There are few parts of the public sector where the valour, skill and professionalism of those at the sharp end contrast so strongly with the incompetence, mismanagement and bungling of the bureaucrats in overseeing them than the contrast found in Defence. It is true that the impression is made starker by the high standard of our troops, but it is also down in no small part to the fact that the MoD is one of the least effective arms of government.
One of the most jaw dropping examples of that incompetence is highlighted across the media today as a result of the Public Accounts Committee's report on QinetiQ.
Formerly the Defence Evaluation and Reseach Agency, QinetiQ is a defence technology copany formed in 2001 and part-privatised. In a field where speed of innovation and competitive drive are key, and where research can cost a huge amount of money, bringing in the private sector to raise money and set the company on a competitive footing was a good idea in principle.
To turn it from a good idea to a good sale, though, required quality agents to handle the sale. Instead, the taxpayer had Ministry of Defence officials to defend their interests. The result? A catalogue of errors:
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- A preferred bidder, Carlyle, was announced ridiculously early, thus limiting the benefit of competitive bidding and allowing Carlyle to negotiate a further discount as the negotiations went on that would have been unlikely had other potential buyers still been in the running.
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- The sale was pushed through a time when the equity market was languishing (apparently the Treasury insisted on the timing, showing once more the killer sense for selling at the bottom of the market previously displayed in the gold sales fiasco).
- Shares in the company were sold at a massive underestimate of what turned out to be their market value.
Essentially, the taxpayer's estate agents sold their house for the price of the garage. A number of commentators have tried to suggest this is down to some inherent wickedness on the part of Carlyle, but it is in fact a serious failing on behalf of the MoD.
Everyone knows private equity firms are out to drive a hard bargain - that's the point, as if they didn't negotiate well they wouldn't have made the money they now use to invest. Indeed, the MoD wanted to bring Carlyle's business acumen and insistence on turning a profit into QinetiQ in order to spur the organisation on. Knowing that they are good businessmen, it behoves the seller to drive a good bargain.
Unfortunately for you and me, though, the MoD civil servants drove a lamentably bad bargain, either through naivety, incompetence, lack of experience, absence of the feeling that they had shareholders to anwer to or - most probably - a combination of all four.
The lack of professionalism can be seen in the fact that senior civil servants from DERA, who were investing in the firm, were allowed to play a part in devising incentive schemes from which they themselves would benefit. As a result, several of them got such good bargains that they enjoyed a 20,000% return on the day of flotation. Behaviour like that would be unacceptable in the City - or anywhere else for that matter.
If a company got a deal like that, they'd put it to their shareholders and get a resounding "Not on your life". With the government, though, the shareholders of the state - taxpayers - were ignored and disenfranchised. The people who actually stood to lose out financially did not have a say in how their assets were being sold. Without that interest or accountability, the bunglers negotiating the deal were free to blunder on as if they were being marvellously successful.
Indeed, the Government bleats that the taxpayer made hundreds of millions of pounds through the privatisation of QinetiQ, but in reality we got a bargain basement price for an excellent resource. The bottom line is, to make a good sale you either need to be good at selling, knowledgeable about your wares and informed about the market, or you need a good agent. The MoD lacked all of the former, but failed dismally to engage the latter. Result = taxpayers' money down the drain.