The UK ministry of defence's Project MoDEL reached financial close in early August, giving a boost to military transactions that for so long have been languishing without movement. This project could also act as a pathfinder for HM Treasury for similar deals that it can replicate across other departments.

This deal - which has a capital requirement of £180 million (US$340m) - saw the MoD consolidate a number of real estate sites in the capital on to the military base of Northolt, north west London.

The aim is to consolidate the facilities occupied by the MoD and, the United States Visiting Forces (USVF) onto fit-for-purpose sites thereby generating a number of benefits in terms of reducing running costs, improving efficiency and consolidating resources.

The project is being funded via a new procurement methodology called Prime Plus Contracting (PPC). Through PPC the capital requirements of the project should be met largely from the disposal of surplus sites.

PPC is an innovative means of funding high-profile property projects. Defence Estates has developed this hybrid acquisitions approach in order to maximise results while minimising costs.

It uses the value of the sites that are to be released to fund the construction costs; a contractor is appointed to fund and manage the delivery of the consolidation programme through the sale of surplus sites and the development of the core site at RAF Northolt

In this case, the project entails the redevelopment of RAF Northolt to create the MoD's first integrated core site in London providing service personnel with brand new living, working and messing accommodation plus sports, social, health and welfare facilities.

The initiative will also include the consolidation of the London Estate, leading to the release of over 250 acres of land for further redevelopment, on six sites:

• RAF Uxbridge, personnel to relocate to RAF Northolt in December 2009
• RAF Bentley Priory, personnel to relocate to RAF Northolt in April 2008
• RAF Eastcote, released to MoDEL from USVF in September 2006
• RAF West Ruislip, released to MoDEL from USVF in September 2006
• Inglis Barracks, Mill Hill, personnel to relocate to RAF Northolt in August 2007
• Victoria House, Woolwich, personnel to relocate to Woolwich barracks in April 2008

The project also includes:

• Building work that is due to start at RAF Northolt in November 2006 and complete in 2012

Timeline

The project's assessment phase (AP) was approved by the MoD internal approvals board (IAB) and ministers on 23 June 2004. The procurement process was run over the following 18 months, and saw 15 bids submitted.

The IAB finally approved the appointment of the consortium of Vinci and St Modwen Estates (VSM) as preferred bidder in March 2006.

VSM was then awarded the contract at the start of August 2006 after gaining the MoD and Treasury approval. 

Project

Project MoDEL will initially invest over £150 million in the re- development of RAF Northolt to create MoD's first integrated core site in London. This will provide service personnel with brand new living, working and messing accommodation plus sports, social, health and welfare facilities.

The project's disposal portfolio will release around 90 hectares of predominantly brownfield land within the Greater London area.

MoDEL's release of land in Greater London will contribute to wider government policy, in particular the Sustainable Communities Plan and affordable housing targets.

PPC is a useful tool for consolidating the defence and wider government estates. Land availability to the appropriate value and time scales, however, is all important.

The evidence accumulated to date suggests the PPC is a highly effective procurement strategy and should, take its place in MoD's procurement armoury alongside prime contracting and PFI.

Defence Estates has developed this hybrid acquisitions approach in order to maximise results while minimising costs. This strategy is ideal for a core site project and there is no reason why PPC should be limited to DE - land disposals could also be used to buy equipment for instance.

PPC has been recommended for the following reasons:

• it enables the development to start before appropriate funding to becomes available
• it enables estates processes to move forward, which would otherwise be stalled by lack of funding
• it uses the value of the sites that are to be released to fund the construction costs
• the contractor rather than the MoD funds and manages the delivery of the consolidation programme through the sale of surplus sites and the development of the core site at RAF Northolt

And St Modwen Properties - as a London real estate specialist - is ideally placed to dispose of these properties. The SPV is to work with Vinci running the show and St Modwen handling the sales.

Nick Prior, head of the MoD project finance unit, told IJ News: 'With the closure of Allenby Connaught earlier this year, Northwood last week and MoDEL this week, this demonstrates that the ministry of defence is driving its programme forward.'

A source close to the deal: 'This is a novel project. It is probably the first MoD project to have closed within the timescale that they forecasted.

'They planned financial close before the end of July and it is largely within the timescale. This is a major first for the MoD given that it is such a innovative deal and the first of its kind.'

Following completion of the construction activities, the PPC will be responsible for hard FM throughout a 3-year compliance period. The IPT will monitor the PPC to ensure compliance.

Soft FM will remain the responsibility of the existing Multi-Activity Contract (MAC) at RAF Northolt, currently held by Serco. 

Following the compliance period on each facility, hard FM for the new and refurbished facilities will transfer to Regional Prime Contract (SE) or its successor, in accordance with hand-over procedures defined within the contract. Following completion of the last compliance period, the IPT will be disestablished.

The project anticipates that completion of delivery of specified works will be achieved by March 2009 and all works at RAF Northolt will be complete by 2011.

Financing

The capital cost for the project is likely to be in the order of £180 million, and it could be largely self-funding using PPC.

That is the project can be entirely self-funding over its lifetime utilising up to £200 million that could potentially be released as a result of consolidation to fund the construction costs.

Secondary benefits include efficiencies from the co-location of multiple units; the MoDEL Integrated Project Team estimates that these could generate net savings, after the required uplift in funding for the redeveloped RAF Northolt, of a further £8 million per annum.

Conclusion

The project reached financial close within two years from initial industry engagement - an excellent result for the MoD, particularly given the innovative nature of the deal and the challenges faced. 

It also provides a framework for HM Treasury to follow for projects of a similar nature. And sources close to government indicate that it is 'very likely' that this will be adopted on a wider scale.

It is also good to see that the MoD PFU has continued a flow of deal closes after such a long build-up. Nick Prior has pushed through a number of projects to close this year and looks set for a couple more before the year-end.