Sir John Bourn, head of the National Audit Office, reporting today on the top 20 defence equipment projects in demonstration and manufacture told Parliament that the Ministry of Defence is expecting to meet the technical requirements of customers but not always within cost and time. There is evidence that the Ministry of Defence has begun to control costs better but control of time remains a problem. Sir John’s report also covers the top 10 defence equipment projects in the assessment phase, when options for meeting the requirement are considered, and he told Parliament that there is scope for improvement in cost and timescale performance during the assessment phase.
The Ministry of Defence has changed the way that it organises and conducts procurement business following implementation of Smart Procurement, which is now sustained and reinforced under the new heading Smart Acquisition. The Major Projects Report 2000 does present some evidence to judge whether the disciplines of Smart Procurement are beginning to lead to improved performance. However, it is very early to expect to see any major impact on the projects in the report, all of which were begun before the introduction of Smart Procurement.
From examination of the top 20 projects in demonstration and manufacture, the National Audit Office found that:
- forecast costs are 0.2 per cent (£78 million) lower than last year – 5.7 per cent (£2.4 billion) higher in total than at main investment approval – and newer projects are showing less cost overrun per year than older projects. Most of the reduction in the last year relates to future expenditure and includes a £62 million saving on the Eurofighter programme which is dependent on successful contract negotiations;
- the average project delay is getting longer – on average, in-service dates have slipped by 3 months since last year to 28 months in total, against the timetables set at main investment approval. Seven projects experienced delays totalling 63 months in the last year and slippage will increase if the risks allowed for in approvals materialise;
- delays have led to capability shortfalls on 13 projects; and
- the Ministry of Defence expects to meet 98 per cent of the customer’s key requirementswhen the equipment enters service.
From examination of the top 10 projects in the assessment phase (in which technical issues are investigated, performance traded against overall cost, and where the costs of the phase are generally less than 15 per cent of the total procurement cost for the project), the National Audit Office found that:
- the Ministry of Defence has not yet decided on the targets which it will use to measure the success of the assessment phase, although the objectives of the assessment phase are clear; and
- for eight of the 10 projects, the average cost variation is 13 per cent and the average variation from the approved assessment phase timescale is 8 months. The other two projects (BOWMAN and the Microwave Landing System) were approved before 1995 and are showing much greater cost and time variations.
In the Major Projects Report 1999, the National Audit Office examined the impact of slippage on the operational capability and costs of four case study equipments – the Air-launched Anti-Armour Weapon (known as Brimstone), the Medium Range TRIGAT anti-tank weapon, the BOWMAN communications system and the Type 45 Destroyer. Since then, there have been significant developments affecting these projects. The Major Projects Report 2000 examines the operational and cost impacts of these developments and the National Audit Office found that:
- the Ministry of Defence has decided to buy Maverick G missiles which will partially fill the capability gap created by the delays; and
- the delays will cost the Ministry of Defence around £48 million in total, if the purchase of Maverick G missiles is included.
on the Type 45 Destroyer
- the first three ships will enter service with some capability shortfalls acceptable to the customer and the improved operating capability will be achieved through an Incremental Acquisition programme; and
- running on the Type 42 Destroyers will cost the Ministry of Defence an additional £565 million on operational and support costs, albeit offset by the delayed investment in the Type 45.
on Medium Range TRIGAT
- the United Kingdom withdrew from the collaborative Medium Range TRIGAT project in July 2000 and the Ministry of Defence will write-off £115 million in development costs; and
- the Ministry of Defence is reviewing its anti-armour system requirements and sustaining the Army’s current limited medium-range anti-tank capability is dependent on extending the shelf-life of the current weapon (MILAN).
- the in-service date for the main BOWMAN system is uncertain; and
- the Ministry of Defence has re-opened the competition to seek a cost-effective solution to the BOWMAN requirement and will need to write-off development costs of between £35 million and £102 million.