The Red Drgon projet LONDON: The Sttionery Offie 26.60 Ordered y the House of Commons to e printed on 23 Mrh 2009 Report presented y the Auditor Generl for Wles to the Ntionl Assemly for Wles on 27 Mrh 2009 REPORT BY THE COMPTROLLER AND AUDITOR GENERAL AND THE AUDITOR GENERAL FOR WALES PREPARED JOINTLY BY THE NATIONAL AUDIT OFFICE AND THE WALES AUDIT OFFICE HC 296 Session 2008-2009 27 Mrh 2009
summry Summry 1 Red Drgon ws projet etween the Ministry of Defene (MoD) nd the Welsh Authorities 1 for the development of the St Athn site in South Wles. The originl pln omprised the following elements, with ost of some 134 million exluding pyments from the Welsh Authorities to MoD: n n n the onstrution of stte-of-the-rt irrft mintenne fility (super-hngr) le to ommodte up to 48 Torndo jets for the Defene Avition nd Repir Ageny (DARA), osting 107 million; the rtionlistion of MoD s requirement for infrstruture t St Athn, t ost of some 5 million; nd the quisition of premium hed lese on 725 res of the St Athn site y the Welsh Authorities nd redevelopment of the site, with view to seuring DARA s ontinued presene nd developing n erospe prk in the longer term, t ost to the Welsh Authorities of 34 million (of whih 12 million ws pid to MoD for the lnd nd irfield). Work on site preprtion for the super-hngr ommened in Ferury 2003. In Mrh 2003 MoD signed n greement with the Welsh Development Ageny, whih ommitted MoD to the rtionlistion of the site nd the lnd del. The super-hngr ws finished to pproved time nd udget y Deemer 2004 nd in the following month DARA egn to move into its new repir fility. 2 Menwhile, in Jnury 2003, MoD ommissioned strtegi review of irrft support 2, whih reported in July. The findings of this End-to-End Logistis Review eventully led to nnounements in Mrh nd Septemer 2004 tht DARA s fst jet repir usiness for the Hrrier jump jet nd Torndo omer t St Athn would lose nd the repir work would e moved to one min operting se for eh fleet. These nnounements undermined the Red Drgon projet. In Novemer 2005 MoD nnouned tht ll DARA St Athn s fst jet repir usiness would lose y April 2007, so the super-hngr ws no longer needed for its intended purpose. 3 Our exmintion of the Red Drgon projet onsidered whether MoD nd the Welsh Authorities worked well together to seure good outome from expenditure on the St Athn site. Our detiled methods re set out in Appendix 1. 4 We found tht MoD nd the Welsh Authorities did not work together suffiiently losely throughout the Red Drgon projet, lthough there were exmples of effetive ollortion to ddress key issues of shred MoD nd WDA interest. MoD nd the Welsh Authorities hd signifintly differing perspetives on the longer term prospets for the St Athn site, euse the trnstion ws initilly regrded s ommeril in nture, rther thn s joint projet etween two Government odies. This sis for the projet resulted in MoD nd the Welsh Authorities eing unsighted on the other s key ssumptions on DARA s viility for ommeril repir work. MoD s deision to trnsfer fst jet repir to frontline Royl Air Fore ses ws sed on the prospet of greter svings for defene thn those whih would flow from St Athn rtionlistion ut the Welsh Authorities were not told s erly s they might hve een out the likely impt of proposed hnges to the wy in whih fst jets were repired. As result of MoD s deision, neither MoD nor the Welsh Authorities hve hieved the enefits intended from the Red Drgon projet, lthough there re plns underwy to use the site nd the filities for defene trining nd smller thn intended erospe prk. Our speifi findings re set out in the following prgrphs. 1 The Welsh Development Ageny nd the Welsh Assemly Government re olletively referred to in this Report s the Welsh Authorities. In April 2006, the Welsh Development Ageny ws merged into the Welsh Assemly Government. 2 Stremlining End to End Air nd Lnd Logistis, Ministry of Defene, 1 July 2003. the red drgon projet 7
summry DRAFT C&AG'S REPORT FOR ACCOUNTING OFFICER CLEARANCE 5 There ws no ommon purpose for the Red Drgon projet though MoD nd the Welsh Authorities hd omplementry ojetives for the site. MoD s ojetive for the projet ws to mke its fst jet repir tivity more effiient. By setting up DARA s Trding Fund, MoD intended tht DARA ompete with industry for previous MoD usiness nd hene eome more ompetitive s result. Constrution of the super-hngr gve DARA the est prospet to e more ompetitive through rtionlising its estte nd llowing more effiient repir under one roof. The Welsh Authorities ojetive for the projet ws eonomi development in this prt of South Wles. They wnted to sfegurd DARA jos nd the South Wles erospe luster leding in the longer-term to the development of n erospe prk. Both prties greed tht their ojetives were omplementry nd tht they would oth enefit from expenditure on the St Athn site whih would improve DARA s ompetitiveness. MoD s ojetive of effiient irrft repir, however, ws only omplementry to the Welsh Authorities ojetives s long s DARA St Athn remined the est option for fst jet repir. 