Select Committee on Public Accounts Minutes of Evidence


Examination of Witnesses (Questions 1-19)

MINISTRY OF DEFENCE & DEFENCE ESTATES

MONDAY 14 MAY 2007

  Q1  Chairman: Good afternoon, and welcome to the Public Accounts Committee. Today, we are considering the Comptroller and Auditor General's Report, Managing the Defence Estate: Quality and Sustainability. We welcome back to the Committee Bill Jeffrey, who is the Permanent Under-Secretary of the Ministry of Defence, Sir Ian Andrews, who is the Second Permanent Under-Secretary and former Chief Executive of Defence Estates, and Vice Admiral Tim Laurence, the Chief Executive of Defence Estates.

    Mr Jeffrey, how have you got into a situation in which 40%. of your accommodation is substandard?

  Bill Jeffrey: I take it, Chairman, that you are referring to the—

  Q2  Chairman: If you want the reference, I am referring to paragraph 1.25 on page 15 and paragraph 12 on page 6. Nearly 40% of family accommodation and more than half of single accommodation is substandard. How have you got us into that situation?

  Bill Jeffrey: First, we do not underestimate what still needs to be done on the service family accommodation estate; we would not seek to defend the worst of it for a moment. However, it is worth looking at the appendix to the National Audit Office's Report that describes what constitutes standards 1 and 2—standard 1 accommodation is of the highest quality. The Report reads, "A property assessed as standard 2 achieves a standard of 1 or 2 in each category, with a standard of 1"—out of eight—"usually reached in at least five categories." So it is stretching it a bit to say that properties requiring improvements are substandard.

  Q3  Chairman: The NAO briefed me along those lines. I asked it whether it was fair to say that, as I put it to you, 40% of family accommodation and more than half of single accommodations is substandard. Was that a fair question?

  Mark Andrews: Certainly, it is true to say that 40% of accommodation is below the standard at which that department wishes it to be. Of course, a lower proportion and number of single accommodation units and, in particular, houses meet only the lowest conditions in the categories.

  Q4  Chairman: So, I shall ask my question again. Would you like to answer it this time Mr Jeffrey?

  Bill Jeffrey: I answered it in one respect. As Mark Andrews said, we have increased the number of service family accommodation units at standard 1 from 41% in 2001-02 to 59% at the moment. Then we have standard 2 accommodation, which is not as good as we would like. It is mostly older property and comprises another 36%. Of the remaining 5%, only 0.5% are standard 4. It is that 5% that we feel we must do something about.

  The answer to your question is that this part of the estate has been subject to years of under-investment. Until 1995, it was managed by the services and was often an early casualty when savings were required. We have upgraded 12,000 properties in the past five years and have plans for further investment in the estate in the next few years. We would like to spend more and we accept that that is important, but we are undoing some years of neglect.

  Q5  Chairman: Can you guarantee to me, Mr Jeffrey, that when we have our next defence squeeze this will not be the first bit of your empire to be squeezed, because it is below the public radar and not very exciting politically? As you have intimated has happened in the past, it is the poor old squaddies' accommodation that gets squeezed.

  Bill Jeffrey: I can guarantee that we have got money earmarked this year—£17 million—for upgrades. I can guarantee that there is a further £35 million in the budget this year for such things as replacing boilers and redecoration. I can also guarantee that both our Ministers and the Defence Management Board, which I chair, regard it as a very high priority for when we have our spending review settlement later this year.

  Q6  Chairman: So you can guarantee for one year. You have mentioned some quite large figures, but it is important that you tell us how much of that is to do with upgrading and improvement rather than simple maintenance.

  Bill Jeffrey: The figures that I mentioned are entirely to do with upgrading and improvement.

  Q7  Chairman: Right, that is very fair. Thank you.

  So, Admiral, from your personal knowledge of the armed services, how much of a role does substandard accommodation play in the recruitment and retention of our armed forces?

  Vice Admiral Tim Laurence: The standard of accommodation plays a significant role in recruitment and retention. We would very much like our people to have the best, and that is why we set pretty high standards for accommodation.

