UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 535-i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

DEFENCE COMMITTEE

 

 

THE WORK OF DEFENCE ESTATES

 

 

Tuesday 15 May 2007

VICE ADMIRAL TIMOTHY LAURENCE MVO ADC, MR DAVID OLNEY, MR BILL CLARK OBE and MR MIKE MARTINDALE

Evidence heard in Public Questions 1 - 130

 

 

USE OF THE TRANSCRIPT

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Oral Evidence

Taken before the Defence Committee

on Tuesday 15 May 2007

Members present

Mr James Arbuthnot, in the Chair

Linda Gilroy

Mr David Hamilton

Mr Adam Holloway

Mr Brian Jenkins

Mr Kevan Jones

Robert Key

Willie Rennie

________________

Witnesses: Vice Admiral Timothy Laurence MVO ADC, Chief Executive of Defence Estates, Mr David Olney, Director-General Operations, Mr Bill Clark OBE, Agency Secretary and Mr Mike Martindale, Finance Director, Defence Estates Officials, gave evidence.

Q1 Chairman: Vice Admiral Laurence, welcome to you and your team. Would you please begin by introducing your team and telling us what they do?

Vice Admiral Laurence: Thank you very much. On my right, David Olney is the Director-General Operations who, as his name implies, runs the operational side of Defence Estates; on my immediate left Bill Clark, Director of Secretariat who deals with all Secretariat issues; and on the far left Mike Martindale who is my Finance Director.

Q2 Chairman: Thank you very much. This is part of a normal scrutiny process into the agencies and other bodies of the Ministry of Defence, and so we are doing this inquiry into Defence Estates. I am sorry in a way that you are being called before two select committees in two days; it seems a bit excessive somehow, but at least yesterday was a practice for today!

Vice Admiral Laurence: In the same room!

Q3 Chairman: Can you tell us what Defence Estates is exactly?

Vice Admiral Laurence: Defence Estates is the organisation responsible for delivering an Estate of the right quality and the right size for the Ministry of Defence. We sit between the customers, the frontline and other customers in the Ministry of Defence, and the supply chain, if you like to call it that, the contractors who deliver services to the Ministry of Defence. We essentially facilitate the delivery of services to the Estate.

Q4 Chairman: So you manage it. Do you also own the Estate, or do you just manage it?

Vice Admiral Laurence: Most of the assets of the Estate have now been transferred to a single balance sheet which lies within the organisation called "Defence Estates", so most of it we do; but of course some we lease; some is in other hands through private finance initiatives and so forth.

Q5 Chairman: Quite apart from being called in front of two select committees in two days, you only took up your role of Chief Executive, what, last month?

Vice Admiral Laurence: A fortnight ago.

Q6 Chairman: Thank you very much for coming to see us. What are your priorities in your new role?

Vice Admiral Laurence: Thank you for giving me that opportunity, Chairman. I would pick out four, but there are obviously more. You could say that the top four priorities are: accommodation; accommodation; accommodation; and accommodation. Certainly the first I would put is accommodation; both improving the standard of the accommodation that we have, upgrading it, bringing it up to the top condition; and also improving the standard of routine maintenance that we provide through various contractors. That is my top priority. The second priority is the need for a new overall Estate development plan. What I found coming into the job is that we have a lot of strategy and policy; we are very well served for that; but, as somebody once said, "The genius of the strategy is not in the design but in the execution". I think what we need now is an update of a really full, comprehensive execution. The last one we did was about four years ago and it needs updating. That will be an important task for me to complete fairly soon. The next priority, and we have talked about this to a degree already, is to redefine the role of Defence Estates: where exactly do we sit between the frontline customer and the suppliers? The new arrangements that have come into play over the last two or three years have now settled down; now is the time I think to review where that is going and to refine what we do; doing that will allow me to understand how many people we need in Defence Estates, and what precisely their skills should be. That will give us, the Board, a very good indication of where we need to take the organisation and who we need in it. The final priority I would point to is the whole issue of sustainability. It is absolutely vital to us to do a number of things: consume less energy and less water; to produce less waste; when we do new building to build on sustainable principles; to minimise the impact on the environment; and to look after our historic sites. I think all of those things are absolutely obvious and clear to us. My question is not whether we should be doing this but how we should be doing it. How do we do it in an affordable way? How do we make it practical to do it? When we discover good ways of doing best practice, how do we spread that best practice out across the Estate?

Q7 Chairman: You are the second largest landowner in the country, are you not?

Vice Admiral Laurence: Indeed.

Q8 Chairman: I have noticed a change, an improvement, in the Ministry of Defence's environmental approach. We will come on to that later. Last month you stopped being an Agency. What was the reason for that; and what would the consequences have been?

Vice Admiral Laurence: I will give my initial view on that, but I might ask either Bill Clark or Mike Martindale, who have had more experience of the Agency and the operation, to follow up. Two years ago we became a top level budget in the Ministry of Defence which put us on a par with the frontline commands and what is now Defence Equipment and Supply. I think that was the major change. It gave us that important status in the Ministry of Defence. Having achieved that status, the status of being an Agency became very much less important. All the disciplines of being an Agency were very well embedded in Defence Estates and will continue to be applied. In a sense, it became less relevant and the decision was taken, as I understand it, that it was no longer necessary. Perhaps I might just ask Bill Clark to add to that.

Mr Clark: I would just add, Chairman, the other thing is that we are still accountable through our key targets to the centre of the Department and, more importantly, we now are alongside the other top management parts of the Department, like the Defence Equipment and Support organisation, and like the frontline TLBs. I would also say that, in terms of reporting, instead of reporting through another Top Level Budget holder, we now report directly into the Defence Management Board and, in that sense, are held more directly accountable for delivery of services. I think the final point I would add is that our customers fully supported this - the frontline, the Armed Forces - because they actually felt they were coming into the centre of the Department and therefore work alongside them, instead of being perceived as an outside Agency in support of military capability; and for all those reasons, and bearing in mind all the Government's arrangements are as strong, if not stronger, than when we formed up as an Agency in 2003, I think it made perfect sense.

Q9 Robert Key: Admiral, nobody doubts your desire to improve the situation regarding accommodation both for married quarters and for single soldiers. The problem is that we are frequently told that any time someone is looking for a cut in an annual budget the first thing to go is housing maintenance; the second thing to go is housing refurbishment; and the third thing to go is new build. In your experience, of all of two weeks, have you come across that; and is it a challenge you recognise has got to be faced?

Vice Admiral Laurence: I certainly think that was the case ten or 15 years ago. That is the principal reason why we have inherited a backlog of work that needs to be done on the Estate. I think it is very much less true now, although in the last financial year there was a small cut imposed on the regional prime contractors which did have an impact on the Estate. My organisation argued against it at the time, and we will continue to argue against that sort of cut in the future.

Q10 Robert Key: I am sure I will be right with you in arguing against it. I think of my own constituency, for example, and Larkhill Garrison where the garrison commander invited me only last month to see the contrast of the stock that he has to work with. It may have been only a small cut but the fact is, in the regional prime contract areas, in Scotland £1.3 million worth of planned work was deferred; in the south-west 231 projects were deferred this year; 83 building upgrades were deferred; and 75 redecoration projects were postponed. In the central area there is no firm programme of upgrade work; in the eastern area there is no firm programme of lifecycle replacement works. From the point of view of the soldiers and their families this is becoming a serious factor in recruitment and retention. We are told that this is a real problem facing particularly the Army at the moment; the Navy has got it better under control, it has to be said.

Vice Admiral Laurence: All of those facts you have pointed out are true. There were a number of deferrals from last year into this which we would rather avoid. Yes, I do not welcome that; and, as I say, we argue strongly against this sort of occurrence.

