The Privatization of Qinetiq

In July 2001, the Defence Evaluation and Research Agency (DERA) was legally separated into the privatized company QinetiQ, totalling some three-quarters of DERA’s staff, and the Defence Science and Technology Laboratory (Dstl) which was to remain within MoD. MoD considers this privatization to have delivered excellent value for money.

However, even though this has resulted in a gain of £250m for MoD and a further £550m for the Treasury, the National Audit Office, in a report published on 19 November 2007, states that:

‘Our assessment of the outcome in terms of value for money is mixed. The privatisation achieved a key objective of improving the viability of a business of national strategic importance by allowing QinetiQ to expand its business into the US and other civil markets … It is, however, too early to tell if all the Department’s objectives in privatising DERA will be met.’

It goes on to say that:

‘In the long term, the value for money of the privatisation to the taxpayer will depend on a range of factors, such as the value for money of the Long Term Partnering Agreement and the continued availability of independent advice, as well as the proceeds received.’

This goes to the heart of the matter. The sums of money are extremely small – of the order of one hundredth of a single year’s defence budget – so it is the bigger picture that is the more important.

The mainspring of the privatization of DERA was the realization that the huge cuts in the research budget after the collapse of Communism – by a much greater percentage than the cut in the defence budget as a whole – meant that the status quo of government-owned research establishments could not continue, as the investment needed to maintain them adequately for cutting-edge research could not be provided. If the UK had done what the US did in the early 1990s and had cut the defence budget, but had retained the level of spending on research, the need for privatization would not have been so obvious.

What has the MoD gotten out of the privatization? A tiny sum of money, large outside investment in QinetiQ, and access through QinetiQ to certain US research. However, against that some uncertainties must be set: the loss of many outstanding research facilities that were deemed to be commercially unproductive, concerns over the ownership of Intellectual Property Rights (IPR) and, perhaps crucially, the uncertainty over the continued availability of independent advice across the whole research field (with the exception of those elements that were retained in Dstl).

The real point about privatization is not whether the taxpayer could have had a better deal, or whether the amounts of money that senior QinetiQ executives made were ‘obscene’ (as trumpeted by politicians and the press). The real concerns are twofold.

The first is whether a commercial company can continue to deliver independent advice – and be seen to do so. For decades, the arguments for government ownership of research establishments were based on the need for independent advice which a commercial company was deemed as incapable of providing. A commercial company, QinetiQ, now provides that independent advice, even though it is very often involved with a consortium bidding for work. If the ‘Chinese Walls’ within QinetiQ are not seen to work adequately, will MoD have to rely increasingly on consultancy firms at vast expense for advice?

But more important still is the need to understand that defence research is woefully under-funded and that, as a consequence, we are undermining the whole future of research and development in this country and, consequently, compromising the aims of the Defence Industrial Strategy. If we are happy to buy more and more off-the-shelf from the US, we should say so, and base our industrial and research strategies on that. Whether or not that is what we want, there will be no choice unless we significantly increase our research spend. That is not impossible because the research spend is so small – approximately 1% of the defence budget.

Bill Kincaid
Editor, RUSI Defence Systems

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