Selling off the Family Aluminium


I say aluminium, of course, because there is no silver left, that went a long time ago.

After the announcement a few weeks ago of the preferred bidder for the sale of Marchwood Sea Mounting Centre the MoD announced today the long process of selling of the Government Pipeline and Storage System (GPSS) has concluded, the Spanish company Compañía Logística de Hidrocarburos being named as the winning bidder.

80 MoD personnel will be TUPE’d over to CLH as part of the £82m deal.

The GPSS logistics infrastructure acquired by CLH comprise a pipeline network of 2,000 kilometres, which represents 50% of the total in the UK, and 16 storage facilities, with more than one million cubic metres of storage capacity.

The network is currently implementing a notable infrastructure modernisation programme aimed at making it safer and more efficient, which CLH has committed to continue.

The offer submitted by CLH for the acquisition of GPSS took into account the favourable estimates for growth in demand for aviation fuel at the airports currently supplied by this oil distribution network and the commercial growth opportunities, as well as the broad experience of the network’s current management team.

Read more here

Is there anything left to sell?

Which brings us neatly to a follow up from this week’s budget and the short post a few days ago, the snappily titled Public Accounts – Forty-Seventh Report Major Projects Report 2014 and the Equipment Plan 2014 to 2024, and reforming defence acquisition.

Click here to view the whole thing with a summary to be going on with.

We welcome the progress made by the Ministry of Defence (the Department) in getting to grips with its budget and military equipment costs. The affordability of the Department’s 10-year plan for buying and supporting equipment is, however, dependent on it: continuing to control cost increases in existing equipment projects; delivering ambitious project cost savings over the next 10 years in order to balance its budget; and having the right skills in place to ensure that the assumptions made in its plans are robust and deliverable. Failure to improve the skills of Defence Equipment and Support (DE&S), which buys and maintains military equipment, will undermine the Department’s efforts to improve control over its finances. The Department agrees that DE&S is over-reliant on expensive contractors and DE&S is spending a further £250 million on contractors over the next three and a half years to determine how it will address this and secure the skills needed to deliver the Equipment Plan within the assumed budget and to time.

There remain risks to the success of the Department’s Army 2020 programme designed to reduce the size of the regular Army and increase the number of trained Army reserves. The Department has not yet addressed our previous recommendations to develop credible contingency plans in the event that it cannot recruit the number of regular and reserve soldiers it requires. While the Department is reporting progress against its recruitment targets, it does acknowledge that targets beyond 2016 will be challenging and require significant improvements in performance.

Apart from the amusing piece on spending money on external consultants on how they can stop spending money on external consultants the key issue is risk.

It also starts with a statement that seems to be woefully out of date.

The Department is seeking to tackle funding pressures by restructuring the Army. Army 2020 is an ambitious programme of change that seeks, for the first time, to integrate fully a regular Army of 82,500 with a larger and more frequently used Army Reserve of 30,000.

I have added the emphasis because this report would seem to be diametrically opposed the latest position as described only a few weeks ago by the Chief of the General Staff, General General Sir Nicholas Carter, during a lecture at Chatham House.

To recap what he said.

The point about the Army Reserve though is that the obligation if you join it is only for training, less some specialists. We are not going to use it regularly and routinely, as perhaps was suggested a couple of years ago. Rather, it is there in the event of a national emergency. That means it’s much more straightforward, I think, for an individual to be a member of the Army Reserve. If you’re a reservist, what you have to do is to try and balance an equilateral triangle between the employer, your family and your own thoughts on life. If that becomes an isosceles, you won’t retain or recruit the reservist. So it’s important to keep that in balance, and that means that it is sensible to talk about the obligation being for training only, unless you can afford the time as an individual to deploy with your regular counterparts.

Again, emphasis added.

The MoD have told the committee that the running costs of the Army will be reduced by £10.6 billion over the ten year 2011-2021 period. It also suggests that the MoD does not have a contingency plan for a failing implementation of Army 2020, which includes the Army Reserve.

I think however, that it is rather obvious.

Plan B is exactly what the CGS said, an Army Reserve that is not deployed except in extremis (accepting certain specialist functions)

Anyway, back to risk.

The report is quite clear in stating a position that the MoD is working from a set of assumptions for future savings on the capital and support budgets that it admits may be over stated. Despite being confident, it has no contingency for failure. Planning for failure is always a difficult thing to do, it can undermine confidence in an organisation and the people delivering complex projects, it also reduces incentives to achieve the goal.

It is therefore understandable that there is no published contingency but one would hope there exists at least a viable set of priorities that allows programmes and costs to be scaled back, extended or cancelled.

One of the key ‘excuses’ for a lack of programme management improvement despite decades of MoD reform has been a lack of commercial and programme management skills because it was straight jacketed by civil service rules and pay structure. Essentially, DE&S was competing for talent in a market where it could not pay the going rates. This issue has been consistently highlighted by numerous studies and projects that have examined the issue. Consequently the DES& reforms have sought to move DE&S into a more commercial environment where it can be free of civil service pay grades and employment rules.

In 2013/14 some £480 million, some 37% of total costs was spent by DE&S filling skills gaps with contractors

This is an incredible admission from the MoD that I have not seen picked up elsewhere, 37% of of costs are due to contractors, no doubt many of these contractors are actually ex MoD personnel doing exactly the same job they did when employed by the MoD but because of the relentless (and politically driven) desire to reduce headcount have been forced out.

The MoD has been unable to change the demand for that persons outcome so although the politicians can stand at the despatch box and talk about ‘slashing civil servants’ all they have done is simply replace a wage bill with an invoice plus 40% profit. Reducing public sector personnel will reduce pension liabilities but now those contractors will be paying for their own pension out of there daily rate.

It’s all the same.

However, there is no detailed plan setting out how these new freedoms will be used to secure the necessary skills while delivering the reductions in overall costs required by 2017

Hang on, the MoD has been saying forever the reason it has failed to deliver significant efficiences in the acquisition process is because it is shackled by the civil service and yet when it is free (and has been in concept since the SDSR 2010) it has no plan for how it will exploit these freedoms.

Item 5 in the report is the best.

DE&S is planning to spend £250 million over the next three and a half years on contractors to advise on how it can reduce its over reliance on contractors.

Am I alone in thinking this is veering into parody, like asking a butcher how I can eat fewer sausages.

It talks of a study with PWC for £43m that will determine what human resource structures would be most appropriate. Let me repeat that, £43m to determine the most appropriate HR structure for an organisation that employees 12,500 people, or just under £3,500 for each person it employs. Lets just say £43m is a professional services type contract. I had a quick look at what HR project managers and consultants are charging over at Personnel Today. Salaries of £60k do not seem uncommon, assuming an average project will have some on less and some on more, £60k per annum seems a reasonable average to work from. Ratcheting this up to include profit, a bit of T&S and other expenses gives us about £80k per annum and I think I am being generous.

£43m buys a project team, based on the £80k per year costs, of nearly 550 people.

Or put another way, not far off an Infantry battalion or number of personnel currently in Sierra Leone, or put yet another way, piss taking on a NATO scale.

What defence output will this deliver?

Advice on HR structures for an organisation that is smaller by some margin than Bristol City Councilthe 7th largest council in the UK, not 1st or 5th, 7th.

Remember though, the MoD doesn’t have enough money.

Yet another depressing read, the MoD is basing its future spending plans on achieving significant savings and a rising equipment budget, neither of which has anything other than the word ‘risk’ associated with it and that is before we take into account the almost certain share of GDP cut signalled in the budget.

Gloomy, indeed.

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