But £1.5bn housing contract to be awarded in 2012 will go ahead

Cost cutting by the Ministry of Defence will see contract renegotiations continue for the foreseeable future according to Defence Estates deputy chief executive David Olney.

However, the Next Generation Estates Contracts (NGEC) will remain in place, meaning a £1.5bn housing contract, due to be awarded in 2012, will go ahead.

The news follows government proposals to streamline management of defence estates into a single organisation called the Defence Infrastructure Organisation (DIO). The move will see 2,500 jobs axed over the next three years.

David Olney said contract renogiations would relate mainly to maintenance works. He said: “If we are going to reduce our organisation’s employment base - then we must also look to bring costs down through current contracts. We believe most of these reductions will be through indirect costs; especially in the area of maintenance costs.”

£1.2bn of savings will be made in four areas: staff numbers, property disposals, utilities and direct estate costs.

Olney confirmed the NGEC would continue unaffected and said it had proved an effective procurement method.

He said: “We clearly understand things better and should be able to implement improvements through the NGEC vehicle. We’re also opening up the procurement process by putting contracts worth over £50m out to competitive tender. This should help attract more SMEs and keep costs down.”

The DIO plans to fully implement its rationalisation programme over the next few months with other announcements regarding the Strategic Defence and Security Review (SDSR) recommendations to be made in April.

David Olney said retro-fit works would likely provide the bulk of future capital projects. He said returning troops from UK military sites in Germany would also require new facilities.