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UK Logistics Deal Delayed Until 2015

UK Logistics Deal Delayed Until 2015

Date: 01 December 2014

LONDON — Hardly had the dust settled from Babcock’s selection as the winning bidder to acquire the British state-owned armored vehicle repair company Defence Support Group (DSG) when a newspaper report emerged claiming the firm is in line to secure a major deal with the Ministry of Defence to transform the purchase, storage and transportation of commodities.

Babcock and its partner, DHL, in a team known as Defence Integrated Supply Chain Solution, has been in a head-to-head competition against US company Leidos with Kuehne & Nagel and others acting as subcontractors to win the Logistic Commodities and Services (Transformation) (LCS(T) program. An in-house MoD team has also been bidding.

An announcement on a winner for the LCS(T) program had originally been planned for November. That slipped to December and recently an MoD spokesman said a final decision naming the winner had been pushed back to 2015.

But now a report in the Independent newspaper here Nov. 28 said that Babcock had beaten Leidos to the deal.

The MoD denied a decision had been made and said it was sticking to its new timeline for an announcement in 2015.

“No decisions have yet been made. It is expected that an announcement will be made in the new year,” said a Defence Ministry spokesman.

Leidos replied in a similar fashion: “We are not aware of a decision being made yet.” A Babcock spokesman said the company could not comment.

One industry executive said it is possible, assuming the report is accurate, that a recommendation in favor of Babcock had been made by the Defence Equipment & Support organization but that it had not been approved yet by government ministers.

LCS(T) is a major outsourcing deal that includes operations and procurement of commodities like food, clothing, general stores, some fuel and other items potentially running to more than £13 billion (US $20.5 billion) over the 13-year life of the contract with the Defence Equipment & Support (DE&S) arm of the MoD.

The program is part of a wide-ranging transformation effort at the £14 billion-a-year MoD procurement and support operation aimed at improving efficiency and reducing program cost and time overruns.

Originally, the word was a winner would be announced on LCS(T) at about the same time the government decided which industry bidder would acquire the MoD-owned DSG.

Babcock was named preferred bidder for DSG in mid- November in a deal expected to be closed by the end of March.

Nobody is saying why the program announcement slipped, although the complex deal includes more than 2,000 DE&S employees moving to the winning bidder.

The Independent said the announcement was delayed because the MoD wanted to put some distance between Babcock securing the LCS(T) deal and a string of other contracts it had secured from the government this year.

With the purchase of the DSG as good as done and a €1 billion (US $1.2 billion) active electronically scanned array development and integration contract also rolled out by Britain and its partners in the Eurofighter Typhoon program, and the likely LCS(T) procurement announcements earmarked for go ahead, there’s not much left to announce before Parliament breaks for Christmas recess Dec. 18.

However, governments here often like to make major announcements ahead of departing for Christmas or the summer holidays and it’s possible the MoD has one further announcement up its sleeve for this year.

The expected Type 26 frigate production order has slipped well into next year as BAE Systems and the MoD remain locked in talks about affordability and issues related to risk.

Whichever of the two LCS(T) outsourcing proposals is selected, big changes are expected in the way the MoD runs its commodities storage and supply operations.

The scope of the expected deal involves undertaking procurement and inventory management of non-explosive commodity items including food, clothing, medical and general supplies and some fuel along with storage and distribution, an MoD spokesman said.

“Historically, we have procured between £200 and £350 million of these ‘in-scope’ commodity products each year across circa 350 contracts,” he said.

Under the current model, each commodity area operates in isolation.

Storage of around £8 billion worth of stock is provided by about 70 warehouses across 11 sites. Part of any deal is expected to see sites rationalized and the remaining storage facilities updated. ■