Transparency data

Board minutes: 26 September 2019

Published 27 January 2020

Minutes of the 28th Board Meeting

Board Room, Finlaison House, 15-17 Furnival Street, London EC4A 1AB

Thursday, 26 September 2019 14:00 to 16:30

Board members present	Others present
George Jenkins (Chairman)	Colin Hill
David Johnston	Mike Wetherell
Mary Davies	Malcolm Botting
Marta Phillips	Ben Johnson (item 4)
Peter Freeman	Adrian Wallis (item 4)
Neil Swift	Colin Sharples (item 5)
David Galpin
Matthew Rees

1. Welcome, apologies, announcements and declarations of interest

1.1. The Chairman welcomed members to the 28th meeting of the Board.

1.2. Apologies were received from Terence Jagger, who had circulated written comments on the papers to all Board members.

1.3. The Chairman welcomed Mike Wetherell, Interim Director of Corporate Resources, to his first Board meeting.

1.4. Executive members declared a conflict of interest regarding the pay award item later on the agenda. They would not be present for this item.

1.5. The Chairman informed the Board that he had sought legal advice regarding the interest declared by a non-executive Board member at the previous meeting, relating to his deferred membership and member-nominated trusteeship of a closed, defined benefit pension scheme. Having considered the legal advice, the Chairman had taken the decision that no conflict of interest arose from this interest, and that the member should participate in the Board’s discussion on the baseline profit rate methodology later on the agenda. The Chairman had written to the MOD, seeking representations, and the MOD had responded that it supported his position. The SSRO’s policies and governance arrangements would be amended in December to reflect the advice provided on this issue. Action: Mike Wetherell.

2. Minutes of 27th meeting of the Board, 27 June 2019, and action tracker

2.1. The Chairman introduced the minutes of the Board meeting held on 27 June 2019. Three actions had been recorded on the action tracker and had been completed or were reported on in papers elsewhere on the agenda.

2.2. The minutes of the 27th meeting of the Board were approved as a correct record.

3. Chief Executive’s Report

3.1. Neil Swift, Chief Executive, presented his report to the Board, which provided an update on items not included elsewhere on the agenda. The Chairman and executive members had continued to meet with senior representatives from industry, the MOD and the enabling organisations, and the Chief Executive had attended the MOD’s SSCR Steering Group on 5 September. The Minister for Defence Procurement was due to visit the SSRO’s offices on 29 October 2019, and the executive intended to present to the Minister an overview of the SSRO’s priorities and ongoing workplan.

3.2. Several Board members had attended the Defence and Security Equipment International conference in the week commencing 9 September 2019, and Board members provided views on how attendance should be coordinated in future around key speeches and events. It was agreed that headline messages and speeches from the conference would be circulated. Action: Neil Swift.

3.3. The draft report following the Tailored Review of the SSRO had been circulated to Board members prior to the Board meeting. The executive had reviewed the report and had suggested some factual corrections and provided additional evidence to the review team. The final report would be submitted to the Board’s December meeting for consideration.

3.4. The SSRO had conducted an open tender process to procure a Board Management System for the distribution of Board and committee papers. A decision had been made to award the contract to a new supplier, and training would take place in advance of system implementation.

The Board

• approved an amendment to the March 2019 Board minutes; and
• noted the information provided in the report.

4. Baseline Profit Rate methodology

4.1. Matthew Rees, Director of Regulation and Economics, introduced a paper that set out the outcome of the public consultation on changes to the baseline profit rate methodology and sought approval for the methodology to be applied for the 2020/21 rates recommendation.

4.2. Board members had recently undertaken a workshop on the methodology and were familiar with the three areas proposed in the consultation:

• The removal of ‘small’ companies from the result by introducing a more sophisticated company-size criteria.
• The calibration of the automatic filters that identified a company’s activities to reduce the need for manual intervention.
• Clarification or codification of existing practice in the activity characterisations to provide additional transparency and give further assurance that the methodology was applied in a consistent way.

