Ministry of Defence

Responding to the Infrastructure Project Authority’s (IPA) PFI Expiry Health Checks, improving MOD handback preparedness and designing an MoD PFI Oversight Unit

MOD has the largest and most complex PFI Projects in the industry. It faces 21 of its 31 PFI expiries in the next decade with  an estimated lifetime value of expiring contracts of £9.72bn. The remaining 10 projects account for an estimated lifetime value of £29.48bn. The next decade therefore represents an opportunity for MOD to develop and iteratively improve a replicable playbook for the delivery of defence PFI expiry.  

The MOD wanted to develop remedial action plans in preparation for their 11 near term expiries to avoid operational disruption and contract-end financial liabilities. The MOD also wanted to create the business case for the creation of a PFI Oversight Function to ensure best practice is shared between the individual projects, provide assurance and oversight to both MOD and Government wide functions that PFI expiries are well managed and commercially sound replacement solutions are procured

Brief:

To support MOD deliver on their intent, Curshaw were retained to:

  1. Validation of IPA Healthchecks and progress monitoring - Review and comment upon the IPA’s findings and, assess what valid progress had been made since the Expiry Health Checks were undertaken;

  2. Remedial Action Plans - Develop a high-level remedial action plan, focussed on the priority areas warranting MOD’s early focus, for MOD to action and to share with the Cabinet Office PFI Oversight Board (“OB”) to overtly improve the IPA’s ratings; and

  3. Develop the critical features, and suggested implementation steps, of an MOD PFI Expiry Oversight Unit (“EOU”).

The Process:

1. Validation of IPA Healthchecks and progress monitoring

Applying our PFI framework, we reviewed and commented upon the IPA’s own findings and commented on their completeness. We also worked with MOD’s key stakeholders to determine the progress made since the time of the IPA’s own Expiry Health Checks. The approach focused on commercial and contractual due diligence, and fact finding and information gathering in order to develop a best-achievable understanding of the MOD’s exposure to two chief risks 1) business i.e. operational disruption and 2) contract-end financial liabilities. 

The main aspects of activity were as follows;

  • Requests for information relating to contract management, CAFM and PMS, asset condition, asset compliance, lifecycle plans, Business Strategy, target operating model, expiry plans including current negotiating strategy, stakeholder map and current resource model.

  • Data analysis, commercial due diligence and interviews with key stakeholders to understand:

    • Contract Management, CAFM, PMS - to assess commercial and operational performance, 

    • Condition, compliance, lifecycle - to assess asset condition and health and safety compliance and potential post-contract liabilities (forward maintenance obligations, asset replacement and compliance rectification). 

  • Facilitated workshops to determine the critical success factors, RAIDL, workstreams and high level plans.

  • Strategic Analysis paper for MOD Senior Stakeholders based on the above to identify a consolidated view of the thematic issues and challenges faced by MOD in managing PFI expiry. This involved synthesising all of the work above in relation to each project, identifying strengths, threats and weaknesses common across the projects for the purpose of highlighting portfolio-wide risks and opportunities for value extraction. Only by reviewing all of the projects at once in a consistent way, to a defined standard (using our diagnostic methodology), were we able to draw the conclusions needed in order to inform the function and form of the MOD PFI Expiry Oversight Unit (see 3 below).

2. Remedial Action Plans

We conducted further desktop analysis and field work with MOD teams, including identifying time critical actions, the capacity and capability of the project teams, the required workstreams and the related critical milestones. Using CURSHAW’s ‘Best Practice Programme Structure’ and PFI Expiry Standard we developed a maturity assessment of every workstream and support function in relation to each PFI project. This included a short-list of immediate practical actions designed to mitigate project risks.

3. Designing an MOD PFI EOU:

We defined the key responsibilities of a central PFI EOU based on:

  • A needs analysis of MOD PFI stakeholders

  • Curshaw’s strategic analysis of the challenges and issues faced across MOD projects so that the state of preparedness for the later and larger more complex PFI projects is better than was the case for MOD’s 11 near-term expiries. 

  • Potential portfolio wide risk mitigation and value extraction - based on Curshaw’s operational commercial and financial due diligence of each of the 11 near-term expiring PFI projects.

We designed the form of the EOU including its key component parts. We set out the responsibilities of each component, the resource implications and related job descriptions, enabling the business case for the unit to be built. We also developed a mobilisation plan and supporting recruitment strategy including setting out where third party support would be needed by the EOU. We also developed a bespoke maturity assessment tool for the EOU to be able to easily observe the preparedness of each project team for future expiries.

The Outcomes:

  • Clear suggested next steps in relation to each of the themes raised by the IPA on every project;

  • Progress check and status updates and a Curshaw view of support required to address the IPA recommended actions for each of the projects;

  • Validation of efficient interventions to provide support to the individual project teams to improve the health check ratings given by the IPA. 

  • A basis for the MOD project teams understanding the IPA recommendations and clear priority actions to improve capability and increase capacity and achieve sustained portfolio-wide improvements.

  • A demonstration of the root cause of the Red/ Red Amber ratings given by the IPA by highlighting a number of structural flaws and omissions in MOD’s preparedness. In so doing we emphasised the value of taking action now and applying the lessons learned from MOD’s near-term expiries to later and larger expiries.

  • Business case approval for the mobilisation of the PFI EOU supported by an evidence base we developed.