Q11 Robert Key: Do you think the National Audit Office was right to suggest that Service personnel could be living in substandard accommodation for up to 20 years at the present rate?

Vice Admiral Laurence: The term "substandard" is emotive and I challenge it slightly, I have to say. I think we set our standards for accommodation extremely high. We hugely increased the standards that we set towards the end of the last decade, particularly the single living accommodation where, up to that point, it had been the norm for people to live in multiple room barracks. We have now set the standard - that we aspire for every member of the Armed Forces to have a single room with en suite facilities. That was a massive change and there is a huge backlog to catch up with that. We are doing what we can. We will not reach our very highest standards for perhaps ten or 20 years; but I do not think it is true to say that those people not living in those very highest standards are living in substandard accommodation; it is merely accommodation which is not as high as we aspire to.

Q12 Mr Jones: You rank your accommodation standards one to four, one being the best and four being the worst. How many senior officers or generals are actually in Standard 4 accommodation?

Vice Admiral Laurence: I do not know the answer to that, but I would be surprised if there were any. We have very, very few married quarters in condition four.

Q13 Mr Jones: Condition three?

Vice Admiral Laurence: Again, I do know the answer to that. I do not know if any of my colleagues do?

Mr Clark: I do not know. We would have to let you have a note.

Q14 Mr Jones: It would be interesting to have a breakdown to see, by rank, how the accommodation is kept. Can I ask a question in terms of the newspaper headlines this morning about poor accommodation, especially married accommodation. Do you actually think it is right that four generals in the Army Board cost the taxpayer in excess of £600,000 for their accommodation, and the fact that one spent £2,000 on tableware, when we are actually asking members of the Armed Forces and their families to live in substandard accommodation? Is it not about time we actually reviewed what is actually being offered to single generals?

Vice Admiral Laurence: In terms of your overall point it is not really my position to make a comment on it.

Q15 Mr Jones: It is, because you actually look after the accommodation.

Vice Admiral Laurence: My responsibility is looking after accommodation. The policy for what sort of accommodation we have people living in is set by others; but my job is to look after it. The point I would make about the recent newspaper headlines is that every piece of the Defence Estate has to be looked after. We have to spend money routinely on it. It would be wrong not to spend money on a house simply because it was occupied by a general. We have to do these things across the piece.

Q16 Mr Jones: Is not the question to ask whether you actually provide accommodation. For example, the Secretary of State for Defence himself, and I should think the ministers and certainly Mr Jefferies, does not have accommodation provided at this level, including the general in charge of Northern Ireland who has got a valet provided by the MoD. I accept the fact you are making about existing accommodation, but is it not about time we reviewed priorities and they should be looked at?

Vice Admiral Laurence: We have done two major reviews of the senior officers' accommodation in the last five years - one in 2003 and one in 2005 - and on each occasion the number of official residences and senior officers' accommodation was reduced. We undertook then to keep it under continuous review and we do that.

Q17 Mr Jones: Is that report a public document?

Vice Admiral Laurence: The Rosa Report in 2003 I think was a public document, but I would have to check that.

Q18 Mr Jones: If it is, could we have a copy of it?

Vice Admiral Laurence: We will look into that and let you know.

Q19 Robert Key: Could I return now to the question of future plans for accommodation. The drawdown from Germany is going to take many years to complete. We are already aware of what is going on with Project Allenby, particularly in my constituency. What are the implications of the drawdown from Germany of the provision of accommodation? You presumably have a plan stretching into ten, 15 or 20 years - could you tell us what you are up to in that area?

Vice Admiral Laurence: I will turn in a moment if I may to David Olney who is more up-to-date on this than me. It is a very significant challenge for us. We have over 20,000 troops stationed in Germany. We are in the process of bringing some of them back at the moment. We aspire to bring more back in the next three to four years; but there will still be quite a number left behind. In terms of our overall strategy for this, we aim to make use of vacant properties in the UK as they become available. We have a long-term aspiration to create super garrisons for the Army in the UK. We would like to develop super garrisons in areas which, at the moment, do not have a very big military presence - possibly in the West Midlands which might be the first, and then looking elsewhere round the country, perhaps the East Midlands and the north-west. Our overall strategy is to look for opportunities over the long-term to bring units back from Germany into areas where we are keen anyway to develop a military presence.

Mr Olney: Just to amplify the answer, we have a study on at the moment with the Army looking specifically at the housing requirements as they draw down from Germany, particularly looking at various locations such as Catterick, potentially Emsworth and potentially other sites. That study is looking at: firstly, the condition of the housing stock we have in those areas; what would we need to do with them; secondly, it is looking at options to lease off the market; going to house builders, looking at their plans and working with them to lease off the market; and, thirdly, potentially looking at what new-build we would need to arrive at. Clearly, we have to comply with the planning system, and so these are long-term plans and that is why we are working them up now.

Q20 Robert Key: Of course, contrary to that is the Future Capabilities White Paper prediction that there will continue to be a reduction in the numbers across all three Services. Does that mean future sale of accommodation; or will that accommodation just be snapped up because of the drawdown from Germany?

Vice Admiral Laurence: Again David Olney may want to add to this. The principle is that we keep property that we know we need, and that we have a use for in the future, but any sites that we do not believe will have relevance in the future we dispose of. Say, for example, we have an individual barracks in an area isolated, without any services around it, a small barracks perhaps which is expensive to maintain but would be valuable to the local community or local developers - that would clearly be a high candidate for disposal. If we had a barracks with some family accommodation in an area where we anyway wanted to bring people in, we would probably try to hold on to that and wait for the right moment to bring people back into it.

Q21 Rennie Willie: Robert was listing out a long list of deferrals earlier and you seemed rather relaxed about it. We hear from defence ministers constantly there is a step change in the refurbishment of accommodation but that does not seem to tie up with our response to Robert's list of deferrals?

Vice Admiral Laurence: The aim of the deferrals exercise last year was to target it away from accommodation as far as possible. As far as I am aware we managed to achieve that. Most of the deferrals were to technical accommodation, workshops, hangars and so forth. I am not relaxed about any of that actually. I do not like deferrals; it is just putting off the problem until later; but I think at least we did manage on the whole to protect accommodation.

Q22 Mr Jenkins: While listening to your plans for bringing back individuals and increasing the Estate, I heard nothing in regard to the opportunity of serving members to buy or get on the property ladder. Do you have any plans for, say, earmarking some of the MoD land, giving it or selling it very cheaply to a developer with a view to building houses on that site which would be reasonable, or to a good standard, to allow serving members of the military to buy it? They may not be there, but somebody else would rent it, but they would have a foot on the property ladder; with the condition, of course, that only persons in the serving forces could actually live on that Estate?

Vice Admiral Laurence: Absolutely. There are lots of ideas on that front. David Olney might be the best person to answer that.

Mr Olney: You are absolutely right, we are looking at a number of opportunities to see whether we can do an equity share scheme or purchase to buy, and we are talking, for arguments sake, with housing associations to see how they work it; and we are talking to some banks and insurance companies to look at options there to see whether we can get investment from that quarter. It is early days but we are exploring a number of avenues to see whether we can get our people on to the housing market.

Vice Admiral Laurence: The overall policy is for a mixed economy of housing to encourage people to buy a house where they want to, and where they have the means to do so.

Q23 Mr Holloway: I think that is very much the point that Mr Jenkins raises. Soldiers that I served with who have now done their 20 years and are just leaving now a lot of them are in all sorts of grief in terms of the property ladder. When do you think some proposals on that might come up?