4.3. The Board discussed the responses to the consultation and, having considered the representations made, its view was that the amended methodology as presented to the Board was appropriate. Amendments would be made on the areas consulted on, with some minor alterations to the description of the geography search for clarity. As in previous years, the SSRO’s assessment of the appropriate baseline profit rate would be a composite rate, derived from the ‘develop and make’ and ‘provide and maintain’ rates.

4.4. There would be a forward calendar of engagement with Board members on the baseline profit rate work, with regular reporting to the Regulatory Committee or Board in line with the committees’ terms of reference.

The Board:

• agreed the publication of the summary of consultation responses;
• authorised the Chairman, after consultation with the Chief Executive, to agree the final documents before publication, provided they remained consistent with the Board’s views; and
• approved the methodology to be applied for the 2020/21 rates recommendation and agreed for it to be published.

5. Corporate Plan – initial timetable

5.1. David Galpin, Director of Legal and Policy, presented a report setting out the proposed timeline for the development of the next Corporate Plan and Internal Business Plan, leading to publication at the end of March 2020.

5.2. Board members’ preference was to focus on the longer-term three-year nature of the Plan, rather than on the first 12 to 18 months. This aligned with the executive’s ambition for the planning process. The SSRO’s objectives were currently aligned with its functions, but the objectives might be reconsidered should the focus of the Plan be on the longer-term horizon.

5.3. The SSRO’s corporate values (independent, transparent, authoritative) had not been changed for several years. While these values remained appropriate, it was reasonable to review them periodically and consider whether they reflected the SSRO’s culture and the values it wanted to take forward.

5.4. The SSRO’s key performance indicators might similarly be reconsidered and made even more outcome focused. The Audit Committee was currently considering two of the key performance indicators that reported annually, as part of the corporate planning process.

5.5. The Plan would reflect the external environment, including the review of legislation, opportunities and risks associated with an office move and any structural changes, the proposed defence industrial strategy, the outcome from the Tailored Review and the re-procurement of DefCARS.

5.6. The SSRO would engage with the MOD and industry throughout the development of the plans and in prioritising its work to deliver the core regulatory objectives. There would be a planning event for Board members in October, which would provide an opportunity to focus on strategic choices over the next 3 to 5 years. The Head of SSAT would be asked to attend for part of this event.

The Board:

• agreed to a review of our corporate values which should involve staff, and considered whether our corporate objectives should be changed for the Corporate Plan 2020-2023; and
• approved the timeline in Appendix 1 for the development of the Corporate Plan 2020-2023 and the Internal Business Plan 2020-2021.

6. Long term accommodation

6.1. Mike Wetherell, Interim Director of Corporate Resources, introduced a report on the SSRO’s long-term accommodation. At its meeting on 28 March the Board asked the Executive to develop options for consideration at its meeting on 27 June and had selected a shortlist of three options at that meeting. This report presented a review of the three alongside additional evidence, including recent correspondence with the PfG team.

6.2. The options were either to seek to move to accommodation in a similar location to the present office in central London, to move to a shared site in a ‘strategic hub’ in outer London, or to relocate to a government hub beyond the south east of England. When assessed against defined criteria the highest scoring option was for a shared site in a strategic hub in outer London.

6.3. The Board considered the options presented, with Board members providing views based on their experience of similar office relocations and discussions at other organisations. The Board also discussed the relative merits of the timing of the move, and how to mitigate the risk of SSRO staff being impacted by uncertainty, while requesting further clarity on the definition of the options.

6.4. After discussion, the Board agreed that its preferred option was to give notice in 2022 and relocate to an outer London strategic hub at the time the Finlaison House lease ended in 2023. Cabinet Office spending control business case approval requirements would be met in advance of this. A full business case for the outer London hub option from 2023 would be developed for agreement by the Board and for the MOD and ministerial consideration.

6.5. Should an earlier opportunity arise that met the SSRO’s accommodation requirements and was in line with Cabinet Office requirements, a business case would be presented to the Board at an earlier time. Staff would be advised that the SSRO had no plans to relocate until the end of the lease, unless other opportunities arose. Action: Neil Swift.

