This morning I will take the unusual step of reprinting summary conclusions and recommendations of the National Audit Office report published earlier today and that is entitled “Delivering the Defence Estate’. I do so primarily because of the need to bring the appalling state of the defence estates to the attention of a wider audience and particularly those who may not have time to read the full NAO report. I do so also because of the need to emphasise that issues highlighted by the report need to be prioritised by the Government and the Ministry of Defence.
Now is the time for real and concerted action to solve issues that have not only been staring in the face of those who the Defence Infrastructure Organisation are supposed to be serving – the military. The Government should be hugely embarrassed by this report. New as opposed to taking funding from the existing defence budget is required and as a matter of urgency and respect for the military the Treasury must in my view as a matter of urgency make new money available.
The NAO report provides clear evidence of years of neglect in defence estates and warns that the MOD’s implementation and delivery ‘Footprint Strategy’ will be difficult to implement. I rather doubt that there is much in this report that serving members of the armed forces and their families are not already aware. They deserve better.
The NAO believes that over a 30 year period of requirement to replace parts of the defence estates (this according to the Department’s own operational lifespan and current condition Footprint Strategy plan of which the NAO makes the assumption of possible successful implementation) that a minimum £8.5 billion funding shortfall exists.
This long awaited report is to me an appalling indictment on MOD handling of the defence estates and in particularly of the Defence Infrastructure Organisation (DIO) together with some of the private contractors involved. That is not to suggest that good work is done by the DIO as can be seen by the infrastructure work currently under way at the Royal Navy base at Portsmouth, at RAF Marham and other front line military bases. However, while works such as these are very visible, it is the crumbling infrastructure, housing and lack of facilities that is easily hidden from view. It is these that the NAO report rightly focusses on.
(Note here please that the mandate of the National Audit Office is to scrutinise public spending for Parliament in order to assist and ensure that Parliament is able to hold government to account and to improve public services. The Comptroller and Auditor General of the National Audit Office is Sir Amyas Morse. The NAO is responsible for auditing of the financial statements of all central government departments, agencies and other public bodies and to report results to Parliament. Other work comprises value for money studies, local audit, investigations together with support to Parliament and international activities.)
SHORTENED SUMMARY OF NAO REPORT
The Ministry of Defence has set out a strategy to make better use of its built estate, but much of this is uncertain and carries risks, according to the National Audit Office.
For many years the Department has not had a clear plan regarding the future size and shape of its estate. The resulting lack of certainty about where to invest its limited funding, combined with general underinvestment, means that the condition of much of the estate is poor and deteriorating.
As a result of under investment there is an increasing risk that the poor condition of the estate could affect defence capability. The estate is an important element of defence capability, enabling the Armed Forces to train and undertake operations, and providing accommodation for personnel and their families. As the estate’s condition deteriorates, some parts may wholly or partially close which will exacerbate other risks and could reduce operational readiness.
Constraints on the Department’s funding for its estate are also leading it to making decisions that are poor value for money in the longer term. In addition, the 1996 decision to sell and lease back the majority of Service Family Accommodation is now limiting the Department’s ability to manage this element of the estate cost-effectively. Poor accommodation for service families is also affecting the morale as well as the recruitment and retention of service personnel.
The government has set targets for the Department to reduce its built estate by 30% by 2040. The Department is also the largest contributor to the government’s objective of releasing land to build 160,000 new homes between 2015 and 2020.
Today’s report found that, after many years of limited progress, the Department has set out a new vision for its future estate that supports military capability while meeting government targets. It has developed a Footprint Strategy which will contribute 15,000 toward the housing target by 2020 and enable it to dispose of 25% of its estate by 2040. This is based on assumptions and estimates and the Department expects that its plans will evolve over time. According to the NAO, however, implementing this strategy will be extremely challenging as many of the estate disposals, re-provisioning of essential facilities on sites to be disposed of and personnel moves are interdependent.
As a result of the steady decline in the condition of the estate the Department now faces significant costs over the next 30 years to improve the condition of the estate. Although implementation of the Footprint Strategy will reduce these costs, the Department will still face estimated unfunded costs of at least £8.5 billion. The NAO has found that risks to military capability will continue unless the Department takes further action to address the shortfall in funding to sustain the estate. According to the NAO, the Department has not yet set out how it intends to address the significant challenges it faces sustaining the whole estate in the longer term.
