Committee of Public Accounts Press Notice

National Audit Office: The Privatisation of QinetiQ

A statement from Edward Leigh MP, Chairman of the Committee of Public Accounts:

There have been few privatisation deals that have given rise to the level of controversy surrounding the QinetiQ deal. And, although the MOD have received some big returns following the flotation of the business, the NAO analysis is clear: the taxpayer was short-changed.

This was a fantastically complicated deal, but the basics are plain to see. The MOD backed themselves into a corner before they had even started, by appointing Carlyle as the preferred bidder while price sensitive issues were still unresolved. And the department went on to sell a larger share of the business for less money than they initially agreed. 

Compare this to the rewards for QinetiQ’s top managers, who won the jackpot. They got a mind-boggling return of almost 20,000 per cent on their investments.  This is all the more alarming when you learn that these managers sold the idea of a PPP to the department in the first place and that they were then allowed to negotiate their own incentive scheme. Nice work if you can get it.

And there is further reason for the taxpayer to be worried. QinetiQ are relied upon to offer independent advice on what military equipment the MOD buys, but when QinetiQ begin to manufacture their own defence equipment we have to worry how independent that advice will be.

And it doesn’t end there. As part of the deal, the MOD agreed a 25 year, £5.6 billion contract with QinetiQ.  But, after ten years of the contract, QinetiQ can walk away from the deal. And there are no other contractors who can provide the services set out in the agreement.

So, come the year 2013, should QinetiQ threaten to pull the plug and ask for a whole new agreement at heavily inflated prices, it would leave the MOD over a barrel. And probably result in the taxpayer having to hand over a blank cheque.


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