By Matt.Ross

25 Apr 2012

Andrew Manley, chief executive of the Defence Infrastructure Organisation, looks after the MoD’s £23bn estate – and he’s pushing through one of the most ambitious reform programmes in government. Matt Ross meets him

“At the core of all this, we are running a commodity business,” says Andrew Manley. “A lot of what we do is completely comparable to stuff going on in local government and other parts of the private sector, and you can benchmark our business against the largest private estate businesses in the country.” And fair enough, the Defence Infrastructure Organisation (DIO) – of which Manley is chief executive – is essentially a land and facilities management company, tasked with developing, maintaining and servicing the Ministry of Defence’s (MoD’s) training ranges, barracks, bases, depots and aircraft hangers.

Look a little closer, though, and it’s clear that DIO is a pretty unusual organisation. For a start, there’s its sheer scale: it runs an estate worth £23bn, and spends £3.3bn a year on work that includes feeding nearly a quarter of a million MoD and military staff, acting as the landlord for 50,000 homes, and looking after 240,000 hectares of land. Then there’s the client group: as Manley notes, “we service a unique customer, in the form of the frontline commands.” This entails meeting a host of special needs, from the obvious – the need to be able to react quickly to unpredictable requests in fast-changing circumstances – to the more subtle: DIO takes on military staff in roles such as construction and catering, training them for deployment to the frontline.

It is, then, a complex business; it is also a very young one. Established on 1 April 2011, says Manley, “DIO brought together all the dispersed interests of the MoD in estate management”: the holdings and responsibilities of the previous central MoD organisation Defence Estates, plus the estates management operations of all three armed forces. “It’s the first time the MoD has got under a single organisation all the management of estate, the purchase and selling of estate, the allocation of who uses estate, and the provision of the services that support the estate,” Manley comments.
The creation of DIO leaves Manley with a huge set of responsibilities in facilities management – both ‘hard FM’, meaning maintenance and upkeep, and ‘soft FM’: the cleaning, catering, carpentry and other services required by the estate’s many users. It also provides huge opportunities to integrate and reform the management of the military’s infrastructure assets, producing efficiency savings and thus minimising cuts at the sharp end of defence. “We’re aiming to have an organisation that will be seen to be a leading public sector infrastructure manager, by whichever benchmark you want – whether you look across [the UK] government, or at military infrastructure managers in other countries,” says Manley.

Coming out of his Shell
Manley has a strong track record in integrating infrastructures: the DIO chief was recruited into the MoD in 2009 after a 30-year career with oil giant Shell, where he moved the multinational onto a common IT system and unified its business processes. “Moving from any organisation to another is quite a cultural shock, and I’d say coming from the private into the public sector was probably a bigger shock than I estimated when I set out to do it,” he reflects. “But you certainly learn a lot in the process!”

The MoD is, he’s found, a “more complex and intricate organisation than even a very large international company, because it’s trying to do very many different things and is stuffed with some significant paradoxes”. For one thing, he says, whilst in business the “financial imperative underpins and guides so many of your decisions, here we know the cost of everything and the value of nothing, because there is no price on a unit of good defence.” That makes decision-making “quite complex, and often based on subjective evaluation” – a challenge exacerbated by the “diffuse” nature of power within government. “You’ve got frontline commands and chiefs who are ultimately directly responsible to the Crown, but then you’ve got the political administration through the secretary of state – so there are some natural tensions in this organisation”, he points out. Finally, he says that the public scrutiny of government departments is “considerably more rigorous than the scrutiny of many private sector organisations”; that creates accountability, but “can often slow up the decision-making process”.

Within this complex environment, Manley is trying to “do four things simultaneously – which is probably about two things too many, but we don’t have much choice in these matters!” Three of these are major reforms – introduce a new operational model; bring in a private sector partner; and sell off some of DIO’s properties – and the fourth is the continued maintenance of the estate. “We support military output, so this operation can’t stop for a moment,” he comments. “I describe it as trying to build the aeroplane while you fly it.”


