Appendix: Government response
1. The Government welcomes the Committee's report
on the Ministry of Defence Annual Report and Accounts 2004-05.
The Government's response to the conclusions and recommendations
contained in the Committee's report is set out below.
We are concerned that as at 1 April 2005 there
was a 4.9 per cent manning shortfall in the Royal Navy / Royal
Marines against the overall requirement. We note that by April
2006 the shortfall is expected to reduce to 3.6 per cent and look
to MoD to take action to ensure that the improvements continue
and to address the serious shortages at Petty Officer level. (Paragraph
9)
2. We are taking action to address the manning shortfall
in the Royal Navy and Royal Marines, specifically through standard
manpower levers such as Extensions of Service, Acting Higher rank
and the use of Full Time Reserve Service and firm requirement
control. At 1 April 2006 there was a 3.7% manning shortfall in
the Royal Navy / Royal Marines against the overall requirement—an
improvement of 1.2 per cent.
3. To address the shortages at Petty Officer level
we have introduced streamlined and Fast Track promotion which
increases the manpower flows to this level and mitigates the impact
of the cutback in recruitment in the early 1990s. Despite these
measures we recognise that there will continue to be shortages.
We note that there have been some breaches of
Harmony Guidelines in all three Services, but that the impact
has been greater in the Army owing to the level of operational
tempo. Members of the Armed Forces need time for training as well
as for recuperation after operations, and they need time with
their families, and we look to MoD to take action to ensure that
breaches of Harmony Guidelines are minimised. Greater priority
should be given to developing management systems which allow the
pressure on individuals to be monitored. (Paragraph 13)
4. We agree that members of the Armed Forces need
time for training as well as for recuperation after operations
and that they need time with their families. We minimise breaches
through a number of initiatives, including gapping posts in front
line units, encouraging appropriate contributions from our NATO
Allies (if appropriate), mobilising reservists, contractorisation
and, where possible, by ensuring that the operational deployments
are shared amongst service personnel. Although we monitor this
closely and take action where possible to minimise breaches, some
force elements and specialist cadres have to deploy more often
than others thereby breaching harmony guidelines.
5. Management systems are being developed under the
auspices of the Manning Pinch Point Working Group which was formed
to review critical trades, harmony guidelines and other related
matters. As set out in our response to the Committee of 27 February
2006, the Joint Personnel Administration system will help inform
this work.
We are concerned that there are critical shortages,
in various specialist trades, in all three Services, including
aircrew and medical personnel. We note that the overall shortfall
in medical personnel has reduced from 23 per cent to 20 per cent,
and look to MoD to take further action to address this substantial
shortfall in such a vital area. (Paragraph 18)
6. We are making strenuous efforts to reduce the
shortfall in medical personnel. In addition to aiming to ensure
that pay remains broadly comparable with the NHS, we seek to minimise
shortfalls through:
- direct recruitment including
through the use of Golden Hellos;
- establishing alternative means of meeting operational
commitments utilising civilian "agency" contractors
and working closely with allies and partners on operations;
- influencing retention and return of service through
the new pension arrangements; and,
- managing consultant deployments on a Tri-Service
basis to allow the load to be reduced and spread equitably and
for adequate notice of forthcoming deployments to be given.
We note that MoD considers that the impact of
manning shortages on the deployment to Afghanistan is manageable,
but we plan to monitor this closely in our inquiry on that deployment.
(Paragraph 19)
7. Our commitments to Afghanistan take account of
our continuing commitment in Iraq, and vice versa. The Armed Forces
are heavily committed, but the numbers of regular Armed Forces
deployed on operations has reduced over the course of last year.
However, in 2006, as we increase our scale of effort in Afghanistan,
tour intervals for supporting / enabling personnel are likely
to breach harmony levels in some areas such as medical, intelligence,
helicopter crews, logistic, provost and engineers. We continue
to encourage appropriate contributions from our NATO Allies in
Afghanistan in order to take some of the pressure off these areas.
Overall, we judge that the impact on personnel of our deployment
to Afghanistan is manageable, but will inevitably constrain our
capacity to respond elsewhere.
