Defence Infrastructure Organisation chief Graham Dalton on its new role, the scale of his remit, and living through Carillion

Written by Jim Dunton on 21 May 2018 in Interview
Interview

After a career managing major projects and transforming the way we maintain our roads, Graham Dalton is making his mark at the DIO. He speaks to Jim Dunton about smarter partnerships, runway renovations, and dinghies

Photos: Louise Haywood-Schiefer

Eighteen months into his time as chief executive, Graham Dalton has an almost awe-struck admiration for the full spectrum of the Defence Infrastructure Organisation’s operations. He is no stranger to running major projects, not just from his previous job of overseeing the nation’s trunk roads and motorways but also from years spent in the rail industry, and leading private-sector design teams on the delivery of new infrastructure in other countries. But DIO seems to hold a particular appeal.

“Part of what gets me out of bed in the morning is the sheer breadth, the spread of what we’re doing,” Dalton says. “Everything from building a berth for that new aircraft carrier [HMS Queen Elizabeth] – we dredged a hole in the bottom of Portsmouth Harbour so that it would float when the tide went out – to doing day-to-day estate management of thousands of hectares.”

“You come in from a day crawling through the undergrowth learning to be a sniper down on Salisbury Plain and you want some hot food and somewhere to sleep. It’s our people doing that”

In fact, the DIO manages hundreds of thousands of hectares of land for the Ministry of Defence – around 1.8% of the UK’s landmass, including 115,000 buildings, a further 50,000 houses, as well as roads, runways, harbours and a host of services.

“I’ve got my contractors, my people cleaning offices, serving up meals,” says Dalton. “You come in from a day crawling through the undergrowth learning to be a sniper down on Salisbury Plain and you want some hot food and somewhere to sleep. It’s our people doing that.”

Alongside this day-to-day role, the organisation is also changing its relationship with the MoD’s frontline commands – principally the Army, Royal Air Force and Royal Navy – to become less of a landlord and more of an adviser; progressing the disposal of some 91 sites by 2040 – representing 30% or so of its estate over the next two decades, and unpicking a strategic business partner relationship that is ending next year, half way through an originally-planned 10-year lifetime. Adding to the heady brew was the collapse of Carillion, one of organisation’s biggest suppliers.

CSW met Dalton on the last working day before the DIO’s shift to becoming an adviser and commissioning agent for the individual armed forces – and Joint Forces Command – went live. Estate-related spending decisions have now been transferred back to the commands and other top-level budget holders in a bid to get them to prioritise where funds go by looking more critically at their own estate and using their allocations to their full potential. DIO – whose annual infrastructure and facilities-management spend was £3bn in 2017-18 – will help the organisations decide how to spend their cut of the budget and focus on growing a responsive supplier market to deliver the choices cost-effectively. But the decisions will rest with the commands.

“The really deep philosophical bit of change,” Dalton says, “is moving DIO from being a provider of free goods to a bunch of people who are dissatisfied with what we do to putting that decision-making on the consumer, and us on our toes to perform better for them.”

Dalton believes that the change will result in a better alignment of incentives for determining which facilities to stop using and which to invest in, and a greater clarity of purpose for the DIO.

DIO was created in 2011 to bring together the management of the MoD’s estate, significantly reduce running costs, and create commercial opportunities. In 2014 it entered into a 10-year strategic business partner relationship with outsourcing giant Capita, engineering firm Aecom and change-management specialist PA Consulting, that aimed to deliver £5.2bn in savings in return for an anticipated £328m in fees. Part of the approach involved the introduction of a new strategic leadership team with a mix of private and public sector managers.

A National Audit Office report published shortly after Dalton joined DIO observed that despite being paid £90m in its first two years, the partner had “not met all expectations” and “not made a notable difference in transforming DIO to better meet the needs of the commands” it served. The watchdog accepted, however, that the MoD and DIO had failed to deliver anticipated transformations to the organisation before the partnership commenced that had affected Capita’s ability to deliver. Last year the partnership’s early termination was agreed.

