ARA 01

 

Memorandum from the Ministry of Defence

 

 

1. The fourth quarter of 2008-09 showed a large rise in forecast cost increases in military equipment procurement (figure 1.5, p 15) compared to recent quarters. The report identifies four major drivers of such cost overruns (p107). What is being done to mitigate forecast cost increases and improve performance against DSO 3? What is being done to improve the reported current slippage rate of 26% and 63 months and what level of slippage does the Department believe it acceptable to bear?

 

As the Defence Secretary indicated in his statement of 15 October on publication of Bernard Gray's review of Defence Equipment acquisition, the Department has implemented a succession of initiatives to improve acquisition processes, including Smart Acquisition, the Defence Industrial Strategy and the Defence Acquisition Change Programme. The statement included further steps which we will be taking, in the light of the Gray report, to build on earlier reform and deliver a radical improvement in performance.

 

The factors affecting the performance of military equipment projects within the scope of Departmental Strategic Objective 3 ( DSO 3) were discussed in the essay on pages 107-108 of the Annual Report and Accounts. This notes that Defence acquisition faces significant challenges in procuring and supporting some of the most complex engineering projects available, to be capable of operating in some of the harshest global environments. In considering projects monitored for DSO 3, the 14 projects initiated after the 2004 Smart Acquisition reforms have demonstrated better controls than those that preceded them, and show a net reduction in cost of £4m against their approved levels.  Looking at the whole DSO population of 41 projects, just under half the total cost variation (46%) in 2008-09 was attributable to factors that are largely outside the Department's control, such as foreign exchange rates, as well as inflation. Just under a further half was due to deliberate decisions taken by the Department to reflect changed circumstances or priorities. Technical issues accounted for the remaining element, some 9%, and covered problems such as cost or time overrun.

 

The 14 projects initiated after the Smart Acquisition reforms contributed 63 months time slippage (26%) against the total slippage of 242 months for the DSO project population as a whole.

 

DE&S continue to embed the principles of Smart Acquisition to improve performance against cost and time targets. Achieving the balance of military superiority in an intrinsically unpredictable environment means that many projects sit permanently at the most advanced edge of technology and are therefore inevitably technologically risky. We seek to share these risks in the most appropriate manner and strive to deliver within the required cost and time envelopes. DE&S is committed to up-skilling key professional staff, including through the achievement of professional qualifications, to ensure they have the skills necessary to continually improve performance.

 

DSO 3 recognises that realistically, given the scope and complexity of the Defence equipment programme, some project cost growth and time slippage is inevitable. The targets of 0.4 months per project and 0.2% cost growth per year agreed with HM Treasury reflect.

 

2. General Sir David Richards, the new Chief of the General Staff, is reported as saying in August that "I believe that the UK will be committed to Afghanistan in some manner - development, governance, security sector reform - for the next 30 to 40 years". What are the MoD's assumptions about the likely trajectory of costs for operations in Afghanistan over the next few years, given the likelihood of operations continuing for a significant period into the future?

 

As we highlighted in our response to the Committee's comments on our 2009-10 Main Estimate (HC773), the increase in costs for this financial year include the additional security costs required for the local elections, the costs of personnel providing counter improvised explosive device (IED) expertise, additional capital costs for Urgent Operational Requirements (UORs), and the provision of increased airfield and associated support infrastructure.

 

The changing nature of operations means that we cannot predict their cost in future years with any confidence. We will provide a further estimate for 2010-11 in our Main Estimate submission early next year.

 

3. Combat operations in Iraq have now ended. Troops have been withdrawn, and you plan to retain only around 100 personnel in the area. How much do you expect the drawdown process to cost in total?

 

We have now successfully completed drawdown from Iraq with the extraction and remediation of all personnel and equipment. All UK occupied or managed facilities have been passed over to US forces, or handed back to Iraqi, or Kuwaiti authorities. The completion of the operational closure phase ensures that data collection is now fully underway and the full cost of the drawdown will be clearer once this activity is completed and all receipts collected.

