Delivering the defence estate Contents

Conclusions and recommendations

1.Service families have seen some recent improvements in the quality of maintenance but are still unclear as to what service levels they can expect and continue to face uncertainty around the future provision of accommodation and its costs. Providing service families with a good standard of accommodation and a reasonable degree of certainty regarding their future accommodation options is vital both for morale and for Ministry of Defence’s (the Department) ability to recruit and retain service personnel. In July 2016 we reported that service families were being badly let down and often left for too long without basic living requirements such as heating, hot water or cooking facilities. We recognise that CarillionAmey has worked hard since then and services are improving. However, complaints remain above the target of 1.75% of total monthly jobs and CarillionAmey is not routinely meeting its 100% emergency response rate key performance indicator. The Department’s communications with service families are not as good as they should be and, in particular, there is a lack of clarity about what maintenance response levels mean and what level of service families can expect. Families are also unclear, and concerned, about how potential changes to the provision of accommodation resulting from the Department’s new estates strategy, the Future Accommodation Model and the forthcoming negotiations with Annington Homes, will impact on how and where they will live, and how much this will cost them. The pressure on the Department’s budget for subsidising accommodation will be exacerbated if it fails to secure a good deal in its rent review negotiations with Annington Homes, to whom it paid £167 million in rent in 2015–16.

Recommendation: The Department should improve its communication with service families to give them greater clarity and transparency around CarillionAmey’s obligations with regard to Service Family Accommodation. It should also make available all research underpinning any decision to alter Service Family Accommodation arrangements to ensure a proper understanding of the potential implications of change and the basis on which changes are being made.

2.The Department’s new estate strategy is a significant step forward, but there is much to be done to overcome decades of under-investment. Because of long-standing pressure on its budget, the Department has only carried out essential maintenance on its estate since 2009. As a result there has been a steady decline in the overall condition of the estate which now represents a risk to defence capability. This Committee has reported several times in recent years on issues relating to the defence estate, including the Department’s failure to align the size of its estate with its requirements. We welcome the fact that the Department now has a strategy to reduce the size of its estate by 25% by 2040. However, even successful implementation of this Strategy will only allow for a partial reversal of the decline of the remaining estate and would still leave unfunded costs of at least £8.5 billion compared to what is required over the next 30 years. The Department intends to incentivise the Front Line Commands to reduce the size of the remaining estate, which will generate disposal receipts and reduce running costs.

Recommendation: By the end of 2017 the Department should put in place effective delivery structures to enable it to maintain momentum towards its strategic objectives over the coming decades, as well as governance arrangements which will allow it to track and report progress, challenge any inertia within the Commands, and learn and feed lessons back as the programme progresses.

3.The Department’s decisions about the estate are still subject to considerable uncertainty. We support the Department’s objective of rationalising its estate to release funding for reinvestment and delivering an estate fit for the 21st century. However, the success of the strategy is dependent on reconciling different, and in some cases conflicting, pressures. These pressures include the need to achieve £1 billion of disposal receipts before 2021, release land for 55,000 homes, and at the same time deliver an estate which meets military capability requirements and provides decent accommodation for service personnel and their families. There are many uncertainties associated with the strategy and many risks to its successful implementation, including around the role of Front Line Commands and the difficulty of sustaining focus over 25 years. Failure to achieve forecast disposal receipts, particularly from sites in London, could jeopardise the success of the entire strategy. Furthermore, we are not convinced that the Department has sufficiently taken account of the impact of its decisions on the recruitment and retention of its people, or the impact on local communities and cultural heritage.

Recommendation: In its annual report on progress against its estates strategy, the Department should set out clearly the decisions that have been taken in the previous year in relation to the restructuring of the estate, and the rationale behind those decisions.

4.The Front Line Commands are to be given back responsibility for estate budgets even though they failed to manage these budgets effectively in the past. The Department has decided to delegate the estate budget to the Front Line Commands (the Commands)’ from April 2018 because it believes that the Commands are best placed to balance estates requirements against the other enablers of defence capability, such as equipment and military personnel, for which they already hold the budgets. When the Commands last held the estate budget, prior to 2011, they failed to invest in the estate, which is part of the reason for the deterioration in its condition. Despite this, the Department still believes that the Commands are in the best position to make good decisions about how to rationalise the estate and improve the condition of what remains. The Commands will not be able to do this effectively without an improvement in the information that the Department holds on the existence and condition of its assets, and an enhancement in the Commands’ ability to manage these sizable budgets.

Recommendation: Before it delegates the estate to the Front Line Commands in April 2018, the Department must develop appropriate criteria to judge the readiness of the Commands to take on responsibility for managing their estate budgets. It must then use the criteria actively to monitor Commands’ ability to take good decisions in relation to the estate.

5.The Department’s model for managing the estate is still not fit for purpose which jeopardises the success of its plans for the rationalisation of the estate. The Department does not have an appropriate operating model to support its long-term strategy for the estate. It is currently undertaking a review of the model, on which it is due to report by April 2017. The Department has already announced that this will include restructuring its Defence Infrastructure Organisation (DIO) to operate more effectively in the new environment. We are dismayed at the continued instability in the Department’s plans for managing its estate which is likely to be bad for staff morale and retention in DIO, an organisation which is already carrying around 500 vacant posts, and which has had three different permanent Chief Executives in two years. Under the new model DIO will act as an expert estate manager and source of advice, but it will struggle to do this successfully unless it can improve its ability to recruit and retain staff with the right skills and capabilities. The Department previously tried to address this issue, and overcome the impact of pay restraint on its ability to recruit and retain experienced staff, by entering a complex contractual arrangement with a Capita-led strategic business partner.

Recommendation: The Department should write to the Committee by the end of May 2017 setting out the results of its review of the infrastructure model. This should contain information about how it intends to address recruitment and retention issues in DIO, including the impact of pay restraint, and secure the skills it needs.

6.The Department’s contract with the Capita-led strategic business partner failed to transform the performance of DIO. In 2014 the Department signed a 10-year gain-share contract with Capita, supported by AECOM and PA Consulting, with the intention that this strategic business partner would provide new management with specialist estate knowledge and skills to enable the Department to achieve the savings it had already assumed in its budget. However, there were fundamental weaknesses in the Department’s approach, in particular that it had failed to transform DIO before the strategic business partner became involved, and that it did not ensure that savings identified by the partner were sustainable rather than achieved through one-off cost cutting measures. The Department went ahead without having completed its transformation programme because it believed there was an urgent need to bring in expertise and start achieving savings. While the strategic business partner has had some successes with individual programmes, such as the Army Basing Programme which supports the Department’s plans to bring back all UK troops from Germany, it has failed to transform DIO’s performance. Despite the lack of transformation, and the uncertainty regarding the amount of sustainable savings achieved, the Department paid the partner £90 million between June 2014 and July 2016 of which it estimates that around 50% is profit.

Recommendation: In the ongoing review of the Strategic Business Partner’s role, the Department must avoid repeating the mistakes of the 2014 contract negotiations. In particular, it must ensure that it incentivises the sustainability of savings and avoids enabling private sector providers to earn excessive profits.

20 March 2017