A numbers game
The new operational model, Manley explains, will be built around a cutting-edge data management system. “This is an organisation that has an appalling legacy of bad management information [MI], so we’ve had the approval to spend about £55m sorting out the MI that underpins the business,” he says. “By this time next year, we’ll have as good an MI system as any property company in the public or private sector.” Then, when DIO can accurately measure and monitor its workload and capabilities, Manley will be able to “bring in much more efficient ways of working, to improve our business processes and ultimately downsize the number of people working in DIO.”

In part, that downsizing will be achieved by bringing in a private sector partner to take over the management of the contractors who carry out the vast majority of FM work. “In DIO we do two things: we bring together all the requirements of the military and non-military users; and then we translate that into specifications and requirements that we then contract to industry,” Manley explains. “In the new model, the MoD will continue to specify what the requirements are, but we’ll bring the partner into what we call the delivery organisation to sit on our side of the table and help us better manage our contractors.”

The partner’s job will be made easier by the dramatic decline in the number of contractors: the number of primary ‘soft FM’ contracts is being slashed from several hundred to 12, while ‘hard FM’ will be provided under just five main contracts. And these new contracts will be “deeper” as well as bigger, says Manley, with the contractors taking over much of the on-site FM work still undertaken by DIO staff, particularly on the hard FM side. The new partner will also take over managing construction contracts – both the small jobs handled by the five prime hard FM contractors, and the larger projects to be let under new regional and national frameworks being designed to speed up the procurement and build process.

Managing the risks
With the number of contractors falling so dramatically, there’s an obvious danger that small and medium-sized enterprises (SMEs) will lose out as big players hoover up the available contracts. Asked how DIO will meet the government’s ambitions on increasing SMEs’ share of public business, Manley initially sounds robust: he sets out a strong line on contracting that would put DIO at the forefront of this agenda. Later, however, his press team get in touch with a set of “clarifications”, explaining that DIO will be encouraging and supporting SMEs to seek work as subcontractors – a similar approach to that adopted, with limited success, by the last government. Manley clearly understands that a process of concentrating outsourced work in a few big contracts is likely to squeeze the DIO money earned by SMEs, but his organisation seems to be struggling to agree a convincing solution.

While moving to bigger contracts will produce efficiencies of scale, DIO will also be saving money by passing staff across to the new primary contractors. The business inherited about 7,000 staff, says Manley, and of those “about 2,500 are blue collar workers doing delivery.” Once the issue has been discussed with the unions, he says, “as part of the deepening of the relationship with industry, a lot of those staff will ‘TUPE’ across to primary contractors.” That leaves up to 4,500 white collar staff, of whom 700 have already taken redundancy; another tranche will depart at the end of the year. Given that the private partner will be taking over much of the contract management work, Manley explains, “we’re aiming ultimately towards an organisation that’s probably between 2,000 and 3,000, but we haven’t defined the actual number because that’s dependent on the new operating model.”

It’s easy to see how, by divesting itself of delivery operations and much of its day-to-day contract management work, DIO could save money – but in the past, some departments have discovered that outsourcing has hidden costs in the form of penalty charges for contract amendments. Given DIO’s need to respond at short notice to political and military events, how will Manley ensure that it doesn’t find itself paying its private partner endless fees as its requirements change? He begins his answer by praising MoD PFI contracts – the Allenby/Connaught scheme servicing the MoD’s Salisbury Plain operations has been “extremely successful”, he says. Even in this contract, though, “what people don’t like about it is that it is quite a rigid structure, so the ability to change the output specifications and therefore flex the funding is quite difficult.” Manley intends to limit the danger that he’ll need to alter contract specifications by “keeping the risk of integration of the estate and services inside DIO, to provide some greater flexibility”. In the end, though, he acknowledges that budgetary constraints are bound to force a compromise: “Ultimately, the commitment is about how much funding we’re prepared to put into the military estate.”