 

Our response to the Committee's comments on our Main Estimate (HC773), noted current costs associated with the drawdown from Iraq. The main asset impairment (during 2008-09) is a charge of some £63m for accommodation/infrastructure (Tier Three); and there was also a constructive loss of £48.9m for the transfer of four incomplete permanent structures following drawdown. Both were reflected in the 2008-09 Annual Report and Accounts (HC850).

 

Our total outturn in non-cash proved lower than the provision sought in the Spring Supplementary Estimates, reflecting the considerable uncertainty in the potential impairments at the time the estimates were drawn up.

 

4. Could you give us more detail about the outcome of the exercise to assess recorded assets to determine whether they should be recovered, gifted, sold or written off, under Operation BROCKDALE? What value of assets (equipment and infrastructure) is covered by each category? What key equipments have, or will be, sent from Iraq to Afghanistan?

 

(Answer to follow)

 

 

5 You have now spent over £4bn on Urgent Operational Requirements for both operations. Have you made any assessment of what will happen to this equipment once operations are complete? The net additional costs to the Department for operations in Afghanistan continue to be met from the reserve. What assessment have you made of the future impact on the Department's budget, if Urgent Operational Requirement purchases become part of the Department's core equipment fleet?

 

Urgent Operational Requirements (UORs)  are specific to operations and hence not part of the core Defence equipment programme. After UOR procured equipment has been in service for one year, or at the end of the operation, (whichever is sooner) its effectiveness is reviewed against the original capability requirement. Following this review there are four possible options for the UOR:

 

· If it has proved effective in its intended operational context and demonstrated potential utility elsewhere it may be taken into the core equipment programme.

· If it has proved operationally effective but has not demonstrated potential utility elsewhere it will be maintained for the duration of the operation.

· If it has proved only partially operationally effective  it will be run into obsolescence without further investment prior to end of life disposal.

· If it has proved ineffective, or the capability is no longer required and it offers no other utility, it will be disposed of.

 

As outlined in a closed session with Committee in May 2009, we are taking a number UOR projects into core, at a total cost of around £50m. The general areas covered include military vehicles, communications and medical equipment. We continue to keep all UORs under review, and, where appropriate, consider whether to bring them into the core programme

 

6. Why does your Annual Report no longer give any information on the target for readiness as has been the case in previous years? What figure are you aiming for and how is this calculated? Are you satisfied that the lack of a visible target does not hinder the transparency of MoD performance in this area?

 

The 2004 Spending Review Public Service Agreement set a target of a weighted average of 73% of Force Elements reporting "no serious" or "critical weakness".  This target was not carried forward into the 2007 Spending Round agreement, reflecting the fact that such a target had become largely irrelevant when the Armed Forces have been operating at high tempo and for a sustained period. The target related to readiness for the entire range of contingent capability and the Armed Force have simply not been able to maintain readiness across such a broad spectrum whilst ensuring they deliver the highest priority, success on current operations. The focus is now on recuperation; internal targets are being set to recuperate specific capabilities rather than a very general measure which does not relate to any specific type of operation. Further detail is classified at this stage.

 

7. You were unable to generate the full contingent capability of trained forces for the Joint Rapid Reaction Force in 2008-09. When do you expect to be able to provide a limited capability, and when do you anticipate being able to provide the full capability?

 

Defence continues to generate and sustain high quality, properly trained Force Elements for all programmed operations.  We have also made the regeneration of specific elements of the force structure to deliver a bespoke contingent Small Scale (SS) Focussed Intervention (FI) capability a priority, in particular the ability to conduct FI for Counter Terrorism (CT) and complex Non-combatant Evacuations Operations (NEO).  Whilst many of the elements that we plan to have available for this task are not involved in current operations and remain ready, others within the Joint Rapid Reaction Force (JRRF) have been affected by the high operational tempo sustained over the last seven years and need to be recuperated; this will take time and resource. 

 

The current estimated timescales for recuperation are classified and Committee has been given them in closed session, together with an explanation of how they relate to the scales of effort and associated military tasks, as part of the Inquiry into Readiness and Recuperation on 28 April 2009. 

