SUPPORT AND INFRASTRUCTURE
Introduction
1. From the outset, the Government made it clear that the Strategic Defence Review would be policy-led, not resource-driven. But this did not mean that resources could be disregarded. On the contrary, it was recognised that a crucial element of the Review would be a comprehensive re-examination of every area of defence business, to ensure that the defence capabilities required by our policy objectives are generated as cost-effectively and efficiently as possible. As the Defence Secretary put it in his speech to the Royal United Services Institute on 18 September 1997:
"The Strategic Defence Review will be seeking to ensure that, as far as humanly practicable, every pound spent on defence will be spent both wisely and well."
2. This general duty to the taxpayer was reinforced by the specific imperative to identify savings which would enable us to repair inherited gaps in capability, as well as to meet emerging requirements identified in the Review. Accordingly, a dedicated strand of the Review was established to find the maximum possible level of efficiency savings by thoroughly scrutinising, in particular, defence support and infrastructure.
3. The detailed results of the work undertaken are described below. Overall the exercise succeeded both in achieving significant new savings to help rectify capability deficiencies identified elsewhere in the Review process, and in putting in place a series of system and organisational improvements that will pay continuing dividends in the future.
Context
4. The drive for efficiency in the conduct of MOD's business is not new. Since the end of the Cold War, defence has had to adapt to managing within a budget now 29% smaller in real terms than in the mid-1980s. This meant a sustained and continuing effort to drive down operating costs, reduce overheads and maximise the output of effective defence capability from the provision available. The main features of this effort have been:
- a complete re-design of the Department's management and budgetary structure;
- a series of specific efficiency reviews, notably the Defence Costs Study of 1994 which took over £1Bn a year out of support costs;
- the biggest Market Testing and Contracting Out programme in government;
- a major Private Finance Initiative programme, developing increasingly innovative forms of partnership with the private sector;
- headquarters reduction which has cut London based personnel by 60% since 1990, and reduced the Department's core headquarters staff by over 30%;
- an annual efficiency planning system covering all operating costs and fully integrated with the resource allocation system;
- efficiency savings which have now accumulated since the end of the 1980s to over £4Bn annually.
5. The Review has built on these foundations, and complemented them with a series of important new proposals for change. Work on defence assets has proved particularly fruitful. Previously, relatively little management attention had been paid to the cost of owning capital assets, which was not apparent under cash accounting. The imminent introduction of commercial-style accounts throughout MOD, and the preparatory work to draw up balance-sheets, provided an invaluable point of departure for the comprehensive studies of defence asset holdings described below.
Approach to the Efficiency and Assets Work
6. At the start of the Efficiency and Assets workstage of the Review, all of the Ministry of Defence's 13 main operating divisions ('Top Level Budgets') were required to conduct thorough business analyses of their management areas, and to draw up Management and Efficiency Audit Reports. The purpose of this was to look radically at the scope for providing the same output for less resources. Management areas were also required to review their asset holdings and consider the scope for reduction or better utilisation. Another major theme was the promotion of Public Private Partnerships - identification of new ways of working with the private sector in more cost-effective arrangements for meeting defence requirements. And, across the board, management areas were tasked to consider the scope for slimming management hierarchies and reducing overheads.
7. The response was impressive. Inherited forward efficiency plans already envisaged that, over the four years from 1998/99, considerable new efficiency gains would be achieved. As a result of this exercise, the planned efficiency achievement across the Department was more than doubled.
8. This, however, was only the first step. Ideas on how to further improve efficiency were invited from MOD Service and civilian personnel, and the views of the Trades Unions and industry were canvassed. External involvement was an important feature of the work, and a number of outside experts contributed generous help to the various different strands of the work. Proposals, too, came forward from the main operating divisions for efficiency improvements with wider implications going beyond the competence of their particular areas.
9. Accordingly, the 'bottom-up' approach of the Management and Efficiency Audit Reports was complemented by a series of wide- ranging 'top-down' studies. Most ran across organisational boundaries and particular emphasis was laid on developing new joint approaches - as between the three Services, and their civilian counterparts where relevant. In many areas, this was the key to increasing both efficiency and effectiveness, and to eliminating unnecessary duplication and overhead. Indeed, the Defence Secretary established the presumption that services should be provided and functions carried out on a joint basis, unless there were good reasons for continued management on single-Service lines.
10. The major elements of this area of work fell into the four broad categories discussed below. Associated work on improving MOD's procurement of equipment and materiel, and restructuring our procurement organisations, is covered in the separate essay on "Procurement and Industry".
