Friday, September 12, 2008
Defence Management first reported in July that the deal was experiencing a troubled period due to the harsh economic conditions and resistance from the civilian trainers in moving to rural Wales. The consortium, led by QinetiQ, won the £11bn PFI deal in January 2007 to bring together most defence training at one site in St Athan, Wales. The training was to be divided into two packages, but the MoD concluded that the second package was all but unaffordable.
The deal’s finances are heavily dependent on the sale of redundant MoD land as various groups and trainers move from their bases to the St Athan site. Unfortunately the credit crunch has all but levelled the property market, making the value of certain MoD properties far less than financers had predicted when they crunched the numbers in the original business plan a few years ago.
Rising inflation has also contributed to the financial troubles. It is believed that costs could rise by as much as £1bn over the next year.
MoD and consortium officials are now expected to develop a new business plan in the hopes that they can find a way to finance the project without it being so heavily dependent on property sales. A decision on the troubled project could be reached by as early as next week.
In a statement the MoD confirmed there were problems, saying: "A contributory factor adding to the complexity (of talks) has been the impact of the increased cost of borrowing and cost growth. Negotiations with Metrix are ongoing and both parties are working hard to drive down costs and obtain maximum value for money for the taxpayer."
The focus will now turn to what a new financial plan will mean. Union members and MPs have told Defence Management that the DTR is unaffordable in its current form. A new financial model that is not dependent on revenue from land sales will surely mean that additional cuts to the training plans will have to be made.