We support MoD's drive for greater efficiency
but note that it is likely to result in substantial numbers of
civilian job losses. We look to MoD to undertake the appropriate
consultation with the organisations which represent its civilian
staff and to provide as much support as possible to those who
lose their jobs. (Paragraph 25)
8. We consult regularly with the appropriate Trades
Unions on the implementation of the MOD's Efficiency Programme
and we have good relations with them. We consult with the Trade
Unions at both at a Department-wide level, for example on the
implementation of an Early Release Scheme, and at TLB level for
local issues such as on the Army TLB collocation project.
9. A number of civilian posts will be cut as a result
of the Efficiency Programme but a large proportion of these reductions
are expected to be made through natural wastage. Individuals whose
posts are cut are given priority consideration when filling new
or vacant posts across the Department, and only when there is
no suitable candidate may management seek to recruit more widely.
Every effort will be made to minimise and, wherever possible avoid
compulsory redundancies. It may not be possible to do so for certain
groups of staff in certain locations.
10. We help staff leaving the Department under the
Early Release Scheme or on redundancy to find alternative employment
through the MOD Outplacement Service. For those leaving on early
or normal retirement terms, a 2-day workshop on "Planning
for Retirement" is provided.
MoD's performance against its diversity targets
has been mixed in relation to both its Service and civilian personnel.
It is disappointing that both the Royal Navy and the RAF failed
to meet their target for recruiting from ethnic minorities. MoD
was significantly below some of its targets relating to women,
ethnic minority and disabled personnel in the Civil Service. We
look to MoD to identify ways to improve in those areas where it
is falling significantly below its diversity targets. (Paragraph
27)
11. The MOD is committed to increasing diversity
in our workforce to ensure that we make the most of the range
of talent, experience and expertise available across the working
population. The Royal Navy, Army and RAF commit significant effort
and resources to engage minority groups and raise awareness of
Armed Forces' careers. All three Services have specialist Diversity
Action Teams aimed at promoting Armed Forces careers. They concentrate
their efforts in areas with large ethnic minority populations,
especially greater London, creating and building on community
partnerships with secondary schools, local/borough councils, community
organisations, religious organisations, employment groups, youth
centres, festival organisers and the ethnic media.
12. Despite these efforts, the RAF and, to a lesser
extent, the Royal Navy fell short of recruitment goals for 2004-05.
A major contributory factor was the reduction in the size of the
Armed Forces, with the RAF in particular facing a reduction of
50% in its overall intake target, which has reduced our recruitment
levels and therefore the opportunity to recruit ethnic minorities.
13. Encouraging young people from ethnic minority
backgrounds to consider an Armed Forces career is difficult, but
the Services remain determined to become more representative of
our diverse society, harnessing the wealth of talent and skills
of individuals from different backgrounds across all ethnic groups.
Overall ethnic minority representation in the Armed Forces has
increased from 3.5% on 1 April 2002 to 5.5% on 1 April 2006.
14. On the civilian side, our ability to meet our
diversity targets is constrained by having employment opportunities
available in the first instance; developing the capability in
our feeder grades to fill those opportunities; and ensuring that
our 'proposition as an employer' attracts people from under-represented
Groups. We remain committed to increasing staff numbers from under-represented
groups and to identifying and removing any barriers that prevent
those groups from achieving their full potential. Although we
are making progress, in the short term our scope for increasing
the numbers of under-represented groups in the MOD is heavily
influenced by the demographic legacy of a department which has
historically been predominantly male, the reducing size of the
Department and the relocation of defence work from more to less
diverse parts of the country.
15. We are trying to increase the pace of refreshment
at the Senior Civil Service level; reviewing our arrangements
for promotion to the Senior Civil Service ; revising Equality
and Diversity training to ensure it focuses on the business case
for diversity; promoting our work-life balance policies more widely;
introducing an improved equality and diversity impact assessment
process to be applied to all polices and services; and ensuring
we continue to work within the intent and spirit of equality and
diversity related legislation.
16. We will continue to work in partnership with
Unions and people from under-represented groups in delivering
on these and those related actions required if we are to meet
our diversity targets and embed diversity into the way we go about
MoD business.
MoD's Performance Report shows that MoD only 'partly
met' its PSA Target relating to procurement, missing the targets
relating to time slippage and cost increases. In contrast, the
Report shows that the Defence Procurement Agency met five of its
six Key Targets, only missing one target on customer satisfaction.
