Major Projects Report 2015 and the Equipment Plan 2015 to 2025
The National Audit Office has today published its examination of the assumptions made by the Ministry of Defence in its annual statement of the affordability of its 10-year equipment plan.
The forecast cost of the Equipment Plan 2015 to 2025 is £3.5 billion higher than the forecast cost of the 2014 to 2024 Plan (£166.4 billion compared with £162.9 billion), mainly due to the effect of bringing 2025 into the 10-year planning period. Today’s report found that the Plan appears more stable than last year and that progress has been maintained, but that the Department will need to remain vigilant with regard to uncertainties about future cost increases in high-value projects that are still at an early stage.
The Department was prudent in planning its 10-year Equipment Plan funding in March 2015. However the amounts it actually has to spend in future years will be dependent on the results of the government’s spending review and Strategic Defence and Security Review, due later in 2015.
According to the NAO, the Department’s Affordability Statement should be clearer about uncertainties in the costs within the Plan. The Statement does not explain the range of possible cost outcomes across projects, even though it is good practice to recognize risk and uncertainty when forecasting project costs.
The NAO carries out an annual review of the forecast cost of a range of major defence projects. The spending watchdog’s review of the forecast cost of 13 major projects shows that in aggregate, the cost and performance of these projects have remained stable during 2014-15. The forecast cost of these projects has reduced by £247 million (0.4%) largely due to an accounting adjustment on the Typhoon fighter jet project. Forecast costs reduced on five other projects and increased in three, notably the Astute submarine project.
The spending watchdog found that the amount of time slippage across the major projects was lower than the previous year, with one notable exception. In-year time variations during 2014-15 totalled a net 60 months for five out of 12 projects. Most of this was a net 52-month deferment of the final stage of the Core Production Capability Project, to accommodate the production of an additional reactor core for HMS Vanguard and to maintain the capability to supply a further core for HMS Victorious, if required. This could not have been foreseen by the project team and was beyond their control.
The Department spent £14.47 billion in 2014-15, an underspend of £41 million against its original equipment budget, compared with an overspend of £185 million in 2013-14. There is evidence that the Department and its contractors are still underspending as they struggle to carry out planned activities on schedule, which could indicate future slippage in delivering these projects.
The Equipment Plan looks more stable than last year, and there are indications that it will remain affordable for the rest of the Parliament if this stability is maintained. However, the Department's need to make room in its budget for the support costs of a range of new equipment is just one of the future challenges it faces in maintaining the affordability of the Plan.
Amyas Morse, head of the National Audit Office
Notes for Editors
Cost of the Ministry of Defence’s 10-year Equipment Procurement Plan
Cost of the Department’s 10-year Equipment Support Plan
Amount by which the 10- year Equipment Support Plan is higher than last year (procurement and support)
The decrease in the forecast cost of the approved projects within our review of major projects - a 0.4% decrease in current forecast costs
Department’s contingency budget to mitigate potential increases in the cost of the 10-year Equipment Plan
The extent to which project teams may be underestimating the financial risks within project budgets, according to the Department’s independent Cost Assurance and Analysis Service
In-year time slippage of these projects, 52 months of which was attributable to one project to accommodate a new requirement – the net variance across other projects was 8 months.
Number of procurement projects in our sample of 17 that display good practice in forecasting cost.
Amount the Department is planning to spend on equipment procurement and support in 2015-16, representing 46% of its core budget
Underspend against the original equipment budget in 2014-15, representing a better matching of expenditure to budget than previous years
Underspend against the final total programme of work for 2014-15, also an improvement on last year
Expected delivery of Key User Requirements of the approved projects within our review of major projects
1. Press notices and reports are available from the date of publication on the NAO website. Hard copies can be obtained by using the relevant links on our website.
2. The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Sir Amyas Morse KCB, is an Officer of the House of Commons and leads the NAO, which employs some 810 people. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services, and our work led to audited savings of £1.15 billion in 2014.