House of Commons - Defence - Fifteenth Report

Select Committee on Defence Fifteenth Report

5 Service Family Accommodation

49. Defence Estates is responsible for around 49,000 family homes in Great Britain. The majority of the Service Family Accommodation (SFA) in England and Wales was sold to Annington Homes Ltd in 1996 (which we consider in paragraphs 50 to 56 below). SFA in Scotland and Northern Ireland is owned by the MoD. Responsibility for the maintenance and upgrade of SFA in England and Wales, has been contracted out under the Housing Prime Contract (discussed in paragraphs 76 to 80 below). Defence Estates retains responsibility for the maintenance of SFA in Scotland and Northern Ireland, while SFA overseas is managed by the appropriate TLB holder.[42]

The Annington Homes deal

50. The sale of SFA in England and Wales to Annington Homes in 1996 raised some £1.67 billion.[43] Under the terms of the deal, the MoD leased back all the houses it continued to require and pays rent on them to Annington Homes (currently around £140 million a year).[44] When it no longer needs the properties, Annington Homes is able to sell them, with 25% of the proceeds returned to HM Treasury. The total proceeds returned to the Treasury, to the end of 2006, amount to some £140 million.[45]

51. The objectives of the sale were:

To transfer to the private sector property which the MoD did not need to own themselves;
To improve management of the quarters through greater involvement of the private sector;
To secure improvement in the quality of married quarters, by raising sufficient funds to upgrade the bulk of quarters in the United Kingdom to 'grade-one' condition; and
To secure value for money through a competitive sale.[46]

52. The then Minister of State for Defence Procurement—now the Chairman of our Committee—explained the deal to our predecessor Committee in 1996 as part of its inquiry into the Future of the Married Quarters Estate:

In defence terms, what we need to do is provide the Services with the right housing in the right places and at the right time. This does not require ownership. So here is a large asset which the Government does not need to own. The virtue of the sale is two-fold. First, it will give us the incentives and means to reduce the number of empty houses, because that will be the effect of six-month break clauses, guaranteed release commitments, and the discipline of paying rent […] Second, the sale will provide money to improve the stock.[47]

53. The NAO's conclusions from its examination of the sale are set out in Table 3 below.

Table 3: NAO conclusions on the sale of the Married Quarters estate

Conclusion 1 The following objectives for the sale were achieved: the sale was competitive; it transferred ownership of nearly four-fifths of the married quarters estate in the United Kingdom to the private sector; and it provided funds to upgrade below-standard quarters.

Conclusion 2 As regards the objective of improving the management of the married quarters, the sale has provided the Department with a financial incentive to identify and surrender surpluses. There were, though, different incentives to dispose of surpluses before the sale, and the Department will have to monitor the effectiveness of the new arrangements. Significant responsibilities have been retained by the Department, including maintenance, which remain unaffected by the sale.

Conclusion 3 The sale price exceeded the Department's advisers' assessments of the likely value of the sale transaction from the perspectives of potential purchasers, but was below the Department's benchmark values for retaining ownership of the married quarters. Proceeding with the sale rested, ultimately, on securing a competitive price for assets that the Department did not need to own, and other policy benefits.

Conclusion 4 The sale process itself was well managed, and while looking to make the sale attractive and give new owners opportunities to develop the estate, the Department have also sought to protect their future interests.

Source: NAO[48]

54. Vice Admiral Laurence said that

with the benefit of hindsight […] it does not strike me as being a great deal; and the price of the property that was sold has risen very significantly […] If we had our time again perhaps we would have done this in a different way.[49]

Mike Martindale, Defence Estates' Finance Director, considered that this was

perhaps not a deal we would have done now, in that we maintain maintenance responsibility; if we were doing the deal today we would probably transfer that to the landlord.[50]

55. On the other hand Vice Admiral Laurence acknowledged that

At the time the deal looked a good one. We put it on the market; the highest bidder won the deal and there were plenty of bidders for it; and it looked the right thing to do.[51]