We expect MoD to review the way that its performance in relation
to defence equipment procurement is reported in order to provide
a clearer picture on whether performance is improving or not.
(Paragraph 30)
17. The committee has highlighted the variance between
the performance shown against the Defence Procurement Agencies
(DPA) Key Targets and that shown against the Department's PSA
procurement target. The Public Service Agreement Targets reported
in the Annual Report and Accounts 2004-05 were set during
Spending Review 2002. They cover the 20 Major Projects reported
to Parliament in the Major Projects Report 05 that had passed
their Main Investment Decision. In contrast the Defence Procurement
Agency Key Targets report the performance of the top 60 or so
Category A-C projects. Reporting against the wider target is a
more comprehensive representation of MOD equipment acquisition
performance overall and also encompasses a greater level of risk
18. The Annual Report and Accounts 2005-06 will
report our performance against the new SR04 Public Service Agreement
targets. The SR04 PSA Procurement target is more closely aligned
to the DPA key targets, although with different target levels.
The PSA targets reflect the highest level of performance
the Department aims to achieve over the Spending Review period
and are DPA stretch targets. The DPA targets, whilst still challenging,
reflect a level of performance against which Ministers can realistically
hold the Agency to account—these are hard targets.
19. Presentation of historic information provides
an indication on whether the Agency's performance is improving
or not. The Annual Report and Accounts 2004-05 shows that
over the last 3 years acquisition performance has improved, but
that there is more to be done.
20. At a Departmental level we are currently considering
how to adapt our current targets to reflect better the broader
acquisition process. We plan to expand our targets beyond the
procurement process to encompass wider critical elements such
as in-service support costs. This will ensure that the top level
targets we set drive acquisition behaviours that are consistent
with the management of through life.
We note that in 2004-05, in-year cost decreases
of some £699 million were reported on the top 20 major defence
equipment projects. However, a 'significant element' of this decrease
related to a reduction in the numbers of equipments being ordered.
In our view, it is not a great achievement to report an in-year
cost decrease, if this is only because less equipment, or less
capable equipment, has been acquired. (Paragraph 33)
21. Headline figures in MPR2005 are an indicator
that the Department is starting to bring costs under control and
that project slippage is slowing. The National Audit Office recognised
in MPR2005 that most of the cost reduction in 2004-05 was a result
of changes by the Military Customer through trading off performance
and time—this is one of the key principles of Smart Acquisition.
22. In the past the Department has concentrated its
efforts in trading either cost or time. Following on from the
recommendation of the Public Accounts Committee, the Department
has started to explore trades in performance. As the Chairman
of the Public Accounts Committee stated at the hearing on the
Major Projects Report 2005 in February 2006, '[the figures] …
have improved because you have made cuts and these are cuts which
we, ourselves, recommended you make in the past.'.
We fully support MoD's efforts to improve procurement
performance. We note that a review of defence procurement has
been instituted and expect the recommendations of the review to
be implemented both quickly and fully. Improvements in the way
MoD procure equipment are vital to the success of the Defence
Industrial Strategy and we plan to monitor this closely. (Paragraph
37)
23. We welcome the committee's support of our efforts
to improve procurement performance and the recognition that implementation
is the key to the Defence Industrial Strategy. We expect that
2006 will be the year of transformation with the implementation
of our proposals in 2007. As set out in the Defence Industrial
Strategy, officials are reviewing the Ministry of Defence's current
acquisition arrangements. The Review Team has completed its work
and announcements will be made following Ministerial consideration.
We find MoD's explanation as to why they had scrapped
a target for reducing the cost of training a military recruit
to be unconvincing. As part of its consideration of the outcome
of the Defence Training Review, we recommend that MoD reconsider
whether they should have a value for money target in such a key
area as training. (Paragraph 40)
24. As set out in the written evidence to the Committee
on 19 January 2006, before 2004, multi-disciplinary specialist
training was delivered across 24 different sites with the site
controlling training output standards. After the recommendations
made in the Defence Training Review (DTR) Report published in
2001, 'virtual' Defence Training Establishments were created which
realigned the management of training delivery by specialism, not
site. Six specialisms were initially chosen and 'virtual' Defence
Colleges created under a lead Agency for each. The original Training
efficiency measure derived a per capita cost of training for each
Service by relating the overall cost of training to the throughput
of trainees. With the rationalisation of training it is no longer
possible to identify an overall cost of training by Service nor
hence of a per capita cost by Service.
