Supplementary Memorandum from the Ministry
of Defence
ANSWERS TO
THE HOUSE
OF COMMONS
SELECT COMMITTEE'S
MOD ESTIMATES—RELATED
QUESTIONS
Set out below are the MOD responses to the questions
raised in the Select Committee's letter dated 11 June regarding:
1. The Government response to the HCDC report
on the 2008-09 Spring Supplementary Estimate;
2. The Departmental Minute of 8 May 2009 (dealing
with the gifting of infrastructure in Iraq);
3. The 2009-10 Main Estimates.
1. Can the MOD confirm in which FY, 2008-09 or
2009-10, the costs of £96.476 million, set out in the
Departmental Minute of 8 May 2009 (for the gifting of
infrastructure in Iraq), fall?
This represents the whole cost of the project;
Tranche 1 (4 dining halls); and Tranche 2 (accommodation
and hospital). £61.270 million of the costs fall in
FY 2008-09 with £34.749 million falling in FY 2007-08 and
the remaining £0.457 million relating to Disposal Sales
Agency's (DSA) valuation for the contents of the dining facility
areas, such as walk in refrigerator units and food preparation
areas. As the buildings came on line at different times and this
was a DSA valuation we are not able to split this £0.457 million
into different financial years.
2. Can the MOD confirm when the business case
for the accommodation units and the hospital in Iraq referred
to in the Departmental Minute of 8 May was submitted to HM
Treasury and approved? Can the MOD also confirm what the costs
cited within that business case were?
Following approval of the Business Case for
Tranche 2 (3 accommodation blocks and hospital), the
Secretary of State wrote to the Chief Secretary in December 2007 seeking
Treasury approval for Reserve funding of £64.563 million.
The Chief Secretary replied, approving the build, on 18 December
2007.
3. Can the MOD set out a more comprehensive
breakdown of those costs touched upon in the Departmental Minute
and explain why those costs, for dining facilities, accommodation
units and a hospital, the latter two incomplete, were so high?
Since the site was under continued rocket attack,
time was of the essence. Delay could have cost lives. Extensive
threat analysis concluded that a clear risk of a mass casualty
event existed. This analysis identified a need to rapidly deliver
protection for the deployed force in areas which were particularly
at risk from such attacks. These were areas where large numbers
of personnel congregate, such as during dining periods, sleeping
accommodation, and bringing the Role 2 (enhanced) hospital
under cover. The approximate unit cost of the buildings was £10 million
each, of which £4 million was for the major reinforced
concrete plinth on which the building stands. The Tier 3 protected
structure programme build delivered football pitch size hardened
buildings capable of defending against rocket attack. The technical
specification, and performance against ballistic weapons, is classified.
These buildings form the final line of various layers of defensive
measures fielded at the Command Operating Base .
4. Can the MOD provide an assessment to the
Committee of the stage of completion achieved in the construction
of the accommodation units and the hospital to be gifted in Iraq?
The initial four dining facilities were completed
to their full intended operating capability. The remaining buildings
were constructed to a waterproof and weather-tight standard before
handover to US Forces for reconfiguration to alternative uses.
The modular hospital and accommodation units which were intended
to be incorporated into the structures were held in Kuwait when
UK intentions at the operating base became clear. These assets
have now been reassigned to OP HERRICK and are awaiting shipment
to support other operational requirements.
5. Can the MOD provide a breakdown of drawdown
costs for Iraq in Financial Year 2008-09, showing the extent to
which the extra £455 million allocated in the Spring
Supplementary Estimate has been used, and if so, on what?
The Department requested a contingency of £455 million
in anticipation of the draw down costs of Iraq to cover potential
non cash costs of depreciation, write-offs, and gifting of equipment
and other capital assets. The provisional Indirect DEL outturn
for 2008-09 indicates a lower figure. However, these figures
are still subject to final audit confirmation. Work is ongoing
to ascertain the final impairment costs of fighting equipment
deployed in Iraq.
6. Can the MOD explain the reason for the
decision for Protected Mobility Package costs to be classed as
UOR costs in FY 2008-09 but to be not so classified in 2009-10?
