The National Audit Office has been unable to conclude that the Ministry of Defence has achieved value for money from the procurement phase of its £10.5 billion private finance deal for the Future Strategic Tanker Aircraft (FSTA), according to a report released today.

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Despite managing the later stages of the procurement well, the MOD’s ability to get the best deal it could was undermined by shortcomings in the way it conducted the procurement and assessed alternative options. Although the project to provide air-to-air refuelling and military transport aircraft has achieved its delivery milestones since contract signature, it is still likely to be delivered five and a half years later than planned.

The MOD began the planning process with the assumption that the FSTA project would be delivered using a private finance deal, and therefore “off-balance sheet”. This assumption was driven by affordability pressures and the prevailing policy to use PFI wherever possible. The selection of a PFI option was made without a sound evaluation of alternative procurement routes to justify why the PFI route offered the best value for money.

The original requirement for FSTA did not envisage the aircraft flying into high threat environments such as Afghanistan. When the need for possible additional aircraft protection measures arose, the Department sensibly did not alter its requirement for fear of prejudicing ongoing commercial negotiations. Having established that these modifications are likely to cost several hundred million pounds, the MOD is considering the costs and technical requirements. Even if MOD were to choose to go ahead with the relevant modifications, they would not be available for a number of years.

The MOD will pay on average £390 million per annum for the core FSTA service, which includes use of the aircraft and related services and infrastructure. However, the MOD also has responsibilities to support the effective delivery of the service and ensure that it obtains value for money from the contract. Any significant delay to the planned redevelopment of the main operating base at RAF Brize Norton, scheduled for shortly after FSTA’s entry into service, would affect the smooth operation of the service.

Given the delay to FSTA, the MOD is being forced to rely on ageing and increasingly unreliable Tristar and VC10 aircraft to provide air-to-air refuelling and air transport to Afghanistan. While the MOD has been successful in fulfilling these priority roles, flying hours across both fleets have reduced by 21 per cent since 2002-03. To assist in delivering its air transport requirements the MOD also charters passenger aircraft, at a cost of approximately £175 million between 2006-07 and 2008-09.

"Shortcomings in the early stages of the project put the MOD in a position where the operational pressures of an aging fleet and the need to maintain the vital air bridge restricted its ability to deliver a solution which achieved value for money.


"Despite taking five years longer than planned to sign a contract, the MOD's progress in delivering the Future Strategic Tanker Aircraft project has improved since contract signature, and the project is meeting its delivery milestones. But there is more work for the MOD and its suppliers to do to get the best out of the deal." 

Amyas Morse, head of the National Audit Office


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