House of Commons - Ministry of Defence Annual Report and Accounts 2012-13

Ministry of Defence Annual Report and Accounts 2012-13 - Defence Committee Contents

2 Performance and risk management in the MoD

Reporting of performance to Parliament and the public

3. The MoD has now implemented the recommendation in our Report on the Annual Report and Accounts 2011-12[3] that the Annual Report and Accounts should include an explanation of the input and impact indicators and performance against the indicators (see Table 1 below). However, the MoD has not reviewed its performance reporting to identify further and more useful information in line with that used by the Defence Board.[4] The Defence Board is the main corporate board of the MoD, providing senior level leadership and strategic management of Defence, driving forward delivery and change. The Defence Board is chaired by the Secretary of State for Defence. Other current membership is the Armed Forces Minister, the PUS, the Chief of the Defence Staff, the Vice Chief of the Defence Staff, the Chief of Defence Materiel, the Director Finance and three non-executive Board members.

4. Performance indicators should provide a coherent and consistent view of the performance of the MoD. The high level indicators used by the Management Board of an organisation should form the basis of the indicators reported to Parliament and the public. In the oral evidence session on 10 September, Jon Thompson, the Permanent Under Secretary (PUS), suggested that the Committee should identify those areas where it would like to see further information.[5]

5. When asked if he agreed with the NAO assessment that the MoD input and impact indicators did not cover 'structural reform priorities' such as the Defence Reform Programme, the PUS said:

I think that that is fair. There are challenges with those [indicators] [...] in that they do not match to any large degree those indicators that we use for running the Ministry of Defence. [...] The Defence Board receives a monthly report on the defence transformation programme and our progress against the 53 recommendations that Lord Levene made in his report. We could issue some of that information on an annual basis if that would assist the reader of the annual report.

Table 1: Input and impact indicators 2012-13

Indicators 2012-13 2011-12 Comment

Input Indicators

Additional cost of operations in Afghanistan, per Service person deployed £297,025 £364,000 This is the total Net Additional Cost of Military Operations (including Urgent Operational Requirements (UOR)) over the year, divided by the endorsed manpower level (9,900 for all of 2012-13). It is slightly lower this year due to reductions in the amounts spent on infrastructure and equipment prior to draw down.

Additional cost of new equipment (Urgent Operational Requirements (UOR)) for operations in Afghanistan, per Service person deployed. £37,000 £60,012 This is the total UORs over the year, divided by the endorsed manpower level (9,900 for all of 2012-13). It is slightly lower this year due to sizeable reductions in the amounts spent on equipment prior to draw down.

Average percentage by which the cost of the Department's Equipment Programme (EP) varies compared to forecasts in year. 0.26% 1.41% This figure is the average slippage across the Department's largest projects (Category C and above) in the last year. It is a continuation of a long term trend of reduced programme delays, reflecting improvements in project and programme management.

Cost of major Force Elements (FE): This figure is calculated by attributing Defence expenditure to each of the major Force Elements. The costs have remained roughly constant.

Ship £33.5m £34.0m

Brigade £654m £661m

Aircraft (fixed wing) £8.34m £8.05m

Helicopter £3.62m £3.41m

Direct personnel costs, per Service person. £55,024 £52,000 This is the total spend on military manpower divided by the number of Service personnel over the year. It rose slightly this year, in part reflecting the increase in pay for military personnel.

Impact Indicators

Progress toward a stable and secure Afghanistan 96% 105% This is the percentage of Afghan National Security Forces against the NATO target. The strength of the ANSF has increased this year from 330,000 to 336,000 but the target for this year also increased from 312,000 to 351,000.

Number of Service and MoD civilian personnel deployed on all operations in a year. 11,476 15,582 This is the total number of personnel deployed on operations both in the UK and overseas. The figure is lower this year due to the end of operations in Libya.

Percentage of Service personnel that are deployable. 91.1% 92.0% This figure has remained constant from last year.

