Full Report - National Audit Office

MINISTRY OF DEFENCEManaging the Defence EstateREPORT BY THE COMPTROLLER AND AUDITOR GENERAL | HC 25 Session 2005-2006 | 25 May 2005

The National Audit Office scrutinisespublic spending on behalf ofParliament. The Comptroller andAuditor General, Sir John Bourn, isan Officer of the House of Commons.He is the head of the National AuditOffice, which employs some 800 staff.He, and the National Audit Office, aretotally independent of Government.He certifies the accounts of allGovernment departments and a widerange of other public sector bodies;and he has statutory authority to reportto Parliament on the economy,efficiency and effectiveness withwhich departments and other bodieshave used their resources. Our worksaves the taxpayer millions of poundsevery year. At least £8 for every£1 spent running the Office.

MINISTRY OF DEFENCEManaging the Defence EstateLONDON: The Stationery Office£8.25Ordered by theHouse of Commonsto be printed on 23 May 2005REPORT BY THE COMPTROLLER AND AUDITOR GENERAL | HC 25 Session 2005-2006 | 25 May 2005

CONTENTSEXECUTIVE SUMMARY 1This report has been prepared underSection 6 of the National Audit Act 1983for presentation to the House of Commonsin accordance with Section 9 of the Act.John BournComptroller and Auditor GeneralNational Audit Office6 April 2005The National Audit Officestudy team consisted of:Karen Jackson, Roger Le Voir andMark Parrett under the direction ofDavid ClarkePART 1The Department faces many challenges 6in managing the estate but has madegood progress in developing a strategyto meet those challengesThe challenges in managing the defence estate 7are growingThe Department has a strategy and measures to 8implement the strategyThe Department now reports biennially to 9the Committee of Public Accounts onestate managementThis report can be found on the NationalAudit Office web site at www.nao.org.ukFor further information about theNational Audit Office please contact:National Audit OfficePress Office157-197 Buckingham Palace RoadVictoriaLondonSW1W 9SPTel: 020 7798 7400Email: enquiries@nao.gsi.gov.uk© National Audit Office 2005

PART 2Estate rationalisation is complex given 10operational requirements but theDepartment is making some progressThe Department has established a process for 11identifying its estate requirementContinued focus on estate rationalisation is needed 12if the Department is to meet its disposal targetsFunding is a major risk to the delivery of estate 14rationalisationPART 3Good progress has been made towards 16delivering a better quality estate butthe Department now needs to ensurethat risks are managed and the fullbenefits realisedA new structure for the management of the estate 17combined with new contracting arrangements isbeing rolled out and is already delivering benefitsCultural change is a significant risk to 21implementation which the Departmenthas recognisedUncertainty over both programmes and funding 24is hampering deliveryThere is no current mechanism to ensure delivery 25of the benefitsRisk management is still maturing and is not 26presented as a coherent whole to the DefenceManagement BoardThe Department has more to do to ensure that 26quality improvements are deliveredAPPENDIX1 Study methodology 292 The Defence Estate 30Photographs courtesy of Defence Estates

executive summaryEXECUTIVE SUMMARY

executive summary1 The Ministry of Defence (the Department) has aworldwide estate valued at £15.3 billion and is one ofthe largest landowners in the United Kingdom with anestate of 240,000 hectares. The estate is split between‘built’ (80,000 hectares) and ‘rural’ (160,000 hectares).The built estate consists of a wide range of facilitiesincluding barracks, depots, aircraft hangars and navalbases. The rural estate comprises training areas andranges on relatively undeveloped rural land that is oftenof particular environmental significance. For example,the Department has direct managerial responsibility fornearly 200 sites of special scientific interest. In addition,the Department has responsibility for over 1,600 listedbuildings and monuments. Annual expenditure on theestate is some £1.3 billion. The majority of the defenceestate is managed by the Defence Estates agency.2 The Department is accountable for the managementof its estate through a number of vehicles. The Departmentpublishes an annual Stewardship Report detailing progressagainst its goals and objectives. It also now reportsbiennially to the Committee of Public Accounts on theprogress of all important estate activity, including majorprojects and rationalisation. This is the first time thatthe Department has reported in this way and its reportreplaces a previous annual report to the Committee onthe top 20 estate projects.3 The challenges that the Department is facingin managing its estate are growing and, in particular,operational needs are becoming more demanding.Future management and configuration of the estate isa key element of the Department’s change programme;there are plans for estate rationalisation, more effectivearrangements for maintaining the estate and buildingnew accommodation. The defence estate had suffered adeterioration in its quality; a result not only of previouslimits on funding, but also the use of traditional methodsof managing and procuring estate services. For example,the multiplicity of maintenance contracts managed byvarious budget holders had meant that significant fundsdevoted to maintenance were going on administration.Poor information about the estate had also meant thatinvestment decisions were not always soundly based.1Defence estate facts and distribution of significant facilitiesThe defence estate is widely scattered over the United Kingdom and contains a wide range of facilitiesOver 450 sites including 3 navalbases, 213 barracks and campsand 64 major and minor airfields.Over 53,000 families’ quarters inthe UK and over 18,000 families’quarters overseas.Many of the sites are widelydispersed and relatively small; some80 per cent of the Department’smanned sites in Great Britainwere occupied by fewer than500 full-time staff.The largest proportion of statutorilyprotected buildings held by theGovernment (52 per cent of allgovernment heritage sites).188 Sites/Areas of SpecialScientific Interest in the UK coveringover half the Defence ruralestate, the largest such estate inGovernment hands and most variedin terms of habitats and species.Salisbury Plain Training Areaextends to some 38,000 hectaresand is farmed by 43 Tenant Farmers.In addition to sustaining militarytraining, intensive and extensiveagriculture and 138 individualspecies of nationally importantflora and fauna, Salisbury Plainalso accommodates a number ofindependent recreational users.Source: Defence EstatesMINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE 1

executive summary4 Against this background the Department has madegood progress in developing a strategy to meet thechallenges it is facing. The twin threads of its strategy -“In Trust and On Trust” – are to have an estate of theright size and, secondly, of the right quality to supportthe delivery of defence capability. To deliver an estate ofthe right size, the Department has embarked on a majorprogramme of estate rationalisation. And to deliver theright quality, the Department has introduced new waysof managing its estate.5 Estate rationalisation is always difficult but isparticularly so in defence given the complexity andchanging nature of operational requirements. TheDepartment is making progress and has conducted aseries of estate reviews to determine its current holdingsand to establish the potential for future development orrationalisation of sites. It has appointed the Chief Executiveof Defence Estates to act as the Senior Responsible Ownerfor estate rationalisation. Current estimates are thatdisposal of property surplus to operational requirementscould realise some £730 million over the next three years.However, the Department continues to work to achieve acoherent funded programme to underpin its rationalisationrequirements. The Department has commissioned businesscases examining options for the rationalisation of thoseparts of the estate which offer the greatest potential forvalue for money. The Department has identified some£90 million within the current planning period to fundproposals for the rationalisation and collocation of singleService headquarters and other collocations. Otherimportant rationalisations such as defence airfields andsuper garrisons will be considered in 2006-07. This workhas not prevented the disposal of surplus sites, withreceipts of some £1.2 billion from April 1999.6 Good progress has been made towards delivering abetter quality estate. The Department is rolling out newmanagement and contracting arrangements which arealready delivering benefits such as improved customersatisfaction. ‘Project Alexander’ led to a revampedDefence Estates with responsibility for the efficient andcost effective management of the estate as a corporatewhole and for the procurement of all estate services.Users of the estate such as the Army are designated ascustomers and are responsible for planning and fundingfuture estate requirements.7 These arrangements have widespread support inthe Department. However, there is more to be done toconsolidate the necessary cultural change. Indeed, theDepartment has identified this as a key risk which, if notaddressed, could lead to a failure to realise both valuefor money efficiencies and improvements in the estate.The need for cultural and behavioural change appliesacross the board to personnel in Defence Estates; in theinternal Customer Estate Organisations and the users ofthe estate who should now focus on their requirementsin output terms; and in industry where firms need tocontinue to form long-term relationships and achievecontinuous improvement as part of a supply chain. TheDepartment has a number of risk mitigation measuresto address this including communications, training andgreater engagement between Defence Estates, customersand industry.8 The Department has also embarked on a series ofambitious projects to improve the quality and efficiencyof the estate. These are shown in Figure 2.9 Whilst this represents a substantial investmentin the estate from which significant benefits should beachieved, the level of funding the Department was ableto make available after judging other priorities, has led tothe adoption of sub-optimal solutions on two out of threecurrent Regional Prime Contracts. It is also hamperingthe programming of other work by Defence Estates, forexample, the delivery of single living accommodationand the upgrade of defence housing.10 The challenge for the Department is now to ensurethat the strategy is fully implemented, risks managed andthe full benefits realised. There is no current mechanismin place to ensure that the benefits from these newmanagement and contracting arrangements are fullydelivered. Defence Estates has made great strides in itsefforts to develop good performance and risk managementacross the defence estate, underpinned by a new value formoney model to measure the benefits of prime contracts.However, there is not yet enough robust baselineperformance data against which to assess improvements.2MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE

executive summary2Major ongoing estate projectsThe Department has embarked on a series of demanding estate projects.ProjectDate of contracts(actual or estimated)Type of contractPurposeRegional Prime ContractsMarch 2003March 2004March 2005September 2005October 2005Prime ContractFive contracts delivering maintenance and minorconstruction work in the UK - should result in30 per cent better value for money in termsof quality and efficiency improvements by2009-10, for example through the introductionof fully integrated supply chains.Project AquatrineMay 2003November 2004December 2004Private Finance InitiativeThree contracts transferring the responsibility forthe maintenance and operation of water andsewage works to industry, who are best placedto manage the risk.Single LivingAccommodationModernisationDecember 2002Prime ContractTo upgrade or replace some single livingaccommodation across the defence estateas part of a major investment programme.Allenby ConnaughtJuly 2005Private Finance InitiativeTo provide living and working accommodationfor 18,000 personnel.ColchesterFebruary 2004Private Finance InitiativeTo provide living and working accommodationfor 3,500 personnel.VanguardMarch 2003Public Private PartnershipTo manage the Army training estate.Housing Prime ContractAugust 2005Prime ContractTo manage Service Family Accommodation inEngland and Wales.MoDELJuly 2006Prime PlusTo consolidate some facilities withinGreater London.Source: Ministry of Defence.MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE 3

RECOMMENDATIONS11 Overall, our study found that the Department hasmade considerable progress towards delivering a betterestate to support the delivery of defence capability withthe introduction of new management and contractingpractices. Managing a very large estate, with such a rangeof operational requirements, is a complex task and theDepartment needs to maintain a continued focus on estaterationalisation if it is to achieve an estate of the right size.In realising its strategy of delivering an estate of the rightquality and size, the Department faces two major risks– funding and embedding the cultural change necessaryto make the new processes work. There is, therefore,more to do to ensure that the full benefits of the changesare realised. Our main recommendations are that theDepartment should:build upon the Defence Non-equipment InvestmentPlan to draw together a longer-term coherent fundedprogramme for the rationalisation and developmentof the estate and an indicative timetable to enablethis to happen;continue to press forward with measures to deliverculture change across all areas engaged in estatebusiness, ensuring that management at all levels andpractitioners, including the “customers” of the estateand industry, are working in accordance with thenew arrangements for estate management;develop a department-wide plan for the realisationof benefits (both financial and operational) from thenew contracting and management arrangements,and from estate rationalisation;4MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE

executive summaryensure that a consistent performance and riskmanagement regime is adopted across the defenceestate, including areas outside Defence Estates’functional responsibility, such as, a possible fullyserviced infrastructure and the training estate, toensure that the Department has a complete overviewof the management of the defence estate; andas part of its next planning cycle, examine whetheradditional funding can be found from within existingresources, when judged against other conflictingdefence priorities, to fund the Regional PrimeContracts so that the full benefits can be realised.MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE 5

part onePART ONEThe Department faces many challenges in managingthe estate but has made good progress in developing astrategy to meet those challenges6MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE

part one1.1 The Department faces many challenges, both in itsfrontline operations and in its administration. In response,the Department has put in place a strategy for the defenceestate. Defence Estates been given an expanded role,not only to act as a specialist adviser but also as thesupplier of estate services. It has responsibility for thedelivery of the Department’s estate strategy and, using newcontracting arrangements, to deliver estate requirementsas set by its customers within the Department. The firstpart of this report considers the context within which thedefence estate in the United Kingdom is being managed.The challenges in managing thedefence estate are growing1.2 The Department owns and manages extensiveland and buildings in the United Kingdom and overseas.The defence estate is valued at some £15.3 billion andannual expenditure totals some £1.3 billion. The builtestate covers 80,000 hectares and includes three navalbases, over 200 barracks and camps, 33 major airfieldsand some 54,000 family quarters. The rural estate covers160,000 hectares and mainly consists of training areas.The Department is responsible for 622 listed buildings,983 scheduled monuments and nearly 200 Sites ofSpecial Scientific Interest. Overseas, the Departmenthas garrisons in Germany, Cyprus, Falkland Islands andGibraltar and major training facilities in Canada, Cyprus,Germany, Norway, Poland and Kenya. It also has a further18,000 family quarters. More detail on the defence estateis provided in Appendix 2. Given its size and diversity,its history and use, the management of the defence estaterepresents an enormous challenge. The Departmentneeds to manage this challenge with a fixed budget. Thepriority of the estate has to be considered alongside otherdemands for resources, and even where value for moneyis demonstrated, affordability may remain a constraint.1.3 In December 2003, the Government issued a DefenceWhite Paper ‘Delivering Security in a Changing World’ 1containing an evaluation of the UK’s strategic defencepriorities. The White Paper set out an analysis of the futuresecurity environment and the capabilities required to meetpotential threats. It pointed to the many developmentssince the Strategic Defence Review in 1998: starker andmore unpredictable threats from international terrorism;the proliferation of weapons of mass destruction and weakand failing states; changes to the shape of internationalcollaboration; and more numerous and diverse crises.This also impacts on how over 200,000 men and womenof the armed forces work, train and are accommodated.1.4 Recruitment and retention of Service personnelis an issue, with both competition in the labour marketand the unique pressures put on Service personneland their families, which the management and qualityof the estate can affect. The Department has investedsignificant funding and embarked on better contractingarrangements to improve the condition of the estate. TheDepartment has also agreed an efficiency programmeof which rationalisation and better use of the estate andbetter procurement processes form key elements. Widerenvironmental and social factors also impact on themanagement of the estate.Operational needs are becomingmore demanding1.5 Following up the White Paper, the Department issueda Defence Command Paper 2 in July 2004. It identifiedthe future need for flexible and adaptable armed forceswhich are properly supported to carry out the mostlikely expeditionary operations. It went on to set out theforce structure changes and organisation and efficiencyprogrammes necessary to meet future requirements. Futuremanagement and configuration of the defence estate isa key element of this change programme, with plans forestate modernisation through rationalisation, more effectivecontractual arrangements to raise its condition, and throughbuilding new accommodation for Service personnel. Theaim is to rationalise the defence estate onto fewer andlarger sites over the next twenty years.1 Delivering Security in a Changing World, Cm 6041 dated December 2003.2 Delivering Security in a Changing World: Future Capabilities, Cm 6269, published July 2004.MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE7