Fewer soldiers, more sales
The third major element of Manley’s reform package involves shrinking DIO’s property portfolio to suit the needs of a smaller armed forces. DIO is set to save millions on services such as catering, cleaning and heating as staff numbers decline, but Manley points out that there is “not yet a coherent plan to reduce the military’s footprint” as the number of personnel falls. As the defence secretary decides exactly how and when troops will return from Germany, DIO will be able to decide its future needs and cut its cloth to suit.
Here, again, Manley sees the private partner’s role as crucial: “We expect to see the partner bring seed funding that would allow us to, for example, do better design work on the estate, to look at options to put in basic infrastructure that will create value, so when we come to dispose of something the taxpayer gets a better return.” By doing design and planning work on its property and looking for a joint venture partner, Manley believes, DIO will end up producing far greater returns from its disposals; and to operate in these markets alongside private businesses, he argues, it needs a private partner who can supply the required expertise. After all, he says again, DIO is a commodity business working in land and services: “That means that we’re in the market for people who have a market worth, and that’s one of the problems. People who are good in the property sector can earn considerably more in the private than the public sector, so one of the things we’re trying to do in bringing in a partner is find a way to bring in some of the better people who are out there to work in our property sector”.

While Manley wants to bring in private property management skills on a long-term basis, though, he’s keen to emphasise that DIO’s use of management consultants is a strictly short-term phenomenon. Currently, he acknowledges, DIO is using consultants in three areas: to develop the new IT and management information system, “because we just don’t have that capability or expertise in-house”; to help reconfigure DIO’s operating model; and to provide “corporate re-engineering capacity”, assisting in planning how DIO will tender for and use its private partner. “It’s very, very targeted, and we watch every penny we’re spending in that area, because it’s all subject to the challenge: could you do it yourself?” Manley says. By next March, he adds, he hopes that “we’ll be back to management under the MoD’s own capabilities” – albeit with a private partner sharing the labour.

Next steps
A “soft market test”, carried out to test businesses’ views on DIO’s plans, has enabled Manley to “shape what we think is an attractive offer that we will bring to the market, hopefully in April, to seek formal bids” for the job of main private partner. At the time of writing, the tender was awaiting approval by both the MoD hierarchy and the Treasury – but Manley is moving fast, and seems confident that in one year’s time he’ll have his new management information system online, his new operating model in place, and his new partner organisation “coming in the door”. The partner’s arrival will in turn unleash a new set of reforms: “I don’t expect them to create major change on day one, but [their arrival] will then start another wave of transformative change,” he says. “Does change ever stop? No: I think DIO will continue to transform itself over a number of years.”

Asked to name the biggest danger within all this change, Manley replies that “the most important thing is to take your staff with you – so we’ve put a huge amount of emphasis on the change management process for staff.” By setting out “guiding principles” and tasking 200 staff with managing the change itself, Manley says, he’s “building a belief in our organisation that we can make this very, very substantial change”. He’s very proud of his staff, he adds: after living in a “reasonably static environment” for some years, they’ve been thrown into “one of the biggest change programmes anywhere in government” – and “guess what, we’re actually on track, which is pretty unusual in a public sector project of this scale.”
Indeed, the DIO reform project is something of a trailblazer, with all that this entails: it is both leading the way, and being the first to take some new risks. “Together with DE&S [Defence Equipment and Support] and DSTL [the Defence Science and Technology Laboratory], we’re one of the three primary delivery organisations; and what we’re doing in DIO is seen to be exemplary in terms of leading the way for where DE&S will probably come along behind,” says Manley. “And there are other parts of government that are starting to look at what we’re doing in this transformation programme and saying: ‘Ah, this is a model that maybe we can adopt elsewhere’.”

The road down which DIO is travelling is certainly a radical one: it involves the outsourcing of not only almost all its delivery work but also much of its contract management, leaving the public sector to set strategic aims, monitor customer satisfaction and liaise with its main private partner. The unions, of course, aren’t very happy – but while Manley speaks warmly about them, they’re not his main focus. “We’re managing a commodity business,” he says. “I have great empathy with the unions and we’ve had a great deal of support from them, but like any large business we’ve got multiple stakeholders.” A businessman to his toes, Andrew Manley has found a bottom line on which to focus – even in the complex, conflicted world of government – and a set of customers, some of whom have no direct voice in government but retain a clear set of expectations and a right to be recognised. “There’s our employees, the unions, government,” he says. “But at the bottom of all those stakeholders sit the taxpayers. They own this stuff, and they expect good value out of it.” ?

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