Delivering the defence estate Contents

3The model for managing the defence estate

Delegation to the Front Line Commands

19.On 13 January 2017, following a review of how it manages the estates and takes infrastructure decisions, the Ministry of Defence (the Department) announced that it had decided to delegate infrastructure decisions and funding to the Front Line Commands (the Commands).37 The Department told us that it had taken this decision because it believed, as did the Commands, that they are going to be in the best position to take the right decisions about the estate taking into account all capability considerations.38 However, 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.39

20.We questioned the Department on its recent decision and how it intended to ensure that the Commands attach sufficient priority to investing in the estate in future. The Department told us that it was following the principles of Lord Levene’s model to delegate the estates budget to the Commands, which also now hold the manpower and equipment budget.40 Unlike prior to 2011, when the Commands only held the estates budget, they would therefore now be better placed to take balanced investment decisions across these three major elements of defence capability.41

21.However, the Department recognised that it is easy to take a short-term view on the estate because it can take years for issues to materialise, and it intends to use safeguards to ensure Commands take sensible decisions. These safeguards include reviews of decisions by the capability coherence function within the Department’s Head Office, and the provision of advice to the Permanent Secretary from the Defence Infrastructure Organisation (DIO) about whether the estate is being managed to a suitable level.42 The Department told us it would not ask the Commands to take on responsibility for managing the estate budget until they could demonstrate they were ready, will be making the right decisions, and have appropriate management information. Ultimately, the Department commented that if delegation did not work, it could be withdrawn either from individual Commands or all of them.43

22.We questioned the Department on whether the Commands had appropriate skills and information to manage these budgets. The Department told us that training programmes are underway to ensure that people have appropriate skills, and the fact that the equipment budget has already been delegated means that the Commands have had to develop skills in budgetary management and taking balanced investment decisions.44 The Commands’ ability to make good decisions will also be dependent on the quality of the information provided to them by DIO. Although the Department has improved its data on the 318 sites covered by its estates strategy, it acknowledged that it currently had relatively poor information at a system level, such as on lighting, fire detection and drainage systems, to inform Commands’ decisions. It told us that work to improve its information was ongoing and was expected to continue during the course of 2017–18.45

The infrastructure operating model

23.Since it was established by the Department in 2011 DIO has struggled to recruit some of the skilled specialists that it requires to undertake its role in areas such as programme and project management, quantity surveyors, commercial specialists, contracting experts and strategic asset managers.46 In 2014, it contracted with a Capita-led strategic business partner to insert new management into the organisation with specialist estate knowledge and high-quality skills.47 Although the strategic business partner has brought greater rigour to DIO’s approach to workforce planning and improved recruitment processes it has not been able to rectify DIO’s difficulties in terms of recruiting and retaining staff. Five hundred of the 2,800 posts within DIO are vacant and the organisation has had three permanent chief executives plus additional interims in the last two years.48 DIO admitted that it did not yet have all of the skills and capabilities that it needed to undertake its role and cited project and programme management and commercial management as particular areas in which it needed to further develop.49

24.The Department told us that one of the reasons that it ended up in arrangements such as the contract with its strategic business partner was because it found it difficult to recruit the types of people that it would like as a result of pay restraint, particularly in areas requiring IT, cyber and commercial skills.50

25.Under its existing model the Department has wanted DIO to act as an intelligent provider of estate and for the Commands to act as intelligent customers, articulating their requirements to DIO. However, the Department believes that, in practice, roles, responsibilities and accountabilities are unclear.51 The Department is undertaking a review of its infrastructure operating model which will report by April 2017 which it intends will address these issues and put in place an appropriate framework for delivering its new estates strategy.52 In January 2017, it announced that this would include re-structuring DIO to operate more effectively in the new environment.53 Under the new model DIO will act as an expert estate manager and source of information and advice to the Commands and to the Department’s Head Office.54

The strategic business partner contract

26.In 2014 the Department signed a 10-year gain-share contracted with Capita, supported by AECOM and PA Consulting.55 The Department intended that this contract would enable it to achieve significant savings which it would share with the strategic business partner, improve DIO’s ability to manage projects, and deliver a strategy for the future footprint of the estate.56 However, at the point at which it awarded the contract to the strategic business partner, it had not completed its planned programme to transform DIO and have it operating effectively, which was essential if it were to be able to gain maximum value from private sector involvement.57 The Department told us that it went ahead with the contract despite not having completed its transformation programme because of the urgent need to get some expertise in and start making savings. It sought to mitigate the resulting risk by ensuring that the business partner agreed the transformation plan and took on this element of the job themselves. It noted however that the business partner’s performance in relation to transformation had not been as strong as in relation to delivery.58

27.The Department believes that the business partner’s performance has been mixed. It has had some successes including developing the estates strategy, and improving the delivery of the £1.8 billion Army Basing Programme through which the Department intends to relocate, reconfigure, re-role or disband over 100 army units to deliver the government’s commitment to bring all units back from Germany by 2020.59 However, there have been a number of shortcomings in its management, including being slow to address poor performance by CarillionAmey in maintaining the estate and making limited progress in improving DIO’s internal controls.60

28.The fees due to the business partner are calculated on the basis of a number of components, of which the largest relates to the business partner’s ability to deliver sustainable savings.61 We questioned the Department on why it did not ensure that the savings that were to be achieved should be primarily sustainable, rather than through one-off cost cutting. The Department told us that it believed that a number of the savings that had been achieved were sustainable. However, it accepted there had been a period of two years where it probably had not had enough information to actually determine this, and had had to take a “risk-based approach” to this work. In the future this situation would be improved by better management information.62 Despite its inability to verify the savings claimed, between June 2014 and July 2016, the Department paid the business partner £90 million in fees. The Department told us that, based on what it had been told by Capita and the consortium, its best estimate was that 50% (£43 million) of the fees it had paid to the partner was profit.63 Capita told us that it did not recognise the 50% figure and that it would be surprised if anyone made a 50% profit margin on a public contract.64

37 HC Deb, 13 January 2017, col 19WS

38 Q 47

39 C&AG’s Report, para 3.26

40 Q 46, Lord Levene, Defence Reform: An independent report into the structure and management of the Ministry of Defence, June 2011.