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Consortium Set To Dominate UK Infrastructure Work

May. 31, 2014 - 03:45AM   |  
By ANDREW CHUTER   |   Comments
Defence Support Group members work on military vehicles in Camp Bastion, Afghanistan. The UK is looking to sell the state-owned group.
Defence Support Group members work on military vehicles in Camp Bastion, Afghanistan. The UK is looking to sell the state-owned group. (Defence Support Group)
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LONDON — A consortium of British support services companies involving Carillion and Amey are primed to secure three significant regional estate management contracts in the UK.

An announcement by the Defence Ministry is expected soon and comes just weeks after the partners secured two other major deals covering maintenance services on military infrastructure and accommodation.

The expected announcement will give the consortium partners a clean sweep of the regional prime contract awards being handed out by the Defence Infrastructure Organisation (DIO) as part of a program known as the Next Generation Estate Contracts (NGEC).

In a separate development, a Carillion-led consortium has also emerged as one of the four remaining bidders to acquire Defence Support Group (DSG), which is the UK government-owned armored vehicles and small arms maintenance and repair company.

Sources said other bidders have already been informed they have failed to secure any work in the latest round of contract decisions.

A spokeswoman for the DIO said an announcement was planned for the first week in June but in the interim the organization couldn’t confirm the name of the winning bidder for the second tranche of contracts because they are in a commercial standstill period.

The DIO manages military bases, training grounds and other assets owned by the MoD. In March, the organization, which spends more than £3.3 billion (US $5.5 billion) a year running the defense estate, selected a consortium led by outsourcing company Capita to become a strategic partner to transform operations in a 10-year £400 million deal.

A Carillion spokesman declined to comment on whether the company and its partner, Amey, had secured further regional support contracts.

Bidders shortlisted, but who failed to win regional support work, included Babcock, Interserve and KBR.

Babcock essentially admitted defeat two weeks ago when Chief Executive Peter Rogers announced the company’s full-year 2013/14 results.

“It seems likely that the estates contracts have changed from being complex, long-term management contracts to more transactional-type contracts,” he said.

He also said that transactional contracts tended to be lower-margin than the kind of business that Babcock wanted.

In May, Carillion and Amey were announced as winners of a regional prime contract delivering routine maintenance to military bases and other defense facilities in Scotland and Northern Ireland, and were also handed a separate deal covering housing maintenance services across the UK.

Together, the May 12 announcements are worth £750 million over the initial five-year contract, but that figure could rise to £1.7 billion if additional services and contract extensions are included.

The new arrangements covering primarily hard facilities and asset management services replace a more fragmented series of contracts.

Interserve subsidiary Landmarc Support Services also secured a £322 million deal to manage the MoD’s 200,000-hectare training estate until 2019. Landmarc has held the position since 2003, although the existing contract expires this year. The deal sees the company providing a number of services including management and operation of ranges and training areas such as Salisbury Plain.

A UK government website detailing the NGEC program said that together the contracts are “estimated to be worth from £500 million to £600 million per year and more than £5 billion over 10 years, exclusive of construction projects and work funded by DIO customers.”

DSG

Carillion, a £4 billion a year support services and construction services business with activities in the UK, the Middle East and Canada, is also aiming to extend its defense support business further with a bid to acquire the Defence Support Group. The company leads a consortium operating under the name of Defence Equipment Services Ltd., which lodged a bid with the MoD May 23 to purchase the vehicles and small arms maintenance and repair organization.

Carillion doesn’t name any of the other consortium members, but industry sources said the line-up includes the US companies Caterpillar and Ryder. The Carillion spokesman said the company isn’t prepared to release the names of its partners at this stage.

Babcock, Dyncorp International and a KBR-Rheinmetall partnership are reckoned to be the only other bidders after nine companies and consortiums were listed to bid by the MoD this year.

General Dynamics, JCB, Interserve and Northrop Grumman were among the companies that opted not to submit an offer.

Executives said the MoD and Lazard’s, the government financial adviser on the sale, had been surprised by the extent of the drop out of companies.

Final bids are due in September. ■

Email: achuter@defensenews.com.

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