Executive Summary
National Audit Office Value for Money Report
- The Ministry of Defence (the Department) places great
importance on the efficient and effective management of its
extensive estate, as it is crucial to the delivery of operational
capability and the welfare and morale of Service personnel. Its
vision for the estate is:
To have an estate of the right size and quality to support the
delivery of defence capability, that is managed and developed
effectively and efficiently in line with acknowledged best practice
and is sensitive to social and environmental considerations.
- The Department has a worldwide estate valued at some 18 billion
and is the second largest landowner in the United Kingdom with an
estate of 240,000 hectares. The built estate (80,000 hectares)
includes offices, living accommodation, aircraft hangars and naval
bases. The rural estate (160,000 hectares) comprises mainly
training areas and ranges on undeveloped rural land which is often
of particular environmental significance. We estimate that the
total annual operating cost of the estate was some 3.3 billion in
2005-06.
- This Report follows on from an earlier one published in
2005.[Footnote 1] The 2005 report looked at
the changes the Department was making to reverse the deterioration
in the quality of the estate; it also reported on progress with
estate rationalisation. Given the significance of the proposed
changes, this Report focuses on the progress being made to achieve
an estate of the right quality. It does not deal with the overseas
defence estate for which different arrangements exist.
- Over the last five years, the Department has reorganised the
provision of estate management. The occupiers of the estate, who
had run it, (principally the three Services) became internal
customers, represented by Customer Estate Organisations,
determining their requirements and securing funding for them from
the centre of the Department. Defence Estates was created as the
supplier organisation tasked with meeting their requirements. The
establishment of Defence Estates was a very positive step compared
with past practice and has paved the way for future improvements to
estate quality.
- A central part of the changes was the introduction of new
contractual arrangements to improve the delivery of estate
services. These included Regional Prime Contracts to maintain and
improve the estate; Private Finance Initiative (PFI) contracts to
operate and maintain water services; functional prime contracts to
deliver similar types of building across the estate, such as single
living accommodation, and stand alone prime or PFI contracts
delivering estate requirements as part of a wider package of work.
Figure 1 (not available in this version of the executive summary)
illustrates the roles and responsibilities for managing the defence
estate within the customer organisations, Defence Estates and
contractors.
- The Department has developed two good systems for measuring the
quality of its estate the Estate Planning Tool and the Estate
Performance Measurement System (incorporating Integrated Estate
Management Plans).[Footnote 2] The timetable for
implementing them is challenging and the Integrated Estate
Management Plans require considerable work to realise the full
potential benefits, particularly to ensure that requirements
contained within the plans reflect relative priorities across the
defence estate as well as the needs of single sites and
Services.
- Another initiative, the Non-Equipment Investment Plan is a
positive development enabling the Department to take a more
strategic view. The plan mainly includes expenditure on significant
investment projects over 50 million. Significant levels of
expenditure on the defence estate are delegated to individual
budget holders. While the total cost of the estate can be derived
from the Departmental accounts, at the Departmental level resources
are allocated either to specific projects in the Non-Equipment
Investment Plan or to Defence Estates and the resources allocated
by other budgets holders reflect their own programming
judgements.
- The Regional Prime Contracts are improving the way the estate
is maintained but it is too early for this to have had an impact on
the overall quality of the estate. Internal customers are pleased
with the delivery of reactive and planned maintenance; health and
safety issues have been identified and are being addressed; and
progress is being made towards measuring the baseline quality of
the estate.
- However, the Department has many, often conflicting, demands on
its resources and has faced affordability constraints across the
Defence budget in 2006-07. In the context of savings measures
across the Department, Defence Estates has, therefore, had to find
savings of 13.5 million (4.5 per cent) in the funding of Regional
Prime Contracts largely through deferrals in planned maintenance
and repair. The Department judged that these savings had less
impact overall than savings that might have been made elsewhere but
recognises that, in general, cuts in planned maintenance put at
risk improvements to the quality of the estate and may harm
contractors confidence in the Departments plans. They may also lead
to increased costs for the work, given disruptions to contractors
plans and further deterioration to the buildings concerned.
However, the Department considers that more broadly there are
benefits in permitting delegated budget holders flexibility to
allocate resources in response to local priorities.
- Despite such budgetary pressures, other budget holders have
injected additional expenditure of 45 million to fund specific low
value projects, such as fire safety systems, sports facilities and
upgrades to toilet and shower facilities. Some of this work is to
support urgent operational requirements but much of it is routine
and foreseeable. Some difficulties resulted from overly complex
processes in Defence Estates and insufficient flexibility in the
system. The Department recognises that this money was injected in
an uncoordinated way, which did not exploit opportunities for
bringing together similar projects into a cohesive programme.