part oneThe Department faces personnel recruitmentand retention challenges1.6 The Command Paper assumed the need to ensurethat the organisation of the Armed Forces reflects thereasonable aspirations of Service personnel in the21st Century in terms, for example, of greater geographicstability in their home lives. The Defence White Paper‘Supporting Essay on People’ 3 went into more detailsetting out a number of the key personnel challenges.For example, the population of the UK is ageing; thenumber of 16-25 year olds that the Services especiallyneed to recruit is set to tail off after peaking in 2009.A service career poses unique challenges, notably therequirement to be mobile and spend considerable timeaway from families, balanced by unique opportunities.Individuals’ expectations are changing and many seekgreater choice as to how they are accommodated; spouseswant to pursue their own careers; Service personnel wantcontinuity of education and healthcare for their families.The estate was deteriorating to an extent thatcannot be addressed by traditional fundingand procurement methods1.7 The Department recognises that the estate has sufferedfrom a legacy of under investment. The Department hasconcluded that this situation has arisen not only becauseof limited budgets but also because of the reliance ontraditional procurement methods. Previously, procurementwas undertaken in many parts of the Department and washampered by having a multitude of contracts, contractorsand client-customer interfaces, imprecise allocation of risk,and vulnerability to fraud and malpractice.The Department is committed to a new targetfor efficiency improvements1.8 As part of the Spending Review 2004 settlement,arising from the Gershon review, the Departmentis committed to achieving efficiency improvementsamounting to at least 2.5 per cent of the total defencebudget. A key component of the efficiency programmeis defence estate modernisation through rationalisation,the merger of Defence Estates with the Defence HousingExecutive, more effective contractual arrangements,and through building new accommodation for Servicepersonnel to assist staff retention.Environmental and social factors are ofincreasing importance1.9 More individuals and organisations are taking aninterest in the defence estate and the way it is used.The Department has to take account of a diverse andchanging agenda in the fields of planning, environmentalsustainability, rural issues and transport. This applies atthe international level as well as across national, regionaland local administrations. Whilst these factors constrainDepartmental estate management, it has still beenable to act in a very positive way towards conservingthe environment.The Department has a strategy andmeasures to implement the strategyThe Department’s strategy was publishedin 20001.10 The vision set out in the strategy for the defenceestate 4 , first published in 2000, is “To have an estate ofthe right size and quality to support the delivery ofdefence capability, that is managed and developedeffectively in line with acknowledged best practice, andis sensitive to social and environmental considerations”.It is the Department’s intention to revisit the strategy everyfive years. A review is underway aimed at producing arefreshed strategy for publication in 2005.The Department produces reports on progresswith implementing the strategy1.11 The Department publishes an annual StewardshipReport detailing progress against the strategy’s goals.The management of the estate is overseen by an internalcommittee of senior stakeholders within the Department,called the Defence Estate Committee, who receive regularreports on progress.3 Delivering Security in a Changing World: Supporting Essays, Cm 6041-11, published December 2003.4 In Trust and On Trust – The Strategy for the Defence Estate, published June 2000.8MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE

part oneThe Department now reportsbiennially to the Committee of PublicAccounts on estate management1.12 The Department now reports biennially tothe Committee of Public Accounts on progress withall important estate activity including the majorprojects and estates rationalisation. This Report to theCommittee replaces previous annual reports on thetop 20 estate projects.1.13 The previous Report, the Defence New WorksStatement, had been provided since 1984, when itreplaced an earlier statement. The Statement’s usefulnesshad declined since it only reported on capital projectsprocured traditionally and, therefore, did not includeprivate finance initiative projects or those for facilitiessuch as the water and waste water management project,Aquatrine. Changes to methods of procurement andmanagement of the estate have resulted in larger andlonger-term contracts. In 2003 the Department, afterdiscussion with the National Audit Office, approachedthe Committee of Public Accounts with a proposednew format for the Report and reduced frequency.The Committee, in February 2004, approved both theproposed new Report and a biennial submission.1.14 The new Report is an improvement to the previousone in that, in addition to the cost and timescales ofall major construction and facilities projects, it reportson the Department’s progress in rationalising its estate.Specifically, it encompasses performance on the followingestate activity:major estate procurement projects, either in the UKor overseas, for expenditure in excess of £50 million;maintenance and upgrade of the estate to thedesired standard by the introduction of RegionalPrime Contracts;upgrading of accommodation for servicepersonnel, both service families and singleliving accommodation;Public Private Partnerships/Private Finance Initiativesfor contracts in excess of £100 million;major Infrastructure projects (expenditure in excessof £50 million); andrationalisation of the defence estate.The Report provides a more accountable and transparentoverview of estate management in the Department.The Department’s strategy is supported by aprogramme of rationalisation and restructuredmanagement of the estate1.15 Drawing on the vision for the defence estate, todeliver an estate “of the right size”, the Department hasembarked on a major programme of estate rationalisation.To deliver an estate “of the right quality”, the Departmenthas introduced a new structure for managing the estatetogether with new methods of procurement. These two keyelements of the strategy are considered further, in turn, inthe following sections of this report.MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE9

part twoPART TWOEstate rationalisation is complex given operationalrequirements but the Department is makingsome progress10MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE

part two2.1 Rationalising estate holdings is very rarely easy:it is especially difficult in the defence estate given theneed to support a wide range of operational capabilitiesand the size and complexity of that estate. TheDepartment has established a process for identifying theDepartment’s estate needs and is now looking to developa coherent approach. The Department continues to takerationalisation forward, although the identification ofthe necessary funding, when judged against conflictingpriorities, remains a risk. The Department has identifiedsome funding for estate rationalisation as part of thecurrent planning round. This Part of the report considersthe Department’s progress towards rationalising thedefence estate.The Department has establisheda process for identifying itsestate requirementThe Department established a review of itsestate five years ago2.2 In March 1999, the Committee of Public Accountsnoted in their report on ‘Ministry of Defence: Identifyingand Selling Surplus Property’ 5 that the Department hadnot assessed its estate requirements based on operationalneeds. It considered that without such an assessment theDepartment did not have a firm basis for investment andrationalisation decisions. The Committee recommendedthat the Department should take urgent action tostrengthen its strategic planning for the estate as a whole,decide the optimum sized estate, and devise a clear planfor achieving it.2.3 In 2000, the Department began a “Core Sites” reviewto identify and categorise the bulk of its existing estate,including both the built and rural estate. In October 2003,the Defence Estate Committee approved the categorisationof sites into those with a long-term future and the potentialfor further development such as Portsmouth, SalisburyPlain Training Area and Catterick; those essential fordelivering defence outputs but without the potential forfurther development such as communications and trainingsites and others. The Committee identified a numberof other sites with the potential for rationalisation. Thisidentification of the sites available enabled an elementof the estate to be rationalised but consideration ofoperational and other needs for the estate was required tomake further progress.The Department set up reviews ofestate requirements2.4 Following consultation with those senior staff withbudgetary responsibilities, the Defence Estate Committeecommissioned reviews of those sites where rationalisationoffered the greatest potential for value for money,especially in terms of scale and timing of likely benefits,and ease of implementation. These reviews focused onthe operational requirements and the estate needs arisingfrom planned future force developments. The Departmentappointed the Chief Executive of Defence Estates as theSenior Responsible Owner for estate rationalisation to takeforward these reviews with relevant departmental staff.2.5 These reviews included options to draw togetherelements of the Defence Logistics Organisation into theSouth West; collocation of single Service headquarters;rationalisation of Army units, of the Chief of DefenceIntelligence’s estate and of the Royal Marines estate, thedefence airfields, and the Defence Training Estate. DefenceEstates has helped the respective teams take work forwardusing common techniques to ensure comparability betweenthe options. These reviews covered a sizeable potion of theavailable estate and addressed those areas where greatestbenefit could be delivered.A number of current programmes include anestate rationalisation component2.6 The Defence Training Review, which examinedall individual training and education, both Service andcivilian, was published in March 2001. The review,confirming much that had already been recognised bythe single Service training agencies, concluded that thetraining base was too large and unaffordable in the longerterm.The quality of some of the training infrastructure, inparticular domestic facilities, was sub-standard and estateutilisation was inefficient.5 ‘Ministry of Defence: Identifying and Selling Surplus Property’ (HC 104 1998-99).MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE11