The Board:

• reviewed and commented on the Options Appraisal; and
• agreed the location options (outer London strategic hub) to be developed into a full business case for approval by MOD and Cabinet Office ministers.

7. Non-executive Board member strategy

7.1. The Chairman introduced the NEBM Strategy, which had been developed by a Task and Finish Group comprising the Chairman, Marta Phillips and David Johnston, with support from executive members. The intention of the strategy was to support the orderly succession of members to the SSRO Board, to maintain an appropriate balance of skills and expertise on the Board and to assist the Minister for Defence Procurement in agreeing next steps regarding future member appointments. Should the Board approve the strategy it would form the basis of an advice note that the Chairman would provide to the Minister for Defence procurement.

7.2. The NEBM Strategy was in four sections relating to the size of the Board, the tenure of individual appointments, the mix of skills and experience on the Board and a proposed approach for any recruitment exercise. There were recommendations within each section, including that:

• the current size and structure of the Board currently was effective and that there should be five appointed non-executive members (in addition to the Chair) on the SSRO Board at any one time;
• there should be two recruitment rounds: one in 2019/20 to appoint three members and one in 2021 to appoint two members and a Chair; and
• future recruitment rounds should seek skills and experience in the following areas: MOD, government, industry, commercial/contracting, engineering, law and economics.

7.3. The Board discussed the draft Strategy and in particular the skills and experience that non-executive members brought to the Board. It was agreed that a list of desirable skills should be added to the document, including data systems, economic regulation and investigative knowledge.

The Board:

• approved the draft NEBM strategy from which advice would be provided to the Minister for Defence Procurement.

8. SSRO financial planning

8.1. Mike Wetherell, Interim Director of Corporate Resources, presented the SSRO’s 2020/21 financial plan ahead of its presentation to the MOD on 1 October. The paper set out a proposed timeline to enable the SSRO to present a final budget to the MOD at the end of January 2020. The SSRO was currently developing its 2020/21 internal business plan, which included allocating resources to workstreams and activities. As this work was completed, the current proposed budget allocations and assumptions would be reviewed to ensure they remained appropriate and affordable.

8.2. The Board discussed the recommendations and the information provided within the paper and requested some amendments to the wording of the request. The Board also noted that there were potential growth areas in future years that had not yet been costed in detail, including DefCARS developments. Following discussion, the Board approved the draft budget of £6,367,000, the schedule of assumptions and the financial planning timetable for presentation to the MOD.

8.3. The report also provided an update on the forecast outturn for the 2019/20 SSRO corporate budget, identifying the potential risk areas that had arisen since the budget was agreed with the MOD that could affect the final outturn figures, and options to mitigate them. The SSRO was currently forecasting an overspend of circa £204,000 (if unmitigated by additional funding or reduced by application of savings or contingency), which largely arose from a higher than expected increase in employer’s pension contributions. The net impact of this was higher than estimated because the percentage increase applied consolidated the annual administration fee in with the employer’s contributions. The impact of this consolidation was higher for smaller organisations like the SSRO. The overspend also resulted in part from one-off costs of transitioning to new HR and Finance contracts.

8.4. The Board noted that this was the first year that the SSRO had projected an overspend in its use of Grant In Aid. The Board supported the original request for additional funds in preference to capacity or expenditure reductions that would impact delivery of the SSRO’s statutory functions. If the original shortfall in funding was not agreed by the MOD, the required action would be presented to the Board and any impact on planned outputs communicated to stakeholders.

The Board:

• approved the 2020/21 financial plan, draft budget and initial assumptions and risks for presentation to the MOD; and
• noted the 2019/20 forecast outturn.

9. Pay award 2019

9.1. Executive Board members and attendees left the room for this item.

9.2. The report presented the options for the 2019 pay award for consideration and approval by the Board, ahead of submission to the MOD for consideration by the Minister.

