Capita team wins £400m job to run the defence estate

Capita has won the lucrative £400m-plus job to manage the Ministry of Defence’s estate, in what is one of the government’s largest outsourcing contracts.

Defence secretary Philip Hammond announced this week that the Capita-led consortium, also comprising US engineer URS and PA Consulting, had won the 10-year contract to run the Defence Infrastructure Organisation (DIO), which manages the Ministry of Defence’s (MoD) 230,000 hectare estate.

The Capita-led team beat off competition from two other consortiums for the role: Telereal Trillium, KPMG and Mace; and Serco, DTZ and Bechtel.

As revealed by Building in 2012, the job was initially tendered for £100m, but then rose to £400m, with the MoD stating it could rise higher due to an incentive-based contract aimed at encouraging the strategic partner to drive efficiencies across the defence estate.

The DIO is one of the construction industry’s largest clients and the appointment of the private sector partner is now expected to pave the way for the award of a suite of construction contracts - worth as much as £9bn over 10 years - that were originally scheduled to be let in 2012, but wereplaced on hold due to the move to procure a private sector partner.

The private sector partner contract is expected to become fully operational this summer.

Over the first two years of the contract, the DIO will remain within the MoD, but will be run by an executive management team put in place by the Capita consortium.

After two years the DIO will be spun out into a separate company, which will remain wholly owned by the MoD but run exclusively by the Capita consortium, with a government-owned contractor-operated model similar to that of the Olympic Delivery Authority.

Hammond said the private sector partner will be charged with developing a strategic plan to help identify commercial opportunities across the defence estate and will be tasked with making £300m in savings a year from the DIO’s £3.3bn annual budget.

Hammond said the private sector partner would bring market-competitive knowledge and skills to the DIO, and a more commercial approach.