Armed Forces Covenant Annual Report 2017 Contents

4Accommodation

76.The Armed Forces Continuous Attitude Survey 2018 found that 78% of Service personnel lived in Service accommodation during the working week.110 This is split between 40% of personnel in Single Living Accommodation (SLA) and 32% in Service Family Accommodation (SFA) during the working week; the remaining 6% are, for example, on board a ship or submarine. The survey found that, satisfaction with the overall standard of Service accommodation had fallen from 58% in 2015 to 51% in 2018. In their observations in the 2017 Covenant Annual Report, the single Service Families Federations reported that accommodation matters continued to generate the highest number of concerns reported to them.111

Performance of CarillionAmey

77.The management of Service Family Accommodation is the responsibility of the Defence Infrastructure Organisation (DIO) within the MoD which manages around 50,000 family homes in the UK. However, many of these responsibilities are discharged through private contractors. The National Housing Prime (NHP) Contractor with responsibility for maintaining Service Family Accommodation and administering the charging system for that accommodation is CarillionAmey.

78.In the 2016 Covenant Annual Report, the single Service Families Federations were forthright in their criticism of the company’s performance in the provision and maintenance of Service accommodation.112 The National Audit Office, the Public Accounts Committee and the Armed Forces Pay Review Body have also criticised CarillionAmey.113 This led, in part, to the intervention of Ministers in early 2016 and the subsequent adoption of an Improvement Plan with CarillionAmey. The Improvement Plan required service levels to be measured against new key performance indicators (KPIs) with a deadline of May 2016. There was evidence of some improvements in performance following the adoption of the Plan. A January 2017 update by the NAO found that, there had been an improvement against the KPIs on response times, with agreed levels of service being met across all of the main indicators. However, performance across a number of the KPIs appeared to then deteriorate again. By September 2016, targets across three of the main indicators were no longer being met and complaints had returned to pre-Improvement Plan levels.114 The deterioration in performance was confirmed by the Armed Forces Pay Review Body in its 2017 Report.115

79.In the 2017 Covenant Annual Report, the single Service Families Federations reported that there had been some progress made in the performance of CarillionAmey, although there was still room for improvement in some areas, such as in follow-on works and communications.116 The company’s introduction of Customer Engagement meetings was commended, as families had long voiced their frustrations about not having face-to-face contact with the team responsible for Service Family Accommodation.117

80.In January 2018, it was announced that Carillion, one of the parent companies in the CarillionAmey joint venture partnership for Service accommodation, was entering into immediate compulsory liquidation. In a statement on 15 January, Amey confirmed that under the terms of the joint ventures’ arrangements they would continue to provide the services in the contract and the company was committed to ensuring a continuity of service to the DIO and the MoD.118 On 16 January, the single Service Families Federations noted that they had already received assurances from Amey and the DIO on the future delivery of services under these contracts.119 However, they remained highly critical of the original CarillionAmey contract. Anna Wright, Director, Naval Families Federation, told us:

It was a very cheap contract. It was £180 million less than the previous contract. That says it all really, doesn’t it? It was a short contract. It was a cheap contract. They bid too low, the Government did not pay enough and families suffered as a result.120

81.The Minister accepted that improvements needed to be made, arguing that the renegotiation and review of some of these contracts in 2021 would provide an opportunity to learn from the mistakes and errors made in the past.121

82.In the months since the collapse of Carillion, in regular updates to us, each of the Federations noted that it had not seen an undue increase in the number of maintenance issues in respect of SFA since Amey took over the contract. However, they did raise concerns that some sub-contractors were now demanding to be paid up-front. It was also suggested that in some cases Amey had requested payment for work for which Carillion had already been paid. The MoD told us that the Department had not paid any money directly to Carillion for the contract. Payments were, and would continue to be made to the project bank account operated by the DIO and the CarillionAmey Joint Venture (JV). The JV authorised payments from that account to their own bank account and from that account made payments to sub-contractors, suppliers and Carillion.122

83.In May 2018, Graham Dalton, Chief Executive of the DIO, told the Public Accounts Committee that the contract targets had either being achieved or slightly exceeded. Although the DIO was working with Amey to achieve better performance, he did not have any enforcement measures that he could impose on them.123

84.The performance of CarillionAmey, the Ministry of Defence and the Defence Infrastructure Organisation (DIO) in managing Service accommodation has been lamentable. It is clear that the National Housing Prime contract was ‘not fit for purpose’ in terms of its budget and Key Performance Indicators. It is unacceptable that this has meant that there are no enforcement measures that can be imposed on CarillionAmey, as they have met the minimum standards set out in the contract (which were woefully low). Concerns over the maintenance of Service accommodation pre-date the CarillionAmey contract and it is obvious that the MoD and the DIO have not learned the necessary lessons. The culture within the MoD and DIO must change to ensure that this failure is not repeated. The DIO’s plan to examine different strategies for future contracts, including using more than one provider, is a welcome first step.

