Originally Posted by
pr00ne
Nope. You contract the service and you pay for the delivery of the service, not the overheads or the running or acquisition costs. You also remove a large number of staff and assets from your books. MUCH cheaper.
Not really. You do indeed contract the service and you pay for the delivery of the service. The payment you make includes elements for the contractors profit, the whole day-to-day costs of delivery of your service including repair and maintenance, fuel, salaries etc., the acquisition cost of the kit needed, the depreciation of the kit and the pensions of the staff. An accountant would find a few more things to add in.
If you can share the service with someone else then, apart from operating costs for your service, you may be able to share the overhead costs with other users. If you want 100 % of the service you pay all the costs. The contractor will also want a premium to cover the risk that you walk away leaving him with kit and people he has no use for.
Of course, if the contractor can get your old kit cheap, his acquisition and depreciation costs are likely to be lower. Similarly, if he recruits staff at lower cost his operating costs are likely to be lower. His maintenance costs may well be higher though because he does not know the kit as well as you did.
Removing assets from your business affects the balance sheet and things like return on capital employed, though these are rather nonsense concepts for an armed force. Buying back a service that was formerly in house affects the P&L, negatively if you are the only user of the service contracted out. Again P&L is a nonsense concept for an armed force.
N