The barracks occupies 13 acres next to the King's Road – some of the most valuable development land in London. However, the plan to build 1000 luxury homes on the site was halted last summer when the army failed to find an alternative site for the barracks.
Lewis Moonie, the undersecretary of state for defence, said this week that he was confident that the scheme would go ahead.
He added that the Ministry of Defence did not intend to speed up PFI deals. He said: "There's no reason why it shouldn't go ahead, but we're not in any particular hurry … I don't think speeding up the process is something I'd want to do."
The minister's comments were made despite mounting concern over other MoD projects, in particular the £900m PFI redevelopment of Colchester Garrison. This has been stalled at the preferred bidder stage for two years.
A consortium including Sir Robert McAlpine and WS Atkins was chosen for the job in October 1999. However, the project, which amounts to the construction of a small town for 5500 army personnel, has been hamstrung by planning issues.
The source said: "The project grinds on. The scheme is controlled by the planning process. We are working closely with Defence Estates to deal with the site issues."
The MoD has published a report reviewing the activities of Defence Estates. Entitled Stewardship Report on the Defence Estate 2001, it outlines the department's plans to streamline procurement strategy.
Andrews said Defence Estates intended to run all MoD projects as either PFIs or through prime contracts by 2005. He said: "This is a very ambitious target."
A principal component of the strategy is Project SLAM (single living accommodation modernisation), worth £1bn over the next 10 years. This was launched last March.
The ministry plans to upgrade 30,000 bed spaces. Moonie said that the improvements were a high priority, as some of the conditions in which service personnel lived were appalling.