A Capita-led consortium has been selected by the U.K. Ministry of Defence (MoD) as preferred bidder for a ten-year contract with a potential LTV of £400m to be the strategic business partner to the Defence Infrastructure Organisation's (DIO, the MoD's property and services provider).

Services to be provided by the consortium include management of the MOD's military estate. As the lead supplier, Capita will leverage its BPO and property and infrastructure services capabilities and work with two sub-contractors: 

• URS: engineering support and operational management of the estate and management of capital projects
• PA Consulting: change program management.

Capita will initially conduct an 18-month project  to develop a blueprint for the future strategic asset management of the estate. Once developed, the blueprint will be executed by the supplier partnership and the DIO.

A partnership deal was vital for any supplier to gain the ability to manage scale in this deal with MoD property and estates stretching across vast areas of the country and also bases abroad. DIO oversees 230k hectares of military barracks, airfields and weapons ranges.

The DIO internal transformation program began at the beginning of 2011 and is part of a wider transformation program across the MoD as recommended by Lord Levene in his 2011 report on Defence Transformation. The MOD is looking to achieve annual savings of up to £300m from this outsource on DIO's £3.3bn annual running costs.

This has been a long procurement exercise, launched in May 2012; in August 2012, the MOD announced three shortlisted consortia:

• The Capita-led consortium
• Telereal Trillium / KPMG / Mace
• Serco / DTZ / Bechtel. The loss of this opportunity will be particularly disappointing for Serco which has had a long relationship with the MoD including multi-activity contracts with the RAF, the Navy and the Army, as well as the running of AWE and MoD's Business Services Unit among others.

Capita's proposal contained ~70 initiatives across the business to help drive long-term savings. These ranged from footprint and estate strategies, optimizing usage and value with accurate cost measurement, through to introducing new technology to drive down utilities spend across the defence estate.

Capita will take over operational management from September 2014, when it will conduct an initial 18-month project to develop a blueprint for the future strategic asset management of the estate.

The main objectives are:

• Rationalization and and re-shaping of the defence estate, resulting in increased disposal receipts
• New commercial initiatives and capabilities that will generate savings for the MoD
• Greater operational efficiencies in estate management from “injecting new ways of working”
• Leadership and staff development and training.

This is Capita's second major win in the U.K. defense sector, following the £440m, 10-year, contract in 2012 for British Army recruitment services. This award will bump up the company's defense sector revenues which in 2013 contributed just 3% of group revenue. 

The DIO contract could also potentially be used by Capita to demonstrate how it can help other organzations with very large property estates that they are looking to rationalize or perhaps run better (e.g. in more accurate cost management or reducing utilities spend).