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National Audit Office report: Improving the performance of major equipment contracts

Improving the performance of major equipment contracts

This report examines the causes of persistent delays and cost increases that have affected the Ministry of Defence’s equipment contracts.

Background to the report

The Ministry of Defence (the Department) is responsible for some of the most technically complicated, risky and costly procurement programmes in government. It has the largest number of programmes in the Government Major Projects Portfolio, with a total budgeted whole-life cost of £162.6 billion in 2019-20. Due to the Department’s complex requirements for its major equipment programmes, it relies on a limited specialist supplier base to meet its needs. Equipment programmes place high demands on the technical skills of both Department and supplier. They also require a high level of Departmental expertise in commercial negotiation, and programme and contract management.

The Department’s performance in delivering major defence programmes has been mixed. In March 2021, the government published its Integrated Review of Security, Defence, Development and Foreign Policy, a defence command paper, and the Defence and Security Industrial Strategy. The command paper set out the ambition to build a more strategic relationship with industry and a more sustainable UK industrial base.

Scope of the report

The NAO sought to identify the causes, and explain the consequences, of cost overruns and schedule delays in the contracts for some of the most significant equipment programmes and to examine how the Department is working to improve delivery. After setting out the policy and administrative context, this report examines:

  • schedule delays and cost increases;
  • contract and programme management;
  • shortages of skilled staff; and
  • delivering value for money through the life of the contract.

This work focused on 20 major programmes delivering equipment for use in the air, on land, at sea, and in space, and draws on them to illustrate the broader challenges faced by the Department. Together these programmes have a budgeted whole-life cost of more than £120 billion.

Report conclusions

The Department has regularly experienced difficulties in effectively managing its major equipment contracts, with frequent delays and cost increases. These stem from supplier under-performance; weaknesses in departmental contract management; the Department and suppliers underestimating the scope and technical complexity; and the Department prioritising short-term solutions given its affordability challenges. Consequently, the Department has not been able to optimise value for money from the contracts for its largest, most complex equipment programmes.

To improve value for money the Department must follow through on its initial efforts to embed wider good practice in its commercial relationships and project delivery. Strong leadership and sustained resources will be needed to fully embed these changes and deliver real benefits. A key part of the Department’s agenda must also be to learn lessons routinely across the portfolio, including being honest in acknowledging and learning from examples of poor value for money when they occur.


Publication details:

ISBN: 9781786043788 [Buy a hard copy of this report]

HC: 298, 21-22

Published date: June 24, 2021