Can the MOD yet set out what category these costs will fall in
for 2010-11? Can the MOD set out what the MOD's contribution to
the PMM is expected to be in FYs 2008-09, 2009-10 and 2010-11?
The Protected Mobility Package, announced on
29 October 2008, will deliver nearly 700 vehicles urgently
required for operations in Afghanistan. HM Treasury has agreed
to provide £500 million of funding over three financial
years, and their contribution is programmed to be £53 million
in FY 2008-09, £424 million in FY2009-10 and £23 million
in FY2010-11. The MOD will fund the remainder; the spend figures
will vary over the course of delivery of the programme because
of cost growth and exchange rate variance, and therefore it is
not possible to give the exact costs or MOD contribution at this
stage. While this package will deliver crucial and urgent capability
for current operations in Afghanistan, it is also relevant to
the MOD's longer-term equipment plans, so it is appropriate that
the MOD should contribute towards the package.
The Protected Mobility Package was agreed between
MOD and HM Treasury in the middle of the financial year 2008-09,
and the in-year spend was counted towards that year's UOR estimate
to reflect delivery of the theatre specific aspects of the package.
As financial years 2009-10 and 2010-11 were still some
way off at the time that the package was agreed, and because elements
of the package have utility for long-term Defence requirements,
the costs for those two financial years are being dealt with separately
from the UOR estimates.
7. The reduction in administration spending
between years is 2.5% (RFR1, Section M) compared to the 5% year
on year savings set in the Spending Review for departments (see
paragraph 1.1 of explanatory memorandum). What progress has
been made in administrative efficiencies and reductions in back
office/admin staff and is MOD on target to achieve the 5% savings
required?
The MOD is required to reduce expenditure on
administrative costs by 5% per annum in real terms. There is a
5% reduction between 2008-09 and 2009-10, once inflation
(at 2.7%) has been taken into account. Significant change programmes
are in place to deliver the required savings—most notably
the Streamlining reductions in Head Office, and the PACE programme
in the Defence Equipment and Support organisation. On current
plans, the savings targets are forecast to be achieved.
8. Last year the AME budget for Defence Equipment
and Support (RFR1, Section O) was negative (-£114 million)
although it is not clear why. This year a budget of £27 million
is sought. This may be a technical, accounting, change but could
the MOD can explain what has changed?
The AME credit scored against the Defence Equipment
and Support organisation in 2008-09 related to a reduced
cost of capital charge accounting adjustment. This adjustment
resulted from lower total nuclear provisions than originally provided
for in previous years, following a review of the level of nuclear
provisions. The level of the creation of new nuclear provisions
in 2009-10 is broadly in line with previous years.
9. In 2008-09 there was a provisional
overspend on the net capital budget of £81 million,
due to lower than forecast capital receipts (exp memo paragraph
3.6). As a result, HM Treasury are deducting this from the 2009-10 capital
budget. Are MOD budgets for 2009-10 and beyond being adjusted
for anticipated receipts shortfalls as a result of the downturn
in the property market? What impact will this have on spending
plans?
The level of receipts anticipated from the disposal
of the MOD estate is reviewed during the planning round. The figure
for 2009-10 was revised downward by £70 million
in the 2009 planning round to reflect an expected reduction
in the volume of the estate sold. The potential effect from 2010-11 onward
will be considered in the 2010 planning round.
10. Overall, capital (DEL) spending is still
budgeted to rise by 9.7%, from £8,313 million to £9,121 million
(+9.7%) (comparison of DEL tables in Main Estimates 2009-10 and
Spring Estimates 2008-09). Around half of this appears to be going
on Urgent Operational Requirements in Afghanistan. What are the
main components of the increases in RfR1 (Provision of Defence
Capability) and what are these designed to achieve?
