I am pleased to announce the successful sale of the Defence Support Group (DSG) land business to Babcock for £140 million. As part of the transaction, a 10-year contract (with options to extend to 15 years) worth some £900 million has been agreed for the delivery of DSG services and the transformation of the Army’s vehicle maintenance, repair and storage. The contract covers the DSG’s fleet management and engineering support services and will generate savings to the Army of around £500 million over the 10- year period - a saving of over a third. This contract has the potential to grow to around £2 billion as a broader scope of services under the DSG sale contract are optimised, subject to value for money, as part of the planned programme.

Babcock has more than 15 years’ experience of working closely with the Army in vehicle support work, standing it in good stead to partner successfully with the Army and transform the DSG land business. The company will also use its expertise in engineering and fleet management to build on the work that the DSG’s highly skilled work force currently carry out and progressively to transform the business to provide end-to-end support and equipment availability to the Army.

Babcock has committed to develop the DSG land business, putting it in a strong position for the future. Furthermore, Babcock has already identified commercial work from elsewhere in the Babcock Group that it will bring into the DSG. This will not only grow the DSG land business but will also exploit economies of scale to reduce overheads, thus improving the cost effectiveness of the services provided to the Army.

Ownership by Babcock will therefore put the DSG land business on a sustainable long-term footing and ensure the Army retains access to the DSG’s equipment support services.

All DSG staff in scope of the sale will become Babcock employees on 1 April 2015. They will transfer under Transfer of Undertakings (Protection of Employment) (TUPE) regulations, which protect their terms and conditions on transfer. The new Fair Deal also ensures continued membership of civil service pension schemes for those eligible. The Ministry of Defence (MOD), with the support of Babcock, will conduct a TUPE consultation with the DSG workforce and the DSG trade unions. The first consultation meeting with the national and local DSG trade union representatives, Babcock, DSG management and the MOD is taking place tomorrow.

DSG estate will not be sold but will be retained in MOD ownership and leased or licensed to Babcock. Babcock will lead a business improvement programme over several years which is aimed at optimising the output performance of the business. Detailed plans will not be known until Babcock has had a chance to understand the business fully and completed its review. Until then, MOD is providing as much detail as it can as part of the TUPE consultation process. No MOD sites will be closed on sale. We are confident Babcock will provide an open and professional approach to these activities.

As I announced on 19 November, DSG’s air business, the electronics and components business unit, will be retained in MOD from 1 April 2015 as the Defence Electronics and Components Agency (DECA), a new MOD trading agency.

I will make a separate announcement in due course regarding the competition that the MOD is also running for the transformation of the MOD’S logistics commodities and services organisation, which shares sites with DSG at Ashchurch and Donnington.