- The Department has invested considerable resources to improve
the quality of Single Living Accommodation and Service Family
Accommodation. Some 1.3 billion has been or is planned to be
invested in Single Living Accommodation through the Single Living
Accommodation Modernisation programme and other accommodation
projects. The Defence Training Review will also deliver some 5,000
upgraded bedspaces in Phase 1. Assuming no deterioration of the
existing stock, by the end of 2012‑-13 the number of bedspaces at
the required standard will have risen to around 75,000. Given the
predicted fall in requirement, this leaves a shortfall of around
35,000 bedspaces which are not at the required standard.
- Over 4,300 Service Family Accommodation houses were upgraded to
the highest standard over the two years 2004-05 to 2005-06, against
a target of 1,100, and a further 1,200 upgrades are planned to have
been completed by the end of 2006-07, with some 900 a year
thereafter. Nearly 28,000 houses, 60 per cent of Service Family
Accommodation in Great Britain, is now at the standard set by the
Department leaving some 19,000 houses to be upgraded. A prime
contract has been let for the maintenance of Service Family
Accommodation in England and Wales. The contractor provides all
aspects of property maintenance. There have been some early
problems with quality of service which are being addressed.
- The Departments key contractual mechanisms for managing
accommodation are sufficiently flexible to allow it to upgrade
further bedspaces and family accommodation whenever funding can be
made available.
- Environmental and other sustainability issues have come much
more to the fore in recent years. The Department has an
environmentally significant rural estate with many important
habitats and species, for example, half of it falls into 175 Sites
of Special Scientific Interest. The Department has done much to
improve the sustainability of its management of the estate. It is
well-regarded for its delivery of environmental benefits,
especially wildlife conservation, and over three-quarters of its
Sites of Special Scientific Interest are reaching the target state.
The Department has much further to go to achieve its target of 90
per cent of its new buildings being rated highly for
sustainability. The Department needs to do more to ensure that it
is meeting the pan-governmental and internal targets it has signed
up to. These include targets to reduce carbon emissions, to
increase the proportion of its energy that comes from renewable
sources, and to use timber from sustainable sources.
Overall Value for Money
- The cost-effectiveness of investment in the defence estate
cannot be determined until the Department has completed its work to
establish the baseline quality of the estate and to measure changes
in performance and quality over time. In addition, the full cost of
the estate is not collated and changes in Departmental structure
and in the way that costs are identified make trend analysis over
time difficult. Information on other estate-related expenditure is
available through the Departmental Resource Accounting system. The
Department judges that separating out the cost of the estate from
other parts of expenditure on the Armed Forces is not necessary to
inform the value for money and cost benefit decisions that it has
to make. Costs that are readily available are those borne by
Defence Estates, where the Agencys sole responsibility is for the
estate, and expenditure on major capital and PFI projects.
- The new arrangements to manage the defence estate have improved
delivery of estate services. It is too early to determine whether
this improvement will result in a better quality estate. Such
improvement is dependent on continued good performance by Defence
Estates and contractors which requires commitment, supplier
innovation and client leadership. All this could be at risk if
adherence to the current strategy is not maintained. Sufficient
stability of funding is necessary to preserve contractor confidence
and maximise through-life efficiency.
Recommendations
Recommendation 1
The Department should remain committed to its aim of
achieving an estate of the right quality and improving through-life
efficiency, and should, therefore, adhere to its current estate
strategy.
Recommendation 2
The Department has recently confirmed its strategic
vision for the defence estate, reorganised the provision of estate
management and put new long-term contractual arrangements in place.
The Department should seek as far as possible to avoid making
short-term cuts which risk damaging long-term value for money and
may mean that the long-term vision and objectives are not
achieved.
Recommendation 3
Having designed systems to provide maintenance in a way
that maximises efficiencies through better programming, the
Department should as far as possible exploit the full benefits of
these systems by reducing the volume of minor short-notice projects
and by better prioritisation of all works in line with its estate
strategy.
With the exception of urgent operational requirements, the
Department should give priority to work necessary to meet the terms
of the contracts, to maintain and where necessary improve the
quality of the estate.
The majority of injected work should in principle be planned,
prioritised and funded at least one year in advance. Work of
similar nature should, where possible, be coordinated by customers,
Defence Estates and contractors working together to achieve
efficiency benefits from the use of established supply chains and
bulk purchase.
Recommendation 4
The Department recognises that letting the five Regional
Prime Contracts on different bases has not maximised coherence in
some areas, such as scope and required condition improvements. When
tendering for replacement contracts, the Department should
harmonise the new arrangements as far as possible, in particular,
in the use of performance measurement and work processing systems
and should incentivise the contractors to improve energy efficiency
and sustainability.
Recommendation 5
The Department should continue to develop a fuller
understanding of the costs related to its estate. These costs
should include the full cost of ownership and estate valuations in
sufficient granularity to facilitate it in making decisions on
estate performance, planning and disposals.