25. Irrespective of this it is unlikely that this
target would have been achieved. This is because we made changes
to implement recommendations by the Committee, the Director of
Operational Capability and the Adult Learning Institute on initial
training (which had the effect of increasing the cost of initial
training), and we have reduced the throughput of trainees following
reductions in the required size of the Armed Forces. Rather than
seek to continue reporting against a dysfunctional measure that
had specifically been overturned, we therefore agreed with the
Treasury to treat it as 'not met'.
26. We agree with the Committee that we should try
and achieve efficiency gains in Training. Under the Defence Training
Rationalistion Programme we aim to modernise the delivery of specialist
training using best practice learning techniques through newly
created national centres of excellence for each specialism and
to rationalise and improve the quality of the remaining training
estate. Other expected benefits include the transfer of risk for
training demand and the increase of first time pass rates achieved
by students. We expect the rationalistion process to be completed
by 2012, and the overall programme to produce benefits in the
order of £3Bn over a 25 year period. We are currently evaluating
several bids. Additionally, all three Services continue to look
at ways to improve the management of recruits and to reduce the
numbers of recruits choosing to leave, sharing ideas and good
practice. If successful, such measures will increase the efficiency
of the initial training system.
MoD reports substantial savings in its Annual
Report and Accounts yet, when pressed by us, informs us that some
of the reported savings "cannot be validated". This
is worrying. We expect figures in MoD's Annual Report and Accounts
to be based on robust evidence and look to MoD to introduce systems
which can generate accurate figures relating to savings, rather
than figures which cannot be substantiated fully. Overstating
savings undermines confidence in the accuracy of the Performance
Report. (Paragraph 44)
27. It was clearly stated that the logistics efficiency
figures published in the Annual Report and Accounts reflected
the best information available to the Department at the time of
publication and would be subject to audit. Accounting for efficiency
is a complex area. It is validated through detailed scrutiny of
a proportion of the efficiency claim by the Director of Internal
Audit (DIA) and extrapolated from that to reach an overall total.
This arrangement is visible to the NAO and the conclusions are
shared with them. The Logistics Transformation Programme comprises
more than 1000 individual projects—being driven across the
Defence Logistics Organisation and the Front Line Commands - and
the process to validate the figures therefore inevitably takes
some time.
28. This process has now been completed for the 2004-05
figures. As a result of the audit we have concluded that there
is evidence to substantiate at least £280M of benefits achievement.
This is a conservative judgement. We may have achieved more but
the work has indicated that there were deficiencies in the evidence
supporting some areas of the claim and, in other cases that the
savings did not qualify as efficiency. While this is disappointing,
it shows that the Department takes a rigorous approach to efficiency
reporting to ensure that the figures are properly evidenced. Steps
have been taken to ensure that the Integrated Project Teams and
others responsible for efficiency reporting maintain robust audit
trails for the efficiency achievements which will be claimed for
2005-06 and subsequent years. These steps include improved benefits
and evidence guidance, internal sampling of projects to review
evidence to support the reported benefits, and clear management
direction on individual responsibilities.
We consider that there is a strong case in the
future for the National Audit Office to provide an opinion on
the savings figures claimed by the MoD in its Performance Report,
as we have little confidence in the accuracy of such figures.
(Paragraph 45)
29. DIA work very closely with their NAO counterparts
on strategic and forward programme planning. All DIA reports are
shared with the NAO, and joint work is undertaken where appropriate.
Given the size and complexity of the Department, NAO place reliance
on DIA work where possible in reaching conclusions on the Department's
assurance arrangements. The Department agrees that the validation
of efficiency reporting requires a robust audit process but in
light of the existing arrangement we do not believe there would
be any added management value from further NAO validation of our
efficiency claims.
Follow-up information provided by MoD showed that
the savings of £88 million on Tornado aircraft support were
achieved in two years, not four years as stated in MoD's Performance
Report. This is a notable achievement. Nevertheless, once again,
it raises questions about the accuracy of information provided
in the Performance Report and we look to MoD to ensure that more
accurate information is provided in the future. (Paragraph 49)
30. We do our best to ensure that the information
in the Performance Report is accurate. We very much regret this
error and welcome the Committee's acknowledgement of what was
a notable achievement. We will continue to provide the most accurate
information we can.