  Q8  Chairman: I think that I am right in saying that 40% of those who left were quoted in a recent report as saying that accommodation was a factor. Is that a figure that you recognise—that around 40% of people who leave the armed forces early cite poor, substandard accommodation as a reason for leaving?

  Vice Admiral Tim Laurence: I had not heard that figure, but I am not surprised that poor accommodation is a factor when people leave.

  Q9  Chairman: You are the Chief Executive of Defence Estates, so this is your baby, as it were. Presumably you are trying to push it up the agenda to try to convince those around you in the Department that it is a major factor in keeping people in the armed forces.

  Vice Admiral Tim Laurence: I do not think that I need to convince the Department. I think that it is very clear about that. I am certainly ensuring that we make absolutely the best of the money that we spend on the estate. Of course, in my current role I will always advocate spending more.

  Q10  Chairman: Okay. Sir Ian, perhaps I will give you a chance. Figure 7, on page 18, shows the different levels that the Permanent Secretary referred to. You are planning to upgrade 900 service families' houses each year, so I assume that next year's outlay will include all 140 houses currently at the lower standard.

  Sir Ian Andrews: There are currently 138 houses at standard 4 for condition, and we are working closely with our customers in the armed services to examine the priorities. I have a particular responsibility for that as the Chairman of the Defence Estates Committee, which is a sub-committee of Mr Jeffrey's Defence Management Board (DMB). It brings together the customer areas in the armed forces and the suppliers in Defence Estates. We are working closely to consider how to target those upgrades in the most effective way. It is certainly a high priority to tackle those properties first, but there are often things that get in the way of that. I am clear that the Defence Estates Committee's intention is that they should be targeted, and that as many as possible of those at standard 3 for condition should be targeted as well.

  Q11  Chairman: So all 2,000 homes in the lowest two categories will have been upgraded within two years. Are you giving us that guarantee?

  Sir Ian Andrews: No, I am not, because it is not quite that simple. They can usually be upgraded at the level of investment that is required for properties at that level only when they are available—not being lived in—and it is appropriate to do so. I am also clear that we have a programme of disposing of quarters, and again, some of them would go down that route. However, I can absolutely give you the assurance that we will get rid of the standard 4 as soon as we can, and we will make inroads in standard 3 as soon as we can.

  Q12  Chairman: Sir Ian, Mr Jeffrey or Vice Admiral, if you look at paragraphs 9 and 10, you will see that in paragraph 9, you have cut £13.5 million of essential work out of regional prime contracts, but you have obliged the same contractors to do £45 million on other projects, including resurfacing tennis courts and building all-weather pitches. It is a bit unclear why you have done that. Can somebody explain why it has been done in that way?

  Bill Jeffrey: May I say something about the savings? I remember very well the position that we faced in the early part of the financial year just finished. Quite early in the year, we discovered that we would have difficulties keeping within our budget unless we took some steps to reduce the pressures on it. The reason for that was a mixture of factors, but in particular, the escalating cost of fuel, of which we consume quite a lot.

  The Defence Management Board therefore decided on a package of measures, which we put to Ministers, to take about £70 million out of the planned expenditure for the year. We thought that that would be sufficient to get things on to an even keel. Within that, there was a figure of £15 million from Defence Estates, of which £13.5 million was from the regional prime contracts. The Board was clear that it needed to be done in a way that did not touch living accommodation, and I believe that Defence Estates managed to make the saving without affecting living accommodation at all.

  Our system involves the main budget holders, including those in the armed forces, and we then had an injection of money from the single services in particular, which amounted to £45 million. It was there to be spent on estates purposes, and we had to balance the saving that we had already decided to make in order to manage within our means in that financial year with the available funds from that source. Vice Admiral Laurence may want to say something about the process that was gone through.

  Q13  Chairman: Vice Admiral, while you are answering that, you might also explain what, when you talk to your men, they think is more important—poor standards of accommodation or sports pitches.