Recommendation 6
The Department should finalise the rollout of the Estate
Planning Tool and Estate Performance Measurement System and should
adopt those measures needed for immediate improvement listed in
Appendix 9. Once the implementation is complete, the Department
should consider the additional measures laid out in the Appendix to
improve the system further.
Recommendation 7
Using the information that will be provided by new
management systems, the Department should model its future estate
needs to enable better planning. With robust underpinning
management information and systems, the Department should be able
to adapt this model to reflect changing Defence priorities from
year to year.
The Department should complete its work to establish the current
condition of the estate. It should then determine the quality of
the estate required in the future and the trajectory to meet that
requirement. This work should be completed in time to inform
decisions about possible extensions to Regional Prime
Contracts.
The Department should model the costs and benefits of
alternative options, such as replacement versus refurbishment, the
impact of decisions such as routine maintenance versus new
investment, and the level of investment versus the rate of decline
in quality.
Recommendation 8
The Department has improved its planning process through
the Non-Equipment Investment Plan and the Estate Performance
Measurement System (including Integrated Estate Management Plans),
but needs to improve its processes still further to ensure that the
decisions it makes using them are robust.
Given the long-term nature of investment required in the estate,
the Department should continue its work to identify planned
expenditure over a 10 to 20-year period to ensure that the
programme is affordable and delivers the required benefits in terms
of both quality improvement and financial savings.
To enhance its ability to determine and prioritise expenditure
on the estate the Department should improve its visibility of
estate-related expenditure in the Short-Term and Equipment Plans
and consider this expenditure alongside the Non-Equipment
Investment Plan.
The Department at all levels, including Defence Estates,
Customer Estate Organisations, budget holders and their staff,
should work more closely together to produce robust Integrated
Estate Management Plans. The Department should ensure that there is
a process in place to challenge and prioritise customer
requirements using these plans. In addition, there are a number of
interrelated measures at Appendix 9.
Recommendation 9
The Department should clarify and communicate the
division of roles and responsibilities between internal customers
and suppliers and external contractors to prevent duplication and
ensure that responsibility rests where it can best be
managed.
The Department should review Customer Supplier Agreements
between Defence Estates and the Customer Estate Organisations.
These should set out the specific requirements and targets,
tailored for each customer.
The Department should determine the requirement for and role of
Site Estate Representatives and Facilities Managers and consider
scope for rationalisation of posts. There should, however, be clear
lines of responsibility drawn between such roles and the Customer
Estate Organisation and Defence Estates to ensure consistency of
delivery and purpose.
The Department should address the duplication of roles and
responsibilities that it has identified at headquarters and site
levels. This work should aim to achieve transfers and reductions in
overall staff levels commensurate with the responsibilities that
have transferred from customers, both to Defence Estates and to the
private sector.
Recommendation 10
The Department should develop an action plan to address
skills shortages.
The Department should continue its work to establish the numbers
and skill levels of its estate staff, particularly in key
disciplines such as quantity surveyors, safe systems of work staff
and facilities managers.
The Department should develop an action plan to address skills
shortages which may include changes in recruitment strategy,
redistribution of staff and contracting for specific
professionals.
Recommendation 11
The Department should further improve its approach to
sustainability, in particular by identifying areas to further
delegate responsibility for the measures required both to meet its
statutory obligations and to achieve targets for sustainable
development. Where performance data against targets is poor the
Department should collect reliable, consistent and comprehensive
management data, setting a baseline and measuring subsequent
improvements in performance.
The Department should delegate responsibility for delivering
improvements to where they can best be managed. This is likely to
be through a combination of incentives and targets for contractors
and targets for the users of the estate, as well as for Defence
Estates.
The Department should learn lessons from good and bad practices in
managing its estate sustainably. It should also improve the speed
with which it adopts and replicates initiatives across the estate
where these are shown to be effective in pilots, for example by
expediting the wider implementation of the project to reduce carbon
emissions and utility bills at RAF Kinloss.
- [back from footnote 1] Report by the
Comptroller and Auditor General, Ministry of Defence: Managing the
Defence Estate (HC 25, Session 2005-06).
- [back from footnote 2] The Estate
Planning Tool will hold data on every built asset in the
Department. Assessments of the constituent parts of buildings -
roofs, walls, heating systems will be aggregated to reach a view of
their overall condition. The tool will also contain information
taken from Integrated Estate Management Plans, on the target
condition and long-term plans for assets. It will be possible to
combine data on individual assets to provide a picture of the
quality of the defence estate at site, regional and national level.
Data held in the Estate Planning Tool will also form part of the
Estate Performance Measurement System, which will give a holistic
picture of the performance of the estate. In addition to
information on the physical condition of the estate, the system
will report on project delivery, customer satisfaction, health and
safety and sustainability.