Press Release - Major Projects Report 2007
30 November 2007
The National Audit Office’s annual report on 20 of the top
defence equipment projects shows that, while there has been
progress on the majority of projects in the last year, there
continue to be time delays and cost increases on some of the major
projects.
Of the fifteen projects not in service as at April 2007, eight
have progressed to schedule and on two projects, the MoD has
recovered time against the schedule. Five projects were delayed by
a total of an extra 38 months this year, compared to 33 months on
five projects in 2005-06. Of these, the most significant were the
Type 45 Destroyer which has been delayed by a further 11 months and
the Terrier and Next Generation Light Anti-Armour Weapon projects
have each been delayed by a further 12 months.
The current total forecast cost for the 20 largest projects is
£28 billion, which is £2.5 billion over the ‘most likely’ budget
when the main investment decision was taken. The MoD expects ten
projects to deliver within their most likely budgeted cost. Most of
this cost growth occurred in earlier years but, on two projects,
the Type 45 Destroyer (£354 million) and the Astute Class Submarine
(£142 million), there has been significant cost growth in-year. The
MoD has now agreed revised contracts on both of these projects to
incentivise Industry to reduce costs.
The MoD was again pro-active in limiting potential in-year cost
increases on individual projects through reassessing requirements,
reducing quantities of equipments and re-allocating expenditure to
other projects or budget lines. The total amount reallocated in
2006-07 was £609 million, meaning the MoD has now reallocated over
£1 billion over two years. This year the largest component (£305
million) relates to maintaining industrial capacity and capability
in accordance with the Maritime Industrial Strategy.
Although the principle of allocating budgets to those best
placed to manage them is sensible, many of the same project teams
continue to be responsible for the transferred budgets. For
example, the budget relating to warranty costs of £64 million for
the Support Vehicle project has been more appropriately categorised
as In-Service costs, but the same project team is still managing
this money.
The Defence Industrial Strategy has now been in place for nearly
two years. In the maritime sector, the MoD is making progress. It
has identified the key ship and submarine building capabilities it
needs to maintain in the United Kingdom, and quantified the core
workload necessary. Restructuring of industry is underway. The MoD
does not have an overall picture of the cost of rationalising and
sustaining the Defence Industrial Base against which it can assess
the overall value for money to defence of investment in industrial
sustainment.
There have been substantial cost increases and delays on the
Landing Ship Dock (Auxiliary) project, which appeared in the Major
Projects Report until 2002-03. We have conducted a detailed review
of the project in order to understand why problems arose. NAO
analysis shows that the project was initiated on an unrealistic
basis but, once the problems became clear, the MoD responded well,
taking action to limit its exposure to risk and put itself in a
position to successfully deliver all four vessels into
service.
Sir John Bourn, head of the NAO, said
today:
“While there has been progress on the majority of
projects in the Report, it is disappointing that a small number
continue to suffer from significant cost increases and timescale
slippages.
“MoD, working with its industry partners, has made
progress towards transforming the maritime industrial base. In
taking the Defence Industrial Strategy forward it will be important
that MoD establishes a framework with which it can measure value
for money to Defence as a whole, so that it can determine the
cost-effectiveness of investment in sustaining the maritime
industrial base.”
Notes for Editors:
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Press notices and reports are available from
the date of publication on the NAO website, which is at
www.nao.org.uk. Hard copies can be obtained from The Stationery
Office on 0845 702 3474.
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The Comptroller and Auditor General, Sir John
Bourn, is the head of the National Audit Office which employs some
850 staff. He and the NAO are totally independent of Government. He
certifies the accounts of all Government departments and a wide
range of other public sector bodies; and he has statutory authority
to report to Parliament on the economy, efficiency and
effectiveness with which departments and other bodies have used
their resources.
Press Notice 56/07
All enquiries to Mark Anderson, NAO Press Office:
Tel: 020 7798 7558
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