Assets
11. Fighting equipment apart, the MOD's principal assets comprise land and buildings, and stocks. Comprehensive reviews of both areas were carried out and identified major savings.
Review of the Defence Estate
12. The MOD is a major land-owner in Britain. The majority of our holdings are training land, which is heavily utilised and remains at a premium. But we also occupy a built estate of some 80,000 hectares. Properties worth about £700M have been sold since 1990, in addition to the sale of the married quarters estate. Despite these significant disposals, the Review began with a presumption that rigorous scrutiny could identify scope for additional receipts and reducing running costs. All parts of the Department, the Treasury and the Cabinet Office Efficiency Unit contributed to this work, together with private sector advice, particularly on the management of the estate.
13. Major disposals. Our re-examination of the defence estate should enable us to double the inherited programme for disposal receipts over the next four years to more than £700M. The Review focused on higher value properties, particularly in London. Our 100 highest value sites across the country were reviewed thoroughly. Most meet long-term operational requirements and cannot be economically replaced elsewhere, but all will be kept under review. Of the London sites:
- the Duke of York's Headquarters in Chelsea, principally occupied by the Territorial, Auxiliary & Volunteer Reserve Association for Greater London and Territorial Army units, will be sold and its occupants re-accommodated as necessary;
- Chelsea barracks needs to be replaced (not necessarily on its present site) and this will be achieved through a Public Private Partnership project;
- the Millbank barracks site is also included in the disposals programme, as are a number of smaller London sites;
- London headquarters office buildings have already reduced from 25 in 1993 to seven today, and will now reduce to just two (the Whitehall Main Building and the Old War Office Building) by 2004, when Main Building redevelopment has been completed.
14. Further reductions in land and buildings in the London area should be possible and we are drawing up a strategic development plan. We shall be considering in particular our future requirements at RAF Northolt and RAF Uxbridge and a number of other major sites in the Greater London area.
15. Elsewhere, significant estate sales now planned include parts of the Army sites at Chilwell and Woolwich; storage and support sites at Didcot, Malvern, Old Dalby, Thatcham and RAF Cardington; parts of Defence Evaluation and Research Agency sites at Bromley, Chertsey (north site) and Farnborough (Queen's Gate); and office accommodation in the Bath area. In addition, we expect to make reductions in the estate occupied by the Territorial Army in line with the reductions in its personnel numbers.
16. In total, over 350 separate sites, ranging from major establishments to small parcels of land identified as surplus, are included in the forward disposal programme. A check is made for each site before it is put on the market to ensure that there is no suitable alternative defence use for it. Where our estate plans have significant implications for civilian staff, the Trade Unions have been or will be consulted.
17. Taken together, the planned programme of disposals will bring the total reduction in the size of our built estate in the United Kingdom since 1990 to some 20% - about the same as the percentage reduction over that period in the numbers of Service and civilian personnel based throughout the country.
18. Training Land. About two-thirds of the defence estate by area is rural training land. A shortfall in the land available to meet military training requirements had been identified before the Review began. We do not expect there to be scope for any overall reduction, but the implications of the Review for military training will now be considered in detail. Environmental appraisal will form an integral part of the process to inform our future strategy for the size and utilisation of the rural estate. Environmental and conservation groups were consulted during the Review and their views will be sought in developing our strategy. We shall also honour our existing commitments to consult with the relevant statutory bodies about changes in land use that may be proposed. The Army's Land Command continues to improve its arrangements for the efficient utilisation and management of the estate, and we are considering the scope for greater involvement of the private sector.
19. Management of the Estate. The Review identified a need for central strategic management of the defence estate, to ensure that it is managed efficiently and cost-effectively as a coherent whole; that the pressure to reduce holdings is maintained; and that we derive maximum value for money from our expenditure on property maintenance and capital works. Top level budget holders will remain individually accountable for the property that they occupy and for funding it, but the Chief Executive of the Defence Estates agency will be held accountable for the management of the estate as a whole; he will manage the disposals programme; and his team will provide an improved professional interface with industry.
20. Estate strategy will be overseen by the Defence Estates Board, chaired by the Parliamentary Under Secretary of State. The strategy will bring together forward plans; keep existing uses and utilisation of the estate under review; and enable us to identify further opportunities for disposals and for sharing between Service users. This will include concentrating smaller units on larger multi-user core sites, where cost-effective and appropriate.
Review of Stockholdings
21. Defence stockholdings have been substantially reduced in recent years:
- since 1990, £4.4Bn of stock has been sent for disposal;
- the number of individual types of item held has been cut from three to two million;
- 50 out of 81 depots have closed.
