Taxpayer "lost" £90m on QinetiQ sell-off

The sell-off of the former Ministry of Defence (MoD) tech research firm, QinetiQ, saw the taxpayer missing out on almost £100m, a public spending watchdog has found.

Senior managers at QinetiQ, previously the Defence Evaluation and Research Agency, made £200 for every £1 they invested - about 22 times the return reaped by the public purse - following the sale of a minority stake in the company to the Carlyle Group in 2003.

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The taxpayer should have received another £90m following the deal, according to the parliamentary Public Accounts Committee (PAC), which backed the findings of a National Audit Office report criticising the way the MoD conducted the partial privatisation.

The PAC attacks the fact that QinetiQ's managers were allowed to negotiate their own incentive packages with bidders before Carlyle had been chosen.

The report said: "Such profiteering at the expense of the taxpayer is not something this committee would expect from former public servants."

When the company was floated on the stock exchange in 2006, the company's top 10 managers held shares worth £107m in return for an investment of just £504,000.

The 2003 sale was conducted when market conditions were poor and important contract deals incomplete, leading Carlyle Group to be able to negotiate a £55m reduction in the value of QinetiQ and the MoD agreeing to sell Carlyle 2.5 per cent more of the company than specified in their bid.

The MoD also weakened its ability to bargain for best value for money by eliminating the competition and choosing Carlyle as the preferred bidder at an early stage the report said.

The Treasury was also criticised for giving the MoD an incentive to rush through the sale by promising to credit the department's budget with £250m if it was completed by March 2003.

But the PAC praised QinetiQ's performance since the 2003 deal, saying it had increased turnover by 48 per cent and generated £576m in proceeds for the taxpayer to date.

The MoD attacked the figure of £90m as being without basis.

Minister for defence equipment and support, Baroness Taylor, said: "This is pure speculation, and fails to take into account the realities of what could be achieved in negotiation."

She rejected the charge of profiteering by the management.

She said: "The key point is that the department and its partner Carlyle agreed a scheme in which the gains made by senior managers were linked directly to achieving growth in the value of the business."