part two2.7 The review came up with a number of proposalsfor rationalisation of the delivery of individual training,concluding that there were a number of common singleService specialist training activities which could beconducted jointly in Defence schools. The Departmentselected six areas of specialist trade training which offeredgreatest scope for rationalisation, given the volumes ofstudents and the scope for synergies. The Departmentis currently pursuing this rationalisation programmethrough a Public Private Partnership on the basis of twopackages of work covering the six areas identified. TheDepartment is currently under negotiation with shortlistedbidders. Meanwhile, the Department has centralised themanagement arrangements for Service-wide training on afunctional basis.2.8 In London, the Main Building Refurbishmentprogramme was completed to time, cost andquality, allowing the release of a number of centralLondon buildings. Another project deals with furtherrationalisation of the wider London estate and is coveredin more detail in Part 3.2.9 The provision and consolidation of barracksand other facilities at Colchester and in the Aldershotand Salisbury Plain areas is being delivered through,respectively, Colchester Garrison and Allenby/ConnaughtPrivate Finance Initiative projects. These projects haveprovided for the relocation of some smaller units andreleased surplus land for disposal, and are covered inmore detail in Part 3.2.10 Following a Strategic Review of RAF Brize Norton,Lyneham and St Mawgan, the closure of RAF Lynehamand consolidation of the Air Transport and Air-to-Airrefuelling fleets at RAF Brize Norton were announced4 July 2003.This work has not precluded significantdisposal receipts being generated2.11 Over £1 billion of disposals has been achievedbetween 1999-2000 and 2003-2004. Examples of thedisposals that have taken place since 1999-2000 areshown in Figure 3.3Examples of disposalsThe Department has disposed of many major sites already.Financial Disposal Examples of majoryear receipts sites sold(£ million)1999-2000 301 RAF Stanmore Park;Duke of York’s headquarters,Chelsea; and RAF Quedgeley.2000-01 225 Royal Army Medical College,Millbank; former RAF Kemble;Queen Elizabeth Park Barracks,Guildford.2001-02 185 Burscough Depot; RAF Locking;Aston Down.2002-03 279 RAF Burtonwood; Arras LinesCatterick; Pease Hill DevelopmentSite, Scotland.2003-04 207 Staff College, Bracknell; RAFSt Athan (part).Total 1,197Source: Defence EstatesContinued focus on estaterationalisation is needed if theDepartment is to meet itsdisposal targets2.12 The Royal Navy has made progress in determiningits estate requirements and has concentrated its activitiesaround the three bases at Portsmouth, Plymouth andon the Clyde, which form part of the Defence LogisticsOrganisation. The bases on the Clyde and at Plymouthare generally well developed; within Portsmouth, furtherrationalisation is possible. The Royal Air Force led defenceairfields review is recommending the retention of thethree Royal Naval Air Stations at Culdrose, Prestwick andYeovilton (see below). A separate review is looking at thebasing of the Royal Marines.12MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE

part two2.13 The Royal Air Force led a review into all defenceairfields. The resulting report sets out the long-termoperational requirement and recommends the ‘maximumimpact’ option of the closure of many of the smallerairfields over the next 15 years (an airfield is definedas an area of land with a runway capable of supportingmilitary aircraft operations). The bulk of these closurescould come in the first three years. Further work needsto be done to validate the savings that might accruefrom this rationalisation and to ensure that the up-frontcosts are affordable against other departmental priorities.The Department, however, recognises that airfieldrationalisation is an important part of ensuring thatthe right sized estate is achieved. The risk of adoptingone of the lesser options is a continuing legacy of anunaffordable estate in maintenance terms and a growingrequirement for capital investment.2.14 Determining the Army requirement is moredifficult as the future army structure is evolving, andthe future of forces in Germany and Northern Ireland isuncertain. The July 2004 Command Paper ‘DeliveringSecurity in a Changing World – Future Capabilities’ 6stated that a major restructuring of the Army is plannedto better enable brigade level operations. The DefenceSecretary announced details of these changes on16 December 2004. In addition, the practice of armsplotting – moving infantry battalions and their familiesbetween roles and geographical locations every fewyears - will be phased out. This has implications for thesize and locations of future garrisons. “The Strategy forthe Army Estate” recommended consolidation into“super” garrison sites.2.15 In addition to the Army’s new structure there will bechanges in the number and type of equipment it operates;and this has ramifications for the facilities to support thatequipment. For instance, there is a planned reduction inthe number of Challenger armoured squadrons.2.16 Uncertainty over the future of some sites has ledto works and maintenance being delayed, postponed orcancelled to avoid nugatory expenditure. Such managementaction is understandable and has led to adjustments tothe Regional Prime Contracts’ planned expenditure onmaintenance. In the longer term, this action could result inadditional costs on those parts of the estate subsequentlyretained. Single Living Accommodation Modernisationprojects have been reprogrammed to avoid building atsites with uncertain futures whilst ensuring maximisationof delivery of new bedspaces within the current fundedprogramme. For instance, projects at RAF Wittering, RoyalMarines Norton Manor, Bickleigh and Chivenor were puton hold due to uncertainties over their future use. Projectsat Dalton, Invicta and the Duke of Gloucester Barrackswere cancelled. It was sensible to proceed on this basis andthe SLAM project was able to ensure that alternative highpriority schemes were brought forward. However, greatercertainty would allow for more efficient scheduling of work.Tight deadlines were set for submissionof business cases, which, after scrutiny byDefence Estate Committee, form the basis of aplan for rationalisation2.17 Full business cases, resulting from the rationalisationreviews, were submitted to the Defence Estate Committeeon 3 December 2004, in time to inform planning for2005-06. Whilst these business cases have been developedseparately, Defence Estates Committee took an active rolein ensuring coherence. Proposals for additional fundingfor these cases have been considered by the DefenceManagement Board. The Board endorsed funding coveringthe options for rationalisation and collocation of singleService headquarters and supporting staff; collocationof parts of the Defence Logistics Organisation in theSouth West and rationalisation of the Chief of DefenceIntelligence’s estate. Proposals on defence airfields, theRoyal Marines estate, super garrisons and the defencetraining estate have been deferred until 2006-07 to allowfor further work to validate costs and savings. These optionsare subject to agreement by Ministers and consultationwith staff and unions. Other projects with an estaterationalisation component continue to be developedseparately in consultation with Defence Estates.6 ‘Delivering Security in a Changing World – Future Capabilities’, Cm 6269, published July 2004MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE13

part twoThere is further scope for rationalisation2.18 The Department identified a number of sites fromacross the defence estate where there was the potentialfor disposal of surplus land and buildings and whichwarranted further investigation. Having been prioritised onthe basis of timing of benefits and ease of implementation,a number of these sites have been included within therationalisation reviews and are the subject of the businesscases, as mentioned above, for example the defenceairfields review. However, there is scope for furtherrationalisation at a number of sites, identified as beingpotentially surplus, which the Department will examine indue course.Funding is a major risk to thedelivery of estate rationalisationAgreement has yet to be reached on howestate rationalisation will be funded2.19 The 2004 Spending Review increased both the sizeand scope of the Defence Modernisation Fund (amountingto £1 billion over the three years to 2007-08) to includerationalisation of the defence estate. The additional fundingfor the estate component is to be generated from disposals,possibly up to some £330 million, if current targets fordisposal are achieved. To date the use of any receipts overand above the planned disposal income has had to takeaccount of defence priorities and has mostly been used forpurposes other than re-investment in the estate.2.20 If the Department is to maximise benefits fromestate rationalisation, as required in its Efficiency Plan,significant pump-priming will be needed. As part of thecurrent planning round, funding of some £90 millionhas been agreed for the collocations options discussed atparagraph 2.17. The Department has determined that wherea persuasive business case for an estate rationalisation canbe made, funding will be made available for pump-priming.Necessarily, within a fixed budget, funding for the estatehas to compete with other defence objectives and hardchoices have to be made. The risk is, therefore, that theDepartment will have to proceed on the basis of what isaffordable within existing budgets, rather than the solutionwhich offers optimum operational benefits.2.21 Estate rationalisation can be expensive with anextended period before savings from projects match upfrontinvestment. Allocation of such significant investmentwill always be challenging. One obvious source of suchfunding would be receipts from the sale of surplus estate.The Department has increased its disposal target to£732 million of receipts over the three years 2005-06 to2007-08 in the current planning round to offset againstplanned expenditure on the estate and elsewhere.Historically, the Department has managed a successfuldisposal programme to offset some of the costs of theestate and this will need to be maintained if it is toimprove the estate, see Figure 4.2.22 Defence Estates is exploring the scope for innovativefunding arrangements, such as sale and leaseback andrenting rather than buying, to help make rationalisationaffordable. Another approach is that adopted with ProjectMoDEL where the construction side of the project isexpected to be funded from the value of the sites thatare to be released. It is also expected that the contractorwill provide bridging finance to meet the costs of thedevelopment before the funds from the value of the landcan be accessed.2.23 In November 2004, Defence Estates signed a jointworking agreement with English Partnerships with theobjective of maximising the potential of surplus defenceproperty to help deliver the Sustainable CommunitiesPlan. English Partnerships will play a more significant rolein analysing surplus assets and recommending disposalstrategies. This could range from English Partnershipssimply purchasing sites for development, through to amore complex approach where the agencies collaborateon design and planning to create a master plan forthe future delivery of a site. English Partnerships is thegovernment’s national regeneration agency and its aim isto deliver high quality, sustainable growth in England.14MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE

part two4Disposal receiptsThe Department is currently forecasting continuing receipts from disposals.Defence Estate Disposal Receipts£ million350300250ActualsForecast2001501005001999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09Source: Defence EstatesMINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE15

part threePART THREEGood progress has been made towards delivering a betterquality estate but the Department now needs to ensurethat risks are managed and the full benefits realised16MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE

part three3.1 The Department is rolling out new management andcontracting arrangements which should deliver significantbenefits. These arrangements have widespread support.Culture change remains a risk and uncertainties overboth programmes and funding are potentially hamperingdelivery. The Department has developed systems forperformance and risk management but both are stillmaturing. However, there is no current mechanism toensure that the full benefits of the new arrangements aredelivered department-wide. This final part of the reportconsiders the extent to which the Department has put inplace the means of delivering a better quality estate.A new structure for the managementof the estate combined with newcontracting arrangements is beingrolled out and is alreadydelivering benefitsThe new structure for the management of thedefence estate is nearing completion3.2 The Department conducted a thorough and wellresourced study into the best way to realise the DefenceEstate Strategy ‘In Trust and on Trust’ and to deliver new,improved procurement methods, such as prime contracting.Drawing widely on experience and best practice in theDepartment and elsewhere, the study analysed the strengthsand weakness of the old arrangements and considereda number of options for the future. The study found thattraditional ways of procuring and managing the estatehad been inefficient; for example, the multiplicity ofmaintenance contracts managed by various budget holdershad meant that significant funds devoted to maintenancewere going on administration. It also found that poorinformation about the estate had meant that investmentdecisions were not always soundly based.3.3 The Department proposed a changed organisationalstructure in 2001, the key characteristics of which aresummarised at Figure 5. The project was called ProjectAlexander. Under the new arrangements, Defence Estatesis responsible for managing the defence estate includingthe letting of all new construction and maintenancecontracts. These arrangements which have been endorsedby the Defence Management Board have widespreadsupport in the Department.5Project Alexander proposals for new arrangements Prime contracting as the principal driver of the needfor change Clearly defined customer-supplier relationships Responsibility of the customer in planning and fundingestate requirements A new cross-Departmental delivery organisation A central role for a new senior-level DefenceEstate CommitteeSource: Ministry of Defence.MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE17

part three3.4 The implementation of the new arrangementshas gone well, to time, and on budget. Six newCustomer Estate Organisations are now in place toserve the Royal Navy, Army, Royal Air Force, DefenceLogistics Organisation, the Centre and Permanent JointHeadquarters. The Customer Estate Organisations areresponsible for establishing the future estate requirementsof the frontline users; for liaison with Defence Estates; andfor monitoring the delivery of the required outputs.3.5 Project Alexander principles have now been extendedto the Garrisons in Cyprus, Gibraltar and the Falklands.The intention is to roll out the new ways of working toGermany and to consider doing so for the remainingdeferred areas, such as Reserve Forces and Cadets, duringthe course of 2005. Separate management arrangements arein place or are being developed for those Private FinanceInitiative projects outside of Defence Estates’ functionalcontrol, for the estate occupied by US forces and, notably,for the majority of the training estate. The Departmenthas also been cited as an example of good practice in theprocurement of construction projects in the National AuditOffice Report ‘Improving Public Services through BetterConstruction’ published in March 2005.New contractual arrangements are beingrolled out3.6 The Department spends some £1.3 billion a yearon its estate of which more than half is on generalmaintenance and refurbishment. The Departmentuses a range of procurement methods including PrimeContracting, Private Finance Initiative/Public PrivatePartnership and conventional contracts. Previously, estateprocurement lacked a single-point of responsibility andwas hampered by the huge number of client-customerinterfaces, imprecise allocation of risk, and vulnerabilityto fraud and malpractice. A history of problems withthe former system, including poorly directed funding,inconsistencies between the approaches adopted by partsof the Department and varying standards, had led to thepoor quality of the estate.3.7 The Department is seeking to involve industry in amuch broader and collaborative way through the PublicPrivate Partnership initiatives, “Smart Construction”initiatives, and by applying the principles of PrimeContracting. The objective of Prime Contracting is toachieve better long-term value for money throughimproved Supply Chain Management, incentivisedpayment mechanisms, continuous improvement,economies of scale, and partnering. Requirements aredrawn up in output terms to stimulate industry to come upwith innovative solutions and to enable risk to be clearlyallocated to where it can best be managed.Regional Prime Contracts3.8 The Department is to contract for the bulk of itsmaintenance and minor new works in the UK throughthe award of five Regional Prime Contracts by the end of2005, except where this work is covered by an existingPrivate Finance Initiative deal. Each of the contracts willrun for seven years initially with an option to extend theperiod to ten years subject to satisfactory performance(Figure 6).6Time lines for the Regional Prime ContractsThe five Regional Prime Contracts will be let over 2003 to 2005RPC Scotland let 31 March 2003Option to extendRPC South West let 26 March 2004RPC South East let March 2005RPC Central let September 2005RPC East let October 20052003 20042005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Source: National Audit Office18MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE

part three3.9 Appointed prime contractors will have overall singlepoint responsibility for the management and deliveryof a project, or provision of an integrated estate serviceincluding some new assets (those up to a pre-agreed valueand type) and maintenance of the existing infrastructure.The prime contractor will also co-ordinate and integratethe activities of his pre-appointed supply chain to meet theservice delivery specification, efficiently, economically,innovatively and on time, with a recognition of the militaryand other needs of the Department. The Regional PrimeContract Scotland, for example, will provide for capitalworks and property maintenance services respectivelyat 17 Establishments, covering 174 secondary sites witha total of 9,250 buildings or facilities. This contract alsohas, exceptionally, a large construction project on theClyde costing over £100 million to provide 1,700 singleliving accommodation units together with associatedinfrastructure, catering and recreational facilities.3.10 Defence Estates aspires to deliver 30 per centthrough-life value for money efficiencies, in terms ofquality improvements, for the same or less resource inputthrough the five Regional Prime Contracts by 2009-10.Defence Estates has an interim target of 3 per cent in2005-06 and will be measuring progress through its valuefor money model.Project Aquatrine3.11 Project Aquatrine will transfer the responsibilityfor the maintenance and operation of the Department’ssewage works, water processing plants and water mains,sewers and drains that are outside buildings, removalof surface water and water supply for fire fighting usein order to place the responsibility of managing thoserisks with those best placed to do so. The Project will bedelivered through three separate contracts which are beingnegotiated separately (Figure 7).Single Living Accommodation Modernisation Project3.12 At the Defence Estate Conference, on the14 March 2001, the Secretary of State for Defenceannounced an additional £1 billion of new funding overthe next 10 years for raising the standard of single livingaccommodation. This requirement is being delivered inpart by the Single Living Accommodation ModernisationProject, or Project SLAM. It was expected that this projectalone would deliver around 10,000 bed-spaces in the firstfive year phase with a similar number in the second fiveyear phase.3.13 The prime contract is based on an initial five-yearprogramme of work in Great Britain (Phase 1), followingwhich the Department has an option to extend by afurther five years, subject to the satisfactory performanceof the contractor, and the achievement of cost and timerequirements. The aim is to upgrade, progressively, by 2013,the worst Single Living Accommodation to the physicalcondition deemed appropriate to provide Servicemenand women with the quality of living accommodationthey deserve. In 2001, over three-quarters of single livingaccommodation was below the required standard. Indeed,four per cent was so poor that personnel were only chargedfor utilities. The contract was awarded on 18 December2002 to DEBUT services, a Birmingham based consortiumled by Bovis Lend Lease and Babcock Support Services.As at 31 December 2004, 1,189 bed spaces had beencompleted; 3,910 were under construction and another2,376 in design and development.7Project AquatrineAquatrine will be let in three packages as part of onecoherent package.Package AOn 20 May 2003, the Department announced that Yorkshirebasedconsortium BREY Utilities, comprising Yorkshire Water,Earth Tech Engineering Ltd and KBR (Kellogg Brown & Root)had been awarded the first Project Aquatrine contract for‘Package A’ (covering the Midlands, Wales and South WestEngland). The contract went live on 1 December 2003.Package BPackage B (Scotland), the second of three contracts wasawarded to Thames Water Nevis Ltd, a wholly ownedsubsidiary of Thames Water whose major partner will beScottish Water. The contract was signed in September 2004and will commence services in March 2005.Package COn 11 November 2003, the Department announced thatthe C2C Consortium comprising Severn Trent Water Servicesplc and Costain Engineering and Construction Ltd, had beenawarded the Preferred Bidder status for Package C (North andEast of England), the third Contract to be awarded. The contractwas signed in October 2004 with the package go-live dueMarch 2005.Source: Ministry of DefenceMINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE19