Vice Admiral Laurence: The policy has been in place now for a couple of years, but there is an inevitable (perhaps "conflict" is too strong a word) balance to be struck between, on the one hand, encouraging unit cohesion and encouraging people to live on the patch, so to speak; and, on the other, encouraging people to buy their own house which brings responsibilities away from the unit. There is a balance to be struck there and I think we are moving forward slowly. I personally think one of the most important factors in all this is to meet the aspirations of our people. If they are wanting to buy houses, if that is what they see as the way ahead, then I think we ought to help them to do so where we can.

Q24 Mr Holloway: They might also be encouraged, because it probably does not occur to a lot of squaddies.

Vice Admiral Laurence: Absolutely.

Mr Olney: As you know, the housing stock is leased back to Annington. Where we do release housing back to Annington they do have a policy of, in effect, first refusal to our former Armed Service. That has certainly happened in a number of cases.

Q25 Chairman: Mr Olney, could we look at a sentence from our brief, and I do not often do this: "... there has been some disquiet that the Service families currently in such properties have not automatically been given first refusal on the purchase of their homes". Is that wrong?

Mr Olney: They do not automatically but they are certainly given help and support to acquire property. The recent one which was in the newspaper was Cottishall where there were a number of former servicemen who acquired property.

Q26 Mr Jones: I was speaking last night to Bob Russell, Member for Colchester, who was quite exercised about this. He said what you have just said is not true; families are not given first priority for these homes. That is why you have the situation about the people camping out. By your answer, I am not really clear what this priority is. What does it actually mean?

Mr Olney: Would it be worthwhile if I provided you with a note, which would provide a fuller answer?

Chairman: Certainly it would; but if it leaves us in confusion we might need to ask you to come back in front of the Committee, because it is something that we will want to clear up, so if you could give us a note.

Q27 Mr Jenkins: Could it not include the number of properties actually sold as a total? What the ratio was would be very interesting.

Mr Olney: Could I just clear up that point. We will hand properties back to Annington. I just want to make it clear, we would not sell them.

Mr Jones: We know how it works.

Chairman: Could you give us a note, please. Could you also explain how it is that they are sometimes given the right of first priority but not automatically, and when that difference arises.

Q28 Mr Jones: Chairman, could we have the percentage of homes that have actually been sold; that would be interesting.

Vice Admiral Laurence: We will try to find that information out. I have a feeling it may be difficult to produce, but we will see what figures we have got.

Q29 Mr Jones: Chairman, I am sorry, but if you do not know that information how can you monitor that the actually policy is in place that you just told us about?

Vice Admiral Laurence: It is a fair point.

Mr Hamilton: Mr Olney indicated about selling to housing associations. I might point out that they sell houses; they do not purchase; you cannot buy from housing associations. If you have sold houses in Scotland and you have sold them to housing associations that means effectively that anyone in that house cannot purchase a house because they do not have that policy. If you indicate who you are selling the houses to, you need to also tell us what the policy of that organisation is in relation to the purchases of the council housing. Another thing we should be mindful of is when you are talking to various organisations you should also be mindful that many local authorities prioritise Service personnel when they come back; and, therefore, that should be a factor driven into the issue of selling houses. They should be considering the local authorities who actually prioritise Service personnel who come back in again. It would be interesting to see that.

Chairman: Could you frame that into a question? Would you like a response on that?

Mr Hamilton: I am making an observation when Mr Olney said they are selling houses, including housing associations. If you are selling to housing associations, housing associations do not have the right to buy in Scotland.

Q30 Chairman: Is there a distinction between England and Scotland in that respect, Mr Olney?

Mr Olney: There is a distinction, in the sense that in Scotland we own the houses and, therefore, we do dispose of them. Mr Hamilton is correct, in some cases we do dispose of them to housing associations; and in others we dispose of them individually, whereas in England and Wales the vast majority of the houses are leased.

Mr Jones: Can I turn to something which the Chairman has got form on, and that is the sale of the SFA to Annington Homes.

Chairman: By the way, everything you are giving evidence on you need to know this is all my fault!

Q31 Mr Jones: It was ten years ago, but could you give us an assessment, has it been successful in delivering the expectations that were in the sale; and what lessons could be learnt? Could you also perhaps give us an overview, and I know this did not apply to Northern Ireland or Scotland, of how Northern Ireland and Scotland are managed?

Vice Admiral Laurence: Let me start with an overview of the Annington's deal, and this is an issue which has been crawled over at some length of course and I know that this Committee and the Public Accounts Committee have looked at. I think with the benefit of hindsight, looking back now, it does not strike me as being a great deal; and the price of the property that was sold has risen very significantly; but what I would say is I think 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; it is taking time to settle down but it is beginning to work a lot better. The arrangements are satisfactory. If we had our time again perhaps we would have done this in a different way.

Q32 Mr Jones: It says in the brief that some properties are now being sold by Annington as the leases expire. How does that work? Are different properties on different leases?

Mr Martindale: The Annington transaction is essentially, the MoD sold the long lease on all the land for 999 years, and leased back all the houses for 200 years. Every house is on effectively a 200-year lease. As the MoD decides it has no longer any use for that house it effectively then releases them in batches back to Annington who then sell them, as David explained earlier. Essentially where it refers to the lease coming to an end, it means the MoD no longer has a use for that house, rather than the lease coming technically to an end.

Q33 Mr Jones: In terms of when the house is sold, am I right that a certain percentage comes back to the MoD?

Mr Martindale: To the Treasury through the MoD.

Q34 Mr Jones: Is it correct that by 2011 that deal finishes and goes to 100 per cent?

Mr Martindale: Yes, correct.

Q35 Mr Holloway: Do you have any idea what has happened to Annington's share price since the deal was made?

Mr Olney: It is part of a bank.

Mr Martindale: The asset value has gone up is the answer to your question.

Q36 Mr Jenkins: When you give up the 200-year lease, how much do you get for that?

Mr Martindale: Nothing.

Q37 Mr Jenkins: Do you give it for free?

Mr Martindale: Essentially the Annington transaction was a sale and lease-back transaction. Annington gave the Ministry of Defence £1.67 million in return for us leasing the houses back for up to 200 years. Essentially when we effectively no longer require the house we hand it back and have no rental obligation beyond that point in time. In a sense, what we get back is the savings on rent and rates.

Q38 Mr Jenkins: I tell you why I find that interesting because I have got a local football club and the local authority bought the ground and they got a 99-year lease; and now they want to move off that ground into a new stadium; but to move off that ground will probably cost either £1 million or £2 million because the council then can redevelop the site and make £3 million or £4 million and the football club will share by giving up their lease. You do not appear to do that. Are they smarter than you, do you think?

Mr Martindale: The Treasury shares in the profits that Annington makes when they sell the house.

Q39 Mr Jenkins: They are giving up their lease now as it rolls out, it is a valuable asset so the company is going to enjoy the benefit of that; but you are not going to share in it at all?

Vice Admiral Laurence: The equivalent for this is say we give up a block of houses somewhere because we no longer need them and Annington decides to sell them; there is a share that comes back to the Government but, sadly, it does not come back to me; it comes back to the Treasury.

Q40 Mr Jenkins: So the Government shares. In the early release of the lease the Government has a share?

Vice Admiral Laurence: Yes, they benefit from the sale of the land if Annington sells it on.

Q41 Mr Jenkins: That is outside your jurisdiction and we would have to ask the Treasury for that?

Vice Admiral Laurence: Indeed.

Q42 Chairman: The Treasury has got more of a hold over the Ministry of Defence?

Vice Admiral Laurence: That was the deal.

Q43 Rennie Willie: This deal, by way of the share going back to the Treasury in 2012, does that mean there is an incentive to ship off the houses before 2012? Is there a rush before that period in order for you to get a share of the value?