Number of Force Elements (FE) (typically ships, ground force sub-units and aircraft) showing critical or serious weakness against the total number of FE for Strategy for Defence (SfD) priorities 8% 10% This figure is slightly better than last year's. We expect it to improve substantially as forces return from Afghanistan.

Percentage of Service personnel (split by Officers and Other Ranks (OR)) who are satisfied with Service life in general 59%/50% 62%/56% The significant drop from last year is likely to be due to a combination of pay restraint and the announcement of redundancies.

Overall public favourability of the UK Armed Forces 85% 85% This figure remains encouragingly high.

Source: MoD Annual Report and Accounts 2012-13[6]

6. We welcome the MoD's implementation of the recommendation in our last report on the Annual Report and Accounts that it provide a useful commentary on the input and impact indicators. We are, however, unhappy with the quantity and quality of performance information available to us and to the public. We recommend that more information of the type provided to the Defence Board should be provided to us and put in the MoD's Annual Report and Accounts. We have identified those areas where we expect the MoD to provide information in its Annual Report and Accounts or where it should develop an improved set of indicators. These areas are set out in an annex to this Report.

Risk management by the Defence Board

7. In its Annual Report and Accounts, the MoD reports that there are 16 risks over which the Defence Board has decided it wishes to have particular oversight. These risks include:

· That the MoD does not have the right numbers of people with the right skills;

· That the MoD cannot generate future leadership;

· That the MoD does not retain the confidence and commitment of its people, causing them to leave;

· Matters surrounding the withdrawal from Afghanistan;

· That transformation does not deliver the required way of working;

· Risks to the delivery of operational capability;

· Threats to its information systems, including from cyber attack; and

· Risks from a disruptive event such as a flu epidemic or terrorist attack.

The MoD said that it does not publish a full list of risks for reasons of national security.[7] A review of these risks was scheduled for Autumn 2013 to ensure the risks and process remain up-to-date and relevant.[8]

8. Following last year's Internal Audit review of risk management, the MoD is changing its arrangements over the next two years to include:

· An updated Risk Management Framework that supports the delegated operating model;

· A consistent approach to Impact and Likelihood criteria to allow comparisons across TLBs [top level budget holders];

· A redesigned report to the Defence Board to allow better focus on escalated risks that need attention, and better visibility of risks for profiling purposes;

· The introduction of 'target' risk assessments, that will improve consideration of risk appetite;

· Refreshed risk management training within the Defence Academy; and

· Improved communications on risk matters.[9]

9. The PUS said that when he took up his post, he identified that the management of strategic risks needed to be improved. Since the Autumn of 2012, the Defence Board has undertaken a process of improvement of its risk management. The MoD formed a new strategic risk register which comes to the Defence Board quarterly. The PUS acknowledged that there was still much to be done in assuring a consistent approach to risk across the MoD.[10]

10. The PUS undertook to look at how much of the strategic risk register could be shared with the Committee.[11] The MoD replied:

The MoD, however, did agree to give us the new Risk Framework documentation in the New Year when it had been approved.[13]

11. In his Governance Statement, the PUS said that he shared "the Defence Audit Committee's view that the structural changes we are undertaking are leading to some lack of clarity in roles and responsibilities, particularly in business continuity".[14] The PUS said that the MoD was trying to work out the internal control framework of responsibilities and delegations.[15] He added:

We have to make sure that we are clear about all those issues. [...] They are not only about finance or HR information or safety. There are more than 200 areas where we have to be clear about how accountability and responsibility work in a delegated organisation. We are doing that work, and it is coming to the board at the end of September.[16]

The Defence Board is carrying out a reassessment and review of risk management arrangements which is due to finish before the end of the year.[17]

12. We are concerned that structural changes in the MoD have led to a lack of clarity in roles and responsibilities. The MoD should report to us on the results of its work looking at this problem. We also wish to know how responsibilities are aligned with risk management structures and, how it is improving business continuity arrangements. We do not accept the assertion that because the detailed Strategic Risk Register is produced as advice to the Defence Secretary and the Defence Board, that fact should preclude members of the Committee from being able to see it. The Register is an important document with several functions, and it needs to be open to Parliamentary scrutiny. At the very least, the MoD should provide us with a commentary on the reassessment of the risks presented to the Defence Board and with the new Risk Framework documentation.