He also told us that:

we make the arrangements work well at the moment. The relationship with Annington is good, and the rent we pay to Annington is fair. We maintain the houses through a new contract which is just settling down […] The arrangements are satisfactory.[52]

56. Views on the merits of the Annington deal differ. Undoubtedly, the increase in property prices makes the deal look, with the benefit of hindsight, less attractive than it looked at the time. But the deal was intended to deliver not just money into the public purse but also incentives for the MoD to maintain acceptable standards of repair and fewer empty properties. Our comments below on the disposal of properties suggest that these incentives have not operated as intended. We find this deeply disappointing. Given the constraints of the Annington deal and the changing strategic requirements, there is a case for a review of the whole of the married quarter estate to ensure that property is being retained and disposed of optimally, with maximum value for money for the taxpayer.

Standard of accommodation

57. It was intended that the proceeds of the Annington deal would secure improvement in the quality of married quarters, by raising sufficient funds to upgrade the bulk of quarters in the United Kingdom to 'grade-one' condition. It is clear that this has not happened. When property is sold, the Government's share does not return to the MoD, but goes to the Treasury.[53] In our view, the proceeds from sales of surplus married quarters should be re-invested in Service accommodation. We return to the proceeds from sales of defence assets in paragraphs 95 to 97 below.

58. The condition of Service Family Accommodation is divided into four Standards for Condition. This is calculated from 102 attributes organised into eight categories: Health and Safety; Sanitary; Kitchen; Energy Efficiency; Building Fabric; Electrical; Security; and Bedroom Standard. These are taken into account as follows:

Properties are assessed as Standard 1 if they achieve a Standard 1 rating in all eight categories;
Properties are assessed as Standard 2 if they achieve a Standard 1 or 2 in each category, with a Standard 1 generally reached in at least five categories. Improvements required might include a thermostatic shower, a new kitchen or upgraded loft insulation;
Properties are assessed as Standard 3 if they only achieve a Standard 3 in at least one of the categories, and will usually have achieved a 1 or 2 in half the categories. Improvements required might include a complete rewiring, a new kitchen or bathroom, or upgraded loft and plumbing insulation;
Properties are assessed as Standard 4 typically if they achieve a Standard 4 in five or fewer categories, and will generally require a new bathroom, electrical system, kitchen, insulation upgrade, and health and safety review.[54]

59. Fifty nine per cent of the MoD's housing stock is currently assessed as being Standard 1, with another 36% Standard 2. The remaining 5% is Standard 3 or 4.[55] In 2005-06, Defence Estates was set a target of upgrading 600 SFA properties to Standard 1. It substantially exceeded that target, and upgraded 1,705 properties over the financial year.[56] We expressed in paragraph 19 above our concern that this target was insufficiently challenging, given the margin by which it was exceeded.

60. Vice Admiral Laurence explained that the picture of upgrades was more complex than it first appeared: upgrading a property from one condition to another could range from simply installing loft insulation to a complete refurbishment costing £70,000. In previous years, simpler and cheaper upgrades, so-called "quick wins", to bring properties up to Standard 1, had been prioritised, allowing targets to be exceeded. In the future, however, the upgrades remaining would be more expensive ones, and so Defence Estates would find itself spending the same amount of money each year, but managing to upgrade fewer properties.[57]

61. While we welcome the progress the MoD has made in upgrading Service Family Accommodation, much more remains to be done. The MoD needs to recognise the scale of the challenge it faces.

