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    Our defence estate – right size, right condition, right price?

  • Posted on December 12, 2016 by

    Soliders housingThe UK’s biggest ever aircraft carrier, the nuclear deterrent… behind the large and expensive defence programmes that we hear about are people. People who need suitable work environments and a home – and that means buildings. The built estate is a vital part of our defence capability. Yet the Ministry of Defence (MOD) faces a shortfall of at least £8.5 billion of funding over the next 30 years just to bring its buildings up to a good standard of condition. And that doesn’t include the homes for service families, many of which have been a cause of growing dissatisfaction. With housing crucial to morale and staff retention, there’s considerable interest in ensuring our service personnel are satisfied with their homes. So what is the current state of the MoD’s buildings and what are the lessons for other organisations managing large property estates?

    Our two recent reports – Delivering the defence estate and Service Family Accommodation – show just how important buildings are to the MOD, and for the morale, well-being and efficiency of service personnel. They also highlight that ownership of such infrastructure brings with it costly obligations, creating challenges at a time of significant financial constraint.

    Our report on the defence estate, our sixth on the subject in the last 30 years, provides a clear indication that finding the right configuration of assets is a perennial challenge and one that hasn’t been gripped in the past. The MOD is the largest landowner in the country, but far too much of this estate has been left to fall into a poor state simply because it is too expensive to maintain or is no longer needed. Yet there is a direct link between poor infrastructure and an increasing risk to military effectiveness.

    Army housingThe MOD certainly appreciates the significance of its estate and knows that it requires greater attention. In recent evidence to the House of Commons Defence Select Committee, the new Permanent Under-Secretary, Stephen Lovegrove, said MOD “must make sure that we have an estate which works for the armed forces. This is the first, second and third priority as far as I am concerned.” And referring to past neglect, he observed that “over the last 20 or 30 years, infrastructure has been one of the places we have gone and we have gone too often. We need to get this estate into a place where it is sufficiently smaller and sufficiently looked after.”

    Our latest report sets out our findings organised against six areas that the NAO has previously identified in a cross-government report Improving the efficiency of central government office property can be used to assess the effectiveness of departments’ management of their estate: see the separate Appendix 3 (pdf – 92KB)). This framework has been modified to enable comparison at a departmental level.


    Managing large estates

    Key areas of focus when developing, or reviewing, the management of estates:

    1. Vision and strategic planning: Set out the objectives to be achieved by the estate, preferably with a plan for how this will facilitate wider reform. For example, having clear plans, shared with stakeholders; plans that explore opportunities to work with other departments.

    2. Collating and sharing information: Good information about estates is needed to ensure objectives are achieved. It should include the broad range of data required for operational management and to understand user requirements, such as running costs and utilisation.

    3. Addressing financial barriers: Organisations should review whether there has been sufficient historic and current investment in infrastructure, and identify whether any perverse incentives are driving short term decisions at the expense of long term value for money, addressing them as appropriate.

    4. Maintaining financial discipline: Public sector organisations must ensure their management and operations ensure compliance with national property controls and government targets. This includes, for example, having organisational structures that incentivise cost effective estate management.

    5. Working together and aligning interests: All organisations involved in estate management should be clear about their roles and responsibilities, and stakeholder interests need to be aligned to enable decisions to be executed quickly and effectively.

    6. Skills, expertise and governance: Suitably skilled and capable staff, overseen by a robust governance structure, are needed to manage the estate and deploy resources where they are most needed. There should be an appropriate balance between internal capacity, capability, experience and expertise / qualifications.


    A better defence estate
    Our latest report highlights recent progress in several of these areas since our last study in 2010. We give the MOD (and its strategic business partner) credit for developing its Footprint Strategy – its vision for the future of the defence estate – after many years of slow progress. This work was reflected recently in the A better defence estate strategy document, which sets out a way forward and lists some specific sites that it intends to sell off. We also highlight the improvements in information it now holds about much of the estate and its condition – a key precursor to managing it well. And we highlight the good progress with the £1.8 billion Army Basing programme, which sets out the future locations for army units.

    Map of defence estate
     
    Yet the scale of the challenges that have built up over many decades remains daunting. And overcoming the problems will not be quick or easy: the Footprint Strategy is a 25 year plan and even successfully implementing it will only reduce the department’s future costs associated with the estate by around £2.5 billion.

    MOD modelling suggests there will still be a shortfall of at least £8.5 billion of “life cycle replacement” funding over the next 30 years.
     
     
     
    In our view, permanent improvement in the position will require, among other things:

    • sustained attention and careful sequencing of disposals;
    • a more comprehensive view of the estate liabilities that will remain even after the Footprint Strategy has been implemented;
    • a fuller understanding of the costs of its estate in the context of demands on the MOD to deliver strategic commitments;
    • transparency around progress with clear information to Parliament to enhance accountability; and
    • strong safeguards to ensure that the armed services give the estate the attention it deserves when they have responsibility for it returned to them.