Vice Admiral Laurence: We have not regarded it as being an incentive for us to sell. Certainly though it does not hold us back from selling, if you like. If it was the opposite arrangement we might be discouraged from selling, but we are not. As I said earlier, when we discover we have got houses that are in the wrong place, are in a poor condition and are not right for our people then we are quite happy to sell them.

Q44 Rennie Willie: There is no pressure at all? You would not find that round about 2011 a whole lot of houses get shipped off?

Vice Admiral Laurence: I would hope not, but I think the pressure to give our people the best accommodation is much stronger. The balance is really how much accommodation we need. The Germany factor we talked about earlier is probably the biggest determinant in that.

Q45 Rennie Willie: Could you see after 2012 a few houses being sold off?

Vice Admiral Laurence: Again, the calculation for us is essentially: do we want them; and do we want to pay the rent on them, and the cost of maintaining them? If we do need them we will go on doing those things, but as soon as we do not need them and we cannot foresee a future use them there is absolutely no point in us maintaining them.

Q46 Rennie Willie: Do the Treasury put any pressure on you?

Vice Admiral Laurence: I have not received any pressure from the Treasury.

Mr Clark: There are not targets.

Q47 Mr Jones: Apart from wanting to provide good accommodation, what is the incentive to improve these properties if you do not actually own them or, as Willie Rennie said, would not be able to sell them at a future date?

Vice Admiral Laurence: There is one incentive. Over and above the incentive of doing the right thing for our people which is by far the strongest, the other incentive is that when we hand houses back to Annington for disposal they have to be at a minimum agreed standard of condition. If we allow them to drop below that it costs us to put them right before we can release them.

Q48 Mr Jones: Would it not be cheaper, even at this point, to actually buy this contract back, because it is going to be a bad deal in the long-term, is it not, after 2012 when you do not get any sale asset?

Vice Admiral Laurence: I know what my answer to that would be, but I will ask my Finance Director to answer that.

Mr Martindale: I think we have not done an investment appraisal to decide whether the price that Annington would ask is the right price compared with the long-term liabilities we may have. I think Annington's price would be massively in excess of the cash they paid the Ministry of Defence in 1996. I think affordability might be a bigger challenge rather than anything else. Could the Ministry of Defence find that sort of sum of money? In essence, however, Annington can place no pressure upon us to release houses for any other reason. It is entirely our decision to release any houses to them. We only release houses which have no defence purpose. It would strike us as 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. In a sense, the transaction was in 1996 for very good reasons.

Q49 Mr Jenkins: When you said you handed back the property and it must be to a minimum standard, is that minimum standard higher than Service personnel are living in in some other parts of the Estate? Are you spending money to get rid of property, rather than spending it on the living conditions?

Vice Admiral Laurence: I do not think so.

Mr Olney: I think it would be fair to say that is possibly the case for those living in the very lowest accommodation, which are very few. We have to bring it up to what is called "good tenantable repair". That means that the heating systems work; the wiring systems work; that the decoration is there. It is as though someone could move into a house.

Q50 Mr Jenkins: We are spending money on bringing accommodation up to a decent standard to hand over and out of the Estate, and this is probably a better standard than people are living in on the Estate. I find that perverse. I understand your problem.

Mr Olney: I cannot say hand on heart that every single Service person is living in accommodation which is better than that which we would hand over. I cannot say that hand on heart. The vast majority will be living in accommodation which is as good as accommodation we hand over.

Q51 Chairman: Can you say what proportion of Service personnel is living in accommodation which is not in as good tenantable repair?

Vice Admiral Laurence: That is a difficult question to answer. If you would like us to have a think about that, we can certainly do that and come back to you on that.

Chairman: I think it would be helpful to know, because if the second largest landowner in the country has a proportion of people living in accommodation which is, by that definition, substandard we need to know about it, particularly if it is people who are fighting and dying for us.

Q52 Mr Holloway: Returning to Robert Key's list of things which were cancelled or deferred, are we seriously saying we are spending money bringing up to the required standard properties to be handed back to Ferrari-driving residents, like the residents of Sevenoaks, and yet we have got people coming back from Iraq and Afghanistan, in some cases staying in stuff that is deeply substandard? I find that quite bizarre.

Vice Admiral Laurence: Let me just try and bring some rationality to this. The situation is 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 or four years, perhaps longer, and we want to get rid of them, there is a balance of investment to be taken. On the one hand at the moment we are paying rent for them; and, secondly, we are paying money to maintain them. So there is an outgoing attached to it. We might reach a judgment that that is no longer required and we want to get rid of them, 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. That is a relatively small amount of money and it is an investment we have to make in order to reduce the liability of having these houses.

Q53 Mr Holloway: Do we leave properties empty that belong to the taxpayer without realising any money for them?

Vice Admiral Laurence: In some cases it might happen, because the site might have been earmarked for a unit returning from Germany. The Army might have been asking us to, "Hang on to that for the moment because we want it". Our instincts in Defence Estates are that whenever a site is vacated to dispose of it; but there are occasions where the customers say, "No, please hang on to it. We might need it", and there is a difficult balance there.

Q54 Mr Jones: One of the big incentives when I was a councillor was the figure you had to look at every month for the number voids you had. Could you provide us with a figure, because I think it is an important point, where you are paying rent on empty properties? Could you provide us with a detailed breakdown; that would be helpful?

Vice Admiral Laurence: The number of voids is an issue we track very, very closely indeed. In fact, we answer questions on that quite regularly. 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.

Q55 Mr Jones: The committee could perhaps meet every month. It used to be a very telling fact in the city council, when they had the voids figure before the housing committee every month, to have public exposure to this. It might be an idea to keep publishing this on a monthly basis, which might then concentrate people's minds to get the void levels down - it certainly did on most councils.

Mr Clark: We actually have a key target to hold something around the ten per cent mark. That is what is called a management margin, which is a void, which we are above and reported that in the annual accounts when we were an Agency, and have reported in the 2006-2007 Accounts. There are reasons for being above some of which, as the Chief Executive has said, are because we holding them at the customer's request and holding sites for possible future deployments; and some are also classed as voids, for example awaiting modernisation, awaiting allocation, or awaiting disposal. We can provide that information quite readily.

Mr Hamilton: I find it rather difficult, there are three MPs sitting here who used to be on local authority councils and therefore know about housing issues, and Kevan is quite right it is one you have got to keep on top of all the time.

Chairman: I was once a chairman of a housing committee.

Mr Hamilton: I am sorry, Chairman. I am not used to knowing about many Tories, that is the problem!

Q56 Chairman: In your comparison, Mr Clark, could say how that voids figure compares with the average of local authorities in the country, because it sounds a very, very high figure?

Mr Martindale: If I could just help the Committee's understanding. Part of the reason we have this ten per cent margin as Bill explained is that we have 20,000 move-outs and move-ins every year due to the sharing of military forces around the country, which 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.

Q57 Mr Holloway: With hindsight do you think that what has happened here has been unsatisfactory and, if so, what lessons have you learned for the future?

Vice Admiral Laurence: In what respect?

Q58 Mr Holloway: The whole Annington Homes thing we have been discussing for the last half an hour.

Vice Admiral Laurence: As I say, as a financial deal I think with the benefit of hindsight we probably would have done it in a different way; but I do not think the way we managed the housing stock is unsatisfactory. I think it is a perfectly satisfactory arrangement albeit I would like to do it better.

Q59 Mr Holloway: How did you find the financial deal unsatisfactory?

