Executive Summary

National Audit Office Value for Money Report

1. The Ministry of Defence (the Department) has reported to Parliament on its progress in procuring major defence equipment every year since 1984. Prior to 1991, much of the data submitted to Parliament was classified and, hence, our analyses of the key themes and trends were not published. The Major Projects Report 2005 is the fourteenth Report that we have published since the level of classification was reduced.
    
2. The Major Projects Report 2005 covers cost, time and performance data for projects in the year ended 31 March 2005. We examined 30 defence equipment projects: 20 of the largest projects where the main investment decision to proceed had been taken by the Department; and ten projects still in the Assessment Phase. Six projects are new to the Major Projects Report, four in the main phase of procurement and two in the Assessment Phase. Part 1 of this report presents the overall performance of these projects and progress in implementing Smart Acquisition. Part 2 examines the Assessment Phase in more detail.
    
3. The Department expects that, on the basis of Customer agreed metrics, its top 20 equipment projects will meet Key User Requirements but at a cost [Footnote 1]of 29 billion, some 10 per cent higher than the expected cost at approval. In the last year, forecast costs have decreased by 0.7 billion and project delays have increased by an average of two and a half months. Figure 1 summarises project cost and time changes in the last year. The decrease in forecast costs results mainly from changed requirements or reductions in the quantity or capability of equipment being procured.
   
   Figure 1 ("Analysis of project cost and time variance and movement since the Major Projects Report 2004.") is unavailable in this version of the executive summary
    
4. There has been further progress on measures to improve performance within the Defence Procurement Agency and elsewhere in the Department. These improvements focus on the following areas: performance of key suppliers; the skills and development of staff; project and risk management; increased use of trade-offs between time, cost and capability of equipment; better joint working of those responsible for acquisition within the Department; and stronger project scrutiny at all levels. It will take some time before the full impact of these measures will be felt on the large and lengthy projects within the Major Projects Report but we may see improvements sooner in other projects. In 2004-05, the Defence Procurement Agency has achieved five out of its six key targets on equipment procurement across a wider spread of its projects and partly achieved the remaining target.
    
5. In previous years, we have reported concerns about the outcome of the Assessment Phase with some projects running into forecast time and cost overruns soon after the main investment decision has been made by the Department. This year, we have examined a sample of projects in different parts of the procurement cycle and interviewed other stakeholders about their experiences of the Assessment Phase.
    
6. We found that whilst the approach to the Assessment Phase has improved and the principles underpinning the Phase are better understood, more remains to be done to secure the desired improvements of more projects being delivered of the right quality, on time and to cost. Practitioners have generally accepted and welcomed the aim that the outcome of the Assessment Phase should be a mature understanding of the future project and the associated risks, with those risks being quantified and mitigated where possible. However, practitioners did not always have a complete understanding of what constituted maturity for individual projects. There is also further to go in developing robust cost estimates for future projects but the Department has work in hand to achieve this through better use of cost modelling and historic cost data.

CONCLUSIONS AND RECOMMENDATIONS

The Assessment Phase

Defence equipment projects are widely different. They range from off-the-shelf arrangements to cutting edge technology developments; from the replacement of existing capability to the delivery of radically new capability; and from projects where the Department is the only procurer to complex international collaborative procurements. The urgency with which a new equipment capability may be required or the strength of industrial or other wider imperatives will also vary. Each project thus poses different risks and challenges, some of which it will be neither cost effective nor possible to mitigate fully in the Assessment Phase. To help ensure the cost-effective and timely delivery of mission critical equipments, the diversity of projects and motivations to progress them quickly need to be fully recognised when the main investment decision is made.

 The point when a project is mature enough for the main investment decision to be taken will look very different from one project to another dependent upon the perceived benefits of progressing the project quickly albeit with a greater level of recognised uncertainty and risk. The Department should clarify what is required to demonstrate maturity for different types of project. This definition should include: a clear statement of required best practice; and an articulation of the treatment of risk and appropriate ranges of cost and time estimates that are acceptable in the circumstances of individual projects. It is then for the Department to manage varying levels of risk and identified benefit on both the individual projects and at the aggregate level through its Equipment Programme.
 

1.  [back from footnote 1] Excludes the costs of Typhoon which are commercially sensitive.