Examination of Wintesses (Questions 60-79)
VICE ADMIRAL
TIMOTHY LAURENCE
MVO, ADC, MR DAVID
OLNEY, MR
BILL CLARK
OBE AND MR
MIKE MARTINDALE
15 MAY 2007
Q60 Mr Jones: Could I just ask about
the actual contract itself. For example, on the PFI contract there
is a review clause and a refinancing you can do on it; is there
none of that in this so there is no opportunity to renegotiate?
Mr Martindale: There was a simple
straightforward sale and lease-back transaction. That is what
it was. As the Admiral has just said, it would not necessarily
be how we would do the transaction today. House prices have moved
along in, say, the last 10 years.
Q61 Mr Jones: Can I ask about the
situation in Scotland and Northern Ireland. Could you just describe
how they are managed because they are obviously not part of this
contract?
Vice Admiral Laurence: I will
ask David Olney to answer that who deals with that on a regular
basis.
Mr Olney: As I suggested earlier,
the houses in Scotland and Northern Ireland are still owned by
the Ministry of Defence, and we maintain them using a regional
prime contract in Scotland, and two of our contracts in Northern
Ireland. In that sense, they are maintained no differently from
that in England and Wales where, in England and Wales, we use
the Modern Housing Solutions prime contract to maintain the housing
stock. It is exactly the same—it is just three different
contractual arrangements to maintain that housing stock.
Vice Admiral Laurence: The principal
difference is the ownership.
Q62 Mr Jones: What about disposal
of surplus properties in those two areas; are they given priority
to Service families?
Mr Olney: We do not give priority
to Service families. We put them on the market, as I mentioned
earlier, and it is the highest bidder that wins. We abide by Treasury
rules and guidance on the disposal of surplus assets, which is
to maximise the value of those assets.
Q63 Mr Jones: Could I just go on
to maintenance and upgrading of properties. Apparently in last
year 2005-2006 you upgraded 600 properties and you exceeded your
target by 200%. I am very suspicious when people exceed their
targets by 200%. It indicates to me the target was wrong in the
first place. What has actually been achieved? If it is 200% it
is not a very rigorous target. How do actually assess and actually
set these targets in the first place?
Vice Admiral Laurence: The upgrading
of a property from one condition to another might be something
as simple as putting insulation in the loft, which might cost
a few hundred pounds, to a complete refurbishment costing £70,000.
When targets are set, perhaps an assumption was made about the
average cost of doing upgrades. My understanding is that in previous
years decisions have been taken in consultation with the customers
to focus upgrades on some of the cheaper and easier ones to do
to move more houses up to the top standard, Standard 1 condition.
That of course means that progressively as we go on we are facing
more of the upgrades becoming more expensive. The amount of money
we spend might be exactly the same each year but the numbers of
houses upgraded will reduce. In the early years, in agreement
with the customers, the idea was quick wins, get a lot of houses
done, a lot of people into better accommodation and then turn
our attention to some of the worst property.
Q64 Mr Jones: Most councils in Britain
have set the minimum housing standards by 2010. Are you under
a similar obligation to bring the Service accommodation, particularly
family accommodation, up to a Decent Homes Standard?
Vice Admiral Laurence: The Decent
Homes Standard is different from the standards we set. Our own
standards are very much more detailed and, in my view, much higher.
It is difficult to compare exactly the Decent Homes Standard with
the Grades 1-4. My gut feeling is that probably Grades 1-3 are
above the Decent Homes Standard, and some of Grade 4 would not
meet it; but I think it is a bit of a grey area. In general I
think the vast majority of our housing stock is above the Decent
Homes Standard.
Mr Clark: Just to amplify on the
condition and how it is assessed, for our condition we looked
at something like 102 metrics in eight categories to determine
what standard it is between Standard 1 and Standard 4. I think
the Decent Homes Standard, on my understanding, is much more general
and broad.
Mr Olney: It is true to say that
the vast, vast majority of our houses do meet the Decent Homes
Standard already.
Q65 Mr Hamilton: The Single Living
Accommodation, could the programme be speeded up with additional
resources, the problem you have outlined already; and, if so,
how much would that cost?
Vice Admiral Laurence: The simple
answer to your question is, yes, if I was given more money we
could speed this process up. The sum of money that we need to
spend to bring all of our single living accommodation up to a
higher standard is very significant—well over a billion
pounds, and it is really a question of how quickly I can spend
the money.
Q66 Mr Hamilton: Project SLAM, looking
at a figure here, is 2,500 which is the target, you actually exceeded
that by 3,750. My calculation (and I am not very good at maths)
is that would still take 24 years to get the remaining stock up-to-date;
and if you were on target it would take you 36 years, that cannot
be right?
Vice Admiral Laurence: If the
only means of bringing single living accommodation up to standard
was the SLAM programme itself then that is true; but actually
we produce much more modernised and upgraded single living accommodation
through other projects; through the big Allenby/Connaught, for
example; and the Defence Training Rationalisation Programme will
produce another 5,000 or so single living accommodation.
Q67 Mr Hamilton: Could you give the
Committee the information they would require of when you expect
to get to that point of upgrading all of the accommodation?
Vice Admiral Laurence: It is going
to take a very long time to get all of our single living accommodation
up to the highest standard, to Grade 1. As I say, at the end of
the last decade we set the bar extremely high and we are taking
a long time.