RFR1 CDEL expenditure increased from £7,687 million
in Spring Estimates 2008-09 to £7,861 million in
Main Estimates 2009-10 (as shown in the table below). This
represents an increase of £174 million (around 2¼%),
broadly in line with the Defence budget. The additional resource
has been allocated across the MOD's entire capital investment
programme, primarily to equipment and support.
|
| 2008-09 £M
| 2009-10 £M |
|
| RFR1 | 7,687 | 7,861
|
| RFR2 | 1,128 | 1,565
|
| Non-operating A-in-A | -501
| -305 |
| Total | £8,314M
| £9,121M |
|
| |
|
11. The comment at Paragraph 4.5 of the explanatory
memorandum suggests that expenditure is expected for the Balkans
but has not been included in the Main Estimate. If it is known
that some expenditure will be incurred, why is no Balkans funding
included in the Main Estimate, particularly as last year Balkans
funding was included in the Main Estimate?
As we stated in our 2009-10 Main Estimates Memorandum,
Balkans funding will be requested in the Supplementary Estimates
once any planned drawdown arrangements have been finalized. We
wish to be in the position only to ask Parliament to vote on a
request for resources which is sufficiently robust.
12. Are there any significant increases to provisions (for
liabilities) being made in the Main Estimate? (paragraph 12 of
the explanatory memorandum)
There are no significant increases to the planned creation
of provisions in the 2009-10 Main Estimates. Any subsequent
change in the level of provisions will be reflected in the Supplementary
Estimate round.
24 June 2009
DEPARTMENTAL MINUTE REGARDING THE GIFT OF UK PERMANENT
STRUCTURES WITHIN SOUTH EAST IRAQ TO THE US ARMED FORCES
It is the normal practice, when a Government department proposes
to make a gift of a value exceeding £250,000, for the department
concerned to present to the House of Commons a Minute giving particulars
of the gift and explaining the circumstances; and to refrain from
making the gift until fourteen Parliamentary sitting days after
the issue of the Minute, except in cases of special urgency.
The gift in question is to the US Armed Forces and consists
of four permanent protected structures currently used as UK dining
facilities located within the Contingency Operating Base (COB),
Basra. The COB has been occupied by the UK Armed Forces since
May 2003 as part of Operation TELIC. The UK's planned transition
within Iraq will see our Armed Forces, during the early part of
2009, hand over responsibility for the military operation within
Multi-National Division (South East) to the US. In order to enable
this transition the UK Armed Forces will be required to vacate
the COB to allow a US Brigade Unit under the command of HQ 10th
Mountain Division to infill.
In accordance with Departmental Gifting policy, the MOD Disposal
Services Authority (DSA) and Defence Estate Land Agent (DLA) have
provided asset valuations. DSA have valued the contents (non-fixed
assets) of all four permanent dining facilities at £456,885.
The contents comprise sinks, walk-in refrigeration units, food
preparation areas, catering equipment and furnishings. The permanent
structures have been given a zero value by the DLA as they sit
on Iraqi soil and cannot be sold on the open market. UK investment
over financial years 07/08, 08/09 is £45.399 million,
which through impairment (a technical write down in value) is
reduced to a nominal sum of £1. The US intention is to use
the four permanent structures as dining facilities, although should
this change the MOD will instruct DSA to sell the removable contents
from each. The structures and their contents will eventually transfer
to Iraq when the US Armed Forces no longer have a use for them.
In total, the gift is worth £456,886.
Although not a gift, an additional four incomplete structures
have been handed over to the US Armed Forces, which will eventually
transfer to Iraqi control. The total value of these structures
was £50.620 million, which has been treated as a constructive
loss. The combined value, therefore, of all buildings and contents
is £96.476 million-£45.399 million (hardened
structures gifted, impaired to £1), £0.457 million
(the gifted contents) plus £50.620 million (the constructive
loss on the incomplete structures).
The Treasury has approved the proposal in principle. If,
during the period of fourteen parliamentary sitting days beginning
on the date on which this Minute was laid before the House of
Commons, a Member signifies an objection by giving notice of a
Parliamentary Question or of a Motion relating to the Minute,
or by otherwise raising the matter in the House, final approval
of the gift will be withheld pending an examination of the objection.
8 May 2009
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