22. But stock retained totals £8Bn of missiles and ammunition, and £11Bn of other items (mainly spares and items in the repair loop). These holdings will be reviewed against the principles that stocks should be held only where they cannot be obtained within readiness preparation times for operations; and that operational stocks should not be maintained in excess of realistic operational need or deployment plans. Major savings targets have been identified through disposing of surplus stocks and improved processes to reduce the procurement of new stock:
- existing plans for review and disposal of redundant stock can be expanded and accelerated;
- flexible provisioning methods taking full account of the costs of holding stock are likely to allow more of our requirements for peacetime provisioning and for training to be met by direct supply from industry, permanently reducing our need to hold stock.
23. Against that background, a new reduction target of 20% in the book value of stockholdings (other than ammunition and missiles) over the next three years has been set. This amounts to £2.2Bn. A separate study will consider the scope for contractorisation of the management of clothing supply.
24. The market value of disposals will be slight. But stock reductions on this scale will allow further reductions in storage and distribution infrastructure (described more fully at paragraph 40).
25. Future provisioning. The Review considered how far savings in future provisioning could be achieved. Some stock is systematically held to cover production line inefficiencies, administrative, transport or other delays, or inaccurate provisioning calculations. We concluded that there is scope for considerable saving if radical business efficiency measures, building on plans already being developed, are introduced.
26. Much progress on these lines was already assumed in MOD's forward plans. Forward financial provision has already been reduced in anticipation of new efficiencies of this kind. But the Review nonetheless concluded that further savings would be practicable and that additional targets should be imposed.
27. War reserves. As a result of longer post-Cold War readiness preparation times, there is now scope for reducing holdings of war reserves such as guided weapons and ammunition. The key to reducing stocks and hence financial provision is an appreciation of the critical factors in production lead times. If new production lead times can be brought below readiness preparation time, by stocking long-lead components and materials rather than complete weapons, paying manufacturers for dormant production capability, or other partial investments, stock procurement can be reduced and economies (for example in the disposal and replacement of life-expired stocks) can be made. Studies will be conducted with industry on individual production lines as soon as practicable.
Defence Organisation
28. A series of organisational studies was undertaken during the Review, aimed at rationalisation, reduction of overheads and reinforcing joint approaches wherever this makes operational sense. These latter aspects are also considered in the essay on joint operations.
29. At the highest level, we considered whether current arrangements (themselves only recently evolved from the reorganisations of the early 1990s) represent the optimum balance between single Service organisations (through which front line force elements are necessarily and rightly generated) and cross-defence structures embodying the joint approach.
30. Joint Operations. Building on the success of the Permanent Joint Headquarters, we have decided to enhance the role and responsibilities of the Chief of Joint Operations, including making him responsible for a top-level budget and thus putting him on the same budgetary footing as the single Service Commanders in Chief.
31. Defence Logistics. Careful consideration was given to our arrangements for the provision of logistics support to the front line. The current position, with three single-Service logistics organisations, ensures the necessary close relationship between the logistics area and the front-line forces it supports, but it is less well suited to maximising the scope for rationalisation and convergence on a functional, defence-wide basis. Our work also took account of the demands of operations, which are increasingly conducted on a joint basis with units of two or three Services working closely alongside each other. As a result of the Review, we have decided that:
- the three single-Service logistics organisations will be brought together into a unified organisation to provide logistic support to all three Services;
- a Chief of Defence Logistics (a four-star uniformed post) will be appointed to take overall control of the current organisations and re-configure them, after an appropriate transition period, into one integrated organisation which will, however, retain the necessary close relationship with front-line forces;
- amongst other advantages, this will facilitate the achievement of important benefits flowing from the Smart Procurement initiative across the logistics area.
32. Joint Defence Centre. A single authority will be established for the formation and development of joint and single Service doctrine, in the shape of a new Joint Defence Centre.
33. Headquarters. All these developments will have a significant impact on the Department's headquarters. This needs more time to work through. But a number of key decisions have already been taken:
- elevation of the Chief of Joint Operations to Top Level Budget Holder status will transfer some £300M of annual operating costs from the two Centre Top Level Budgets;
- the remainder will be better managed as one consolidated Top Level Budget covering all central headquarters costs, and expenditure on corporate, defence-wide services and functions which it makes sense to hold centrally. Such services range from the joint medical agencies, through the Ministry of Defence Police to pay and personnel administration;
- this will create a central Top Level Budget controlling a little over £2Bn of operating costs a year, with headquarters costs of about £170M separately identifiable within it.