“DIO has had a bit of a tough time,” Dalton accepts. “Some of it done to it; some of it, it did for itself.

“The strategic business partner contract… part of it was about estate rationalisation, you could see the opportunity on that, some of it was about better performance on the business. Some of the heavy lifting had been done, things like getting a good asset-management system in place, getting a grip on the some of the financial reporting had really been done and achieved quite well.”

The NAO described the deal as both “novel” and suffering from “fundamental weaknesses” because contractual safeguards were not set to ensure savings were achieved from operational improvements rather than one-off cost cutting, which had been the purpose of the deal.

“One of the first things I did landing here was instigate a re-negotiation of the primary incentives around that contract to get it far better aligned,” he says. “Contracts require both parties to do their bit, both MoD and the strategic business partner just needed to realign. So I realigned it to support DIO in the transformation that is coming through.”  Dalton is “migrating” senior-team roles from the contract and expects all will again be held by civil servants by mid-2019, against the current figure of 50:50.

GRAHAM DALTON CV

1979: Joins the British Railways Board on the Engineering Management Advanced Training Scheme

1983: Graduates from Imperial College London with a BSc in engineering

1988: Appointed as a principal engineer at Mouchel

1995: Becomes construction director for Bovis Lend Lease Consulting

1997: Studies for an MBA at Henley Management College

2001: Made director projects/Thameslink, at the Strategic Rail Authority

2005: Moves to the Department for Transport as director, projects

2008: Appointed chief executive, Highways Agency/Highways England

2015: Moves to World Bank as a strategic change consultant

2016: Joins Defence Infrastructure Organisation as chief executive

In 2014, as DIO prepared to enter the strategic partnership with Capita, Dalton was in charge of another organisation undergoing major changes. The Highways Agency, which he joined in 2008, was about to become Highways England, a government-owned company (or GovCo). Dalton told CSW at the time that this change would give his organisation greater freedom to operate at pace and improve customer service as well as delivery. Looking back now he believes that Highways England has become a “market shaping” company, and is clearly positive about the model. The idea of becoming a GovCo was an option also under consideration for the DIO in 2014, and now that the partnership with Capita is ending, could it be back on the table? Dalton recognises that becoming a separate agency is one option for the organisation as part of an ongoing review of DIO’s relationship with the MoD but insists that the GovCo route would be wrong.

“Highways England is running a public utility; the consumers are users, vehicle drivers,” he says “They’re using a supply chain; they’re managing a big infrastructure that’s got long lead times on it. The other comparable organisations are all either genuinely private sector or, in most cases, regulated utilities.

“Defence infrastructure is not operating to quite such long lead times. But more importantly it is far closer knitted in with four or five big customers and they’re part of the MoD tent. They’re not drawing their funding from some other market or earning revenue elsewhere. Stick me out as a company somewhere, I’m too far removed from it – I become another contractor. We need to be part of that defence family, if you like.”

“If a few more suppliers could get a customer in their exec team, it would really transform how they serve business”

Dalton says the biggest similarity between DIO and the Highways Agency/Highways England is the need for clarity of purpose with the parent department. “You’ll never have quite enough money, and you’ll never have quite enough resource,” he says. “Those are all the constraints that any business works under. But it’s about having a clarity of brief so you don’t get a muddled relationship.”

By Dalton’s own admission, DIO’s work is “heavily outsourced”. When construction firm and outsourcing giant Carillion went into involuntary insolvency in January it had 11 contracts with the MoD, eight of which were joint ventures which continue under the partner firms, and three construction-services contracts. Think tank the Royal United Services Institute estimated the value of Carillion’s MoD work at around £1bn.

“We have lived through the Carillion experience and learned to tell the tale,” Dalton observes.

“Long before the Carillion demise it was clear to me – and I had the conversations with the respective chief execs – that it was not really credible for DIO/defence to be maintaining its entire estate through one supplier.”

