Select Committee on Defence Sixth Report

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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