 

8. How far do you expect contingent readiness to improve following the drawdown of personnel from Iraq, and when do you expect to see the improvements reflected in improved readiness figures?

 

The successful conclusion of operations in Iraq will, on current assumptions, following recuperation, return overall commitments to within existing concurrency assumptions but, crucially, while Afghanistan remains a Medium Scale (plus) operation, some force elements such as enablers will continue to operate beyond those routine concurrency assumptions.  The benefit of the TELIC drawdown is being taken firstly in putting the current Operations Commitments Plot on a more sustainable footing, reflecting the main effort of success in Afghanistan.  Beyond that the drawdown should, over time and subject to sufficient resource, enable an increase in readiness and we are focussing initially on recuperation of key Small Scale capabilities.

 

9. Why does your annual report not contain any quantification of the costs and timescales of the main NEIP projects compared to budgets and plans? (DSO 3 PI 3.2) Can you give us more information on your NEIP projects, for example on the scale of the investment?

 

The Non Equipment Investment Programme (NEIP) is a central programming tool comprising approximately 70 funding provision "lines" for a diverse selection of infrastructure programmes.  This approach enables informed judgements to be made on projects looking out over 10 years and by balancing estate rationalisation costs with the related disposal receipts. 

 

The scale of the NEIP is of the order of £30bn over 10 years.  The Plan covers high value (greater than £50m) estate rationalisation projects and Information System-enabled business change programmes, including PFI projects. Programmes vary considerably, from the delivery and long term support of Information Infrastructure, long term (up to 30 years) service provision of serviced office accommodation.  Examples illustrating the diversity of the Plan include:

 

· Project Allenby Connaught. In addition to a major £1.4bn, 10-year, construction programme involving the new build or refurbishment of 550 buildings and the demolition of 447, the 35 year project encompasses a wide range of support services including catering, cleaning, transport, estate management, document production and handling, stores and waste disposal. The Project has a total through life value of some £8bn and covers Army Garrisons across Salisbury Plain and at Aldershot.

· The Royal School of Military Engineering (RSME), a 30-year Public Private Partnership, worth some £5.6bn, which will improve essential training and provide significant investment for new and refurbished soldier accommodation.

· Defence Information Infrastructure (DII), a £4bn 10-year programme to provide and support a single information infrastructure comprising a standard, consistent platform for Defence applications and deliver a more effective, modern environment for the sharing of information and the transmission of messages.  Ultimately, it will provide 300,000 user accounts, on 150,000 terminals, spanning 2,000 MoD sites worldwide.

· Main Building Refurbishment (MBR), a £750m 30 year programme to provide the Ministry of Defence with secure, modern and efficient working accommodation in Whitehall

 

Following an evaluation of this work we have introduced a more structured and granular approach. We have completed some initial work on how to best collect, evaluate and report information on the progress of individual programmes against their specific targets against DSO3, given the potential to be misleading by applying a single performance target or metric across the various programmes. This will be included in further reporting.

 

10. In relation to nuclear deterrent, what was the outcome of the two year concept phase, originally due to finish in September 2009? Is this now complete and what decisions have been taken as a result?

 

The Defence Board and Ministers will consider the future deterrent Concept Phase work later this year.

11. What progress have you made in implementing the recommendations from the strategic review of reserves? What is the status of the 47 recommendations subject to further consideration and resourcing? Do you expect that these will be implemented at a later date?

 

The implementation of the Strategic Review of Reserves (Programme CITIZEN) is now well underway involving the MoD, single Services and other key stakeholders. All programme activity is being co-ordinated under the direction of the Vice Chief of Defence Staff and is on track with some significant progress already having been made. The Review of Reserves made 89 detailed recommendations.  46 of these are being taken forward in the first tranche' with the remainder (mainly those with resource implications) requiring additional research and consideration prior to being taken forward.  Of the 46 first tranche' recommendations, six have been assessed as completed, 31 are making good progress with nine requiring significant additional work. Two small implementation teams, Personnel Policy and Volunteer Estate have now been established and are leading on the key the areas of Terms and Conditions of Service and the rationalisation of the Volunteer Estate respectively. 