Disposal of properties

62. When properties are released to Annington Homes for sale they must be in "good tenantable repair".[58] We asked whether this meant that the MoD was spending money to get rid of property, rather than spending the money on properties which Service personnel were currently living in. Vice Admiral Laurence did not think this was the case.[59] We asked whether the houses being handed to Annington Homes for sale were in a better condition than those actually being lived in. David Olney told us that he could not "say hand on heart that every single Service person is living in accommodation which is better than that which we would hand over", but that the vast majority would be living in accommodation of at least that standard.[60] Vice Admiral Laurence explained that:

if we discover that there are properties we no longer need, and they may well have been properties that have been empty for three of four years, perhaps longer, and we want to get rid of them, there is a balance of investment to be made […] there is an outgoing attached to it […] but before we hand them back to Annington we have to spend a certain amount of money dealing with perhaps some defects that would not meet the contract".[61]

63. It would be perverse if Defence Estates were spending money improving properties which it intends to dispose of when so much accommodation in which Service personnel are living is in need of improvement. It was intended that the Annington deal should incentivise the MoD to maintain properties to an acceptable standard, so that it could dispose of them without expense if they were no longer required. If the MoD is allowing property to fall into disrepair prior to disposal, this is simply bad management. We recommend that the MoD give details, in its response to this report, on how much it has spent on upgrading property before disposal.

Empty properties

64. While at Pirbright, we were shown a group of married quarters which were empty and had fallen into disrepair. In some cases, squatters were occupying them, and attempts to secure the premises while they remained unoccupied had been inadequate. We were told that the situation had been brought to the attention of Defence Estates on a number of occasions, and that the Minister had also been made aware of it. Still no repairs had been made, nor had the quarters been made secure against vandals or squatters.

65. The Secretary of State explained in a letter to us that the unoccupied quarters had been held for possible use if required by the Defence Training Review. They were in a "semi-rural area" and therefore had been regarded as being at a low risk of vandalism:

However, the breaking of a few windows led to a decision to board up the houses. Unfortunately, this appears only to have provoked a more sustained attack of vandalism. Every effort was made to establish the perpetrators, which included the use of increased patrols by Military Police and MoD Police, but to no avail. CCTV has been installed and the Surrey Police used the site for dog handling training in order to improve security.

He concluded that door locks had been changed to prevent further instances of squatting, that Guard Dog signs had been erected to deter further vandalism, and that "dilapidation repairs" were due to be carried out to make the quarters suitable to be returned to Annington Homes.[62]

66. It was intended that the Annington deal would reduce the number of empty properties held by the MoD. Disappointingly, the MoD's Annual Report 2005-06 states that there were some 3,000 vacant Service family properties. This is known as the "housing management margin". The Annual Report and Accounts states that:

We continue to use this, less housing earmarked for disposal in the next 12 months, as a measure of the efficiency of our housing management […] The housing management margin increased to 13.9% from 11.2% over the year against a target of 10%.[63]

67. Defence Estates did not, therefore, achieve Key Target 5f—to reduce the management margin of vacant housing to 10% by November 2005 (see Table 2). By November 2005 the management margin was 13%. The corresponding figure at 31 March 2006 was 13.9% and the number of empty properties was expected to reduce from 1 April 2006 as Gurkha families took up SFA following changes to their terms and conditions of service. In its written evidence, the MoD states that given the continued uncertainty in respect of many Service deployments and rationalisation studies, there was a need to retain a larger number of vacant properties (around 3,000) to meet potential future requirements. The target of 10% would not be achieved "until firm decisions have been taken and implemented".[64]

68. We asked Vice Admiral Laurence about the position on empty properties, known as "voids". He told us that:

The number of voids is an issue we track very, very closely indeed […] It is a figure which, in my view, is too high; I would like to reduce it. One of the factors in this difficulty of reducing it is the uncertainty about future accommodation and trying to balance whether we want to hang on to accommodation because we might need it, or sell it and then find in five years' time we need it.[65]

69. Local authorities, which also manage large housing stocks, often publish the number of voids on a monthly basis to help ensure that the relevant officials remain focused on keeping the number of voids down. Given that Defence Estates' voids figure is very high, we asked how it compared with that of local authorities. Mike Martindale explained that the reason why Defence Estates had a 10% target was because it had "20,000 move-outs and move-ins every year" as a result of moving Armed Forces personnel and their families around the country. He added that:

