Private army

1 October 2012 Defence ministry plans for a private partner to manage its estate will offer a range of new building opportunities, reports Aaron Weinman
As is so often the case in defence procurement, the Ministry of Defence’s search for a private sector partner has rumbled on at a slow, methodical pace. After months of deliberation, the ministry’s estates division, the Defence Infrastructure Organisation (DIO), shortlisted three consortia in August.

The consortia – Telereal Trillium, KPMG and Mace; Serco, DTZ and Bechtel; Capita, URS and PA Consulting – have been issued with an invitation to negotiate and a preferred bidder is due to be named next summer. But while the contract, potentially worth £400m, is worth fighting for, the eventual partner will have its work cut out reorganising the defence estate. Finding savings at a time of budget cuts, while still having to house a substantial number of military personnel, will be a tough task.

Defence Secretary Philip Hammond is a long-time supporter of using private expertise to improve public services. And even the G4S Olympic security debacle seems not to have dampened his enthusiasm for bringing in a private partner to help rationalise and improve the defence estate. “This project is an example of where the private sector can add significant value in working with the public sector through a long-term strategic partnering arrangement to deliver benefits for both parties,” he said at the time of the shortlisting.

The resulting deal will effectively act as a pathfinder in helping deliver public services from the estate, says Nick Prior, head of Deloitte’s government and infrastructure division. Prior, who formed and led the ministry’s Private Finance Unit, says the DIO has a strong focus on asset management and believes the best way to optimise its assets is through the expertise and experience of the private sector.

“What the DIO is effectively doing is redrawing the line between the public and private sector, transferring a number of the roles for the delivery of an efficient user-focused DIO,” Prior says. “What you’ve got here is the MoD remaining responsible for the delivery and the DIO retaining a strong role in developing strategy and working with a private sector partner on infrastructure – the implementation will become the role of the private partner.”

The strategic partnership the MoD will form with a private partner has the potential to accelerate reconfiguration of the military estate, according to Ian Ellis, executive chairman for Telereal Trillium. He says the partnership will be a success if it can ensure it is supporting the country’s re-shaped Armed Forces.

“The experience and the capital the private sector is able to deploy will improve retained property, whilst potentially stimulating economic growth through investment in infrastructure or planning to maximise the value of surplus property,” he says.

However, delivering value for money while at the same time addressing the challenges facing the defence sector will be no easy task, warns Andrew Parker, developer Morgan Sindall’s director of defence. The introduction of a private partner is a “real prize” according to Parker, but he says the winning consortia will have many things to consider.

“The private partner needs to develop ways to generate income from the estate and ensure there are more efficient ways to run and manage its overheads,” he says. “The crux of this project is to bring innovation into this partnership, make the best use of experience within the MoD and its civil servants and harness the business acumen the private sector brings.”

Thinking big
While it’s too early to identify specific projects, one source at the MoD says work is already underway to make the defence estate more efficient. “We are looking at the re-basing requirements of the army and where they can be accommodated, so existing PFIs like Allenby/Connaught are being looked at to see if we can get more out of them,” he says.

“I can see a private partner looking to create more big garrisons and invest in such, so PFI could feature as part of an estate rationalisation agenda.”

That may be the case, but any private partner will have to work around some scepticism within the defence estate itself. Defence Secretary Hammond might be eager for private involvement, but the ministry has had a troubled relationship with the private sector, particularly in recent years.

PFI deals have been the source of several high-profile embarrassments for the government, in particular the search and rescue helicopters project and the £12bn training college at RAF St Athan – both of which were scrapped. While the PFI process may not have been to blame on either deal, their failure has added to the general suspicion surrounding private sector activity in public services.

Added to this are claims that the government is paying way over the odds for planes bought through the Future Strategic Tanker Aircraft PFI deal – and Hammond’s subsequent announcement in May that he would personally look into the project.

But if the partnership at the DIO proves successful, that scepticism could change. Ellis, perhaps unsurprisingly, believes the private sector’s ideology and innovation will complement the skills which already exist within the organisation.

“The DIO is at the forefront of a larger transformation programme across defence and if this type of partnering arrangement proves successful, it offers the potential for further use in other parts of defence in future,” he says.

So how will the private partner mould the future of the UK’s defence estate? Keith Hartley, a defence academic at the University of York, says the winning bidder will be well-placed to meet the challenges facing the MoD in the short-to-medium term.

“While the idea of private sector involvement in managing the defence estate isn’t new, they’re faced with fresh challenges in identifying the estate’s future demands,” he explains. The government and its partner will need to decide what future military bases it will need – something that will no doubt be a political decision as much as one based on the economic arguments of the private partner.

Troop build-up
The government is bringing back up to 20,000 troops from Germany during the course of this decade, and despite the defence budget cuts many of them will have to be housed somewhere in the UK. The winding down of operations in Iraq and Afghanistan will also swell the number of troops needing housing in the UK. How the DIO deals with this influx while rationalising its estate will be a key factor in determining the success of the private partner’s influence.

“Traditionally, ex-RAF bases would be used for the returning troops, so these will have to be adapted for army use and the private sector will need to work with the MoD, as decisions are needed on the future military bases after the defence reviews of 2010 and 2015,” Hartley says.

“The private sector partner will be best placed to respond to the defence security review and put in place an appropriate management system and technology and data management process to allow for the organised operation of the estate,” agrees Prior. “This includes the development of investment in infrastructure and particularly accommodation for troops, office space and barracks.”

Parker says the defence estate could be used to help returning soldiers ease back into civilian life or create facilities where the public can directly benefit, but with the thoughts of defence in mind. “Combining the business brain of the private sector with the defence footprint will help come up with a business focus in a bid to
generate income from the estate,” he adds.

“Helping with future growth, preparing the armed forces for future assignments or even helping them settle back into civilian life – it all contributes to delivering output and creating value for money.”

That combination of business and defence may be seen in the proposals for RAF Northolt. Although no plans have been finalised, a major redevelopment of the base is one idea under consideration, which would see a rebuilt runway and the possibility of a dedicated private aircraft hangar for commercial use. “Military bases need to expand and evolve into the next generation of ‘super bases’,” Hartley suggests. “For example, there are prospects for further rationalisation of military bases and army barracks around Caterick and North Yorkshire.”

While the estate can be used in myriad ways, Parker says the more efficient use of the country’s armed forces should be the main priority to come out of this partnership. “You need to remember there is an operational output from this estate, there is an awful lot of experience in both uniforms of the MoD and civil servants and the challenge will be trying to harness existing knowledge and expertise to benefit this partnership,” he says. “This helps with future growth as long as the government and the private sector understands what the estate is there to do.”

Rationalising the estate through land sell-offs are bound to play an important role here. Prior says the private sector’s expertise in land valuation will help the MoD determine how best to dispose of surplus estate and coordinate value for money solutions.

“The fact is, estates can be put on the market, allowing developers to get optimum value, secure planning and potentially have projects built all the way through to housing, with a better view of timing and coordination with the market,” Prior says. “The MoD owns more real estate in the country than anyone else. Optimising the return is something the DIO doesn’t have the ability to do on its own.”

Arguments supporting either side of PFI will continue, but right now the future over the defence estate rests heavily on the three consortia’s ambitions. Only once the preferred bidder is chosen next year will the future of the UK’s defence sector properly be mapped out.

This page was last updated on:
7 November 2012.


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