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QinetiQ refutes accusations made in Public Accounts Committee report


Response to the Committee’s 24th Report: “The privatisation of QinetiQ”

QinetiQ notes the publication of the Public Accounts Committee report into the privatisation of QinetiQ. QinetiQ strongly refutes any accusation that members of its senior management team acted inappropriately and without integrity during the transformation of DERA from a Government agency into a successful public limited company.

The QinetiQ management team were specifically selected and appointed by the Government with a mandate to commercialise the Ministry of Defence (“MOD”) research laboratories. The Public Private Partnership (“PPP”) option was based on the Labour Party Manifesto policy of a third way, neither fully public nor fully private. MOD appointed its own team to investigate options and Ministers were advised by a council including four distinguished independents advisers. Over the next five years there were several changes of the PPP model* with the eventual decision, which was never advocated by the QinetiQ board or management, being taken by the MOD.

Once the Government had made its decision, the management team focused on the successful delivery of the selected option and, as is typical of such transactions, an incentive scheme for employees was put in place to ensure its success. Both final bidders consulted with management, as well as with MOD and MOD’s advisers, over the best structure for such a scheme. The final structure of the incentive scheme was negotiated between Carlyle, as purchaser, and Government, as vendor, once Carlyle was appointed as preferred bidder. As set out in para 17 of the PAC report: “The Department relied on Carlyle to design the management incentive scheme as it believed they were best placed to do so. It did, however, approve the final structure of the scheme....”

QinetiQ’s progress as a public company was demonstrated on 28 May when it announced its preliminary results for the year to 31 March 2008. These results confirmed its successful transition from a government agency, focused on purely MOD work, to a rapidly growing commercial company operating on an international stage. QinetiQ’s value today has clearly been achieved through the entrepreneurial efforts of the current management team since the PPP was adopted.

Moving forward, QinetiQ continues to serve the MOD as a key customer. QinetiQ’s Compliance Regime is the most stringent in the industry and meticulously audited by both QinetiQ and the MOD, whilst ensuring that the UK’s defence interests are maintained. The regime was set up to assure MOD of access both to impartial advice and to research and technology from QinetiQ, and is widely seen to be very successful.

The taxpayer has received approximately £1 billion worth of value from QinetiQ, an organisation which was previously considered a substantial financial liability. MOD continues to hold a 19% shareholding in the company and will continue to benefit from its future success.

Speaking in his capacity as senior independent non executive director and chairman of the QinetiQ Compliance Committee, Sir David Lees said: “The existing senior leadership team has driven the performance of the company that has resulted in excellent returns for all shareholders. The Board has every confidence in this senior team and their ability to drive further growth in the future, from which the MOD as QinetiQ’s largest shareholder will continue to benefit.”

QinetiQ will be publishing a more detailed response to the PAC report on its website in due course.


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