9.3. The 2019 pay award reflected the ‘pay remit’ and other guidance from the Cabinet Office governing public sector pay increases. The 2019/20 pay remit advised an annual pay increase to staff of between 1 per cent and 2 per cent to staff, with sums over 1 per cent being subject to affordability. The SSRO had allowed for a pay award of up to 1.5 per cent within the final budget approved by the MOD on 19 February 2019. Based on current salaries, the 1.5 per cent pay increase provided for (including increases to employer’s pension and social security contributions) added £63,000 to pay costs (recurrently) if applied equally to all staff. Applying the increase in this way would be affordable and maintain current pay differentials.

9.4. In discussion Board members considered whether to differentiate between increases for senior staff members and other staff, resulting in two different pay awards. The Board concluded that the Chairman should discuss the matter with the Chief Executive.

9.5. The Board delegated the final decision on Directors’ pay to the Chief Executive. It also delegated the decision on the Chief Executive’s pay to the Chairman, who would report back to the Board on his decision. The Board agreed that all other staff should receive a pay award of 1.5 per cent, subject to the Minister’s agreement.

The Board:

• considered the SSRO’s 2019 pay award options reflecting the 2019/20 pay remit;
• delegated the final decision on Directors’ pay to the Chief Executive;
• delegated the decision on the Chief Executive’s pay to the Chairman, who would report back to the Board on his decision; and
• agreed that all other staff should be given a pay award of 1.5 per cent, subject to the Minister’s agreement.

Note: The Chief Executive subsequently agreed that the award for the Directors should be 1.5 per cent. The Chairman subsequently agreed that the award for the Chief Executive should be 1.5 per cent.

10. Corporate Performance Report

10.1. Mike Wetherell, Interim Director of Corporate Resources, introduced the Corporate Performance Report, which provided a regular update on how the organisation was delivering against its priorities as set out in the Corporate Plan. The report drew together all relevant matters relating to the SSRO’s performance, including progress against key performance indicators, budgetary updates and the delivery of key tasks.

10.2. It was agreed that the report should in future include statistics on staff turnover. Action: Mike Wetherell.

The Board:

• reviewed and commented on the Corporate Performance Report.

11. Draft minutes from the Regulatory Committee on 18 July 2019

11.1. Peter Freeman, Chair of the Regulatory Committee, presented the minutes of the Committee’s meeting held on 18 July 2019. The Committee had discussed the SSRO’s review of legislation, which was due to report to the Secretary of State in June 2020. The Committee decided in principle not to re-propose any of the recommendations made by the SSRO in its 2017 review of legislation.

11.2. The Committee also considered the SSRO’s review of reporting requirements and in particular the risk register from the project. It had also considered and approved the annual Compliance Report for sharing with the MOD and publication.

The Board noted the minutes.

12. Update from the Audit Committee on 24 September 2019

12.1. Marta Phillips, Chair of the Audit Committee, provided an update on the Audit Committee meeting that took place on 24 September 2019.

12.2. The Committee had discussed resources and the budget issues that had been considered elsewhere on the Board’s agenda.

12.3. The Committee had considered the SSRO’s risk management and had discussed all the risks in the corporate risk register, including how the office relocation, succession planning and recent meetings with the MOD were reflected in the register. The Board noted the Audit Committee’s consideration of the register and the associated risk appetite for each of the risks. It considered the balance of risks and risk appetite and decided that it was satisfied with the current risk profile.

12.4. The Committee had also considered the GIAA’s report on the Audit Committee’s effectiveness, which had provided substantial assurance.

12.5. The minutes of the September Audit Committee meetings would be presented to the December Board meeting.

The Board noted the update.

13. Future agendas and any other business

13.1. The Chairman introduced the two-page document showing the business of all Board and sub-committee meetings for the next year. The Board considered the document and asked for a list of future workshops and meetings to be circulated to Board members. Action: Neil Swift.

13.2. The next meeting would take place on 12 December 2019 at 2:00pm.