Qinetiq Q-branch and Area 51 tech sell-off due a roasting

Stealth blueprints, spy gear also sold off

A long-anticipated report by the National Audit Office (NAO) into the privatisation of defence-tech research company Qinetiq is due out on Friday. Advance hints suggest damning criticism of the sell-off.

Qinetiq's basic assets are various laboratories and facilities full of top boffins, formerly operated by the Defence Evaluation and Research Agency (DERA) of the MoD. In the late 1990s, a large proportion of DERA became Qinetiq. Those assets remaining under MoD ownership are now under the aegis of the Defence Science and Technology Laboratories (DSTL).

The manner in which the sell-off of Qinetiq was conducted became hugely controversial. Part of the new company was sold to American private-equity group Carlyle for £42m; three years later Carlyle was able to sell the stake and make profits of £300m, an 800 per cent return on its investment. Former senior civil servants who became Qinetiq bigwigs and shareholders saw £100k investments turn into £20m private fortunes.

Some of Qinetiq's market value derives from the fact that it has a guaranteed revenue stream from the MoD. A lot of the rest is in the form of intellectual capital developed at taxpayer expense - and not always UK taxpayer expense, apparently.

Bruce George, the MP who was chairman of the Commons defence committee until he was superseded by former Tory procurement minister James Arbuthnot, says much of the knowhow which makes Qinetiq a hot market property actually came from within the American defence establishment. The Pentagon's boffins are apparently none too chuffed at the way in which the UK government has sold off their war-winning special sauce to the wide world for the enrichment of private sector fatcats.

"The more serious point [regarding the selloff] - which I am not sure will be contained in [Friday's] report - is the damage done to the special relationship between Britain and the US," George told the Guardian today.

"The work exchanging British and US research work is the glue that binds [the special relationship] together. It is this, above all, that was damaged by a sale to a private company... the US intelligence services were unhappy about this research arm being sold to a private company."

The American spooks' concern could be understandable. Now that Qinetiq is private sector, the chance is there for people to buy things that formerly only the US-UK military/spy alliance might have had access to.

"Whilst QinetiQ are not a manufacturing organisation," says the company, "we do occasionally produce hardware ourselves. This happens when clients need small volumes of specialist equipment that are not available in the wider marketplace".

Would you like a piece of kit which can "intercept... and direction-find" against "modern communications systems including TDMA & CDMA" (that is, cellphones) with "unique intelligence analysis software"?

Who did DERA develop that for? Who is Qinetiq selling it to nowadays?

Qinetiq even sells Stealth technology (It "offers expert consultancy, tools and facilities to... the wider commercial markets", including "design of aircraft" and "radar absorbing materials"). It probably didn't acquire that without help from across the pond.

No wonder the market is confident that Qinetiq will make money - it seems to be flogging off the technological crown jewels of the British and US militaries.

Friday's Audit Office report is expected to focus on the financial aspects of the Qinetiq sale, and will probably give the MoD something of a roasting. However, if Bruce George is right, it might be that the really interesting stories remain untold. The MoD may consider itself to have got off rather lightly. ®