The National Audit Office (NAO) finds that there are recurring underlying causes of the persistent delays and cost increases that have affected the Ministry of Defence (MoD)’s major equipment contracts. To improve its performance and deliver value for money for taxpayers it must embed good practice in its relationships with its suppliers.
The MoD is responsible for some of the most technically complex, risky and costly equipment programmes in government. The NAO reviewed 20 of these programmes, which have a combined forecast cost of £120 billion. The Department relies on a limited number of specialist suppliers to deliver these projects and programmes1.
There are several root causes where contracts fail to deliver to MoD’s expectations: underperformance against contract by suppliers; a lack of MoD skills in areas such as project management; and the Ministry’s short-term financial planning around the management of its overall equipment portfolio. The MoD also does not rigorously review whether it is continuing to secure value for money from the programmes as costs and schedules change.
Some suppliers have consistently failed to deliver to time and to cost, resulting in the Armed Forces not receiving, when needed, all of the equipment originally planned. The forecast cost of nine of the 12 programmes examined by the NAO increased prior to the main investment decision, in three cases by more than 59%, although cost increases were lower once contracts were let. Altogether 13 programmes examined by the NAO are forecasting net delays of 254 months in achieving entry into service since going on contract.
A lack of technical ability to execute contracts to an agreed timetable was a recurring issue for both the MoD delivery teams and suppliers. Suppliers often fell short of defence requirements and MoD delivery teams highlighted issues with their ability to project manage effectively, particularly managing other parts of the supply chain. The Department sometimes causes these problems by changing its requirements during the contract, or by failing to meet its own contractual obligations.
The MoD has historically struggled to recruit and retain staff with the skills and expertise required to manage programmes and oversee suppliers effectively in some areas of delivery. 2 This was found to be a recurring concern for teams in the equipment programmes examined by the NAO, especially digital programmes. There is strong competition for specialist staff across the public and private sectors, leading to reliance on costly contractors to fill posts, which also prevents the Department from developing in-house expertise. The MoD will continue to rely on contractors for the foreseeable future but has established relationships with private sector partners to reduce these costs.
The MoD’s short-term financial planning within its equipment portfolio has also affected suppliers’ ability to deliver contracts effectively. A focus on short-term cost savings mean suppliers lose skills and are reluctant to take on risk when contracts are let. Through its Industrial Strategy3 the MoD is now seeking to build capacity in the UK defence industry to address gaps in capability in areas like shipbuilding.
The MoD is working to address the root causes of problems in defence equipment programmes by introducing major initiatives to improve contract delivery with suppliers and to embed commercial and Project Management good practice.4 These initiatives are at a relatively early stage but have the potential to address some of the challenges raised in the report. The NAO recommends that the MoD should: ensure that these good practice initiatives become embedded in everyday practice, while being prepared to penalise suppliers for past poor performance; work with the Treasury and Cabinet Office to address shortfalls in vital skills; and become more systematic in how it evaluates past work to avoid repeating the same mistakes.5