Vice Admiral Laurence: I just think with the benefit of hindsight had we held on to the property and gone down the route we have gone down for contractual management we might have found, in the longer term for the public benefit, we would have financially benefited; again, with the benefit of hindsight. 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.

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 or 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 ten 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 per cent. I am very suspicious when people exceed their targets by 200 per cent. It indicates to me the target was wrong in the first place. What has actually been achieved? If it is 200 per cent 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 the bases.

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 Moddel 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.

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 ten 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 á 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 per cent 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.

Q80 Robert Key: They set the rules?

Mr Martindale: Yes, the Government set the rules.

Q81 Robert Key: Perhaps we should be inviting the Treasury to give evidence as well? Could I turn specifically to another area which affects all accommodation, and that is Project Acquatrine which is a huge project but it so far is having an enormous problem because, for example, in terms of water provision you did not know the actual consumption of you the customer when you did the contract, when you started four years ago when the contract was signed up. I think I am right in saying one of the big problems was that Ministry of Defence establishments had no idea how much water they used, therefore how much was leaking, therefore how much you should pay the new contractors under Acquatrine, and what progress you are making there?

Vice Admiral Laurence: Probably David Olney is the best person to answer that. You rightly highlight a problem which is, establishing a base line before going into these contracts is very important but also extremely difficult. One of the reasons why we established these contracts is because we do not have a very clear grip, or we did not at the time, of what consumption and maintenance standards were in these areas. David, could you expand on that?

Mr Olney: I think what we are doing with Acquatrine, as you say, is putting a considerable investment on the private finance, because it is a PFI. The three consortia are putting considerable effort into putting additional meters into our Estates so we can substantially reduce the leakage rates. I do not have the figures with me but I know for arguments sake we have made considerable inroads into leakage rates on the Estate.

Q82 Robert Key: That is clearly something for the future. There is one other aspect of this that I think is very important. When it comes to the disposal of surplus assets can you confirm that one of the real problems you face is that there is an absence of electrical health and safety certification in most of the Ministry of Defence Estates because you never had to conform to national standards and, therefore, selling on to the private sector is a dodgy business without any safety certification?

Mr Olney: Are we referring to the Acquatrine?

Q83 Robert Key: No, I am moving on from Acquatrine to the general issue of selling surplus property which does not have certified electrical circuitry and provision.

Mr Olney: There may be an instance, I cannot say, where that does not take place but the vast majority of assets which we own, whether we dispose of them or use them ourselves, will have the appropriate statutory and mandatory inspections and work done on them. We certainly do comply with health and safety. Indeed, one of the main advantages of moving to our recent prime contract initiative has been to improve our record in health and safety. I can assure the Committee that the Estate is in a very, very good health and safety conscious condition.

Q84 Robert Key: Have you had any difficulties though with getting electricity companies to accept responsibility for properties which are provided wired to Ministry of Defence standards?

Mr Olney: I am not aware. I am not aware.

Q85 Robert Key: Then things have changed, and I am glad to hear it! Your total budget is about £3.3 billion a year - something of that order. Is that right?

Mr Martindale: The NAO have estimated the expenditure on the estate to be around £3.3 billion but Defence Estates is much smaller than that. Of course, that budget includes the cost of capital and depreciation charges on the asset base which the Ministry of Defence owns. So our budget is round about £1-£1.5 billion in Defence Estates.

Q86 Robert Key: What proportion of your budget is tied up in PFIs or PPPs?

Mr Martindale: £100 million of our budget, so less than 10 per cent.

Q87 Chairman: Can we move on to the Housing Prime Contract. Can you tell us, please, how it works and how does it tie in with the Annington Homes Deal?

Vice Admiral Laurence: Again, I think you will get a more accurate answer if I ask David Olney to answer that, in terms of the practicalities of how it works.

Mr Olney: In practical terms, the Housing Prime Contract is there to react to householders' calls to maintain their living standards in their house. It provides, also, the ability to upgrade houses if we inject additional money into it, and it provides the ability - again, if you put money into it - to provide long-term, life-cycle maintenance of the house. What do I mean by "life-cycle"? I mean as assets come to the end of their life we repair boilers, we replace boilers, we undertake decorations and we will renew and replace kitchens. So there are three main constituent parts of the MHS contract: reactive maintenance, life-cycle repair (the sort of things you and I would do on our houses - painting and decorating, replacing new kitchens) and upgrading houses to a high standard.

Q88 Chairman: How does it tie in with the Annington Homes Deal?

Mr Olney: It does not tie into the Annington Homes deal at all; it is simply the mechanism we use to maintain our estate in England and Wales. We use that mechanism to maintain property in England and Wales which we own ourselves, because there are still some, as well as the Annington-owned and leased back houses.

Q89 Chairman: In the MoD memorandum there is a rather more favourable outline of how it all has been working out than was produced by the NAO report in March. Do you accept that there were difficulties, delays and problems which caused some serious concern to service families? Why is there a discrepancy between the NAO report and the way that the MoD memorandum paints the picture of the Housing Prime Contract?

Mr Olney: I certainly do accept that the Housing Prime Contact got off to a pretty terrible start. What I would say is that if you were to now look at the performance, some six to nine months later, we have markedly improved that performance. As of this week, for argument's sake, on the help desk, whereas at the start we were answering some 50 per cent of calls within two minutes, that is now 99 per cent of calls answered within two minutes. If you were to look at our emergency, we have three standards of call-out, and we achieved 99 per cent of emergency repairs within the time.

Q90 Chairman: So there is obviously an improvement.

Mr Olney: A marked improvement over the last nine months.

Q91 Chairman: So what lessons have been learnt from how it went wrong in the first place?

Mr Olney: That is a good question. Why did it go wrong? Then we can answer the lessons. Why did it go wrong? One, there was, clearly, a higher backlog of work than we had calculated. It is clear, also, to say that as the old contracts were running out people were saving up work waiting for the new contract to take place, and kick in. Secondly, the IT systems which the contractor put in were not up to speed quick enough. Thirdly, the organisation of a supply chain was not as slick as we would have liked, and I think we underestimated the extent to which you can mobilise such a large housing contract nationally. Clearly, this company maintains local authority and housing association houses elsewhere round the country, so we looked carefully at that. Those were the main reasons for the disastrous start. One of the lessons we have learned, clearly, is to look more carefully at the backlog, which we will do in future; secondly, to ensure that we have really slick IT systems in place beforehand and, lastly, to make certain that the supply chain is far more effective. I would say on the supply chain that, of course, originally we had some 50 different contracts maintaining the housing stock and, with TUPE, to mobilise and re-energise that supply chain in such a short period of time was also a big issue. We have learned a lot, and indeed in learning that is how we have managed to improve the service to families and householders so much.

Chairman: It is very refreshing when people come before us and say that they have had a disastrous start. It would be helpful if MoD memoranda were phrased in that sort of language so that we could know in which direction it might be most helpful for us to focus, but thank you for accepting that and for setting out how it is that you are progressing these issues because they are very important. Moving on to Training and Exercise Areas.

Q92 Mr Holloway: You said there was a change to working with Landmarc for training areas. How has that worked out so far and what sort of problems have there been, if any?

Vice Admiral Laurence: Again, I think we are overworking David but he is the expert on these operational areas. David, if you would not mind saying how it is going.

Mr Olney: Yes, the Landmarc contract transferred to Defence Estates in April 07 (it was previously run by the Army) and I have to say it is working extremely well. The quality of food has improved since its inception; I think we have delivered over four million meals - a considerable number of meals. Its management of the estate is working well. We are looking now to see whether we can improve, clearly, and to transfer more risk to them, as part of our work to drive more efficiencies and effectiveness out of the system. It is an example of a contract which is working well.