Although it was planned long before Carillion’s demise, Dalton sees the DIO’s evolution to an adviser-broker role as part of the solution, with an emphasis on broadening the supplier pool. “For various reasons in defence infrastructure we have found ourselves in fairly transactional relationships with too few suppliers,” he says. “They’re not monopoly positions as such, but you don’t get that innovation or that competitive edge through service standard that you do when you’ve got three, four, five suppliers in a sector. That’s enough to have some price competition, but not a free-for-all.”

Dalton believes a more open relationship with suppliers and potential suppliers will be key to moving towards a buoyant and creative marketplace for the services DIO wants to buy in.

As an example, Dalton says he would rather be working with suppliers to investigate new construction or repair techniques, than on reducing the unit cost of laying bricks. Runway maintenance for the RAF is another area of interest. “At the moment, we tend to have a planned shut-down of a runway for a period of weeks or even months whilst that runway is resurfaced or reconstructed,” he says. “If that was East Midlands Airport you would not be shutting it down for weeks or months, you’d be doing it over some long weekends. I know that because they did. Last year.”

Dalton wants to see the DIO engaging with high-performing customers in comparable fields so that commands – the RAF in the runway example – can make their own decisions on whether the increased cost of a high intensity programme is worth the savings from not having to relocate staff and equipment to another site. “I could sit in a darkened room and second guess it, in which case I’ll probably not get the right answer,” he says. “Or I can work with the supply chain to frame the optimum sort of thing and go to the market with the competition and see who’s going to bid to work with us.”

Downtime activities for the DIO chief and his wife of 30-plus years involve driving a VW camper van across Europe, “preferably with nothing planned more than the ferry out”, and sailing the “very small” dinghies he has at Chichester Harbour – neither of which Dalton believes would earn him much kudos from Navy colleagues. “I really like sailing the two-man boat, but my wife only likes sailing with me when it’s warm, and she thinks this racing lark is a bit unnecessary,” he explains.

Dalton says being the father of three grown-up daughters – a chartered accountant who works as a civil servant in Scotland, an ecologist who works in North Yorkshire, and a trainee chartered engineer – has “reinforced” his belief in “the absolute equality of opportunity”.

Anyone imagining the engineer, currently working on a harbour project in Aberdeen, would be viewed as the chip off the old block would be wrong, however. “The three of them together create the perfect programme team,” he insists. “You can’t do anything without money, you can’t do anything without the ecology and the environment.”

He is also proud of the balance of diversity in his top team at work, of which women make up more than half, although he says the real diversity he needs is insight. “One of my direct board is a two-star major general, and he brings in the real understanding of the customer’s requirements,” Dalton says. “If a few more suppliers could get a customer in their exec team, it would really transform how they serve business. Senior military officer, civil servant, wider public sector and private sector: that brings real diversity of thought, management, expectation, around that senior team. And I need to keep that experience fresh.”

In the year before starting at DIO, Dalton worked for the World Bank advising the Indian government on highways. He describes the experience as eye-opening on many levels – ranging from the nation’s “phenomenal” delivery of 30km of new motorway a day, to the differing constraints faced by National Highways Authority of India counterparts. “Their biggest problem is not getting stuff built, but getting access to the land to build it,” he says.

The World Bank year forced him to hone his “acclimatisation and understanding” skills after seven years in his previous job and proved useful for the DIO move.  “It was a really good immersion in something different that I had to get my head around,” he says.

A few weeks into his time as DIO chief, Dalton blogged that former colleagues had warned he would find the MoD “a very complicated place”, but he was not sure it was really any more complicated than any other government department or large corporation. CSW wonders whether his view has altered.

“Do you know what, I think you’re going to get me there,” he laughs, before marshalling his thoughts. “No! It’s true, actually. MoD is a central government department. It’s got its own idiosyncrasies – the oddity is the military bit against the civil service bit. But actually, you’ve just got to understand it. I trained on the railways. Railways are complicated.

“Even the stuff that is secret and secure still has to be delivered. But you can work within that, and as long as you try and understand the different relationships and the different responsibilities. It’s complicated, but just get the balance right and it’s quite fun.”

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