The announcement by defence secretary Philip Hammond means that MOD will now launch a consultation exercise on DE&S’ proposed new status before a final decision is made in the autumn.

Prospect National Secretary Steve Jary said the announcement raised more problems and questions than it resolves.

“Industry is not convinced by the approach and does not understand why MOD cannot reform the procurement process from within. And there are growing fears about the ability of DE&S to deliver during the three or more years it would take to create a GOCO.

“MOD says a GOCO arrangement will give it the flexibility to pay its staff market rates. But the department already has many flexibilities available to it, yet isn’t using them. It would be better if DE&S was allowed to nurture its own talent and pay staff appropriately, rather than being instructed to cut its staff by 30%, which has been its main focus for the past two years.”

Jary warned that there were other serious obstacles to the concept of a GOCO.

“Although some commercial risk would be transferred to the GOCO, operational and safety risks would remain with MOD. If the Secretary of State has to carry the can for equipment failures, does he really want to contract-out the assurance that everything has been done to avoid those risks?

“Likewise, how will our allies react – the introduction of a commercially-driven DE&S creates potential conflicts of interest which will limit the extent to which secret technologies are shared. No other country contracts out the management of its equipment programme.

“The change will also require primary legislation, not likely before the next election, meanwhile DE&S capability continues to haemorrhage,” said Jary.

DE&S employs 20,000 staff and is based at Abbey Wood near Bristol.