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The Ministry of Defence鈥檚 estate arm is leaning towards an 鈥渋nsourcing鈥� business model for its 拢400m strategic business partner contract, rather than setting up a separate legal entity to run its operations, it is understood.

Last month the Defence Infrastructure Organisation (DIO) announced a shortlist of three consortiums to compete for its 拢400m strategic business partner role. Telereal Trillium, KPMG and Mace make up one consortium, Serco, DTZ and Bechtel another, and Capita, URS and PA Consulting form the final bidder.

the job was initially tendered for 拢100m, but then rose to 拢400m. The DIO stated at the time that payment because of an incentive-based contract to encourage the strategic partner to drive efficiencies across the defence estate.

The DIO has said it is : an insourced model, where the successful bidder would send an executive team into the DIO to runs its operations, or an incorporated model, that would involve setting up a separate legal entity. This would be a wholly-owned subsidiary of the Ministry of Defence (MoD) but managed by the strategic business partner.

However, with the MoD opting for the latter model for its massive Defence Equipment & Support outsourcing contract, it is understood that it is now likely to favour the insourced model for the DIO job.

The shortlisted bidders are expecting an invitation to negotiate by the end of this month setting out further detail.

鈥淯ntil then we won鈥檛 know for sure but the view is that it will be the insourced model - at least in the first instance, as it may transition to the outsourced model over time,鈥� a source close to the process said.

The strategic business partner will be responsible for managing around 拢9bn worth of defence estate repairs and maintenance contracts, which while the DIO puts in place its transformation programme and are now set to be awarded in 2014.