The NAO also found that, whilst some progress has been made, the Department does not yet have an overall model for managing the estate effectively. In 2011 the Department undertook large scale change of how the estate was managed. It believed that both creating the Defence Infrastructure Organisation (DIO) to centrally manage the estate, and prioritising the Commands’ estate needs, would improve its management and enable it to cut costs. In 2014, it made further changes by contracting with a strategic business partner, led by Capita, to run the DIO and help it achieve savings. However, this overall model has not worked. Roles and responsibilities are unclear, governance arrangements are confused and DIO still does not have the skills and capabilities it needs.
There were fundamental weaknesses in the Department’s contracting with the strategic business partner. The Department failed to transform DIO prior to contracting, including putting in place a single IT system. This failure has affected the partner’s performance and created complexity in relation to the Department’s ability to hold the partner to account for its performance. The Department is undertaking a fundamental review of how its estate is managed, the role that the private sector will play, and how funding will be delegated to the Front Line Commands which report to the Defence Board in the coming months.
According to the NAO, there have been some successes, including improving the management of the Army Basing programme and developing the Footprint Strategy. The strategic business partner’s performance, however, has not met all expectations and has not made a notable difference in transforming DIO to better meet the needs of the Commands. The Department paid the strategic business partner £90 million between June 2014 and July 2016.
The Department should:
Develop a more comprehensive view of the estate liabilities that will remain following the implementation of the Footprint Strategy, including what it will need to spend sustaining the entire estate. Until the Department improves its visibility of its future commitments, and how these will be affected by the Footprint Strategy, it cannot target available funding to achieve optimal value for money from its estate.
In light of the above, undertake a detailed review to assure itself that it has optimised the strategic balance of investment between the estate and other elements of capability, such as personnel and equipment, at the departmental and Command level. In the absence of this, there is a significant risk that the poor condition of the estate could jeopardise the delivery of military capability.
Develop detailed plans that set out how the Department will close the gap in funding to sustain the estate to an acceptable level of risk to military capability. The Department is aware that even after successful implementation of the Footprint Strategy, it will not be able to afford to sustain its remaining estate and that this will present continuing risks to its ability to support military capability.
In the longer term, the Department should work out what the estate should cost in the context of the military capability it needs to deliver its strategic commitments and a plan to achieve this estate. The Department’s current approach aims to better align its estate with available resources in order to meet government targets and as a first step towards achieving optimal value for money. The Department is not yet in a position to identify what an optimised estate should cost and then deliver it.
Engage early with stakeholders critical to delivery of its Footprint Strategy, including local authorities, the Department for Communities and Local Government and the Cabinet Office. Greater certainty about the Department’s future plans provides an opportunity for it to address complications relating to disposals in advance of their scheduled delivery date.
Work with HM Treasury to identify financing options for the Footprint Strategy which do not place significant restrictions on the Department in relation to its future use of the estate. The Department is considering the cost and flexibility of alternative financing options.
Provide clear information to Parliament on how it is managing the complex risks to delivery of its Footprint Strategy. It should do this by reporting regularly both on progress to date and projected performance against its long-term strategy and medium-term implementation plan. Regular reporting will help the Department sustain focus on the strategy and enable Parliament to monitor its progress.
Ensure that, whichever overall operating model it decides upon to implement its estates strategy, responsibility and accountability for managing the estate are aligned and those who use the estate are incentivised to do so cost‑effectively. Without clear lines of accountability it will be difficult to improve the Department’s performance in relation to its management of the estate.
Put in place strong safeguards, prior to delegating estate budgets, to ensure that the Commands give the estate the attention it requires and that they have the incentives, information and skills they need to manage their estate assets and budgets effectively. Delegating the estate budget to Commands should put them in the best position to make difficult trade-offs but would create a risk that they will under-invest in the estate in favour of equipment and staff.
(Further comment may follow after more detailed study of the report).
CHW (London – 15th November 2106)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
M: +44 7710 779785