85.In response to our report the MoD should set out detailed plans on how it will learn lessons from this appalling story and how it will apply them to future contracts—including how the DIO plans to take forward its plan for a different strategy. Plans for this new strategy should be accelerated as a matter of urgency, as the current level of service provided to Service personnel and their families, as confirmed by the Armed Forces Continuous Attitude Survey, is simply unacceptable and should no longer be tolerated. Failure to improve the maintenance of Service accommodation will have a major adverse impact on recruitment and retention in the Armed Forces.

The Ministry of Defence’s agreement with Annington Property Limited

86.Another major concern in respect of Service accommodation is the MoD’s contract with Annington Property Limited (Annington). In 1996 the MoD sold 999-year leases on approximately 55,000 housing units that it wished to retain on its married quarters estate (the Annington Estate), as well as over 2,000 surplus properties.124 It then rented them back on 200-year leases from Annington. The number of leases initially totalled 770. The MoD can terminate the agreement in whole or part (for each of the leases) by giving six months’ notice to surrender the leases and settling any dilapidations claims. The MoD has surrendered some leases since 1996, leaving it with 39,000 housing units across 551 leases.

87.In its January 2018 report on the MoD’s arrangement with Annington, the NAO made recommendations to the MoD and the Treasury and expressed the following serious concerns:

88.The Secretary of State for Defence told us he would not defend a bad decision.126 A dedicated team has been set up within the MoD to take forward the renegotiations with Annington, due in 2021, and Helen Helliwell emphasised that the MoD needed to learn lessons to ensure that the best outcome was achieved.127 We were particularly alarmed by the NAO’s findings that if the MoD failed in the negotiations to secure continued rental adjustments then the Department might face an increase in annual rental costs of between £84 million and £250 million. The MoD confirmed that no contingency currently existed and that the matter was being considered as part of the current Modernising Defence Programme given the potentially serious implications for the defence budget.128

89.Another area of concern for us was how the negotiations might impact on the introduction of the MoD’s controversial new Future Accommodation Model (FAM),129 particularly as pilot schemes, lasting about three years, were due to begin in 2018.130 It was disappointing that in their oral evidence the MoD was unable to give us any detail on this matter.131 Following the session the Department clarified that:

Officials are working closely with wider Defence initiatives and maintain regular checks on the progress of the Annington Homes renegotiation. The speed at which FAM is rolled out will be re-assessed after the pilot. However, any impact of the Annington Homes negotiation will need to be factored into the final assessment of FAM and its wider roll-out in 2021.132

90.During evidence to the Public Accounts Committee on the Annington contract, David Goldstone, the MoD’s Chief Operating Officer, gave an update on how the FAM might be impacted by the negotiations:

… we will have the negotiation with Annington in the way that we have discussed, and that will have an outcome and we will have an ongoing view about the level of discount on market rents. That may well inform what happens. If it moves in a certain direction, it may be that the benefits and value-for-money case for FAM are increased—or not. That work will inform how we take forward FAM, rather than FAM having to be resolved beforehand. We don’t feel that that is a constraint to either taking forward the negotiation with Annington or progressing with pilots on the future accommodation model. We will have the negotiation on the estate as it is. FAM is only being piloted. There is uncertainty about how that goes forward, and there are a lot of consequences in respect of the accommodation offer and the financial issues that will be worked through before there is a firm decision.133

91.We were also concerned about the level of the MoD’s preparedness for, and the resource implications, of a potential a site-by-site review from 2021 if the MoD and Annington negotiations are unsuccessful.134 Mr Goldstone told the Public Accounts Committee that the Department had established beacon property values and had all the condition information for the properties.135 This was sufficient information for an “in principle discussion” with Annington to explore ways of reaching a future settlement so as to avoid the need for the site-by-site examination from 2021. If a site-by-site review were necessary, the Department would need additional resources; but, as this would not take place until 2021, the MoD had time to plan.

92.The Annington Homes agreement is a disastrous failure and has exposed the Department to considerable risk. This agreement is yet another example from which the MoD and the DIO, and wider Government—especially the Treasury—must learn lessons and they must do so quickly. The Modernising Defence Programme must address the potential implications for the core MoD budget. In its response to our report, the Government must explain how it will ensure that such a signally bad deal will not occur again. The Government should set out in its response the contingency measures it is considering, or which are already in place, to lessen the impact on future rents. It should also include updates on the Future Accommodation Model pilot schemes and on how the wider project may be affected by the future MoD and Annington Homes negotiations. We expect six-monthly progress reports on these matters.