We are surprised to learn that stock sold under
a rationalisation programme had to be bought back for some £73,000
as it was subsequently found to be needed. We expect MoD to learn
lessons from this case and, in future, to assess properly the
future need for items before they are disposed of. (Paragraph
52)
31. There is a balance of judgement in deciding the
level of stores we need to hold. £73,000 is a very small
proportion (less than one-hundredth of 1%) of the Departments
annual stock consumption of over £1.1 billion. We always
seek to use public money as effectively as possible. The relevant
Integrated Project Team (IPT) has introduced a new process to
mitigate the possibility of having to buy back equipment that
has been disposed of under a stock rationalisation programme.
The new process was devised from a lessons learnt exercise and
now requires approval from both the IPT inventory desk officer
and the appropriate equipment project manager before an equipment
disposal can be authorised.
In principle, we support MoD's policy of rationalising
the number of Defence Agencies, particularly those very small
agencies where the costs of retaining agency status can be high.
However, for some agencies there may be a strong case for retaining
agency status and we expect MoD to review each agency on a case
by case basis. (Paragraph 56)
32. We keep our organisational structure under review
to ensure that it remains efficient and effective. We have reduced
the number of agencies in the Department in recent years as we
have rationalised and improved Departmental processes. There is
no specific policy to remove agency status across the board and
each case is examined on its merits, with the burden of proof
resting on demonstrating that the benefits which will result from
the removal of agency status are greater than those of retaining
it.
We note that there are plans to collocate the
Defence Procurement Agency's Executive Board and the Defence Logistics
Organisation's Board. We support the move to bring both organisations
close together, particularly given that projects are now managed
on a through-life basis. (Paragraph 59)
33. Work is continuing on options to collocate the
Headquarters of the Defence Logistics Organisation and the Defence
Procurement Agency. We have delayed collocation of the Management
Boards to allow us to prioritise on examining the case for collocation
of the Integrated Project Teams and Support Groups. Where appropriate
we intend to bring together enabling and support groups to provide
a joint service to both organisations.
We found it difficult to judge the performance
of the Defence Agencies, as set out in the Annual Report and Accounts,
as both their achievements against the targets set, and the number
of targets set, vary considerably from year to year. We look to
MoD to ensure that in the future, changes are made to the reporting
of the performance of Defence Agencies, so that it is easier to
assess whether their performance is improving. (Paragraph 64)
34. The table at Annex E of the Annual Report
and Accounts 2004-05 provided a summary of the performance
of each of the department's agencies. Full details are in the
individual agency annual report and accounts. In line with Treasury
guidance, we aim for as much continuity in agency key targets
as possible, in order that judgements can be made as to how well
the agencies are performing over time. But some changes from year
to year are inevitable because of the changing nature of the environment
in which the agencies operate. Following the Committee's comments
we are introducing a number of changes to the way the data is
presented in the 2005-06 Annual Report and Accounts. This should
help when comparing performance from one year to the next.
The fact that MoD's resource accounts for 2004-05
received an unqualified audit opinion for the second year running
suggests that MoD's initial problems with Resource Accounting
and Budgeting are being overcome. (Paragraph 67)
35. We welcome the Committee's recognition of our
financial performance. The MOD resource accounts for both 2003-04
and 2004-05 received unqualified audit opinions. This reflects
the considerable progress made throughout the Department to improve
the quality of financial management, and the supporting financial
accounting systems. We continue to work to simplify and improve
them further.
A new contingent liability of some £400 million,
relating to a liability to clean up training sites in Canada should
the UK cease training there, has been included in the 2004-05
financial accounts. We consider this to be a substantial liability
and expect MoD to re-assess, on a regular basis, the size of this
liability and consider how such a liability of this scale would
be funded if it fell due. (Paragraph 70)
36. Defence training is conducted in Canada under
arrangements between the UK and Canadian Governments, which provide
for comprehensive discussion of respective liabilities, were we
to cease training in Canada for any reason. If this were to arise,
the timetable for agreeing the actual liability would be long
enough to allow the necessary funding arrangement to be agreed.