part threeMinistry of Defence Estate in London –Project MoDEL3.14 The Department has had a number of projects withinLondon. It has completed the redevelopment of the MainBuilding in Whitehall as a private finance initiative projectto time, cost and quality. The latest and most extensiveproject is Project MoDEL. Under Project MoDEL, theDepartment intends to consolidate the facilities itoccupies within Greater London onto fit-for-purpose,core sites; thereby reducing running costs, improvingefficiency and consolidating resources. Specifically, theproject will develop RAF Northolt as a core site withimproved accommodation and facilities with an additional1,000 staff relocating from Inglis Barracks, Mill Hill, RAFBentley Priory and RAF Uxbridge. It may also involvea consolidation of United States Visiting Forces at RAFUxbridge. Figure 8 shows the sites involved in this project.The Department plan to let the contract in July 2006.3.15 In October 2002, the Department had intendedto develop the Royal Artillery Barracks, Woolwich asa core site. However, after the Lyons Review of 2003and consequent reviews by the Secretary of State, thisdevelopment was excluded from Project MoDEL. Futureoptions for the relocation of London units are beingconsidered. An aim of the project team is to ensure allproject objectives complement the Lyons Review.3.16 To optimise the benefits of the Project, DefenceEstates is reviewing the concept of prime contracting andhas developed Prime Plus Contracting. This would allowthe development of new and refurbished buildings to befunded through the expected disposal proceeds of thereleased sites. The contractor would expect to manage thedelivery of the entire programme.8Map of Project MoDEL sitesOccupied sites will be released and their activities relocated to RAF NortholtRAF Daws HillLoudwaterRAF EastcoteRAF Bentley PrioryInglis BarracksRAF West RuislipRAF UxbridgeRAF NortholtBlenheim CrescentEdison HouseLONDONKennington BarracksHa Ha RoadRoyal MilitaryAcademy andVictoria HouseMoD OccupiedUS Navy OccupiedCore SitesSource: Ministry of Defence20MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE

part threeBenefits of using the prime plus contracting formof procurement3.17 The expected benefits of using the prime pluscontracting procurement are:maximising value for money through a singlecontractual relationship, with both the contractor’sand departmental interests aligned;accelerated delivery of the project using a singleinitial procurement, with subsequent contracts beingawarded through the existing contract;increased affordability as the Prime Plus Contract is amechanism for attracting competitive private financeto achieve cash neutrality for the Department;reduction in the Department’s exposure to risk andenhanced value by producing a single integratedprogramme, which will facilitate a unified approachto optimising churn and planning; andmaximum flexibility for the Department to meetfuture needs without penalty, because the PrimePlus Contract can accommodate change to a greaterdegree than previous methods of procurement.The picture is complex with some significantlegacy estates projects remaining outside ofthe new management and contractual regime3.18 The arrangements for the management and deliveryof the defence estate remain complex (Figure 9 overleaf).Some of the major projects, which fall outside themanagement of Defence Estates and are not included inthe regional prime contracts, are discussed below.3.19 The Allenby/Connaught Private Finance Initiativeproject is designed to meet long-term requirementsfor living and working accommodation for some18,000 military and civilian personnel, including supportservices, within the Salisbury Plain and Aldershot areas.The requirement is based on the demand arising fromArmy restructuring following the 1998 Strategic DefenceReview. The term of the contract is likely to be for between25-35 years and its value, based on a 30 year duration,will be approximately £1 billion capital expenditure anda total through life value of over £5 billion. This contractremains under Army budgetary and management controlwith active support from Defence Estates.3.20 Also under Army budgetary and management control,the Colchester Garrison Private Finance Initiative projectwill provide for fully supported, high quality and modernliving and working accommodation for approximately3,500 military personnel. It will also provide training,recreation, education and welfare facilities. The cost over35 years is approximately £2.2 billion.3.21 Main Building Redevelopment Private FinanceInitiative Project to redevelop the Department’s MainBuilding, including temporary decant to other Londonbuildings and ongoing upkeep of Main Building and OldWar Office remains under the budgetary and managementcontrol of the Central part of the Department.3.22 The contract let in March 2003 to Landmarc SupportServices, under Project Vanguard, for the management ofthe Army Training Estate remains under Army budgetaryand management control. As part of the Defence TrainingEstate Rationalisation Study a new management modelhas been developed and a new organisation has beenproposed for management of the Defence Training Estateas a whole with a new demand-side team based in LandCommand and a separate supplier.Cultural change is a significantrisk to implementation which theDepartment has recognisedCulture change is key to success3.23 The greatest initial challenge was to convince bothusers and industry that the proposed changes wouldactually happen. Following this, the culture and behaviourof Defence Estates staff, Customer Estate Organisationsand indeed the wider defence community, needs tochange more generally to adapt to the new roles iffull benefits are to be delivered. This culture change isneeded as much in industry as in the Department withnew contracting arrangements requiring longer-termcollaborative relationships and continuous improvement.MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE21

part three9UK map showing complexity and diversity of the defence estateAquatrine B1Defence Estates (DE)Regional Structure andRegional Prime ContractsDirector Operations (North)1 Scotland4 Central5 Eastern EnglandDirector Operations (South)2 South West4Aquatrine C3 South East5Aquatrine AMoDEL32Colchester PFIAllenby/ConnaughtSource: National Audit Office22MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE

part threeProgress is being made but there is more to do3.24 Through the widening of the role of Defence Estatesas the new delivery organisation and the establishment ofthe new Customer Estate Organisations (representing theultimate users of the estate), implementation of ProjectAlexander has achieved a better division of roles andresponsibilities between customers and supplier. Themanagement model for the defence estate is shown inFigure 10: Project Alexander model below.3.25 With the move of Defence Estates from being aspecialist adviser to also being responsible for deliveryof estate requirements it is becoming more customerfocused with a project management approach to business.Customer Estate Organisations need to continue to focuson defining their requirements in outputs terms morethan the solutions and inputs required to meet those.This shift in focus to outputs and whether or not they arebeing achieved also applies to the users of the estate andthose in their management and budgetary hierarchies.Contractors also need to adopt behaviours more suitedto establishing long-term relationships as part of anestablished supply chain, and achieving improvementsin quality and reductions in cost, rather than servicingindividual contracts.3.26 Implementation of the new arrangements has beenaccompanied by a Communication Strategy and training.At an early stage, Defence Estates put in place a packageof ‘Get you In’ training aimed at Defence Estates staff,contractors and customers to meet the needs of theroll out of both Project Alexander and Regional PrimeContracting. Plans are now being put in place to deliver atraining package for the ‘steady state’.3.27 Evidence suggests that the culture shift required tofulfil new roles and responsibilities is not complete. Therehave been widely acknowledged transition issues in bothRegional Prime Contracts with some internal customersbeing reluctant to allow Defence Estates to managethe contractual arrangements and confine their role tospecifying their requirements. With the active engagementof all staff involved, on-site relationships are maturing asprogress on delivery is made. Adherence to the old waysof working is indicated by the fact that risks to projectsnow being managed by Defence Estates are still beingreported by other parts of the organisation.10Project Alexander modelDepartmentBudgetHoldersFundingDefenceEstatesRequirementsCustomerEstateOrganisationsPrioritisedRequirementsCostedProgrammesEstateDevelopmentEstateDeliveryRegionalManagerSiteService DeliverySupply ChainSource: Defence EstatesMINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE23