6 MoD nd the Welsh Authorities did not hve shred understnding out the ssumptions underpinning their respetive deisions on the future of the St Athn site. MoD nd the Welsh Authorities produed seprte usiness ses nd investment pprisls on whih to se their deisions. MoD estimted svings from the Red Drgon projet of 263 million over 15 yers, ompred with svings in the region of 40 million if DARA St Athn were run down s militry irrft fleets were retired from servie. d e The Welsh Authorities estimted tht they ould rete up to 4,000 jos over 15 yers if they developed n erospe prk t St Athn. They ommissioned eonomi nd mrket pprisls showing tht suh projet ould generte positive return over 25 yers. Beuse they were uying lnd nd ssets t mrket vlue, their finnil exposure would e limited, lthough reovery of their expenditure in worst se senrio would depend on the suessful sle of the site leses, nd resle of the dditionl lnd purhsed outside of the St Athn site. The Welsh Authorities plns for the erospe prk revolved round DARA s n nhor tennt whih they expeted would e in position to undertke oth militry nd ivil irrft repir. For MoD, the reson for DARA undertking ivil irrft repir would hve een to inrese effiieny nd redue overhed osts, hene mking UK militry repir heper. Indeed, MoD s investment pprisl for the Red Drgon projet mde no referene to ivil irrft repir. Suffiient flexiility ws inluded in the design of the super-hngr to enle DARA to inrese the rte of repir of fst jets if needed in support of militry opertions, nd to ommodte lrge militry irrft nd therefore equivlent-sized ivil irrft. The Welsh Authorities did not hve ess to DARA s usiness plns to ssess the likelihood of DARA seuring future work. Given tht MoD would ontinue to fe pressure to redue its logistis support osts, it wished to retin flexiility onerning use of the St Athn site should the ssumptions in the Red Drgon usiness se hnge. In July 2002 it seured n option under whih it ould require the Welsh Authorities to purhse n interest in the super-hngr fter five yers. MoD hd lulted tht the effiieny svings hieved y the five yer rek point would outweigh its expenditure. Susequently, nd just efore the finl pprovl for Red Drgon, MoD ommissioned wider review of irrft support whih ould hve longer term impt on DARA St Athn. 8 the red drgon projet
DRAFT C&AG'S REPORT FOR ACCOUNTING OFFICER CLEARANCE summry f The Welsh Authorities reognised the risk tht MoD ould lose DARA s fst jets usiness fter five yers, ut onsidered tht MoD s finnil ommitment ws suh tht it would not do so. They did not interpret the five yer rek point s implying tht MoD hd lulted it ould exit without finnil loss, lthough this ws the se. Insted, they took verl ssurnes from MoD offiils, s well s omfort from the Minister s nnounement in July 2002 tht work would ommene on the super-hngr lter in the yer, s evidene of MoD s ommitment to the Red Drgon projet. 7 MoD s vision for defene irrft support ws evolving when the ommitment to St Athn ws mde. d In mking the deision to invest in St Athn, MoD hd yet to reonile its position on the right lne of logistis support for the RAF etween provision t RAF ses, DARA nd industry. MoD itself hd not deided whether it would need to wrd DARA some irrft repir ontrts fter April 2004 to meet strtegi need, to protet seurity interests or mintin lterntive pity. DARA ws ssuming tht it would win ll its previous Royl Air Fore fst jet usiness, whih would enle it, s some of these irrft were retired from 2011-12, to seure other new militry repir ontrts. MoD found it diffiult to reonile effetively its roles s owner of DARA, where it hd to support the usiness, nd its role s prinipl purhser of militry irrft repir servies, where the impertive ws to hieve the most effiient support for irrft. The need to deliver effiieny svings in the short term ment MoD did not ssess the finnil impt of delying the super-hngr. 8 MoD s deision to trnsfer fst jet repir wy from St Athn ws sed on the prospet of greter svings for defene, ut the Welsh Authorities were not told out the impt s erly s they might hve een. MoD losed the Red Drgon del efore the reommendtions of the review of rotry nd fixed-wing irrft support were pulished. The outome of the review ws reommendtion sujet to further work to trnsfer repir to min militry operting ses on the sis tht eh irrft fleet would e mintined t single lotion (Figure 1 overlef). The review estimted tht this rtionlistion would sve the Royl Air Fore in exess of 150 million yer, the mjority of whih would ome from the fst jet fleets, ompred with verge svings of round 18 million yer from Red Drgon. MoD told the Welsh Authorities tht the further work following the review ould led to the rtionlistion of repir for eh irrft fleet, either t frontline ses or t DARA. But it ws mde less ler thn it might hve een tht, even if the further work resulted in fst jet work remining t St Athn, there would e signifint redution in the numer of ivilin jos there. One MoD hd tken the deision to trnsfer fst jet repir wy from St Athn it informed the Welsh Authorities, nd susequently nnouned tht it would work with them to explore lterntive uses for the site. the red drgon projet 9