Q68 Mr Hamilton: The Committee has
been away in different places, and I represent Midlothian which
has the Glencourse Barracks, which has a very, very high quality
after the refurbishment which took place; I have to say, it is
excellent accommodation. I already recognise a change in attitude
in personnel staying and being retained in the Armed Forces. There
are many families I have met over the years where one of the reasons
they have left the Armed Forces is because of the poor accommodation
for their wives and families. Is that something you are mindful
of, and how do you overcome that?
Vice Admiral Laurence: I am very
mindful of it. Interestingly enough the continuous attitude surveys
that we do say that poor accommodation does not actually feature
in the top five reasons people say they leave; but I am absolutely
convinced that it is a factor in there somewhere. I am convinced
that for personnel and, in particular, their families accommodation
is a factor. Although it may not be the highest factor that people
point to, it is something we take a great deal of concern about.
Q69 Mr Hamilton: Is it still the
case that when you improve the accommodation of a single person
that you actually increase their rent accordingly?
Vice Admiral Laurence: If the
accommodation goes up into a higher condition level and a higher
grade for charge then the amount they pay can go up.
Q70 Mr Hamilton: Just so I am clear
on this, if we take an individual's accommodation and move up
to a standard which is acceptable you then charge them more rent
for giving them the standard they should have in the first place?
Vice Admiral Laurence: I look
at it the other way round: when soldiers, sailors and airmen are
living in accommodation which is below standard we charge them
less rent. They get it very cheap.
Q71 Mr Holloway: Does the accommodation
of Service personnel serving in the MoD and other places come
under your remit, in terms of managing the allowance and all that
stuff?
Vice Admiral Laurence: No, I do
not think that does.
Mr Clark: The allowance packages
are set from the Service Personnel policy branch and they are
collected through their pay systems.
Q72 Robert Key: Admiral, insofar
as they affect accommodation, could you explain to us the distinction
between a Private Finance Initiative and Public Private Partnership?
Vice Admiral Laurence: That is
a very good question, Mr Key. May I refer it to my finance Director
who will give you a more accurate answer.
Mr Martindale: I think it is best
to explain using an example and, hopefully, I will succeed. Private
Finance Initiatives essentially are transferring risk away from
the Ministry of Defence to the provider of the accommodation in
its entirety. Often essentially the accommodation, at the end
of its useful life to the Ministry of Defence, goes to the provider
of the accommodation. In a Public Private Partnership, such as
the MoDel transaction which is a classic PPP, essentially what
we have done is we have retained those assets which we require
under our ownership, and use funding generated from assets which
we do not require to effect the funding improvement to the assets
we do require.
Q73 Robert Key: How does the Catterick
Project fit into that category? Which category is that?
Mr Martindale: Catterick is not
a PFI; fundamentally it is a funding of our own improvements.
Q74 Robert Key: So that is a PPP?
Mr Martindale: Yes, a PPP.[6]
Q75 Robert Key: Is Catterick going to
be the model for future projects?
Mr Martindale: We will look at
what generates the best value for money solution in each case.
We have no particular drive to PFI, PPP or any other sort of arrangement;
whichever is the best value for money solution we utilise to improve
our accommodation.
Q76 Robert Key: Presumably you have
to have a long-term view of this as well? In the long-term which
of these kinds of deals is going to give you the flexibility that
you would wish to have in 10 or 20 years' time?
Mr Martindale: I think the answer
is horses for courses. In essence if we feel we have a long-term
requirement to own our accommodation a la Catterick then I think
the PPP is the right approach; if we feel the need for our accommodation
may be limited then effectively a PFI might be approached. It
might be 25 years rather than 100 years.
Vice Admiral Laurence: Could I
just add one point from my limited excursions into the minefield
of PPPs and PFIs, which is that there are a myriad of different
arrangements which fall under the categories. As far as I can
see each arrangement we have over this Estate is very slightly
different. That is why I think Mr Martindale is quite right to
say that we would look at every one on its own merits at the time.
Q77 Robert Key: Are Projects Allenby
and Connaught PFIs?
Mr Martindale: Yes.
Q78 Robert Key: What proportion of
your housing is now provided through PFIs? If Allenby and Connaught
are going to provide accommodation for 20% of the British Army
that is clearly PFI. Do you have any view about which system is
going to end up providing more?
Mr Martindale: I think there is
a separation between housing and accommodation. Allenby/Connaught
is providing a huge amount of single living accommodation, and
very little houses. We have a few PFIs providing houses on the
Estate at the moment—very few—and they provide several
hundred houses, no more, of the 40,000 or so houses occupied in
the United Kingdom.
Vice Admiral Laurence: You have
asked a more general question which is: what do we think about
the balance? My own view is that it is a balance we must keep
under very close review. The proportion of accommodation which
is within the PFIs is increasing. There needs to be a mix, and
we need to make sure we are not transferring too many of our accommodation
into private ownership.
Q79 Robert Key: Sparing the Chairman's
blushes, when the sale to Annington took place the Treasury's
fingerprints were all over the negotiations and the deal, breathing
heavily down the minister's neck. Presumably each one of your
PFI or PPP projects has to be approved by the Treasury. Is that
right?
Mr Martindale: Correct.
6 The work at Catterick should not be described as
a PPP because it is in fact a series of Capital projects funded
by the MOD and delivered by the private sector. Back
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