Defence Estates to slash expenditure by reducing construction work to essential maintenance

The Ministry of Defence plans to save £100m by cutting its five prime contracts down to essential maintenance work only.

The cost-cutting, which is part of a procurement review begun in January, follows cuts to the budget of Defence Estates, the ministry’s property division,
and comes as the coalition government seeks further public sector savings. Defence Estates has frozen all recruitment.

The seven-year deals, which had staggered starts between 2003 and 2006, are an even split between maintenance and small capital works on barracks, offices and medical facilities across five regions: Central (Carillion), East (Babcock), Scotland (Turner Estate Solutions), South-east (Interserve), and South-west (Bovis Lend Lease/Babcock).

The deals have a three-year extension option and represent between £400m and £750m of work each. Larger capital jobs are normally tendered separately using the PFI.

Carillion’s contract started in 2006 and was expected to be worth £500m over the first seven years. But a Carillion source said it had been asked to save £20m by 2013 as a
result of a prime contracting review, known internally as Promptu.

Another contractor said: “I wouldn’t be surprised if it cost us all at least £20m. Defence Estates are basically saying, ’We only want you to do half the maintenance you were doing before’. They’re looking at doing just the mandatory reaction stuff, like broken windows.

“We’ve had some decent capital projects out of it, but that won’t be happening anymore. This will mean a lot less work and it’s going to cost jobs.”

A Defence Estates spokesperson said: “We are still in negotiations with individual contractors about the impact of savings measures, so we cannot say how much may be taken out of each contract at this stage. Our priority is to maintain a safe and legal estates, while addressing the level of budget cuts agreed by the Minister of Defence.”