"In-year performance on the majority of large defence
projects which we examined has been encouraging. This reflects the
efforts which the Department has put in to improving project
control and introducing innovative practices at the level of the
individual projects. But central departmental decisions were taken
to balance the defence budget which had the effect of driving very
significant additional cost and delay into the equipment programme;
this represents poor value for money for the
taxpayer."
Amyas Morse, head of the National Audit Office, 15
October 2010
Central departmental decisions by the Ministry of Defence to try
to balance the defence budget have reduced its cash-flow
requirements in the short-term but at a long-term cost that
represents poor value for money for the taxpayer. According to
today’s National Audit Office report, not making realistic
budgetary provision for all likely project outcomes and slowing
down projects have resulted in a £3.3 billion increase in a single
year, 2009-10, in the total cost of the 15 largest defence
equipment projects.
However, for the second successive year the cost performance on
the majority of projects has been broadly stable. The rate of
timescale slippage has also reduced significantly since last year
and 98 per cent of Key Performance Indicators are expected to be
met. This improved performance reflects, in part, a number of
initiatives to understand better the key factors bearing on project
performance.
The MOD did not make realistic budgetary provision for all
potential costs, for example, on the Typhoon combat aircraft where
the Department decided that it needed to spend £2.7 billion on the
programme including the purchase of 16 additional aircraft to meet
contractual agreements. It has slowed down projects such as the
Queen Elizabeth Class aircraft carriers, leading to further project
cost growth of £650 million. And, to address cost overruns, the
Department has also reduced the number of items, and therefore
capability, to be procured. For example, Nimrod MRA4 reconnaissance
aircraft numbers have progressively reduced from 21 to nine, making
the aircraft’s unit cost three times the figure originally
expected.
The MOD recently undertook to report annually to Parliament on
the affordability of its ten-year equipment plan, which should help
deter the corporate practices which have adverse value for money
implications.
Publication details:
HC: 489-I and 489-II, 2010-2011
ISBN: 9780102965506