Q93 Mr Holloway: What are the implications vis-à-vis the drawdown of troops from Germany into training areas within the UK?

Mr Olney: That undoubtedly will put pressure on training areas in the UK, and it is a piece of work that we are doing with, in fact, all frontline services to look at the implications of that. The work we are doing is trying to match better the supply and demand of the training estate - i.e. as we draw down, what will be the future demand? Clearly, if you are going to bring troops back from Germany, places like Salisbury Plain will come under increasing pressure as to managing in a sustainable way.

Q94 Mr Holloway: Will there be implications for the Air Transport Fleet, for example, in increased use of Baathists (?)? Will we still be using, for example, the sort out training area?

Vice Admiral Laurence: Strategically, we have got a number of difficulties to contend with. The fact is we cannot, on the mainland UK, do major formation exercises; we have to do that overseas. We will need to look at the areas that we use for the units in Germany at the moment to see if, when the units eventually come back to the UK, we can hang on to the training facilities there, perhaps. That might be another way of doing it. You are absolutely right; this is going to bring some strains to the system.

Mr Olney: It is certainly one of the considerations. We talked about earlier all the work we are doing on looking at bringing troops back from Germany. It is certainly an important factor, as to where they will train and what are the impacts on training land.

Q95 Mr Holloway: Finally, what will happen to, physically, the ownership of the training estates after you have had the Defence Training Review? Will it remain with the MoD or will there be some newer type of arrangement?

Mr Olney: That does not change.

Mr Clark: A charge is made to the Defence Training Estate.

Vice Admiral Laurence: It will affect some of the training establishments. For example, St Athan, which will be the main centre, will be under a different arrangement but the actual rural training areas will not be involved in that.

Q96 Mr Jenkins: On the exercise areas mainly, in the last few years have we noticed a downturn in demand for people applying for exercise areas and training areas?

Vice Admiral Laurence: Downturn in demand by service units or by ----

Q97 Mr Jenkins: By units, I presume. Yes, service units.

Vice Admiral Laurence: I do not think so. I do not think there has been a general downturn in the use. Obviously, when a number of troops are deployed overseas, when they are overseas they cannot use the UK bases, but there is a great deal of training and preparation for overseas deployments. I do not think the general level of training has decreased.

Mr Olney: Indeed, our training, as the Vice Admiral has said, in support of operations is the highest it has ever been for a long, long time. Key parts of our training estate are heavily used.

Q98 Mr Jenkins: I am trying to clarify something in my own mind because we have been told, on a number of occasions that due to the operational tempo - the turnover in overseas demand - we are doing substantially less training, and this has had a knock-on effect. If we are doing substantially less training, where are we doing that substantially less training, because you have got more ---

Vice Admiral Laurence: No, it is a very valid question. Very often the first things that are cut are overseas exercises that we might have planned bilaterally with other countries: the Navy exercising with the United States, the Army travelling to do some exercises in the Caribbean, or something like that. Those tend to be the first ones to go, partly because of the time involved and the pressure on the transport fleet and partly because of the cost. The central basic training in the UK, both for individuals and for units, tends to remain at pretty much the same level.

Q99 Mr Jones: Can I turn to defence rationalisation of the Estate. Clearly, in trying to manage any type of estate there is stuff that becomes surplus to requirements and, also, refiguring the estate to get the best operationally. Is there a logical end-point to this review of estates? Would you tell us a little bit about where you are with it at the moment?

Vice Admiral Laurence: It is an interesting question because, normally, when one sets off on a rationalisation programme you want to know where you start and you want to have a clear end-state. I suspect there will be an element of continuous change about the Defence Estates. I suspect that by the time we have reached what looks like the end-state, at the moment, we will find we want a different end-state. Certainly in my vision for the future of the Estate I see more of the super garrisons that the Army wants to create, perhaps establishing that pattern across the country; the RAF are reviewing their bases and they, too, want to rationalise and want fewer core, major airfield sites, and the Navy has a big decision to take about the number of naval bases that it wants, and a slightly smaller, but nevertheless important, decision on the number of training establishments that it wants. I see that, overall, the number of sites will decrease, the size of sites, in general, will increase, but that is a general picture of how I see it moving over the next 10 to 20 years.

Q100 Mr Jones: That is the big picture stuff and, certainly, the change to the arms plot, for example, is going to influence that, but what about day-to-day disposal? Are you, for example, actively looking at sites across the UK to see whether, for example, in the large, inner cities, you need the garrisons or buildings? Does that include TA accommodation? Does that come under your remit as well?

Vice Admiral Laurence: It does indeed. We do look at the TA, increasingly. It has only recently become part of Defence Estates, but I think that is very useful because it brings the TA estate much more into consideration with the regular estate, which I personally think is a good thing.

Q101 Mr Jones: Can I give you a suggestion? There is a site that must be worth a fortune to you, mainly down to the foresight of both Gateshead and Newcastle City Councils at the time, who had the foresight into development, and that is HMS Calliope, which sits on the banks of the Tyne. Talking to the leader of Gateshead Council a few weeks ago, they are still in discussion on moving this prime site, and apparently it is the locals who like a very nice bar overlooking the Tyne Bridge that seems to be holding this up. What, in effect, are you actually going to have to do, because that is a prime site which is doing two things: one, it must be worth a fortune for disposal and, secondly, it is holding up development of the quayside on the Gateshead side of the Tyne?

Vice Admiral Laurence: I suspect Calliope is a classic example of where, in order to attract people to join the Armed Forces, whether it be the reserves or the regulars, we like to have our establishments close to centres of population, ideally well located so that they are easily accessible.

Q102 Mr Jones: You have got one across the other side of the river - the Royal Marines' new headquarters.

Vice Admiral Laurence: That is very true. I visited that site myself and it is an excellent headquarters, and there is probably scope for rationalisation there. However, there is always a balance between ourselves wanting to maximise the value of the estate and, perhaps, disposing of assets which we can live without and which are high value, and the customer saying: "No, we want to keep this because it's important to us".

Mr Jones: Can I give you some advice: I would look at it very closely, because the reasons for retaining it, I think, are questionable.

Chairman: I thought you wanted to sell off all the Generals' residences (?).

Q103 Mr Jones: I do as well! That was just annoying because it is actually stopping some very good development, and there is clearly accommodation locally for ----

Vice Admiral Laurence: I know we are looking at this individual issue and I will certainly take it away and have a look at it myself.

Q104 Mr Jones: Can I turn to one disposal, which is Chelsea Barracks. I wonder if you can tell us something about it, and whether or not you could comment generally on the rules that govern disposal, and what you can do with the receipt you get from it. Are they too rigid? Do they need changing? Does the money come back to you? Can you explain exactly what the rules are?

Vice Admiral Laurence: I will start on both the specific and the more general, and I may hand over to Mike Martindale if I get my facts wrong. On the question of Chelsea, the Army decided a couple of years ago that they no longer needed the site. The decision was taken to retain Woolwich, invest in Woolwich and release Chelsea for disposal. That disposal has now proceeded to the stage where we have an understanding with a prime bidder, the deal is effectively done, but it is, though, not completed until January 2008. So the details of the deal must remain confidential. On the general question of disposals, effectively the receipts from disposals come back to the defence budget. Now, it is not quite as simple as that because whenever a spending review is held a calculation is done, a prediction, with the Treasury as to how much we are likely to receive over the next three years, and that calculation is built into the calculations done as to the size of the defence budget. If we exceed those targets, in principle the arrangement is that the money is retained by the Ministry of Defence, but that is, of course, subject to discussion with the Treasury, and I can well imagine that over the Chelsea issue there will be quite an important discussion, bearing in mind that we are in the process of negotiating spending review 07.

