Conclusions and recommendations
1. 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 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)
3. 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)
4. 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)
5. 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)
6. 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)
7. 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)
8. 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)
9. 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)
10. 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)
11. 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)
12. 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)
13. 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)
14. 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)
15. 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)
16. 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)
17. 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)
18. 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)
19. 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)
20. 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)
21. 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)
22. 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)
23. 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)
24. 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)
25. 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)
26. 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)
27. 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)
28. 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)
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