  Vice Admiral Tim Laurence: I was not in charge of Defence Estates at the time, but when the cut was imposed, Defence Estates gathered together the representatives from each of the six customer estate organisations, and they had a debate, effectively, about whether the cuts would be appropriately imposed on the regional prime contractors, as the DMB had indicated, or whether it would be better to take the cuts out of the injected minor new works. In all but about £1.5 million of those, the view was taken that it would be preferable from the customer's point of view to take the cuts from deferrals in the regional prime contracts rather than cut some of the high priority minor new works that the customers wanted. With the benefit of hindsight, we might look back at one or two of those decisions and think that they look questionable, but at the time it was what the customers wanted.

  Q14  Chairman: All right. My last question to Mr Jeffrey relates to paragraph 2.19 on page 25, which is headed, "The Department does not fully understand the overall cost of its estate", which is a fairly telling phrase. Why did you tell the NAO that you do not need to know the full cost of your estate, as it is: "only one of the necessary components of the delivery of military capability"? I would have thought that it was an essential first step. Is it not?

  Bill Jeffrey: It is true that expenditure on the estate is found in a number of different budgets. That is inevitable, and we have tended not to draw that together in a single budget. I do not think that the NAO would argue that we should. As a matter of fact, Defence Estates does have visibility over most of the relevant costs, including capital costs and costs of depreciation. We accept the NAO's general point that in management information terms, we need a fuller understanding of the whole of our estate's costs. We are never going to get an absolutely complete picture, because if you get out into the budget areas, there are parts of jobs that may contribute to estates, and it is not worth the effort to separate them out. But I certainly accept the NAO's general point that we could do with a fuller picture. We are working on that, and we should have it quite soon.

  Q15  Chairman: So you accept recommendation 7 on page 7?

  Bill Jeffrey: Yes, we do.

  Chairman: Thank you, that is fine.

  Q16  Mr Dunne: May I understand a little more about your prioritisation of substandard property? Will you explain what distinguishes a section 4 from a section 3 property, for example?

  Bill Jeffrey: That distinction is found in Appendix 6 of the Report—the shaded bit on the right-hand side. I referred to it earlier. It explains that a property assessed as standard 3 usually reaches standard 1 or 2 in about half of the various categories under which it is measured, but that it will require improvements such as a complete rewire, a new kitchen and bathroom, a change of plumbing and that sort of thing. The Appendix goes on, "A property at standard 4 is typically assessed as standard 4 in five or fewer categories. standard 4 properties will typically require a new bathroom, electrical system, kitchen, insulation upgrade"—the works, in effect. We are keen to get both those categories of property off the estate as quickly as we can.

  Q17  Mr Dunne: So, Mr Jeffrey, if a serviceman told you that he had been stationed in a barracks where the kitbag could not be put in the locker for fear of vermin—probably rats—gnawing through the straps, would you regard that property to be standard 4 or standard 3, and what would you do if you heard such an allegation?

  Bill Jeffrey: The first point to make, for the avoidance of doubt, is that I would regard that as completely unsatisfactory. We take such things extremely seriously. Obviously, one would need to look at the property to find out whether its physical fabric fell within standard 3 or 4. But clearly, the position that you have described would not be satisfactory.

  Q18  Mr Dunne: I did not make that comment lightly. One of my constituents, currently serving in active theatre, was sent for pre-mobilisation training to a barracks, and that was the state of affairs. If I tell you that that barracks was at Chilwell, will you confirm whether you have heard similar stories from there?

  Bill Jeffrey: I think that there is single-living accommodation at Chilwell.

  Mr Dunne: Yes.

  Bill Jeffrey: I do not have personal knowledge of the state of the accommodation there, but I can certainly look into it.[1]

  Q19  Mr Dunne: Could you look at the situation and send us a note on it, please?

  Bill Jeffrey: We will certainly do so.

  Mr Dunne: Thank you.

  Bill Jeffrey: Unless either of my colleagues knows. I have been to Chilwell, but I could not speak for every detail of the estate.

    Sir Ian Andrews: I should like to answer your question on the issue of vermin control, which is clearly a responsibility placed on our regional prime contractors as part of the service. Chilwell falls within the central region and that is what I would expect the response to be to that particular problem on the ground.



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