Q105 Mr Jones: Do you think they are flexible enough? I know when I looked after Newcastle City Council's property portfolio, as chair of estates and property, one of the things we used to do there is dispose of property. We then used to acquire the property or, perhaps, reinvest some of that money in other areas which improved the quality of your overall assets. Are you allowed to do that? Is it allowing you the flexibility to not just, perhaps, purchase new estate but, also, perhaps, sort out freehold issues and anything else like that, which makes the value of the overall estate more?

Vice Admiral Laurence: Effectively, the receipts from disposals are used by Defence Estates to invest in other parts of the Estate. That is how it works. If we can make higher receipts from selling rather better, my first response to the Ministry is: "I would like to keep that money and invest it in the estate", but of course this is a matter for the
Defence Management Board to decide because they may decide that they have priorities to provide protective vehicles for our troops or something.

Q106 Mr Hamilton: You indicated at the beginning and, indeed, reiterated again about relocation into North England. I think you said there is a garrison in that area. Is that then an opportunity to sell some of the substantial land that you have in the South, which is extremely high priced? If you are going to move substantial numbers of people up to the North, surely it makes sense to move the headquarters if nothing else, and make a nice, tidy profit which could then be reinvested in the North.

Vice Admiral Laurence: Yes, with a caveat. As you know, we have been subject to the Lyon's Report and we have been moving people and properties out of the South East of England, and that continues to be our intention. The caveat is, of course, that if we are bringing people back from Germany we are not able to sell sites in the UK that they are vacating; they have to come back into new sites. So it may be that the Germany equation means that we might have to invest in new areas, possibly in the North, possibly in the East Midlands, and not have anything to sell in return. Most of the defence estate in Germany is leased or is used by us but is owned by the Federal Government.

Q107 Mr Hamilton: The land value in the South East is such that you could get substantial amounts of land in the North, surely - and it would go further in Scotland, where you can get a better deal

Vice Admiral Laurence: Where we do not need properties in the South East we would hope to dispose of them and invest the proceeds elsewhere. Chelsea is an example of that.

Q108 Robert Key: In March the National Audit Office produced their report into managing Defence Estates. On page 25 they have a section called: "The Department does not fully understand the overall cost of its estate". We know that the Ministry of Defence has its own arrangements for the payment of Council Tax. Does Defence Estates or other parts of the Ministry of Defence pay national, non-domestic rates on their property?

Mr Martindale: Yes, they do.

Q109 Robert Key: Do you have different arrangements with each district valuer then?

Mr Martindale: I do not think different arrangements; I think we have the same approach with each district valuer rather than different arrangements.

Q110 Robert Key: Is Ministry of Defence property - for example, vehicle sheds, training workshops and so on - rated differently, at different levels, from commercial property beyond the wire?

Mr Martindale: I believe it is rated in the same way as commercial property beyond the wire. We have valuations in the normal way and we settle by negotiation our rates bill, as do commercial organisations.

Q111 Robert Key: What assessment have you made of the impact on Defence Estates of the Rating Empty Properties Bill, which was published last week?

Mr Martindale: I was not aware of that Bill, I must say, and I could not possibly comment.

Robert Key: I raised the issue in the debate on the resolution of the Bill last Thursday, and neither the Treasury Minister nor the DCLG Minister knew the answer to this, but it appears that this Bill is going to mean that the Ministry of Defence, like everybody else, will no longer get any business rate relief on empty property. I know, for example, in the case of Dean Hill, in my constituency, that that is having a huge impact because it means it is going to be very hard to sell any surplus Ministry of Defence estates which have anything that could be rated as industrial or business premises. If you have not done any work on it, may I please suggest you do because the taxpayer is going to lose out big time?

Vice Admiral Laurence: Thank you for that suggestion.

Mr Martindale: The normal approach to all empty property is to try and demolish it to make sure we have no liability for maintenance or rates.

Robert Key: Which is exactly what the Treasury Minister said the Government wishes to avoid, because we went through a period in the 1970s when the rules on empty properties changed, which led to dereliction of industrial property.

Chairman: Moving on to a completely different subject, sustainable development.

Q112 Linda Gilroy: The National Audit Office report has some good things to say about the performance on sustainability but it also has some fairly significant criticisms. In what way is sustainability being integrated into new building projects such as Project SLAM and the Allenby/Connaught contract?

Vice Admiral Laurence: I will just make some general points and then, again, hand over to David Olney, if I may. We have our own assessment mechanism for environmental standards which is the equivalent of the Government's overall assessment standard, and they are applied to all new contracts.

Q113 Linda Gilroy: Is that DREAM?

Vice Admiral Laurence: This is the DREAM equivalent of the BREEAM. It was one of the first questions I asked when I arrived in post, as to whether the DREAM is easier to meet than BREEAM but, in fact, I am told that it is not; it is a very tough standard.

Q114 Linda Gilroy: How does it differ?

Vice Admiral Laurence: It differs, principally, because the kind of properties that we are maintaining or constructing - for example, aircraft hangars, runways, naval bases and so forth - are very different to the properties intended to be covered by BREEAM. So it is, if you like, a more tailored version of BREEAM for us. Those standards are applied, they are built into contracts, and I think the question that I am looking at is how exactly do we monitor that the contracts are being delivered. David, I do not know if you want to add anything.

Mr Olney: No. What I can give you are some examples of where we have introduced sustainability work into our new builds or refurbished builds. For argument's sake, at Cosford we worked with the Waste and Resource Action Programme to ensure that some 13 per cent of the materials used on that product are from recycled materials.

Q115 Linda Gilroy: Is that a local aspiration, the Cosford one? I am not familiar with the programme.

Mr Olney: It was to refurbish an existing hangar. We looked at seeing how much we could use recycled materials. At the Garrison at Woodbridge (I do not have the exact figures) we reused a lot of the waste because we had to demolish a considerable number of buildings to rebuild the garrison there. We reused an awful lot of waste on the site, saving hundreds of lorry loads on to the public highways, to name but two. We have got a rainwater catchment system at Yeovilton associated with the air traffic control tower. So there are a number of examples where we are building sustainability into our new construction and refurbishment programmes.

Q116 Linda Gilroy: How do you ensure that the private companies with whom you are working put sufficient emphasis on sustainability?

Mr Olney: Three ways: firstly, there are elements and targets within the contracts. Secondly, when we look at projects we have the DREAM assessment, so that is considered alongside every other technical aspect, and we look at opportunities to introduce sustainable ideas into projects. Thirdly, of course, those same companies are interested and are leaders in this field anyway. So, for argument's sake, Bovis Lend Lease, who are on our SLAM project, have done some good work at Greenwich on sustainable communities in the private sector. So we work with them. Lastly, we have what is called a supplier association where we bring our major contractors together to work in a spirit of co-operation rather than antagonism and we set up a sustainability working group where ourselves, plus all our prime contractors, are looking at sharing best practice and sharing ideas so the whole estate can benefit.

Q117 Linda Gilroy: Admiral, in your introduction, when you said sustainability was one of your four key priorities, you also mentioned the trade-off with affordability. How do you actually build into the relationship with the companies you are working with incentives which ensure that you are then able to feed into what will become increasingly challenging programmes and targets, as we see the Climate Change Bill and various other new measures come in?

Vice Admiral Laurence: I think this is a question of everything boils down to the contract - the way the contract is written - and we have to continuously improve our contracts to build sustainability targets into them. It is one of the issues that I will be looking at very closely to see how well we do that at the moment.

Q118 Linda Gilroy: On carbon emissions, the direction of travel is apparently in entirely the wrong direction. So on energy efficiency, particularly, what is your Department doing?

