29 Jul 18. The Sunday Times reported that Babcock International has lost out on a potential £1bn contract to repair army vehicles, in a fresh blow to the FTSE 250 defence giant.
The Ministry of Defence is understood to have told Babcock in recent weeks that it will not proceed with a deal to maintain about 2,300 armoured vehicles, including the Mastiff and Jackal.
Last week Babcock stunned investors with a profit warning that knocked 10% off its share price. The company, which repairs Britain’s submarines and helped to build two aircraft carriers, said delayed spending by the MoD on land and naval programmes would slow revenue growth.
However, Babcock did not tell investors that the army vehicle deal had been scrapped. A source close to the company played down the importance of the contract, but in late 2016, Babcock had said it was a key target for its land business. Worth between £350m and £1bn, it would have run until at least 2024, with the option of a further six years.
The company, chaired by former BAE boss Mike Turner, has endured a tough few years, dragged lower by crises at outsourcing peers such as Carillion and Capita and worries over its growth prospects. It was relegated from the FTSE 100 last year. The MoD said: “Value for money is always one of our key considerations and . . . we have decided not to progress Babcock’s proposal.” (Source: The Sunday Times)
BATTLESPACE Comment: Rumours abounded in 2014 that Babcock was prompted by top figures in the Army to bid for the Protected Mobility Support Solution (PMSS) — Strategic Support Supplier (SSS) option, which was in effect to make Babcock the sole recipient of all maintenance work for British Army vehicles procured under UOR for Afghanistan including Mastiff, Jackal, Wolfhound, Coyote, Husky, Ridgback but not including the MAN Tracks and Ajax, which was eventually issued on July 20th 2017 under the following terms , note the large contract value.
Short description of nature and scope of works or nature and quantity or value of supplies or services:
The 2000 plus strong in-service fleet of 10 Protected Mobility (PM) platform types that were acquired during recent operations have been brought into the core equipment programme with Out-of-Service Dates (OSDs) varying from 2024 to 2036 and with support arrangements that are due to expire from 2017 onwards. The Land Equipment Support Strategy looked to develop improved support solutions with an increased focus on intelligent partners incentivised to identify business improvements. Solutions for A and B vehicle fleets were included in the DSG sale process. A decision was taken to develop a solution for the PM fleet separately.
During its concept phase the PM Support Solution (PMSS) project has identified 2 main options (over and above an ‘As-is’ option) for further analysis:
— a ‘Do Better’ option based on a more efficient targeted use of current support arrangements which will be used as a VFM benchmark, and
— a ‘Do Different’ option based on a Single Strategic Support Supplier (SSS) accountable for end-to-end support of vehicle availability against a declared activity plan.
The PMSS project is now looking to engage with industry regarding the ‘Do Different’ SSS option and explore the risks, issues and opportunities that exist within that model. The solution being sought is for a single, enduring support arrangement consolidating current, separate short-term support arrangements, covering the end-to-end support for the PM vehicle fleet for 7 years commencing in Q2 2017 (with options to extend). The PM SSS is envisaged as a single overarching service for provision of available and capable vehicles to support a declared activity plan. The SSS will be accountable for equipment support, though not always directly responsible for MRO (Maintenance, Repair and Overhaul) or planning activity as elements may be undertaken by Units, REME, civilian/industry workshops as well as the SSS where required. The SSS will be accountable for the support solution design, optimisation and responsible for implementing it with the Army and delivery team ensuring the enablers are in place such as repair and maintenance procedures, spares and supply chain management, technical support and Post Design Services (PDS). This will require a transfer of elements of responsibility and decision making from the Project Team and Army/User to the SSS. The SSS will also be accountable for continuously driving improvement and efficiencies into the programme, which may include modifying equipment to improve reliability and maintainability. Estimated value excluding VAT: Range: between 100,000,000 and 400,000,000 GBP.
Thus, Babcock won the bids for DSG against teams from DynCorp and a KBR Rheinmetall team who are each believed to have offered no more than £47m. Rumours abounded last year that due to budget and troop cuts and the impending introducing of MRV(P) from Oshkosh and MIV from Rheinmetall, that DE&S at Abbey Wood had instituted a plan to cull the exiting fleet to make way for the new vehicles, which would be supported by the bidders, Oshkosh and Rheinmetall respectively, thus making a huge hole in Babcock’s projections for DSG work. At the same time, the Warrior WCSP Programme experienced delays and eventually started trials in December 2017, after a period of reported friction between Lockheed Martin and Babcock on work share. With PM SSS now effectively dead, will Babcock bite the bullet and issue a write down on the DSG assets which BATTLESPACE predicted last year? This will come on top of the recent profit warning on its Marine Division which will not make happy reading for its shareholders or Chairman Mike Turner already bruised from his losing tussle with Melrose over the GKN bid.
Babcock says contract report “misleading”
30 Jul 18. Reuters reported this morning that Babcock says contract report “misleading“, expectations unchanged. British engineering company Babcock Intl (BAB.L) said its expectations for underlying revenue and earnings were unchanged after it missed out on an armoured vehicle maintenance contract, adding that a Sunday Times article on the deal was “misleading”. Britain’s Ministry of Defence (MOD) said late on Saturday it had decided not to proceed with a proposal from Babcock related to armoured vehicles. Babcock said it had recently put forward a proposal related to a number of different vehicle types, but the MOD had not taken this up, instead deciding to focus on its core Defence Support Group (DSG) contract. It said, however, that the Sunday Times was confused about the work affected by the MOD’s decision.
“There has been no change to the company’s expectations for underlying revenue and underlying earnings as detailed in its recent trading statement, and no change to the bid pipeline,” it said. “The impact of slower than anticipated spares procurement activity relating to DSG was included in the guidance issued at the time.” (Source: Reuters)