Serco/Atkins team to secure a controversial deal to hand management of the MoD’s procurement and support operation to the private sector in a government-owned contractor-operated (GOCO) system.

A competition between the two US-led consortiums to secure the deal is underway, even though the government has yet to finally make up its mind whether it will proceed with the GOCO or opt for another plan based on a more effective version of the Defence Equipment & Support organization known as DE&S Plus.

A decision on how to proceed with reforming the £14 billion a year procurement and support effort is expected early next year.

The Financial Times on Oct. 17 said the GOCO scheme was starting to unravel because the CHM2 Hill team may have to withdraw due to Serco being embroiled in the controversy with the UK government.

Serco confirmed it had submitted a bid for the DIO competition but declined to comment on the media speculation over the GOCO.

Having a single bidder for such a controversial scheme would be untenable, said industry executives here.

A URS/KBR team has already pulled out of the competition.

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