The values of all contingent liabilities are reviewed annually
as part of the production of our accounts.
We note that losses reported in MoD's 2004-05
Financial Accounts had reduced compared with the previous year,
but consider that the sums are still substantial. We expect MoD
to take appropriate action to minimise losses in the future. (Paragraph
74)
37. The total value of the loses arising in 2004-05
(both advance notifications and closed cases) was £167M compared
with £533M arising in 2003-04—a reduction of 69%. Nevertheless,
the Department takes the number and value of losses seriously
and continues to work to minimise the number of new cases that
arise.
We find it hard to understand why the procurement
of these four ships, which are not particularly sophisticated,
is likely to cost in the region of half a billion pounds, substantially
over the initial contract price. The Landing Ship Dock (Auxiliary)
programme cannot be considered to have achieved value for money.
MoD seems to have given the lead contractor on the programme an
open-ended cheque book. (Paragraph 81)
The first contract for two ships, on the Landing
Ship Dock (Auxiliary) programme, was let in December 2000. While
this was some time after the launch of the Smart Procurement initiative,
this procurement cannot be considered 'smart'. It raises questions
about how MoD assesses whether a contractor has the necessary
skills to deliver a specific equipment programme. We expect the
lessons from this sorry episode to be identified and implemented.
We wish to be kept informed of the progress on this programme.
(Paragraph 82)
38. Prior to award of the LSD(A) contracts, in common
with all contracts, a detailed assessment of the contractor was
undertaken to ensure that they were able to complete the contract
and that they had the necessary resources, skills, capacity and
expertise, and experience of similar work.
39. The original contract price for the 4 LSD(A)
vessels was £332M. A breakdown provided below confirms the
original costs agreed by MOD to each shipbuilder in delivering
the 4 Ship LSD(A) class:
- £210M to Swan Hunter for
the build of ships 1 & 2, that includes £62M for the
provision of Lead Yard Services and Equipment to BAE SYSTEMS;
- £122M to BAE SYSTEMS for the build of ships
3 & 4.
40. These costs were within the original programme
approval, agreed in October 2000 and do not represent a cost growth
within the project. The current total value of the contracts for
the 4 ships is £485M, and represents an increase of £153M
over this original contract price of £332M. This increase
in costs represents:
- £84M contract amendment
with Swan Hunter in December 2004 for the design and build of
their 2 LSD(A) vessels, as a result of the technical difficulties
encountered by the company
- £48M in delay and dislocation claims from
BAE SYSTEMS
- £10M variations in contract for design changes
- £11M for spares.
41. We agreed to the contract amendments following
careful consideration of the options in taking forward the LSD(A)
programme. We judged that this was the most effective way of protecting
the investment made to date and in delivering the much needed
capability to the Royal Navy.
42. All four ships have been successfully launched,
with two vessels accepted off contract. RFA Mounts Bay, the first
of the BAE SYSTEMS vessels, was accepted off contract on 15 December
2005 and is now undergoing her Stage 2 capability trials in readiness
for meeting her In-Service Date in late 2006. RFA Largs Bay, the
first of the Swan Hunter vessels was accepted off contract on
25 April 2006 and is also undergoing further trials in preparation
for her In-Service Date in early 2007. Build and commissioning
work is continuing on Lyme and Cardigan Bay at the Swan Hunter
and BAE SYSTEMS shipyards.
43. We plan to hold a lessons learned review after
we have resolved the current difficulties with the programme,
as part of the drive to replicate successes and learn from the
mistakes—with findings highlighted and implemented as appropriate.
44. We will keep the Defence Committee informed of
progress on this project.
We are amazed at the scale of the losses relating
to a building at AWE Aldermaston which could not be used. The
total losses amount to some £147 million. MoD's acknowledgement
that the project "was handled badly" is a considerable
understatement. It is essential that the lessons are learned and
we do not expect to see a repetition of such a debacle in the
future. (Paragraph 86)
We are concerned that the two losses relating
to the building at AWE Aldermaston, one of £65 million and
the other for £82 million, were listed separately in the
losses statement in the Annual Report and Accounts, and that there
was no way of linking the two losses from the information provided.