    One particularly important area of the MOD’s estate – Service Family Accommodation, homes for 40,000 families – was the focus of NAO attention earlier this year. Our report highlighted the problems around managing the 50,000 properties (around10,000 are empty at any given time for various reasons) and, in particular, families’ dissatisfaction with the maintenance service.

    Again, the new Permanent Under-Secretary was quick to acknowledge to the Defence Select Committee that improving service family accommodation and enhancing the service families receive is a “very high priority”. He observed that the performance of contracted-out service in recent years was not even “remotely acceptable”. Data from regular surveys of service personnel shows that satisfaction with the response to maintenance requests has fallen, and at last count was down to 32%, with only 29% satisfied with the quality of the work done.

    Army homesHousing is widely recognised as a factor influencing service morale and is linked to retention of personnel of all kinds. The annual Armed forces continuous attitude survey identifies “impact on family life” as the most important reason for leaving the services. As the Public Accounts Committee put it in its report in July, “accommodation is a contributory factor” to this, and cases sent to the committee and summarised in its report illustrate how poor quality housing, delays in dealing with maintenance problems and poor administration can lead to frustration with service life. As a result, the committee concluded that when making short-term decisions on cost savings, there appeared to be insufficient attention paid by MOD to the possible impact on expensively trained service personnel, and the consequences for their retention.

    Quite rightly much attention in the defence world is focused on the capability of new equipment and the skills of service personnel. But with pressure on the size of the armed forces and last year’s Strategic Defence and Security Review making new demands, the need to better manage the current defence estate, secure major financial savings, and offer a suitable work and home environment must also be at the forefront of the minds of decision-makers.

    We look forward to your comments and invite you to contact us if you would like to discuss this issue.
     
     
    Jeremy Lonsdale

    About the author: Jeremy Lonsdale is NAO’s Director for Defence value for money studies. He has many years’ experience of auditing programmes across government, including in the welfare and justice areas, and led the NAO’s value for money practice for six years. He was recently on secondment as a Senior Research Leader at RAND Europe, the public policy research institute in Cambridge.

     
     


    The second and the last photos are sourced under the Open Government Licence from the Defence Imagery website.



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  • 2 Comments

    2 responses to “Our defence estate – right size, right condition, right price?”

    1. @JagPatel3 says:

      For those hoping that the defence estate will see an increased focus of attention are in for a shock – because instead of investing in it, the Ministry of Defence is seeking to rationalise its defence portfolio and secure a return from it.

      In a historic first for defence procurement, the cost of buying new military equipment for the Armed Forces is to be paid for not from general taxation under the terms of delegated powers from the Treasury, but from the proceeds of the sale of surplus land and property owned by MoD together with efficiency savings it has committed itself to achieving in this Parliament, in its 2015 Spending Review settlement – such as, headcount reductions in its civilian workforce and restraining pay across Defence.

      This dramatic change in procurement policy means that for some equipment purchases, MoD will be engaged in commercial transactions with two different Private Sector players, not the usual one – thereby doubling the risk that defence procurement officials at MoD Abbey Wood, Bristol will be duped into signing contractual agreements which will deliver extremely poor value for money for the taxpayer, because they don’t have the necessary financial and commercial skills to negotiate a good deal with for-profit organisations.

      In addition, for new equipment purchases like this to deliver the outcomes the political elite have set for defence procurement, they will need to be scoped in such a way that programme milestones deliverables are aligned perfectly with income streams from land sales and planned efficiency savings – an untested procedure which is completely new to MoD and with it, introducing further unforeseen risks added to the already serious project management deficiencies identified some time ago.

      The acquisition of the Boeing P-8A Poseidon maritime patrol aircraft to plug the capability gap created by cancellation of the Nimrod MRA4, falls under this category of new equipment purchases. However, it is only fair to say that because this corresponds to an off-the-shelf buy, that is to say, the P-8A Poseidon is fully engineered and supported technical solution which does not require any development work laden with risk to be performed upon it, the likely project management and technical risks associated with the usual delays and cost overruns are mitigated to some extent.

      What is not clear is how the whole-life sustainment costs of the P-8A Poseidon are to be paid for – either, from the sale of additional land (which is entirely conceivable given that MoD is the single largest owner of public land in the UK) or reverting back to general taxation – bearing in mind that, the cost of acquiring and re-provisioning Support Assets associated with military equipment over the whole life cycle can be in the order of four to five times the prime equipment costs.

      In any event, funding the purchase of new military equipment in this imaginative way marks a significant departure from long-established practice – yet another indication of the dire state of defence procurement in today’s challenging post-Brexit scenario.
      @JagPatel3 on twitter

      • Jeremy Lonsdale says:

        Thanks for your comments Jag. The Committee of Public Accounts will be examining our report on 16 January 2017.
        Jeremy Lonsdale

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