Combined Accommodation Assessment Scheme

93.The Combined Accommodation Assessment Scheme (CAAS) is a new system of rental charging for Service accommodation which was introduced on 1 April 2016 following property surveys to determine the allocation of new rental charge bandings. Those surveys resulted in 81% of properties being subject to a higher rental charge. In their observations on the 2016 Covenant Annual Report, the single Service Families Federations stated that although they supported the principle of the CAAS, its introduction had been marred by both poor communication and a complex appeal process to challenge rent increases.136 The Armed Forces Pay Review Body (AFPRB) agreed, reporting that Service personnel had received little advice or communication on how they could challenge the new rental banding allocations.137 Our predecessor Committee was not surprised that confidence in the system was low, given the inconsistent banding of properties and the complex appeals process.138 They recommended that the MoD should establish an independent arbitration process and ensure that information needed for appeals was readily available.139 In its response, the Government accepted some of these criticisms and set out several initiatives that it had implemented to resolve these issues, such as the CAAS assessment summary sheet.140 The MoD also initiated further work to improve the system.

94.Despite the Department’s initiatives, the single Service Families Federations again reported in the Covenant Annual Report 2017 on the deep unpopularity of the CAAS, with many Service personnel feeling that significant rises in charges were often neither adequately explained nor justified.141 This sense of frustration was further compounded by poor communication and a complex challenge/appeal process. The Federations noted the CAAS Working Group’s intention to simplify the system, but remain concerned by the negative effect of CAAS. In oral evidence to us, the Federations highlighted that they had been assured that the additional revenue from the rent increases would be reinvested, but they had not seen this confirmed in practice.142

95.In response to these concerns the MoD gave us information on the transitional arrangements, which had been implemented when the scheme was introduced, to protect Service personnel and their families from sharp rent increases, due to the extent of the under-grading of properties and undercharging of rents.143 This spread larger rent increases over several years and set a maximum cap for the increase in any single year to one CAAS charging band.

96.Since the introduction of CAAS, work had continued on refining and improving the system, for example, by clarifying the policy so it was easier to understand, by providing clearer and more detailed responses to Challenge and Appeals, and by changes to the threshold for broadband provision in Service accommodation. The Department also emphasised the work of the CAAS Continuous Improvement Working Group, whose aim was to improve the delivery of CAAS and to develop recommendations for potential changes to policy.144

97.We are concerned that confidence in the Combined Accommodation Assessment Scheme remains low and that communication about the scheme remains poor. We support the establishment of a working group to look at ways of simplifying the scheme and request a further update on its progress from the MoD in its response to our report.

Single Living Accommodation

98.The 2018 Armed Forces Continuous Attitude Survey saw a further decline in the overall satisfaction with Single Living Accommodation (SLA) (at 49% compared with 55% in 2012).145 The survey broke this down as follows:

99.In their comments on the 2017 Covenant Annual Report, the single Service Families Federations said that:

We continue to hear about the poor state of infrastructure in units, including Single Living Accommodation (SLA), and the concomitant adverse effect on morale and feeling valued. The MoD now needs to address this urgently as the condition of SLA is an area of real concern for those personnel still living in poor quality and badly maintained accommodation.146

100.The 2017 Annual Report also included a commitment to establish a Single Living Accommodation management information system by 2019 to provide information on the condition of the estate and inform key investment decisions.147 However, Group Captain (Retd) Bill Mahon, Director, RAF Families Federation, was not sure how this would assist in resolving problems, beyond helping identify where SLA was located and how much of such accommodation was being used or vacant.148

101.The MoD agreed that the 22,000 new SLA dwellings put in place when the SLA project stated in 2004 were now getting to that age at which they would need attention.149 The MoD added that the new FAM would allow greater flexibility, so individuals could make a choice about whether they wanted to use single living accommodation, or to go off base and rent or own a property.

102.We are disappointed that the condition of Single Living Accommodation (SLA) remains of such concern and we note the warning we heard in evidence of the potential impact on recruitment and retention. We are further concerned to hear that issues are now arising regarding the condition of more modern SLA accommodation. We also believe that the MoD should make clear whether it believes the companies are fulfilling their contractual requirements.