 

12. In relation to the Departmental Capability Review, Are you on track to achieve a reduction in the size of Head Office under your streamlining programme by April 2010? How have these reductions been achieved?

 

The Department remains on track to reduce the size of the Head Office by 25% by April 2010.  This has been achieved by a combination of re-deploying approximately 250 military personnel back to front line posts, a civilian Early Release Scheme, relocations out of Central London and natural wastage.  The majority of these posts were removed on 1 April 2009 and we are currently working on the redeployment of surplus staff.  We are also focussing on materially improving the way the business operates. A small team has been trained and is supporting business units to improve the way they make decisions, prioritise their work and measure and continually improve their performance.

 

13. Table 3.21 (p91) shows defence outturn against the DEL budget. Defence Equipment and Support shows a Resource under-spend of £507 million against a budget of £15.195 billion. Paragraph 3.103 (p88) suggests that the under-spend was in large part the result of favourable reassessments of asset lives which reduced depreciation costs. This reduced depreciation cost may also have contributed to a £1.6 billion dip in DE&S Resource expenditure in 2008-09 compared with the year before (see page 22). What other factors account for the £1.6 billion lower DE&S Resource expenditure in 2008-09, compared to 2007-08 and indeed to 09-10?

Question	Response
The military pay process   On ensuring that accurate data is held within the JPA system · The Department should establish a task force to systematically correct pay and personnel records. There have been some improvements seen, and more are planned, but a systematic cleansing exercise should be undertaken with clear targets for the required levels of accuracy to be obtained and deadlines for the completion of this work;	The Joint Personnel Administration (JPA)  Assurance and Compliance Working Group has been established to provide coherence across initiatives to improve and maintain data accuracy. The Group has already confirmed the areas of concern that led to the qualification, established a baseline of existing initiatives and initiated additional work.  This will lead to improvements in the quality of data held on JPA.
· Particular attention should be paid to ensuring that the Department can meet its statutory requirements for reporting to Parliament on Votes A manning levels	The ongoing work on the validation of JPA data will support both in year and annual reporting of Territorial Army  and Royal Naval Reserve strengths including Vote A requirements.  In addition we are in the processes of both improving data and cleansing the contract types for the TA.  This work will be completed during 2009.
On access to the JPA system · A formal review should be undertaken of the existing levels of access to the JPA system and whether they are sufficient to allow the processes to be operated as intended. Where access is insufficient, alternative arrangements should be introduced;	The review into the infrastructure and application access problems is to report in January 2010, to enable issues and perceptions to addressed.  In addition, a review of how self-service users, HR and accounting specialists are trained and remain up to date is taking place to ensure that users have the skills and competences to prevent errors arising and to improve data quality.
· The ability of the Department's main IT platform to support the JPA system going forward should be reconsidered in light of the other applications which are also dependent on this IT platform;	The Department is engaging with all appropriate parties to ensure that, for the future, JPA has an adequately supported capable IT platform.
On military pay process controls: · The Department should complete the review of controls begun last year to identify those that are key and to consider if further controls are needed.   This review should take account of the need to reduce the level of error and fraud in relation to basic pay, allowances and expenses to an acceptable level and should ensure that there is a proper balance between preventative and detective controls.  More specifically:	The review of controls, which includes the involvement of the Department's internal auditor, is continuing.  The JPA Assurance and Compliance Working Group is coordinating a number of initiatives; a review of the control framework, end to end assurance, closer working with finance staff from across the different budget areas within the Department and regular reporting on any suspected fraud.  A wider review of training for users and JPA documentation is also underway.
o consideration should be given to activating the JPA system's capacity to allow  line managers to see each expense claim at the time it is input. Whilst they would not be required to authorise the claim, this would provide visibility of the claims being made and would provide an early alert on incorrect or ineligible claims;	The JPA assurance and compliance working group will consider this option.
o as recommended in my predecessor's report, the Department should revisit the level of payments above which a manual check is made.  The current level is all net payments over a set limit of £10,000;	The Service Personnel and Vetting Agency (SPVA) is reviewing options for the development of enhanced controls to cover potential erroneous payments.  This will include enhanced reporting of the results of those checks.
o the monthly 5% check on expenses should be reviewed in order to determine whether there needs to be an increase in the % level of checks;	The effectiveness of the percentage level of the monthly check is reviewed on a rolling basis by the single Services to ensure an optimal balance is achieved between the deterrent effect of local checking and the workload thereby engendered.