In future, we expect MoD to provide sufficient information for
related losses to be identified. (Paragraph 87)
45. We accept that this was a serious failure. At
the then Secretary of State's direction, the Chief of Defence
Procurement personally reviewed the history the Radioactive Liquid
Effluent Treatment Plant project (summarised at Annex A) and the
principal lessons from an independent post project evaluation
conducted during 2004-05. The post project evaluation was promulgated
in a Learning from Experience event at Abbey Wood on 31 January
2006 (summarised at Annex B).
46. The project was conceived on the back of a public
imperative to demonstrate the MOD's commitment to safety at AWE
in the late 1970s. The perception this generated, as well as more
general failings at the time, did not promote sound project management
disciplines. All of this predates the current AWE contract and
the benefits of Smart Acquisition.
47. The current contracting arrangements at AWE include
specific disciplines and mechanisms governing the visibility,
approval, monitoring, management and review of capital projects
by stakeholders across the acquisition, finance, customer and
scrutiny community. The project approvals procedures for individual
capital facilities have been approved by the Department's Investment
Appraisal Board (IAB); and the arrangements with the AWE contractor
are subject to regular review, development and improvement, using
Earned Value Management disciplines.
48. The adoption of Smart Acquisition principles—had
they been mandated at the time—would have avoided the degree
of failure we experienced with the Radioactive Liquid Effluent
Treatment Plant project. For example, the initial requirement
for the facility (which proved ultimately to be over-specified)
would have had very little chance indeed of surviving the rigorous
scrutiny now applied in the IAB approvals process. And, even if
the project had proceeded, the requirement for delivery within
approved performance, cost and time parameters would have prompted
the re-examination and refocusing of the investment at a much
earlier stage. Further, the systematic application of risk management
techniques and 3-point estimating—now the norm—would,
we judge, have resulted in more informed decision-making based
on clearer evidence.
49. The combination of new contract arrangements,
a tailored, IAB-endorsed process for approving AWE capital projects
and the now well-established disciplines of Smart Acquisition
fully address the lessons from Radioactive Liquid Effluent Treatment
Plant as they relate specifically to AWE capital projects. More
widely, Smart Acquisition was itself a response to the types of
behaviour that this project exemplifies, and so helps avoid the
circumstances that led to the write-off.
50. Where there is a clear relationship between individual
losses the Annual Report and Accounts will identify this.
We do not find MoD's explanation for the four
month delay in informing Parliament of a gift of a value exceeding
£250,000 sufficient and we call on MoD to report its gifts
promptly in future. (Paragraph 92)
The UK sought to assist the US following Hurricane
Katrina by gifting Operational Ration Packs at a total cost of
some £5.1 million. We have no objection to the gifting of
the Operational Ration Packs and only regret that they were not
used to help the victims of Hurricane Katrina as intended. We
are satisfied that this was for reasons outside MoD's control
and hope that it has learned lessons for the future. (Paragraph
95)
51. We explained to the Committee that the circumstances
in which this gift was made were particularly unusual. A great
deal of discussion and consultation was required, both within
and outside MoD, to ensure that we accounted and reported for
this gift correctly, giving proper consideration to all the options.
We take Parliamentary procedures very seriously and it was our
desire to ensure that they were properly taken into account that
caused the delay in this instance. We will continue to report
gifts promptly.
We note that the flotation of QinetiQ has taken
place and that £250 million from the sale will be retained
by MoD to be invested in the defence programme. We look to MoD
to inform us as to how its proceeds from the sale will be used.
The NAO has announced that it is to examine the privatisation
of QinetiQ to assess whether value for money was achieved: we
await this report with interest. (Paragraph 101)
52. The proceeds from the sale of QinetiQ have not
been allocated to a specific, separately identifiable area within
the defence programme, but have increased the Department's capital
budget in financial years 2006/07 and 2007/08, and will be invested
across defence to help deliver an overall programme that is balanced,
coherent and affordable.
53. We welcome the NAO decision to examine the project
and are co-operating fully with their work.
We note that MoD has put in place arrangements
to ensure that its 2005-06 Annual Report and Accounts are published
before the parliamentary Summer recess. We look to MoD to push
forward with these arrangements so that the publication target
is achieved. (Paragraph 105)
54. We continue to expect to publish the Annual
Report and Accounts 2005-06 before the summer
recess.
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