34. Working through the implications of these various changes should result in a slimmer central organisation for defence, which can be accommodated after the redevelopment of the Main Building in only two London buildings. This will allow the release of one further office building, over and above previous plans.
35. Meanwhile, some small but useful staff reductions have been identified in headquarters areas such as research management, central warfare staff, environmental and health and safety policy, and information and communications services. In particular, a review of the Defence Intelligence Staff (in London and Agencies, and in their interfaces with the Commands) has identified significant savings.
36. Army Land Command Restructuring. Land Command is currently consulting on a proposal to re-shape the Army's administrative structure in the United Kingdom. The present structure was established in part to reflect the needs of military home defence, which have changed fundamentally. Land Command proposes that the current six divisions/districts would be replaced for administration purposes by three. Depending on the detailed outcome, establishment closures or reductions may result at a number of locations.
37. Territorial, Auxiliary and Volunteer Reserve Associations (TAVRAs). Following a review of the structures through which the Volunteer Reserves and Cadets are administered, a number of changes have been proposed including reduction of the number of TAVRAs from 14 to 12 to bring them into line with the Land Command brigade structure. This will require secondary legislation. These changes will produce a clearer and more coherent framework for linking the administration of Regular and Reserve forces.
Logistics
38. Much progress has been made in recent years in rationalising logistic support to the Armed Forces, often within a Defence Agency framework:
- "lead-Service" arrangements operate widely. For example, the Royal Navy procures food on behalf of all three Services;
- private sector involvement is already extensive.
39. We considered how present arrangements might be improved, to better meet the requirements of joint and force projection operations, and to take forward rationalisation and business practice improvements on a joint basis. The most significant outcome of this work was the decision to unify the three single-Service logistics organisations under a new Chief of Defence Logistics (paragraph 31 above). But a series of other important changes were also decided upon, as described below.
40. Storage and Distribution. We plan to form a single, defence- wide, storage and distribution Defence Agency in the early years of the next century:
- as a first step it is planned to form a Defence Storage and Distribution Agency (Non-explosive), on a lead-Service basis by the Quartermaster General, by April 1999. This will replace the current single-Service arrangements and should produce substantial efficiency savings;
- work on explosive storage processing and distribution, currently split between the Royal Navy and Army, recommended unifying the explosives storage function as a division of the existing Naval Bases and Supply Agency by April 1999;
- creation of the final unified organisation, to perform all storage and distribution tasks, is envisaged for 2004/05. En route, additional consideration will be given to the scope for further private sector involvement in the task.
41. We intend to consult on plans for the early closure of the Royal Navy Stores Depots at Rosyth and Colerne, and envisage that the stock reduction programme (para 22 above) should enable us to reduce storage capacity by the equivalent of a further major depot in the early years of the next decade.
42. Fuels and Lubricants. As a result of the work on fuels and lubricants the procurement and management of all MOD fuels and lubricants will be conducted on a lead-Service basis (by the Royal Air Force), with the exception of naval "bespoke fuels" which will initially continue to be managed separately. Fuel reserve stocks will also be significantly reduced. In addition, commercial best practice, benchmarking and other improvements to the management of fuel procurement will be adopted.
43. The Government Pipeline and Storage System (GPSS) is currently managed by the Oil and Pipeline Agency (a Non-Departmental Public Body). A study was conducted to consider the potential benefits of increased private sector involvement in utilising and managing the system. Much of this work was performed by outside consultants, who recommended greater commercial exploitation via a partnering arrangement with a major oil company and/or a long-term concession. Expressions of interest have been received. Other elements of the non-GPSS fuels infrastructure will be rationalised allowing disposals of some assets.
44. Strategic Movements. Large-scale movements of people and materiel are currently managed by several different staffs and authorities. Study work concluded that efficiency and effectiveness would both be improved by rationalising the relevant staffs (including the Defence Transport and Movements Executive, which currently has responsibility for land and sea movements, but not air). We therefore intend to create a Defence Transport and Movements Agency in April 1999, to be overseen by the Quartermaster General on the lead-Service principle.
45. Commercial utilisation. Further work explored the scope for increasing the commercial utilisation of MOD's movements infrastructure, particularly the Marchwood Military Port. Scope was identified to generate revenue within the existing operation at Marchwood, and to pursue a partnering arrangement (which might involve a commercial partner sharing in the port's operation, possibly using Sponsored Reserves - employees of the commercial partner prepared to be deployed forward to operational theatres when required).