o the data mining techniques currently being developed should be considered for wider use by budget holders to assist in targeting their checks on the amounts with most risk which are being charged to their budgets;	SPVA are working with both Defence Internal Audit and Top Level Budgets to engage budget holders to target charges based on different risk profiles.
o the Department should introduce a more formal system to monitor the effectiveness of preventative and detective controls and a mechanism to enable enhancement of training and/or controls in areas where errors are being identified;	Options for the development of enhanced controls to cover potential erroneous payments are being reviewed.
· reporting of allegations of fraud and misuse of JPA and any underlying trends as well as the subsequent outcomes should be enhanced and formalised;	The Department has a zero tolerance for fraud. The single Service assurance teams are working together to develop a common assurance regime.  They will also use new data interrogation technology to detect unusual patterns of transactions and potential cases of fraud. The instances of investigated cases of potential JPA fraud will be specifically monitored over the next two years to establish trends and improve control.
· the responsibilities of all parties, for example the TLBs,  should be clear and agreed,	The JPA Assurance and Compliance Working Group consists of representatives from the Services, Top Level Budgets, SPVA and Defence internal Audit. to ensure consistency in all areas of military pay and allowances across the Department; including a common understanding of roles and responsibilities.
· the adequacy of resources available should be reassessed in the light of the evolving control environment;	In some areas resources have been increased and the overall adequacy of resources against changing requirement is being closely monitored.
On the provision of management information · the management information available should be reviewed to ensure it meets the requirements of all stakeholders including budget holders on whom the Department is relying for checks on out-turn most notably the TLBs;	The adoption of standard reports, already released, will achieve greater coherence in reporting. In November 2008 new budget management reports were delivered.  Training in the use of these reports has now been completed and as a result they are now being used to better affect in the front line Top level Budgets.
On achieving the JPA vision:  · the Department should revisit the timetable for harmonisation of pay and allowances to ensure the results are achievable and consistent with its ability to amend the JPA system to cope with the resultant changes;	A detailed review of options to address harmonisation and simplification is underway.  In addition, the Future Pay Structure Study which reports to the Service Personnel Board in March 2010 will consider options for a future pay structure including greater harmonisation and thus simplification of pay and specialist pay.
· Service Personnel have a wide range of abilities, education and needs.  The Department should consider the range of support needed both at the existing call centre and in Units is sufficient to ensure Service personnel receive their entitlements;	The JPA Training and Documentation Working Group is seeking to review and where necessary improve JPA training and documentation.  A review of how self service users and HR specialists are trained and kept up to date is taking place to ensure that users have the skills and competencies to prevent errors and improve data quality.
· the Department needs to begin its assessment on whether to upgrade to Oracle 12 and make the necessary preparations to review the current extensions to the COTS product or make provision for further maintenance costs from 2012 onwards;	Oracle 11 will be fully supported until April 2013. SPVA are already reviewing the costs and options for the Oracle upgrade.
Inventory management  · the Department should analyse the reasons for the increasing discrepancies in stock counts and introduce appropriate additional controls to ensure that stock systems are sufficiently robust and efficient to support operational requirements, ensure efficient stock management and provide sufficiently accurate information for financial reporting requirements;	Stocktaking across the Defence Storage and Distribution Agency (DSDA) is now conducted by an independent team.  Results are reviewed at One star rank and scrutinised to identify trends and to allow for remedial action to be taken at an early stage.  The combination of preventative quality checks, a strict stocktaking programme, monthly analysis of stock adjustments and management snap checks will identify problem areas and lead to corrective action.  In 2009-10 40% more items will be checked than in 2008-09.
· a review should be carried out to confirm and clarify ownership of systems and to identify ways to ensure existing systems and any new systems are comprehensive and meet the identified needs of key stakeholders;	The Material & Financial Accounting Programme Board will direct the development of essential improvements to current processes, Information Systems, policy and practice that will enable the implementation of effective solutions to material and financial accounting problems within the End to End Joint Supply Chain.
· a review should be carried out to examine the interfaces between the various stock systems, including the MEFAR, to ensure that an appropriate programme of reconciliations is conducted which will confirm the completeness of records and the robustness of data underpinning the figures in the Department's Resource Accounts;	The Inventory Optimisation Team will revise and republish Stock Accounting Reconciliation Requirements. This document will detail the end to end reconciliation process, from the Inventory Stock Management Systems through the Stock Collation systems to MISA and the accounts' General Ledger. New processes for stock system data extraction and comparison between systems are being introduced.  Full reconciliations are anticipated to be carried out quarterly, the first to be completed as at 30 September 2009, and these will be made available to the NAO.