part three3.28 In interviewing staff at the customer organisationsand in Defence Estates, the following reasons were givenas to why the necessary cultural change is not complete:a lack of confidence amongst internal customers inthe ability of Defence Estates to shift from being apolicy adviser to that of service provider under thenew ways of working;an initial lack of understanding and acceptance ofnew ways of working by some customers.3.29 Defence Estates has recognised the risk that thissignificant change in working practice and approach willnot be embedded sufficiently. A lack of trust by all partiesin each other would lead to failure to realise the valuefor money efficiencies and improvements in the estatewould not materialise. This risk forms part of their riskmanagement plan and there are mitigation plans in placeincluding greater engagement between Defence Estates,customer and industry and more robust CustomerSupplier Agreements.Uncertainty over both programmesand funding is hampering deliveryFor Regional Prime Contracts lack of fundinghas led to a failure to achieve optimumvalue for money and will lead to a lack ofconsistency across the estate3.30 The introduction of the five Regional PrimeContracts, with requirements defined in output terms, wasintended to provide a consistent approach to maintenanceacross the defence estate. However, due to balancingconflicting defence priorities the level of funding wasinsufficient and Regional Prime Contract Scotland wasbased on an input specification; Regional Prime ContractSouth West is based on an output specification, exceptfor eight sites; and Regional Prime Contract South Eastwill be based on a different output specification toRegional Prime Contract South West in terms of targetcondition. Therefore, there will be inconsistent standardsfor maintenance across the estate although an acceptedminimum standard exists on all key parts of the estate.3.31 Input specifications are more prescriptive andprovide less opportunity for innovative solutions by thecontractor. They also result in more risk being retainedby the Department. With an output specification it is upto the contractor to suggest how the targets might be metand, in doing so, come forward with more efficient andeffective solutions. Contracts expressed in input termsrequire greater administrative effort, which will impact onefficiency benefits. For instance, Regional Prime ContractSouth West team reported disproportionate effort beingrequired for the eight sites with limited funding. With anoutput specification, the Department need only checkthat the required targets are being met rather than monitorcontractor activity in detail.3.32 The five Regional Prime Contract contracts are worthsome £3 billion over seven years. The Department has madeavailable additional funding of £389 million over the life ofthe five contracts over and above that previously plannedfor the estate. The funding now available is thought to besufficient to prevent any further deterioration of the estate.Defence Estates estimates that a further £100 million overseven years, 3 per cent of the contract value, would beenough to fund full output specification across allcontracts although it recognises that this would be at theexpense of other defence outputs. In the South West,customer budget holders came forward with more funds(£10.5 million against a shortfall of £43 million over sevenyears) after the contract was let; if this had been availableearlier then the contract might not have moved away fromoutput specifications for as many sites.The Regional Prime Contracts core worksare not occurring because of a lackof a programme3.33 It was intended that Regional Prime Contractswould include capital works projects up to £10 millionbut due to changing defence priorities, not all plannedworks are progressing. When tendering for the RegionalPrime Contracts, bidders were asked to cost a number ofdemonstration projects. In Scotland, there were 13 potentialcore works projects of which only two were let at contractaward whilst a further three have been subsequently let.As a consequence, Regional Prime Contractors will be lessable to deliver efficiencies that should arise from a longtermprogramme of work through innovation and learning.Industry consider that supply chains put in place to meetrequirements for core works are being disrupted and it willbe difficult for them to be re-established.Momentum on providing better quality livingaccommodation must be maintained3.34 In 2001 the Secretary of State for Defenceannounced an additional £1 billion of new fundingover 10 years for raising the standard of single livingaccommodation, to be delivered through the Single LivingAccommodation Modernisation Project (Project SLAM)and a number of parallel projects. Project SLAM expectsto provide around 10,000 bed spaces over its first five yearphase with a similar number in the second phase.24MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE

part three3.35 The prime contract for the first five year programmewas awarded in December 2002. The estimated valueof this first phase of work was £738 million. Only£463 million funding was initially available and this wassubsequently reduced to £433 million. The Departmenthas subsequently re-injected £20 million as part ofits latest planning round. Whilst still a substantialprogramme, the rise in the unit cost of bed spaces hasmeant that the number of bed spaces to be provided by2008 has reduced to some 9,000. Additional fundedprojects injected into the SLAM programme are currentlyanticipated to increase delivery by 800 bed spaces.3.36 Certainty of programme funding allows the contractorto plan and carry out his work efficiently and effectively,optimising the use of resources and minimising the impacton personnel. Apart from Project SLAM, there are twelveother projects worth a total of some £500 million whichwill provide a number of facilities on site including5,200 single bedspaces. These projects, which startedprior to Project SLAM, are funded separately.Defence Estates needs to ensure that it retainsthe flexibility to adapt to changing priorities3.37 The Department provides four year funding toallow Defence Estates to programme its work, althoughDefence Estates will need to respond to changing defencepriorities. In response, Defence Estates has established ajoint programme which enables it to see where funds canbe moved between projects although this does not helpwith long-term programming. Central finance staff in theDepartment have developed a financial planning toolin order to balance spending on major non equipmentprojects across the Department. These projects are mainlyestate and information technology projects. This tool hasbeen used in the current planning round.There is no current mechanism toensure delivery of the benefitsThere is not enough robust baselineperformance data available against which toassess improvements3.38 The Department had sufficient data to enable it toenter into the Regional Prime Contracts. As part of thesecontracts, the Contractors are or will be responsible forgathering data on the condition of the estate and on theirperformance. This data will be owned by Defence Estatesand will be used to establish the baseline condition ofthe estate.3.39 Under the old system there was no consistent wayof gathering performance information. Legacy systemsfor assessing the condition of the estate are neitherobjective in their assessment, nor do they providesufficient granularity of information to identify incrementalimprovement towards the required targets. Currentinformation is therefore geared to the old ways of working,reporting performance using input measures. A particularimpact of this is that there is no baseline data availableagainst which to assess improvements in service delivery,for example, in terms of quality of work and responsetimes. Defence Estates has now agreed a consistent assetcondition measurement which will apply across all theRegional Prime Contracts.Efforts are being made to developperformance measurements across thedefence estate3.40 A new methodology is now in development toprovide an effective and objective means of grading assetcondition, to enable the demonstration of improvementsin asset condition and the targeting of improvements toappropriate assets. This is to be accompanied by IntegratedEstate Management Plans for each site to inform planning.A new performance measurement system – for measuringand managing estate performance under the new waysof working - is under development and will be trialledat six sites from January to March 2005. This value formoney model was developed with the Building ResearchEstablishment and there is scope for it to be applied tomeasuring performance across estate investment projectsacross Government.3.41 Performance management with respect to the defenceestate is reported by Defence Estates to the DefenceManagement Board through the Defence BalancedScorecard but does not include those areas, such as thelegacy Private Finance Initiative projects, that remainoutside of Defence Estates’ functional responsibility.Benefits have not yet been fully realised3.42 Improved oversight of the estate requirement, andgreater clarity of roles, has been achieved through creationof the Customer Estate Organisations and the enhancedrole of Defence Estates in programming and delivery ofestate solutions. This should lead to greater coherence andreduce duplication in the management of the estate acrossthe three Services.MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE25

part three3.43 ‘Steady state’ in the management of the estate isexpected to be reached by 2007 after the Regional PrimeContracts are fully established; these have the potentialto deliver continuous improvements over the life of thecontracts. Economies of scale will not be achieved untilRegional Prime Contracts have all been let and forecaststaff reductions achieved. It is too early to judge whetheror not the benefits of a more flexible, fit for purpose estatedelivering better value for money will be delivered asthis is dependent on implementation of the new waysof working and on estate rationalisation, and on theprovision of sufficient funding.There is no plan for the achievementof benefits3.44 Much is expected of the new ways of working, forexample, new management and contracting arrangementsare expected to deliver economies of scale includingreductions in personnel, greater coherence and reducedduplication leading to the delivery of a flexible, fit forpurpose estate. As part of its centrally agreed efficiencyplan, the Department has a target to release cashableefficiencies from centralising the estates managementfunction with net staff savings. A range of benefits havealso been identified from other estate initiatives such asstand-alone private finance initiative deals and the SingleLiving Accommodation Modernisation project. Theseinclude wider benefits for personnel and to operationaleffectiveness such as improved retention, unit cohesionand ethos.3.45 The performance measurement and managementregime being developed by Defence Estates will supportthe management of the estate and provide some measureof improvement. However, separate arrangements areneeded to ensure that the full range of identified benefitsare delivered and measured throughout the Department.The Chief Executive of Defence Estates is SeniorResponsible Owner for the estate change programme buthe has no line management responsibility for functionsoutside Defence Estates. Thus, responsibility for thedelivery of benefits is dispersed and has not yet beenfully defined. For example, there needs to be a planwhich identifies and places targets on those responsiblefor reducing personnel outside Defence Estates and forachieving the operational benefits.Risk management is still maturing andis not presented as a coherent wholeto the Defence Management Board3.46 Defence Estates risk strategy, summarised atFigure 11, appeared for the first time in its 2004Corporate Plan. This strategy is focused on performanceby Defence Estates.3.47 Risk management within the Department as a wholeis also developing with a new Business ManagementSystem, the appointment of Process Owners withresponsibility for managing risk across their area ofbusiness as well as Senior Responsible Owners takingresponsibility for specific change programmes.3.48 Estate risks are reported to the Defence ManagementBoard by Defence Estates. However, there is evidence thatthe management of risk with respect to the estate remainsdisjointed with customers reporting risks to estate inputsand risks to Regional Prime Contracts and Single LivingAccommodation Modernisation. Individual estate projectsbeing managed elsewhere in the Department, includingPrivate Finance Initiative projects, have their own riskstrategies which are not always linked into the DefenceBalanced Scorecard. The Department established theDefence Estates Committee to ensure that estates risk ismanaged across the Department.The Department has more to do toensure that quality improvementsare deliveredImplementation of estate initiatives ishampered by some skills shortages, particularlyin key functions such as Project Management3.49 The Department has identified the skills it requires forthe management of the estate and the new Regional PrimeContracts. Staffing Plans identify particular shortages inFacilities or Maintenance Managers and Project Managers.Detailed analysis of staffing is carried out at the locallevel. Better central coordination is dependent on thedevelopment of the Department’s new Human ResourceManagement System. Both external recruitment andemployment of consultants is being used to address skillshortages including manpower substitution.26MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE

part three11Defence Estates Risk MatrixRisk Management within Defence EstatesThe identified risks are mapped against the perspectives of the Balanced Scorecard as shown below. The risks will be reviewedregulthmitigation plans begin to take effect.LowMediumPROBABILITYLow Medium High High Medium LowManagedEfficiency &EffectivenessEstateSolutions RightSize & QualityLowMediumIMPACTHighHigh4 12 536HighHighIMPACTMediumLowDevelopBestPracticeLow Medium High High Medium LowPROBABILITY7SocietyandEnvironmentMediumLowRisk1 Ministry of Defence budget holders fail to fully fundkey estate improvements to provide an estate of theright quality.2 Rationalisation proposals are not endorsed andfunding for estate rationalisation is not madeavailable to provide an estate of the right size.3 Failure of Defence Estates, customers and industry toembrace new processes and cultural change.4 Failure to demonstrate the efficiencies to be gainedfrom the changes in the approach to how the estateis managed.5 Construction Industry fails to deliver outputs to time,quality and cost.6 Failure to develop a coherent approved purple estateprogramme in line with the overall Estate Strategy.7 Loss of confidence in the Estate Strategy by StatutoryBodies and Non-Governmental Organisations.Source: Defence EstatesImpactH - Delays to Prime Contracting roll-out. Delay in realising improved VFM.Injections of cash are less efficient, loss of economies of scale, no medium orlong-term planning can take place.H - Defence Estates fails to deliver desired receipts in longer-term. Sub-optimalestate with higher running costs. Investment in estate works uncoordinated.H - Delays to improvement in estate, change initiatives fail to take hold andembed. Failure to realise the value for money efficiencies from new ways ofworking. Inefficiency creeps into estate processes. Defence Estates fails to takecustomers and industry along strategic path.H - Loss of confidence and credibility in the estate change initiatives. Reticencefrom customers and Ministry of Defence to provide support for further change.New processes are not fully adopted, inefficiencies accumulate and traditionalculture prevails.H - Anticipated value for money enhancements arising from Prime Contractingnot achieved. Dysfunctional collaborative relationships or poor selection ofprime contractor. Industry unable to suppress fraud and malpractice.H - Deterioration of estate, incoherent investment, inefficient use of estate fundsand missed rationalisation opportunities.M - Departmental plans for development and use of estate frustrated byexternal lobby groups. Potential delays as planning processes are challenged,together with restrictions on use of estate.MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE27

part threeThe Department is working to put in placethe right Information Technology systems tosupport the new ways of working3.50 Estate Information Systems workarounds have beenidentified and put in place. The Department is undertakingan incremental development of a more permanentsolution over the period 2004-05 to 2006-07.The new Defence Estates Regional Structurehas not yet had the opportunity to impact onbusiness improvement3.51 The Department considered that the regionalstructure of Defence Estates was too flat and the span ofcontrol too wide for effective control and managementof change. Also there was some duplication andinconsistencies of approach. Defence Estates has sincebeen reorganised and its Operations Directorate is nowheaded by a senior civil servant with three directors:Director UK North, Director UK South and DirectorInternational. Individuals have been appointed tothese posts but detailed structures beneath are still beingworked out.Having a number of estate-related projectsmanaged by different parts of the Departmentmay dilute opportunity for improvement3.52 In accordance with Departmental policy, DefenceEstates is taking on some legacy projects such as theCorsham Development Project. There may be benefits inDefence Estates taking responsibility for all existing estateprojects to make best use of focused expertise and to learnfrom experience. This could widen the delivery of benefitsfrom the new management and contracting practices.Benefits could also accrue through putting all new PrivateFinance Initiatives with Defence Estates to pool and takeadvantage of the limited expertise in this area within theDepartment. Separately, the Department has set up a newunit, headed by a secondee from Partnerships UK, to lookcritically at Private Finance Initiative solutions.28MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE

appendix oneAPPENDIX 1Study MethodologyScope of this study1 In undertaking this examination we were seekingto identify the progress the Department had made indeveloping an estate strategy to meet the challenges it faces,in rationalising the defence estate, and in delivering a betterquality estate.Methodology2 We undertook an issue analysis examining:whether the Department had successfullyimplemented Project Alexander;what progress had been made in developing astrategy and plan for rationalising the estate: andwhether the Department’s new procurementsmethodology was leading to a better quality estate.3 We collected the evidence in support of ourfindings under each of these issues from the informationcontained in the Department’s records, including minutesof meetings and contract documents. We held discussionswith: staff at Defence Estates, including its Chief Executiveand the Divisional heads; the Top Level Budget Holders’Estate Organisations: the Regional Prime Contract teamsfor Scotland and the South West; the Regional PrimeContractor’s representatives for the two contracts: the ProjectLeaders for the Allenby/Connaught and Colchester GarrisonProjects: and the Army Training Estate.4 We assessed the developing system for performancemeasurement and risk management. We examined plansand developing business cases for rationalisation. We alsoexamined the new report that is being prepared by DefenceEstates for submission to the Committee forPublic Accounts.MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE 29

appendix twoAPPENDIX 2The Defence EstateEstate Facts and FiguresUnited Kingdom (240,000 hectares)The Built Estate (80,000 hectares)3 naval bases213 barracks and camps33 major airfields31 minor airfields47 research and development installations140 storage and supply depots17 major communication facilities53,666 families’ quarters688 statutorily protected buildings (including551 listed buildings and 137 scheduledmonuments(buildings))147 town centre careers information officesReserve Forces and Cadets13 Reserve Forces and CadetAssociation headquarters2,050 Territorial Army and Cadet facilities600 Royal Auxiliary Air Force and Air Cadet facilities17 Royal Naval Reserve/Royal MarineReserve facilitiesThe Rural Estate (160,000 hectares)21 major armed forces training areas39 minor armed forces training areas36 separate small arms ranges7 major test and evaluation ranges7 aerial bombing ranges196 sites of special interest (where the Departmenthas direct management responsibility)598 scheduled monuments30MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE

appendix twoUnited Kingdom Significant MOD FacilitiesSource: Defence EstatesMINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE 31

appendix twoOverseas Permanent MOD FacilitiesOverseasPermanent MOD FacilitiesGarrisonsOther facilities1 Cyprus5 Ascension Island9 Canada13 Norway2 Germany6 Belgium10 Kenya14 Poland3 Gibraltar7 Belize11 Nepal15 Singapore4 Falkland Islands8 Brunei12 Netherlands16 USAOverseasGarrisons in Germany, Cyprus, Falkland Islands and Gibraltar18,102 Service family homesMajor training facilities in Canada, Cyprus, Germany, Norway, Poland and KenyaOther facilities in Ascension Island, Belize, Brunei, Nepal, Singapore and USATemporary estate (supporting peacekeeping and other operations) in the Gulf, Bosnia and KosovoSource: Defence Estates32MINISTRY OF DEFENCE: MANAGING THE DEFENCE ESTATE