Press Release - Major Projects Report 1999
6 July 2000
Sir John Bourn, head of the National Audit Office, told
Parliament today that the top 25 Ministry of Defence equipment
projects were, at 31 March 1999, forecast to cost £2.7 billion more
than originally estimated. Including beneficial revised costings
for the Eurofighter programme, cost overruns have reduced from the
£2.9 billion reported in 1998. The projects will, on average, enter
service nearly four years later than first forecast compared with a
1998 figure of over three and a half years. The additional delays
since 1998 have occurred mostly in the early stages of projects
before their main investment decision point.
The National Audit Office's analysis is based on data produced
annually by the Ministry of Defence detailing progress on the 25
largest defence equipment projects. The great majority of the cost
overruns and delays recorded in the Report are not new, rather they
have accumulated over a number of years since the projects were
first approved. The main causes of cost overruns and delays are
largely the same as in previous years.
The National Audit Office found that, in cost terms:
- for the projects in the 1999 Report, expenditure for the
approved stages totals £37.6 billion and expenditure on subsequent
stages of £38.4 billion is expected;
- thirteen projects are forecast to exceed their original cost
estimates, 11 are expected to be under budget and one project is
expected to cost the same as originally forecast. Costs on six of
the 13 projects forecast to overrun are expected to be no more than
five per cent above their originally approved estimates;
- four projects - Eurofighter, the Merlin Mark 1 helicopter, the
Spearfish heavyweight torpedo and studies on the Bowman
communications system - contribute the vast majority (94 per cent)
of the cost overruns. Most of the cost escalation on the
exceptionally large Eurofighter programme occurred during the
earlier stages of development and the rate of cost increase has
slowed markedly; and
- excluding the Eurofighter programme, cost overruns on projects
have increased by £22 million from £1,338 million (5.9 per
cent) in the 1998 Report to £1,360 million (6.3 per cent) in the
1999 Report. Including the Eurofighter programme, cost overruns
have reduced from £2,889 million to £2,732 million.
The National Audit Office found that, in timescale terms:
- the average in-service date delay has increased by four months
to 47 months since the1998 Report;
- twenty three projects in the 1999 Report have, or are expected
to, enter service later than originally estimated. Fifteen of these
projects entered or are expected to enter service at least 3 years
late;
- two projects new to the 1999 Report, Tactical Reconnaissance
Armoured Combat Equipment Requirement (TRACER) and Future Offensive
Air System (FOAS), have been delayed by 46 months and 24
months respectively. Ten projects have been subject to additional
delay since the 1998 Report, with seven being delayed by a further
year or more; and
- since 1993, the average delay on the eight projects common to
all Major Projects Reports has more than doubled and is now 64
months.
The timescale slippage recorded on 17 of the projects in the
1999 Report is expected to increase the net costs (mainly support
costs) borne by the Ministry of Defence by £426 million, although
this is accompanied by the deferral of acquisition expenditure. The
Report also shows that whilst slippage delays the introduction of
improved military capability, the impact of the delay will depend
on whether the equipment would actually have been utilised in an
operational scenario and whether the original in-service date was
accurately specified. The National Audit Office examined the impact
of slippage on the operational capability and costs of four
specific equipments - the Air-launched Anti-Armour Weapon, the
Medium Range TRIGAT anti-tank weapon, the Bowman communications
system and the Common New Generation Frigate – and found that:
- on the Air-Launched Anti-Armour Weapon, delays have led to a
significant capability gap which has only been partially offset by
upgrades; and
- the lower operating costs of the equipments to be replaced by
Medium Range TRIGAT and the Air-Launched Anti-Armour Weapon have
reduced the costs borne by the Department during the period of
slippage by £59 million and £32 million respectively. Conversely,
delays to the Common New Generation Frigate programme and Bowman
have increased the costs borne by the Department by £537 million
and £9 million respectively.
The Ministry of Defence are changing the way they organise and
conduct their procurement business under the banner of 'Smart
Procurement'. The changes are intended to address the time and cost
overruns on defence equipment projects highlighted in successive
Major Projects Reports. Measures such as placing greater emphasis
on risk reduction before main investment decisions are made,
introducing Integrated Project Teams with industry representation,
establishing a clear customer-supplier relationship, improving
estimating and using incremental acquisition, should help to reduce
project slippage.
Sir John said today:
"The Ministry of Defence's past performance in procuring
major equipments has been unsatisfactory with significant cost
overruns and delays on projects and adverse operational
implications. I welcome the changes being introduced under the
Smart Procurement Initiative since the baseline date of this report
and the prospects they hold for improvement. Future Major Projects
Reports will provide a basis for assessing how successful Smart
Procurement is in enabling the Ministry of Defence to enhance
defence capability by acquiring and supporting equipment more
effectively in terms of time, cost and performance."
Notes for Editors
The 1999 Major Projects Report is the seventh in the current
series and the last in which the report will appear in its present
format. The format of the Report will change in 2000 to reflect the
Smart Procurement reforms and changes flowing from the introduction
of Resource Accounting.
Press notices and reports are available from the date of
publication on the NAO website at http://www.nao.org.uk/ Hard copies can
be obtained from The Stationery Office on 0845 702 3474.
The Comptroller and Auditor General, Sir John Bourn, is the head
of the National Audit Office employing some 750 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 48/00
All enquiries to NAO Press Office:
Tel: + 44 (0) 20 7798 7400