Vice Admiral Laurence: The good news is that since the NAO report the figures for 05-06 have been published and the direction of travel was downward again, so we have reversed the trend since the figures in the report.

Q119 Linda Gilroy: What has contributed to getting it in the right direction of travel again then?

Vice Admiral Laurence: A great deal of effort has been put in over the last two or three years; trying out pilot schemes - the pilot scheme at RAF Kinloss was mentioned in the report, and lessons have been learnt from that. We have been doing a series of audits, as I think the report also mentions, initially with the Carbon Trust and then elsewhere. In order to really embed this across the organisation we have imposed, in the latest planning round, a 15 per cent energy efficiency cut in budgets over the next four years, and that itself, I think, will be the major factor in focusing people's attention on reducing consumption of energy.

Q120 Linda Gilroy: There has been some criticism in the NAO report about being very slow in relation to implementing the Defra "Quick Wins" programme. The Kinloss example itself has not been speedily followed by others using that as an example. Why do you think that is? Is it because there has been lack of targets that are now established that you think will drive that?

Vice Admiral Laurence: Again, David may wish to comment on this, but there has been a lot of work going on behind the scenes; there has been a lot of discussion about what will work and how much - for every investment of £100,000 - benefit you are going to get, both in terms of cost reductions and energy consumption reductions. I think we are at the stage now where we really are beginning to roll this programme out across defence. I accept the criticism the NAO report made that, perhaps, not enough had been done at that stage, but I think we are going to see a great deal of progress on this in the next year or two.

Q121 Linda Gilroy: Mr Olney, can you tell the Committee exactly what the project RAF Kinloss was? I understand that it was a very good return - pretty well a one-year payback - but was that a typical example or was it just a very wasteful building and very wasteful use, which might not be replicated across the estate?

Mr Olney: The Kinloss project was to put in place an energy management system which cost £100,000 and resulted in savings of £343,000 in its first year of operation. The lesson we have learnt from that is that, clearly, by measuring what you are consuming better you can understand why and where you are consuming it and take steps to reduce it. The sorts of things we did were automatic switching of lights off at the end of the day and turning down the heating systems on aircraft hangars which were not going to be utilised. We have now rolled that out across ten other sites. For argument's sake, at Fort George we found that the heating system could be better controlled. That has cost us £300,000, we will save 12 per cent in energy use per annum and £33,000 per year in maintenance costs. So, again, you can see a very quick payback. We have now taken those ten and have calculated that the top 220 MoD sites consume 70-odd per cent of our energy bill, and we are now working to put in place similar measuring systems across those sites - it is not going to happen overnight - so we can benefit from the Kinloss and Fort George lessons. In addition to those, we have done other work, like putting photovoltaic street lights at Wilton, solar power has gone into sites, and the Neptune new single living accommodation and mess will have the largest photovoltaic array in Europe, which will aid our energy efficiency. I think you can say, maybe, a slow start but one which is gathering pace and momentum as we take these initiatives forward.

Q122 Linda Gilroy: In terms of the end-users, particularly in the single living and family properties, is account being taken of the need to engage the end-user in understanding how to take the benefit of putting in any energy efficient measures, equipment or insulation? It is a classic example that you put it in and people get the benefit in heating and open the windows!

Mr Olney: I very much take the point and it is absolutely vital, as we learnt from Kinloss, that we engage with the people who have to use that estate, as opposed to us who maintain it, because it is their use of it which contributes to the energy bill as much as the way we maintain it. We work very closely with the RAF energy unit and the various energy advisers in the other TLBs.

Q123 Linda Gilroy: Turning to listed properties which, again, is an area that the NAO report was critical on, saying that you did not know the condition of 77 per cent of the listed buildings. Is that still the situation?

Vice Admiral Laurence: That was a historical point, and I think our knowledge of the condition of the listed estate is much better than that. I have to say I cannot remember what the ---

Q124 Linda Gilroy: Can you let us have a note of that? I assume you would not consider that to be acceptable.

Vice Admiral Laurence: If those figures were still true I would be very disappointed. I think it is much better than that.

Mr Olney: The knowledge of the buildings at risk, which I think is where the criticism really arose, was we have some 15 per cent now of those buildings at risk where we are uncertain of the condition by the end of this month, and our target is to have zero percentage in unknown condition by March 2008.

Q125 Linda Gilroy: I think you did have a target to know what condition all of the listed buildings were in, or 85 per cent of them, by March 2007. It would be useful to know if that has been achieved as well.

Vice Admiral Laurence: We will clarify that and come back to you.

Q126 Mr Hamilton: Can I ask a question in relation to that? I take it that applies across the board to Scotland, Wales and Northern Ireland, because that is English Heritage we are talking about here. If you are going to give us the figures could you also give the figures for the other nations?

Vice Admiral Laurence: We will.

Chairman: The reason I said, at the beginning, that I had the impression the Ministry of Defence was actually improving in its sustainable approach to land was that in my own constituency, and I can be forgiven for this, the management of the training areas around the Fleet pond has been transformed in the last couple of years. You have clearly been listening to the local environmental groups that have been very exercised about it. I would like to thank you for that. Unless there are any further questions?

Q127 Mr Jenkins: I am thinking about the Housing Prime Contract, and I noticed in 05-06 the cost went from £100 million to £120 million because they negotiated the £20 million with you due to people being in the houses when they maintain them (?). I am wondering: how do I know we are getting value for money in this contract? Would I be justified in taking this and comparing it with a local authority with the same number of units and judging like for like, insofar as I know what the schedule of works are? How do you monitor the fact that you are not being "ripped off" on this contract?

Mr Olney: There are a number of ways. Firstly, of course, the MHS won it in competition, so we have an element of competition to ensure value for money because they had to compete along with a number of other companies.

Q128 Chairman: You would say the same about Annington Homes, of course?

Mr Olney: The second point is, you are absolutely right, we do have an audit and assurance regime which looks at the work that MHS have done on a sample basis. With our staff we look at industry norms and comparisons to see whether it is reasonable for those sums to have been expended, and we have a performance recovery system should that not be the case. So we do have an audit and assurance regime.

Mr Clark: If I could just add to that, the estate performance measurement system, which is covered quite extensively in the NAO report, will also eventually capture all the data on the Housing Prime Contract, which will allow us to monitor the movement from the base condition, which is being assessed this year, to the new condition, the target condition, set out in the contract. We are doing that across all Prime Contracts, including the five regional Prime Contracts, and eventually across the whole of the MoD estate.

Q129 Mr Jenkins: As you refurbish your estate I can expect the cost of maintenance to be negotiated, by year six and year seven, £20 million under the £100 million rather than £20 million over it, can I?

Mr Olney: There is certainly an incentive on the contractor to reduce the cost of maintaining the estate and an incentive on ourselves.

Mr Clark: Perhaps I can add, Mr Jenkins, that we also have a value-for-money target as one of our key targets to achieve 30 per cent value for money across all Prime Contracts by 2011. Again, the Housing Prime is part of that.

Mr Martindale: To reassure the Committee, Mr Jenkins, we also have open-book accounting on all our major contracts, so you can look at what costs the contractor is incurring in maintaining it to ensure they are not - I think you used the phrase earlier - "ripping us off", in the sense that we can have access to what they are paying to the subcontractors. So we make sure that we have access to their accounts, effectively, to reassure the Committee and ourselves, more importantly, that we are getting value for money.

Q130 Chairman: Thank you all very much indeed. I wish more of the people we question could come before us within two weeks of coming into their job, because it seems to have been an extremely valuable session. Thank you very much indeed.

Vice Admiral Laurence: Thank you.