· all stakeholders including the FAPC should be consulted as part of these reviews and before any major changes to the current systems are introduced, and · where there are significant changes in key experienced personnel whether due to rationalisation or other factors, the Department should put in place strategies which support knowledge and skills transfer;	The Material & Financial Accounting Programme Board will direct the development of essential improvements to current, Information Systems, policy and practice processes that will enable the implementation of effective solutions to material and financial accounting problems within the End to End Joint Support Chain.
Assets accounted for using the MERLIN/MAESTRO systems · The Department should complete the census exercise and investigate surpluses and deficiencies to ensure that its records can be updated;	The census process has been supported with a personal letter from Chief of Defence Material.  A dedicated team has been established to ensure all returns are received. All discrepancies will be cleared and the systems updated to reflect an accurate position of assets held. Systems changes aimed at improving asset reporting will be investigated.
· review the timing of the census exercise and consider if it could be carried out more effectively to allow the Department time to be able to investigate any reported deficiencies and for these to be reflected in the financial statements.	The census date has been brought forward from January to September, allowing more time to ensure returns are received and discrepancies followed up.  Instructions have been updated to ensure clarity at Unit level, where the details are being recorded. An annual assurance report on the census will be produced by 31 March 2010 to inform NAO's audit.
BOWMAN communications equipment    · the stocktake of BOWMAN equipment should be completed to establish as accurate a record as possible and missing equipment should be formally written off;	Bowman And Tactical Communication and Information Systems (BATCIS)  provide BOWMAN baseline information to facilitate HQ Land Forces physical asset verification census. This is being conducted quarterly in 2009-10. Visibility levels of around 90% are being achieved. The balance comprises stock in transit to/from theatre and assets in the repair loop, both temporarily out of sight of HQ Land Forces.
· procedures should be developed to recognise the different types of equipment to enable more effective asset management;	The recommendation concerns L class items. BATCIS has published a business case to update Joint Service Publication 886, Volume 4. The change will allow L class items to be accounted for as consumption on issue from warehouse to reflect the high value single use nature of the equipment.
· working with the Army and their contractor, the Department should review the procedures for accounting for BOWMAN assets including purchases, issues, assets in the repair loop, losses, write-offs and assets in transit.  These procedures should be designed to provide the robust management information required for operational deployment, stewardship and financial reporting;	Defence Equipment & Support has developed a Bowman Asset Management Improvement Plan to address governance and accounting issues.  A working relationship has also been established with General Dynamics with a view to enabling them to deliver regular quality management information to support the MoD's materiel and financial accounting requirements. The project team is working with HQ Land Forces to establish a process to report damaged/destroyed assets, particularly those arising in operational theatre and processes to reflect in the Accounts Fixed Asset Register.
· establishing the levels of visibility required using an effective management information system and mapping out how to achieve this with appropriate allocation of responsibilities and deadlines;	Defence Equipment & Support will continue to develop and roll out Bowman And Communication Management System (BACMS) and Joint Asset Management and Engineering Solutions (JAMES) systems which will enable serial number tracking and accounting for Bowman assets. BATCIS will develop a database of serial numbers as part of the Bowman radio baseline data supplied quarterly to HQ Land Forces. As BACMS develops, serial numbers will be progressively added with physical locations to improve visibility. Ultimately, JAMES will hold the Master serial number and location library.
· as costs have not been updated since 2006, the Unit Production Cost (UPC) of each BOWMAN asset should be reviewed to ensure that the value of BOWMAN assets reported in the Department's Resource Accounts is materially correct;	BATCIS have conducted a re-costing exercise which confirms the present UPCs. The evidence has been presented to NAO for their review.
More widely: · the Department should ensure that no further equipment is issued without NATO stock numbers, where this is the  key identifier to enable effective management of the assets, and   · the Department should review other key equipment lines to ensure that the bespoke inventory systems provide adequate records to support operational, stewardship and financial reporting requirements.	The Material & Financial Accounting Programme Board will direct the development of essential improvements to current processes, Information Systems, policy and practice that will enable the implementation of effective solutions to material and financial accounting problems within the End to End Joint Support Chain.

