Source · Select Committees · Public Accounts Committee
Recommendation 5
5
The Department’s forecast savings from its DEO Portfolio by 2040 have already fallen from £2.4...
Conclusion
The Department’s forecast savings from its DEO Portfolio by 2040 have already fallen from £2.4 billion to £0.65 billion, and there is a very real risk they will melt away completely. The Department’s estate is costly to run and maintain—it spent £3.1 billion on estate maintenance in 2019–20—and part of its rationale for reducing the size of the estate is to cut running costs. However, slow progress in completing site disposals means that it continues to pay for assets it does not need. As a result, its forecast benefits from the DEO Portfolio by 2040—measured in terms of disposal proceeds and reduced running costs, offset by rehousing costs—have fallen from Optimising the defence estate 7 £2.4 billion to £0.65 billion. But even this figure remains extremely uncertain. There are indications that the costs of works on sites that will house relocated personnel and equipment are increasing as more detailed planning is undertaken and the extent of works is better understood. In addition, the Department has not budgeted for the costs of upgrading its building to meet its net zero commitments, which early estimates suggest will be at least £1 billion. This also creates risks for the affordability of the Department’s disposal programme as the budget is based on reducing building costs by £1 billion. Recommendation: The Department should collect better data on the actual cost of preparing sites for disposal and the building works on sites receiving relocated personnel and equipment, including the cost of meeting sustainability commitments. It should use these data to re-assess the forecast savings from the disposal programme and include this in its annual update to the Committee.
Government Response
Acknowledged
HM Government
Acknowledged
5.1 The government agrees with the Committee’s recommendation. Target implementation date: Summer 2022 5.2 As with any large portfolio it was initially planned to use the best knowledge and assumptions available at the time. Several factors influenced the reduction in net savings these included 9 significant site retentions (7 in DEO and 2 across the wider estate) which were needed to support military capability and were then not available for disposal. This has reduced the level of savings delivered when compared to the original estimates. As the portfolio estimates mature, the department expects to make net savings of £0.65 billion through DEO disposals over the next 25 years. Gross savings are £2.7 billion in running costs and £2.3 billion of savings expected as a result of reductions in future maintenance and life- cycle replacement costs. 5.3 A new Delivery, Commercial and Procurement strategy will be implemented in Summer 2022 which will deliver key benefits from early engagement with industry using a two- stage procurement mechanism through the design and build phases in line with industry best practice. This strategy will provide the department greater confidence and accuracy in project costings due to the completion of detailed designs and site master plans. 5.4 The department will also work with industry partners and utilise reference class data to ensure the cost of site preparation to support disposals is understood, matured, and factored into project planning and estimating. Progress on this will be provided in the annual update to the Committee.