I think you will find in most local authorities the number is much smaller in terms of the number of people who move. The Army occupancy of a house is only, say, six months on average, which is why we need so many "voids" as a standard minimum requirement, just to accommodate the move-ins and move-outs as we move the Armed Forces around.[66]

70. We share Vice Admiral Laurence's view that the number of vacant Service family homes is too high. Defence Estates has a target to reduce the proportion of Service family homes it manages which are left vacant to 10%, but fell well short of this target in 2005-06 with almost 14% of such homes left vacant. While we acknowledge that, to some extent, the high number of vacancies reflects the frequent moves of Service personnel and their families, it also reflects uncertainty about future requirements. We recommend that, in its response to our report, the MoD set out how it plans to reduce the number of vacant Service family homes. We also expect the MoD to set out when the key decisions will be made which will provide clarity on the number and location of Service family homes needed in the future.

Home ownership

71. The MoD's Defence Living Accommodation Strategy (DLAS) aims to operate "a 'mixed economy' comprising quality public funded SFA in the right locations to support mobility and choice for those individuals who choose greater stability".[67] The MoD has introduced various initiatives to assist choice, including the long-service advance of pay scheme, whereby eligible individuals can apply for a loan of up to £8,500 towards the purchase of a house, and the joint Housing Advisory Office, which briefs Service personnel about future housing opportunities. We note that the MoD offers individuals a loan of up to £8,500 towards the purchase of a house. Given the rise in house prices throughout the UK in the last decade, the MoD should consider increasing the amount of loan offered to Service personnel.

72. The planned concentration of Service communities in 'super garrisons' will increase the potential for home ownership. We note also that the new Housing Green Paper proposes new ways of encouraging home ownership among key workers, and use of MoD land for new homes.[68] We recommend that, in the response to this report, the MoD set out how it intends to respond to the proposals set out in the Housing Green Paper, and how these policies will impact on Service personnel in areas covered by the devolved administrations.

73. There have been reports in the media that Service families living in SFA which the MoD has decided to release for sale have been forced to queue for the opportunity to buy their own homes.[69] We pressed the Defence Estates management on this point. It seems that there is no automatic right-to-buy for Service families. Annington Homes undertook, when the original deal was concluded in 1996, to offer to help Service personnel to become home-owners by allowing them discounts on the properties it sold and by offering "attractively priced" mortgages. Since 1996, 30% of sales have been made to Service or ex-Service personnel, at a total discount of £12.3 million.[70]

74. In addition, Annington has tried to reserve Service quotas on larger-volume sales, so that Service personnel or their representatives are given first refusal on 50% of the properties for sale on a 'first come, first served' basis, "provided they are in the queue by 12:00 on the launch day". When 48 homes at RAF Coltishall were sold recently, a quota of 24 was set aside for Service personnel, of which 17 resulted in sales to Service buyers.[71]

75. We welcome the steps which Annington Homes has taken voluntarily to prioritise Service families when it sells former Service Family Accommodation. However, the fact that Service families may not in practice have the opportunity to buy their own homes sits uneasily with the MoD's efforts to encourage home ownership among Service personnel.

The Housing Prime Contract

76. Defence Estates has contracted responsibility of maintenance of SFA in England and Wales out to a private provider, in the Housing Prime Contract . In November 2005, the MoD announced that this contract had been let to MODern Housing Solutions, a joint venture between Carillion Holdings Limited, Atkins Limited and Enterprise Managed Services Limited, which had been appointed as Designated Contractor in April 2005.[72] The contract with MODern Housing Solutions is for seven years, and is worth around £690 million.