 

The reduction in expenditure from 2007-08 to 2008-09, in addition to the reduction in depreciation is due to Administration Costs being included in the 2007-08 outturn (Table 31 pg 214, Annual Report & Accounts 2007-08), but excluded from 2008-09 return. These costs are now reported centrally for the Department as shown in Table 3.21 (p91). The actual outturn of £14,688m is also shown in this table.  The 2008-09 figure on page 22 was only an estimated figure. The 2009-10 Plan figure is higher than the 2008-09 outturn as a result of the plan reflecting the normal level of expected non cash costs (depreciation etc) as opposed to the one off reductions last year. This was due to a re assessment of asset lives and capital spares as stated in paragraph 3.103(p88) in the Annual Report & Accounts.

 

14. Para 3.139 (p99) refers to a £195 million shortfall in estate disposal receipts compared with CSR plans. What discussions has the Department had about the scope for the MoD's budget being compensated for the impact of lower estate disposal receipts from the depressed property market? What impact would this otherwise be likely to have on the department's spending plans?

 

As pointed out in the Report, the shortfall was caused by delays and the lower than expected receipts due to the depressed property market.  The impact of depressed market conditions has been discussed with the Treasury, with the conclusion that the Department should absorb the loss, on the grounds that it had benefited from gains in earlier years when conditions had been more favourable than expected.  The receipts for delayed disposals will eventually be realised, although they are still likely to be depressed by the market conditions. The resulting financial pressures were addressed in the Department's annual planning round. 

 

15. The National Audit Office has qualified its audit opinion (p183) on the Resource Accounts due both to material error in military specialist pay, allowances and expenses and to inadequacy of evidence related to certain income and expenditure and asset holdings (as well as 'Votes A' control). The Committee would like to have a point-by-point analysis of what action the Department is taking on each of the recommendations listed in the bullet-points on pp196-198 of the C&AG's audit report.

 

The answers are as follows:

 

 

16. Does the Department accept all of the findings of the NAO and proposed actions in relation to the Resource Accounts? What action plans and timescales for implementation have been formulated, and can these be shared with the committee?

 

The Department has accepted the audit findings and the Defence Equipment & Support Top Level Budget and Deputy Chief of Defence Staff (Personnel) area have major improvement programmes underway to resolve the issues identified. 

 

17. Also on the qualified accounts, what is the Department's current estimate of the likely extent of specialist pay and allowances payments that will be recovered, and how much might have to be written off?

 

The National Audit Office results were extrapolated from a sample of the overall population.  Further work to identify the actual number of errors is in hand.  Where overpayments are identified corrective action will take place in accordance with Joint Service regulations

 

18. What is the Department's current estimate of the value of undocumented assets that might have to be written off? How much of the 11% of Bowman assets not visible to stores accounting systems does the MoD consider are in the repair loop rather than missing?

