Defence Evaluation and Research Agency (Hansard, 25 July 2000)

§ Baroness Symons of Vernham Dean

In July 1998, as part of the Strategic Defence Review, the Government concluded that the future for DERA could best be secured by harnessing the opportunities offered by a Public Private Partnership.

On 17 April, we announced a period of consultation on a document describing our current proposals (Official Report, 17 April, cols. 366–367W). This consultation exercise came to an end on 9 June. In their responses, stakeholders, including the Defence Select Committed, have acknowledged the improvements we have made over earlier proposals and have welcomed our willingness to listen to their views. The overall response has been positive, with the majority of stakeholders recognising the need for change and endorsing our proposals as a sensible way forward.

Consequently, we have concluded that we should proceed with the Core Competence model set out in the consultation document, separating those functions that are best performed within a private sector company, and those that are best performed wholly within government. Around three-quarters of the current DERA will be turned into a company, which will move to the private sector through a flotation which could be in 2001. The terms and conditions of staff will be protected by TUPE regulations. Just under 3,000 staff will be retained within the Ministry of Defence to provide a high level overview of defence science and technology, in-house impartial advice and management of international research collaboration. The retained elements would include sensitive programmes and sectors such as the Chemical and 44WA Biological Defence sector based at Porton Down, the majority of the Centre for Defence Analysis and the Defence Radiological Protection Service.

The new company will have the freedom to flourish, to develop its business and to exploit the wealth of knowledge it has built over the years to the benefit of the wider UK economy. It will be capable of attracting and retaining staff with expertise in areas that are also in demand from other private sector companies. We will explore the potential for employees of the new company to benefit from the partnership. This might include the establishment of a share scheme linked to the organisation's future performance.

The new company is likely to continue to provide the Ministry of Defence's largest source of independent scientific and technical capability into the foreseeable future. This does not imply that the relationship with the Ministry of Defence will, in principle, need to be different from that with other private sector organisations. To help ensure the smooth creation of the new company, we have begun the search for a suitable chairman.

Retained DERA (RDERA) will perform a number of critical functions for the Ministry of Defence. It will be a world class organisation offering rewarding career opportunities within the Ministry of Defence and the wider civil service. We envisage that RDERA will continue under the existing Trading Fund arrangements, although we will wish to assure ourselves that this will be appropriate in the longer term.

We are confident that the principles behind Core Competence are right, but we recognise that there is much detailed work to be carried out during implementation. Our timetable envisages that we will achieve separation between the two parts by the end of this year. We will then conduct a rigorous period of shadow operation to demonstrate that both organisations and their supporting infrastucture are robust and will perform as expected. We expect this to last around three months but we retain the flexibility to extend the period if we feel that it is prudent to do so.

Thereafter we will vest the company with its assets, establish it as a separate government-owned plc, and complete the preparations necessary for its sale. As we identified in the consultation document, our preference is to seek a flotation on the stock market as soon as its potential is suitably developed and as soon as we can ensure best value for the taxpayer. We will keep open the option of seeking a strategic partner for the business as an intermediate step. It is likely that the Ministry of Defence will initially retain a financial stake in the new company to ensure that the taxpayer will benefit from the growth following the sale. We do not envisage that in the longer term we would continue to hold a financial stake in the company. However, we intend to retain a special share as a means of protecting UK defence interests, such as ensuring continuing access to strategic assets.

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DERA is also home to the Defence Diversification Agency (DDA), which was set up to help take forward our commitment to strengthening links between civil and military technology. We remain fully committed to ensuring that the objectives set for the DDA are met, and we are currently reviewing how best to take forward its role in the light of the PPP process.

Throughout the PPP process we have remained committed to the objective of ensuring the best possible future for DERA and for defence science and technology. We have consulted widely, listening and responding to the views of our stakeholders. We now have a way forward that is workable and which is good for DERA, the Ministry of Defence and the wider UK economy. It will offer value for money to the taxpayer whilst ensuring that our Armed Forces retain access to leading edge technology. It will provide a stimulus for the exploitation of science within the wider UK economy and strengthen the links between civil and defence technology.