The UK Ministry of Defence (MoD) has come under fire for the way it handled the privatisation of defence firm QinetiQ in 2003.
QinetiQ was created out of the Defence Evaluation and Research Agency in 2001 and was sold to the Carlyle Group due to its declining value.
A recent National Audit Office (NAO) report has found the firm was sold at a much cheaper rate than it could have fetched, leading to a loss of £90m.
NAO officials believe the elimination of all other bidders gave Carlyle Group officials an unfair advantage that allowed them to negotiate a lower asking price for the company and acquire at least 2.5 % more of the company’s stock than it was supposed to in the original terms of the contract.
With Carlyle in place as the buyer of the company before the negotiation process had begun, managers were able to design an incentive scheme in which they bought company stock for £540,000, which is now valued at £107m.
For every £1 invested by Carlyle officials, £200 in profit was made.
The taxpayer, according to the NAO, only made £9 off of every £1 invested.
Public Accounts Committee Chairman Edward Leigh said the public servant managers of QinetiQ acted dishonourably and failed to tell the MoD that they had something to gain from a sell off.
“This is nothing less than profiteering at the expense of the taxpayer. Never again should public servants be permitted to pursue such a self-interested stratagem.”
He said the MoD conducted the 2003 deal “like an innocent at a table of cardsharps, with the taxpayer the fall guy losing out on nearly £100m”.
Minister for defence equipment and support has dismissed the report as “pure speculation”, maintaining the MoD sought and gained advice and guidance from several banks and finance companies.
The MoD retained a 19% stake in the business, which it anticipates selling.
By Elizabeth Clifford-Marsh