103.The MoD needs to develop a robust plan to improve SLA. Our witnesses were unsure of how the introduction of a SLA Management Information System would help improve the standards of SLA. In response to our report, the MoD must set out why it believes this information system, which has been in the pipeline for a considerable number of years, will help improve SLA. If the MoD cannot demonstrate this, then consideration should be given to abandoning its development.

Performance of the Defence Infrastructure Organisation

104.Overall, the Defence Infrastructure Organisation (DIO) is a woefully underperforming part of the Ministry of Defence, and is known almost universally throughout the Department as ‘DI NO’—in light of its often negative and uninspiring attitude. For years, Service personnel and their families have had to put up with very poor maintenance standards, which would simply not be tolerated in the Local Government / Housing Association sector. This disrespect of Armed Forces personnel and their families is increasingly one of the reasons why people leave the Services. Ministers must urgently grip this dysfunctional organisation and lay out an action plan for radical improvement, to convince Service personnel that they and their families are indeed valued and that their housing needs will be cared for appropriately in the future.


110 Ministry of Defence, UK Armed Forces Continuous Attitude Survey Results 2018, 24 May 2018, p 19

111 Ministry of Defence, Armed Forces Covenant Annual Report 2017, 18 December 2017, p 14

112 Ministry of Defence, Armed Forces Covenant Annual Report 2016, 15 December 2016, p 14

113 See Public Accounts Committee Ninth Report of Session 2016–17, Service Family Accommodation, HC 77; National Audit Office, Service Family Accommodation, Memorandum prepared for the Public Accounts Committee, June 2016; National Audit Office, Service Family Accommodation update, Memorandum prepared for the Public Accounts Committee, January 2017; and Armed Forces Pay Review Body, Forty Sixth Report 2017, Cm 9437, 28 March 2017

114 National Audit Office, Service Family Accommodation update, Memorandum prepared for the Public Accounts Committee, January 2017

115 Armed Forces Pay Review Body, Forty Sixth Report 2017, Cm 9437, 28 March 2017, p xiv and paras 1.14, 4.7 and 5.5

116 Ministry of Defence, Armed Forces Covenant Annual Report 2017, 18 December 2017, p 14

117 Ministry of Defence, Armed Forces Covenant Annual Report 2017, 18 December 2017, p 14–15

118 “Statement about CarillionAmey”, Amey press release, 15 January 2018

122 Ministry of Defence (AFC0001)

123 Oral evidence taken before the Public Accounts Committee, Annington Homes: Armed Forces families, HC 974, Q102

124 National Audit Office, Ministry of Defence’s arrangement with Annington Property Limited, January 2018, HC 762, p 4

126 Oral evidence taken before the Defence Committee on 21 February 2018, Departmental Priorities, Qq90–94

129 See concerns from the single Service Families Associations: Ministry of Defence, Armed Forces Covenant Annual Report 2017, 18 December 2017, p 15, and also Royal United Services Institute for Defence and Security Studies, Occasional Paper, The Home Front—The Future Accommodation Model for the UK Armed Forces: Obligations and Choices for Service Personnel and Families, May 2018, which also expressed concerns, and made specific recommendations, for the Future Accommodation Model.

130 Qq208–211 and oral evidence taken before the Public Accounts Committee, Annington Homes: Armed Forces families, HC 974, Q149

132 Ministry of Defence (AFC0001)

133 Oral evidence taken before the Public Accounts Committee, Annington Homes: Armed Forces families, HC 974, Q152

134 Oral evidence taken before the Defence Committee on 21 February 2018, Departmental Priorities, Qq91

135 Oral evidence taken before the Public Accounts Committee, Annington Homes: Armed Forces families, HC 974, Q126

136 Ministry of Defence, Armed Forces Covenant Annual Report 2016, 15 December 2016, p 14

137 Armed Forces Pay Review Body, Forty Sixth Report 2017, Cm 9437, 28 March 2017, paras 4.5–4.12

138 Defence Committee, Ninth Report of Session 2016–17, Armed Forces Covenant Annual Report 2016, HC 492, para 58

139 Defence Committee, Ninth Report of Session 2016–17, Armed Forces Covenant Annual Report 2016, HC 492, para 59

141 Ministry of Defence, Armed Forces Covenant Annual Report 2017, 18 December 2017, p 15

143 Ministry of Defence (AFC0001)

144 Ministry of Defence (AFC0001)

145 Ministry of Defence, UK Armed Forces Continuous Attitude Survey Results 2018, 24 May 2018, p 19

146 Ministry of Defence, Armed Forces Covenant Annual Report 2017, 18 December 2017, p 15

147 Ministry of Defence, Armed Forces Covenant Annual Report 2017, 18 December 2017, Annex A, p 85




Published: 30 June 2018