MoD Misses Out on £billions Due to an Outsourced Contract

Posted on January 30, 2018

Ministry Of Defence ‘Lost Billions On Military Housing’

The Ministry of Defence (MoD) has missed out on billions of pounds as they sold off and leased back military housing, a National Audit Office (NAO) report has revealed.

The report shows that the MoD has committed itself to nearly £200 million in annual rental bills, and has lost billions as a result of selling and leasing back thousands of married quarters.

Back in 1996, the Government sold 55,000 housing units to Annington Property Ltd for £1.66 billion paid up front.

The MoD then rented most of the units back and, according to the National Audit Office, they are currently paying £178 million per year in rent for those properties.

Now, with rising house prices across the country, Annington reportedly expect a rise in rent costs of around £84 million per year.

According to the NAO report, the department has begun for rent reviews set to be held in 2021, but has not yet begun contingency planning.

The NAO said that the majority of these price increases could not have been predicted at the time of the sale in 1996, but their assumptions were based on a price increase of 1% per year.

The report also found that the sale of the properties failed to generate the improvements hoped for by the military families living there.

Key Facts:

  • £2.2bn – £4.2bn: the amount by which the Ministry of Defence (the department) would be better off if it had retained the estate.
  • £250m: the current annual adjustment received by the Department on market rent.
  • 2021: the point beyond which any continuing adjustment to the rent will depend on negotiation.
  • 200 years: the length of underleases on properties retained by the Department.
  • 39,000: housing units retained by the Department in December 2016 at over 500 sites.
  • £11,369: the average amount per unit that the Department has paid in ‘dilapidations’ to Annington since 2004.

The NAO stated that the MoD “has not properly carried out its retained management responsibilities for the estate”.

Previous reports indicate the estate has been receiving the minimum acceptable level of maintenance.

Since 2004, it has cost £11,369 per unit to bring properties up to standard.

Meg Hillier MP, Chair of the Committee of Public Accounts said in a statement:

“The MoD’s sale of service family accommodation in 1996 has turned out to be a rotten deal for the taxpayer.

“There is a risk that when rents come up for renewal the next deal will be even worse.

“In recent years the service families who live in these homes have been let down by the MoD’s disorganised approach to maintaining them.

“In 2014 the MoD awarded its maintenance contract to Carillion, the lowest bidder.

“When the Committee looked at this in 2016 we heard that some service families had been deprived of hot water for weeks – it was clear Carillion failed to deliver.”

Amyas Morse, Head of the NAO, said:

“The department carried out a sale and leaseback deal almost twenty years ago, based upon pessimistic views of the future growth in property values, but with the mitigating feature that the rents charged to the military families who lived there were restricted for the first twenty years.

“This has cost the public sector a great deal in capital growth, and it has been a great deal for the landlord.

“In 2021 the period of restricted rents is over. The question is now whether the landlord will get a very large rent increase on top of the very substantial capital gains they have already received.”

The NAO said in a statement:

“[The Ministry of Defence] should not underestimate the amount of effort required to collect and analyse information for each of the 511 sites where homes are located”

“It will require sufficient resourcing and accurate information if it is to conduct rent negotiations on an equal footing with Annington.

“The NAO has found that, mainly due to actual house price increases since the sale, the department is £2.2 billion to £4.2 billion worse off over the first 21 years of the contract than if it had retained the estate.”

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At what point should you start the Resettlement Process?

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