Challenge from the quantity of change in the MoD

13. We note that the PUS was sufficiently concerned with the level of change in the MoD to refer to it in his Governance Statement in the Annual Report and Accounts. He said in relation to 'Transforming Defence' (the reform introduced following the Report commissioned from Lord Peter Levene by the Secretary of State on the need to reform the structure and management of the MoD) that :

14. We recommend that the MoD should tell us what it is doing to manage the risks resulting from the volume of change presently being undertaken in the MoD alongside business as usual.

Risk from reduction in manpower

15. One of the strategic risks considered by the Defence Board is whether the Armed Forces and the MoD have sufficient capable personnel to carry out the tasks required. The Board is concerned about the rate of voluntary outflow.[19]Voluntary outflow for officers is currently 4.1 per cent and for other ranks is 5.8 per cent which is above the long term average for ten years at a time when the economic situation might suggest it should be lower than the average.[20] We are concerned that the rate of voluntary outflow from the Armed Forces is above the long term average. The MoD should identify the causes of this increased outflow and determine what measures it needs to put in place to reduce the outflow.

PINCH POINT TRADES

16. Operational Pinch Point trades are those where there are insufficient trained personnel against an operational requirement. In the Royal Navy, the number of Operational Pinch Point trades has increased from 11 to 15 since 2011-12, see Table 2 below for detail. In the Army, the number of Operational Pinch Point trades has increased from 19 to 26, see Table 2 for details.[21] The number of Operational Pinch Point trades in the RAF reduced to just one.

Table 2: Operational Pinch Point trades 2012-13

Naval Service Operational Pinch Point Groups - Quarter 4 2012/13 Liability Shortfall % Diff

1 Anti-Submarine Warfare Aircrewmen 90 15 15%

2 General Service Mechanical Engineer—Rank:
Warrant Officer Class 2
160 10 5%

3 Strategic Weapon System Watch Keeper—Rank: Senior Rate 120 20 15%

4 Medical Assistant Operating Department Practitioner 35 10 30%

5 Seaman Specialists—Rank: Leading Rate to Petty Officer 265 65 25%

6 Royal Marine Other Ranks—Rank: Corporal to Warrant Officer Class 2 2175 190 10%

7 Mine Warfare—Rank: Leading Rate to Petty Officer 135 40 30%

8 Category A2 Nuclear Watch Keepers 140 20 15%

9 Category B Nuclear Watch Keepers 355 40 10%

10 Diver Specialist—Rank: Petty Officer 55 5 10%

11 Medical Assistant Submarines 30 ~ 15%

12 Nurses 50 15 30%

13 Warfare Specialists—Rank: Leading Rate 430 20 5%

14 Hydrographic 30 10 40%

15 Commando Aircrewman 90 25 25%

Army Operational Pinch Point Groups - Quarter 4 2012/13 Liability Shortfall % Diff