 

Significant progress has been made over the past two years to improve the visibility of Bowman assets. The Bowman and Tactical Communications and Information System (BATCIS) project continues to develop and roll out a system to track and account for Bowman assets, which are designed to be easily transported and are widely dispersed and heavily used on military operations  This will enable us to better identify the number of assets in service and in the repair loop and demonstrate full fleet visibility.  It is considered unlikely that any asset write offs due to lack of visibility will be necessary.

 

19. Page 256 includes a 'claim waived or abandoned' in respect of EDS non recovery of costs, amounting to £9m. Why can the Department not recover costs from EDS for JPA non-performance?

 

Under the Service Provision Agreement a maximum charge, that could be invoked, is calculated.  Discretion exists for a smaller sum to be charged where the maximum charge is deemed inappropriate, for example  when the reason for a service delivery failure cannot be apportioned solely to EDS.  Additionally, the charge can be waived in total, for example when a service delivery failure is judged to be as a consequence of circumstances outside EDS' control.

 

The £9m represents the maximum sum which may be waived against service delivery failures under the Service Provision during the Financial Year 2008-09. A significant proportion of the charges were not invoked because service delivery failures were due to factors beyond EDS' control. Imposing failure charges for minor breaches would both adversely affect the partnering relationship between the Department and EDS, and could be open to legal challenge.

 

20. The Accounting Officer's Statement on Internal Control (p178) and the C&AG's audit report note that the complexity of the specialist pay and allowances system was an important underlying cause of the breakdown in controls on these payments. What consideration is being given to the scope for simplifying and/or rationalising payments and allowances across the Services?

 

The Service Personnel Operating Board (SPOB) has considered the issue and a detailed review of options to address harmonisation and simplification is underway.  In addition, the Future Pay Structure Study which reports to the SPOB and Service Personnel Board in March 2010 will consider a number of options for a future pay structure including greater harmonisation and thus simplification of pay and specialist pay. 

 

21. What is the cause of the large reductions in the assessed cost of the submarine force elements and Army field units in 2008-09 compared to 2007-08, as noted at p240?

 

The main reason for fall in the cost attributed to the submarine force is the reduction in the value of provisions for nuclear decommissioning following a review.  There were also falls in the value of submarine related stocks and capital spares consumed as well as a benefit from the attribution of a share of the fall in departmental overhead costs resulting from the movement on derivative financial instruments associated with the forward purchase of foreign currency.

 

The costs allocated to Army Field Units have reduced in 2008-09 (compared to 2007-08) partially as a result of more of the Army's 2008-09 costs being allocated to Operations under Strategic Objective 1.  There were also falls in the value of stocks and capital spares consumed by Army Field Units as well as the benefit of the attribution of a share of the fall in departmental overhead costs resulting from the movement on derivative financial instruments associated with the forward purchase of foreign currency.

 

22. The Report notes that under the CSR's 'Value for Money' savings programme £114m has been saved from the drawdown in Northern Ireland (para 3.123). The VFM savings are scored on a counterfactual basis. To what extent do these savings represent a faster and/or more extensive drawdown than that envisaged at the time of the CSR in October 2007?

 

The drawdown in Northern Ireland proceeded in 2008-09 as planned in the 2007 Spending Round and achieved the VfM savings envisaged.  The additional measures mentioned in the Report will materialise from the final year of the Spending Round period.

 

23. The Report notes that the MoD is reviewing the 'business models' of the Met Office, DSDA and Oil & Pipelines Agency (para 3.128). What is the latest position on that work?

 

Substantial progress has been made since the Operational Efficiency Programme final report was published in April. A detailed update on each review will be published in the Pre-Budget Report in November.

 

24. What assessment has the MoD made of the levels of transparency and accountability provided by the new system of objectives and targets in use in this reporting period? Do you have any plans to change this system?

 

The Department now supports a number of cross governmental Public Service Agreements while measuring success against three Departmental Strategic Objectives.  Assessments of these objectives and targets is supported by use of the Defence Balanced Scorecard (as, indirectly, were the previous Departmental PSAs) and responsibility for delivery of objectives is clear within the related Defence Plan.  A comprehensive review of Performance Management is ongoing in parallel with related internal work on strategy.

 

 

 

Ministry of Defence

2 November 2009