It was an ironic piece of timing, just as the NASDAQ was in freefall, to announce the launch of the Defence Evaluation & Research Agency (DERA) as a future high tech stock opportunity. After trailing a possible privatisation nearly two years ago, the Government has still to make a firm decision. Ministers launched a new consultation document on 17 April. The preferred plan is now to split the organisation into two parts: NewDERA and Retained DERA.
The retained core competence part of the organisation is uncontroversial. The MOD would keep control of the most sensitive research such as that at Porton Down, and would also be able to pacify US concerns. However three quarters of the 11,500 strong agency, with a current turnover of £1 billion a year, would be floated as NewDERA during 2001. The consultation document hypes the concept with:
"NewDERA has the potential to become a globally-branded, technology-based knowledge-provider in the new economy of the 21st century."
It may be that the previously feather-bedded DERA can make the transition to commercial success, but it has had a somewhat narrow and secure customer base in the past. In any event, that is a problem for investors rather than Government. Would such a split damage defence research? Provided the Core Competence model includes adequate independent intelligent customer capability then outsourcing other research should not cause a problem. The real damage may come from the lost opportunity to pool the defence research effort across the EU as a part of rationalising European defence spending. NewDERA and Retained DERA will continue to compete and duplicate the work of other research establishments. If Europe is to match the US in this field, it needs to generate a critical mass for research effort by merging rather than dividing.