1 Advanced Explosive Ordnance Disposal Operator 55 20 35%

2 Royal Engineers Explosive Ordnance Disposal Operators— Rank: Corporal to Staff Sergeant 65 15 20%

3 Royal Army Veterinary Corps Dog Handler 220 35 15%

4 Int. Corps Operator Military Intelligence—Rank: Corporal 605 225 35%

5 Interrogators 70 20 25%

6 Int. Corps Operator Military Intelligence—Rank: Sergeant 370 150 40%

7 Int. Corps Operator Military Intelligence—Rank: Staff Sergeant 185 25 15%

8 Int. Corps Operator Military Intelligence—Rank: Warrant Officer Class 2 165 20 10%

9 Int. Corps Operator Military Intelligence—Rank: Private to Warrant Officer Class 2 230 115 50%

10 Human Intelligence Operator 245 105 45%

11 Int Corps—Rank: Captain 155 14 10%

12 Int Corps—Rank: Major 140 40 27%

13 Royal Engineers Engineer Logistic Specialist—Rank: Lance Corporal 80 30 35%

14 Radiologists 5 ~ 50%

15 Royal Artillery Fire Support Team Commanders 140 10 10%

16 Royal Artillery Integrated Unmanned Air System Operator—Rank Bombardier to Sergeant 275 20 10%

17 Emergency Nurse 100 40 40%

18 Intensive Care Nurse 85 20 25%

19 Anaesthetist 50 20 45%

20 Infection, Prevention and Control Nursing Officer—Rank: Captain to Major 15 5 40%

21 Electronic Warfare System Operator—Rank: OR4 145 55 35%

22 Electronic Warfare System Operator—Rank: OR6 85 35 40%

23 Military Engineer Fitter—Rank: Lance Corporal 105 ~ 5%

24 Veterinary Officer—Rank: Major 15 ~ 30%

25 Army Air Corps Aircrew—Rank: Major 135 55 40%

26 Royal Engineers Professionally Qualified Engineers 90 30 35%

RAF Operational Pinch Point Groups - Quarter 4 2012/13 Liability Shortfall % Diff

1 General Technician (Mechanical)—Rank: Senior Aircraftman to Sergeant 825 15 ~

Notes: Figures have been rounded to the nearest 5, those marked '~' are less than 5.

17. We were concerned by the number of trades in which there were shortages. In particular, we were worried about shortages in engineering and other technical subjects and in medical specialisms. We questioned the PUS about what the Defence Board were doing to address these shortages.

DEFENCE BOARD ACTION ON SHORTAGES

18. The PUS acknowledged that the increased number of pinch point trades was not 'an ideal situation'[22]. He acknowledged that the MoD needed more of certain trades such as nuclear safety engineers, air worthiness certifiers and engineering specialisms.[23] There were also significant shortages in medical areas such as emergency nurses, intensive care nurses and anaesthetists, specialisms also in short supply in the NHS.[24]

19. On dealing with shortages, the PUS said:

"Apply some financial retention incentives? Is that something the board could help with?" The board should try to stay out of managing individual services as much as it can, but where the board can assist, we should try to.

20. The MoD should support the Services in addressing shortages in pinch point trades—key shortages which leave the Armed Forces vulnerable now and in the future. The MoD and the Armed Forces should explore ways of filling these gaps by offering financial or other incentives to Service personnel to encourage those in pinch point trades to continue in service and to encourage others to undertake training in these trades or by using reservists and private sector contractors.

BREACHES OF HARMONY GUIDELINES

21. We were concerned that repeated deployments and breaches of harmony guidelines (the recommended maximum amount of time spent away from home by members of the Armed Forces) might be exacerbating the voluntary outflow. The PUS agreed that this was a concern:

22. The MoD told us that the latest figures for breaches of harmony guidelines were 0.6 per cent for Naval personnel, 5.1 per cent for the Army and 3.7 per cent for the RAF.[27]

23. It is unsatisfactory that harmony guidelines are still being breached for some Armed Forces personnel, in particular that over five per cent of the Army is away from home in excess of the recommended time. The MoD should provide us with the annual figures for breaches of harmony guidelines over the last ten years. We call on the MoD to set out a timetable for reaching a point where no Armed Forces personnel are in breach of harmony guidelines.