77. The MoD has acknowledged that the implementation of the Housing Prime Contract was not wholly successful: "the initial service […] was not up to the standards anticipated or required". It attributes these problems in part to a large number of outstanding cases inherited when the Housing Prime Contract was introduced. Defence Estates officials were candid when they gave evidence to us. David Olney, the Director General Operations, admitted that the Contract had "got off to a pretty terrible start".[73]

78. However, the MoD has pointed to a number of achievements:

97% of emergency calls which involve an immediate health and safety risk are responded to within three hours of notification;
82% of urgent calls are responded to within five working days;
All calls to the helpdesk are answered within two minutes;
94% of customers surveyed were satisfied with the service.[74]

79. The NAO found that the problems in implementing the Housing Prime Contract stemmed in part from a "shorter than planned mobilisation period and a higher than expected number of houses being in use". Moreover, while the initial problems had been addressed, this had only been achieved with an additional £20 million from the MoD.[75]

80. The MoD must learn from the problems it experienced in implementing the Housing Prime Contract. While new contractual arrangements inevitably suffer from teething problems, it is extraordinary that the MoD had to pay an additional £20 million—a fifth of the contract value—to achieve a reasonable level of service. We expect an explanation, and a progress report, in the response to this report.

Customer satisfaction

81. Defence Estates has targets to "decrease customer dissatisfaction with the quality of property provided as SFA… and with service delivery to SFA occupants".[76] We examined the assessment of these targets earlier in our Report (paragraph 18). In order to monitor its progress on this issue, the MoD redesigned its Housing Customer Attitude Survey (CAS), to make it more narrowly focused and to exclude non-estate issues. The most recent CAS, conducted in late 2006, included overseas occupants. The MoD promised to send us the findings of the CAS as soon as they were available.

82. We welcome the increased focus on customer satisfaction in the new Housing Customer Attitude Survey and its extension to the occupants of Service accommodation overseas. We are disappointed that the MoD has still to make the results of the CAS available to us. We look for an analysis of the findings, and of the MoD's plans to respond, in the response to this report.

83. During our visit to Pirbright, we found considerable dissatisfaction with the maintenance service provided for married quarters. We visited the quarters of a Sergeant who had recently returned from Germany. She had complained of a leak in her kitchen ceiling, which had been investigated—this had involved tearing a large hole in the ceiling, leaving pipes and cables exposed. The cause of the leak had not been established, and she had been left waiting for six weeks for further repairs to be made, or even for the hole to be covered up. She and the Regimental Welfare Officer were frustrated by the inadequate repairs and the long wait.

84. We were told that personnel had no opportunity to view their property before moving, or to reject it, if unsatisfactory.[77] It is essential that there be robust inspection of property to ensure that it is habitable before new tenants move in, and wherever possible families should have the opportunity to view property before moving.

85. During our visits we encountered an attitude of resignation to poor maintenance of married quarters. The contractorisation of responsibility for maintenance seems to have left widespread confusion about how to get things done. The power to resolve maintenance issues had—in the name of efficiency—been removed from the chain of command and even from Defence Estates. There was no longer any local estates manager responsible for sorting out problems and with whom the unit command could engage directly. Both unit commanders and Defence Estates officials were helpless to resolve the situation; worse, they did not seem to know where responsibility lay nor what, if anything, they could do. At present, there is no sense that anyone has ownership of the problem: someone in the chain of command needs to be clearly identified and authorised to ensure that the contractor gets work done. If the problems we encountered are representative of the situation across the MoD's built estate, then it is a serious failure of policy. It is exacerbated by an alarming lack of recognition at senior levels that these problems are more than minor difficulties.

42 Ev 20, paras 22-23 Back

43 Q 37 Back

44 Ev 20, para 22 Back

45 HC Deb, 20 February 2007, col 618W. See too Memorandum from Bob Russell MP, Ev 29-30 Back

46 National Audit Office, The Sale of the Married Quarters Estate, HC 239, Session 1997-98, p 1 Back

47 Defence Committee, Sixth Report of Session 1995-96, Future of the Married Quarters Estate, HC 424: Oral evidence, 5 June 1996, Q 1591 Back

48 HC (1997-98) 239, p 1 Back

49 Q 31 Back

50 Q 48 Back

51 Q 59 Back

52 Q 31 Back

53 Q 39 Back