46. Logistics Processes and Information Technology Systems Convergence. This study reviewed the business processes for logistic provisioning and the information systems which support them. Important progress was made on a strategy to align the business practices and IT systems of the three single-Service logistics organisations. This will underpin the other SDR logistics proposals and will be fundamental to achieving the benefits and savings of the Smart Procurement initiative (see the "Procurement and Industry" essay) and the work on stockholdings.
47. Defence Aviation Repair Agency. Major repair and overhaul of military aircraft is currently carried out by two separate Defence Agencies, one for helicopters and another for fixed-wing aircraft. As announced by the Minister for the Armed Forces on 23 April, we have decided to bring these two operations together in a single Defence Agency, the Defence Aviation Repair Agency. Given the major efficiency programmes already underway in each of the two existing Agencies, only modest overhead savings can initially be assumed. But we intend to move the new organisation to Trading Fund status as soon as possible, with the expectation of further efficiency gains from operation in a more commercial environment.
48. Army Equipment Support. The Army's head of logistic support, the Quartermaster General, is developing proposals for a major re-shaping of the Army's equipment support function. Operational, technical, contract and financial staff will be integrated to form multi-disciplinary groups managing equipment support. Reduction and relocation of staffs will be involved, as well as the absorption of the Army Technical Support Agency into the new organisation. The Army Base Repair Organisation will be restructured, with a view to moving it to Trading Fund status.
Agencies
49. Most of Defence support is now delivered through 44 Defence Agencies. A number of Agencies have achieved savings on their operating costs of over 20% in their first two or three years and several of the programmes involve rationalisation of activities from anything up to 20 sites to a single location. The Agencies are principal contributors to the Department's efficiency programme, achieving rates around double that of the rest of the Department. They also play a leading role in the development of increasingly innovative forms of Public Private Partnerships. Many of the Defence Agencies will be affected by SDR outcomes detailed above, which include the formation of new Agencies in such areas as aviation repair, strategic movements, storage and distribution and, probably, Army equipment support.
50. Agency management. In common with other Government Departments, we are developing the ways in which Agencies' output objectives are specified, to build a management environment in which the Chief Executives enjoy maximum freedom to achieve these objectives, and are fully held to account for doing so. Particular attention will be paid to this agenda in the wake of the Review, including pursuit of a campaign to recruit external advisers as non-executive members of Defence Agency Boards. A range of actions is in place to carry this forward, including the preparation of fresh guidance to Agency "owners" (the senior officials to whom, under Ministers, the Chief Executive is accountable). This will reflect the Department's experience to date. Training programmes will be redesigned to alter the focus from establishing Agencies to managing them, both internally and at the level of the Owner. Arrangements for sharing best practice have also been set in place, with a series of seminars to bring together owners, customers and Chief Executives.
51. The Defence Evaluation and Research Agency (DERA). DERA is MOD's largest Agency, operating as a Trading Fund with 12,500 staff and an annual turn-over of some £1Bn. We will harness the opportunities offered by a Public Private Partnership to strengthen DERA's ability to continue to provide world class scientific research well into the next century.
Conclusion
52. The Review of Support and Infrastructure has been comprehensive and far-reaching:
- the first phase of the exercise resulted in a doubling of MOD's projected future efficiency achievement;
- the Department has set itself the challenge of securing annual accumulating efficiency gains of 3% in our operating costs over the next four years; and
- major steps have been taken to increase the joint approach in the support area.
53. Achieving 3% is a challenging target which will require us to identify new efficiency gains in the years ahead in addition to the measures identified in the Review. But on the basis of the major advances identified in the Review, the target should be achievable. This planned efficiency gain is over and above the increased receipts expected from estate disposals and the efficiencies resulting from the Smart Procurement initiative, which is described in another essay.
54. The introduction of commercial-style accounting will maintain the momentum imparted by the Review to the reduction and maximum utilisation of defence assets. New arrangements for the strategic management of the estate should enable us to ensure a continuing process of rationalisation and reduction in our holdings of land and buildings; and the development of our approach to the management of Defence Agencies should likewise pay continuing dividends over the years ahead.
55. The twin aims of the efficiency and assets workstage of the Strategic Defence Review were:
- to identify savings in the defence budget to help repair inherited capability deficiencies; and
- to put in place system improvements that would pay continuing dividends in the future.
56. In both respects it was successful; significant savings have been identified, and a wide variety of improvements have been set in train which will stand the Ministry of Defence in good stead well into the next century.
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