Financial management information

24. When asked about the state of the MoD management information systems, the PUS acknowledged that information on costing did not drop out of their financial information systems but that they had been working on developing a cost of defence process.[28] The Government Response to the Committee's Report on the Annual Report and Accounts 2011-12 stated that a business case would be put forward on work to improve financial management information by Autumn 2013.[29]

25. In response to our follow-up questions, the MoD provided us with more detail on plans to improve its financial and management information in the Defence Equipment and Support organisation and in the rest of the MoD.[30] With regard to the next defence review, the PUS said that they were already planning to provide relevant costing information.[31]

26. In his second annual review of the Defence Reform Programme announced on 5 December 2013, Lord Levene stressed the importance of management information as he had in his previous review. He said:

27. As Lord Levene said in his second annual review of the Defence Reform programme, management information is critical for the effective management of Defence. The MoD should update us on its proposals to improve its management information systems in particular its financial management information systems. It should also describe in detail its planned work on costing defence outputs, in particular, operations. It should tell us the planned future level of investment in cost modelling and data and systems exploitation.

Carrier programme

28. We did not set out to review major equipment programmes but given the strategic importance of the Carrier Programme, we asked the PUS to tell us of the latest state of play. The PUS explained that the cost overrun of the Carrier programme was because earlier estimates had not included Value Added Tax (VAT) as the joint strike fighter was expected to have been a Government to Government deal with the USA which would not attract VAT.[33] In response to our written question about whether VAT had been omitted from the costs of other projects, the MoD told us that "we do not believe we have an endemic problem with VAT on purchases from the USA".[34]

29. The PUS told us that the Carrier programme was still categorised as a red programme because the MoD was trying to re-baseline the programme following the decision to revert to the short take-off and vertical landing (STOVL) version of the joint strike fighter last May. He also said that the MoD had almost completed the negotiations to finalise the budget and timetable for the two carriers and that a statement would be made to Parliament when this was certain.[35]

30. After our hearing with the PUS , the Secretary of State announced on 6 November 2013 the results of the renegotiations—a total capital cost of procuring the carriers of some £6.2 billion, a cost increase of some £0.74 billion over the cost reported in the Major Projects Review 2012. The sea trials of the first carrier, HMS Elizabeth, will commence in 2017 and flying trials with the joint strike fighter will start in 2018. He also announced that the costs of nugatory design work, to introduce catapults and arrestors to function with a carrier variant of the joint strike fighter because of the decision to revert to a STOVL version of the plane fighter, currently stood at £62 million.[36]

31. Some extra resources have been put into the Crowsnest project (providing radar for the carriers) to bring forward the in-service date from 2022.[37] The MoD provided further information on Crowsnest subsequent to the evidence session:

The in-service date for CROWSNEST will not formally be approved until it reaches its Main Gate decision point. However, the Department has recently adopted an accelerated programme delivery strategy, re-allocating funding from later years to 2015-16, and bringing forward the Main Gate investment decision to 2016. This now gives a planned in-service date in 2018, 18 months earlier than the previous assumptions. The earlier in-service date provides a CROWSNEST Initial Operating Capability in time for Carrier Strike Initial Operating Capability in 2020. The re-profiling of CROWSNEST funding will result in an overall saving to Defence of at least £22 million over the years 2013 to 2024.[38]

32. The MoD has presided over significant cost increases in the Carrier Programme mainly caused by repeated changes to the requirement. We ask the MoD to confirm whether the Carrier programme is now on track and whether it now expects the programme to proceed without further significant cost or time overruns.

3 Defence Committee, Ministry of Defence: Annual Report and Accounts 2011-12, Ninth Report 2012-13, HC 828 Back

4 Government Response to the Defence Committee's Report on the MoD Annual Report and Accounts 2011-12, HC 292 Back

5 Qq 1-2 Back

6 Ministry of Defence Annual Report and Accounts 2012-13, HC 38 Back

7 Ministry of Defence Annual Report and Accounts 2012-13 HC 38 Governance Statement, page 87 Back

8 Ibid Back

9 Ibid Back

10 Qq 13-18 Back

11 Q 25 Back

12 Ev 18 Back

13 Ev 18 Back

14 Ministry of Defence Annual Report and Accounts 2012-13 HC 38 Governance Statement, page 88 Back