summry DRAFT C&AG'S REPORT FOR ACCOUNTING OFFICER CLEARANCE 1 Mp showing the lotion of MoD nd industry filities to repir fst jets nd how they were rtionlised In the pst the repir nd overhul of fst jets ws onduted t four levels, t numerous dispersed lotions. From 2004 this ws hnged to two orgnistions t redued numer of RAF ses. Trditionl Repir Lotions Depth Repir Lotions BAE Systems Wrton RAF Lossiemouth RAF Leuhrs RAF Leeming RAF St Athn Defene Avition Repir Ageny RAF Cottesmore RAF Mrhm RAF Cottesmore (Hrrier Depth Repir Hu) RAF Mrhm (Torndo Depth Repir Hu) Hrrier nd Torndo upgrde Hrrier nd Torndo Mjor Mintenne Hrrier opertionl nd minor mintenne Torndo opertionl nd minor mintenne Soure: Ntionl Audit Offie 10 the red drgon projet
DRAFT C&AG'S REPORT FOR ACCOUNTING OFFICER CLEARANCE summry 9 The originlly intended enefits of the Red Drgon projet hve not een relised, ut joint working hs een, nd is eing, undertken to seure vile future for the St Athn site, entred round defene trining. Signifint ost svings hve seprtely een mde in fst jets support y trnsferring repir to min Royl Air Fore operting ses. d The net ost to the txpyer of the Red Drgon projet is in the region of 113 million. MoD nd the Welsh Authorities will hve spent some 134 million diretly on the Red Drgon over the life of the projet, exluding the pyments from the Welsh Authorities to MoD totlling 12 million. Although there is some unertinty round the figures, MoD hs hieved effiieny svings from the Red Drgon projet of round 57 million ompred with n ntiipted 263 million, nd there hve een osts of 36 million for redundny, removl nd reorgnistion of its other tennts t the site. The Welsh Authorities hve hieved rentl inome of round 0.6 million from non-mod tennts loted t the site. Both prties hve ssets whih my hve signifint vlue on the open mrket in the future. The super hngr ould generte up to 60 million for MoD, sed on rentl inome etween 2005 nd 2018. The Welsh Authorities hve quired lnd nd uildings (most of it suitle for development) with n estimted vlue of round 44 million fter infrstruture osts. The super-hngr nd sustntil proportion of the St Athn site re expeted to e used eventully for the Defene Trining Ademy from 2013. MoD hs not relised the ntiipted effiieny svings from the Red Drgon projet. However, it hs redued the osts of ontrts for logistis support for fst jets y round 1.4 illion over six yer period from April 2001 3 y trnsferring repir to min Royl Air Fore operting ses. These svings signifintly outweigh the expenditure of 107 million on the onstrution of the super hngr nd the osts of the erly losure of DARA s fst jets usiness t St Athn. The Welsh Authorities hve not relised the intended enefits from their investment. Following MoD s deision to trnsfer the ulk of DARA s expeted worklod wy from the St Athn site, round 1,900 DARA jos hve een lost. As result of MoD s deision, the Welsh Authorities reviewed their immedite plns for the erospe prk. They foused in the short term on letting existing uildings nd supporting efforts to ttrt the Defene Trining e Ademy to the St Athn site, while ontinuing their mrketing nd developing revised plns for the erospe prk. The Welsh Authorities nd MoD hve ooperted on mrketing the St Athn site ut hve ttrted only four ompnies whih hve ontinued to e loted there, with just 45 jos. Nevertheless, the Welsh Authorities expet signifint eonomi enefits from the Defene Trining Ademy t St Athn. Bsed on estimtes from the onsortium tht is developing the Ademy, they elieve s mny s 5,500 jos ould e reted on site nd in the wider eonomy, lthough round third of the posts re likely to e filled y people reloting from elsewhere in the UK. They lso expet tht the Defene Trining Ademy will provide n impetus for urrent plns for n erospe prk, potentilly reting round 2,000 dditionl jos in the smller re of lnd tht is now ville. Reommendtions 10 MoD nd the Welsh Authorities hd omplementry ojetives ut did not hve ommon purpose for the Red Drgon projet. They onentrted on forml prourement nd the ontrts for the super-hngr nd site rtionlistion. They did not develop suffiiently strong, long-term reltionship nd were retive when prolems rose. For lrge, omplex projets rossing orgnistionl nd devolved oundries, government deprtments nd genies should develop mutul ojetives, prolem resolution proesses, key performne inditors nd n ethos of openness nd informtion shring. This prtnering pproh should e underpinned y forml projet doument to lign ojetives, whih expresses intended usiness outomes nd sets out the priniples nd ttitudes tht will hrterise the rrngement. The projet should e run y n integrted projet tem with mixture of stff from the prties, with ler roles nd responsiilities nd greed operting prties using shred risk register, dtset nd ssumptions. The projet should e overseen y forml strtegi steering group, with senior enggement from ll prties. 11 There ws no integrted nd oherent strtegy for militry irrft support when MoD ommitted to the Red Drgon projet. In reviewing usiness ses for mjor investment, deprtments should identify ll relevnt usiness interests lying within their responsiility. They should prioritise nd s fr s possile lign those interests efore deisions re tken or ommitments mde. 3 C&AG s Report, Trnsforming logistis support to fst jets, HC 825, Session 2006-07. the red drgon projet 11