Press Notice No. 3 of Session 2005-06, dated 13 October 2005
THIRD REPORT: MINISTRY OF DEFENCE: MAJOR PROJECTS REPORT 2004 (HC 410)
Mr Edward Leigh MP, Chairman of the Committee of Public Accounts, said today:
"The MOD's promises to improve its performance in delivering defence projects to cost and to time are looking increasingly threadbare. In a mere two years the costs of the largest projects have soared by £4.8 billion. The direct consequence of this is likely to be cancellation or delay of projects and the hard-pressed men and women in our Armed Forces will either have to go without the new equipment they need or wait longer for it.
It is now six years down the line since the Department introduced its own programme for tightening up on procurement, Smart Acquisition. These new procurement rules are broadly sensible but MOD officials simply haven't applied them effectively. Doubtless their failure in this respect is never held against them and they proceed serenely on in their careers without censure.
Recent reforms are intended to reinvigorate Smart Acquisition but there is an extremely steep hill to climb. Single-minded determination and close cooperation by all stakeholders under the strongest leadership are sorely needed. I expect the Department to act with renewed purpose on the recommendations of this Committee."
Mr Leigh was speaking as the Committee published its 3rd Report of this Session, which examined three main issues: the impact of the continuing large cost overruns and delays; the challenge of handling large complex projects; and whether the latest reform programme will succeed where previous ones have failed.
The Major Projects Report 2004 examined the cost, time and technical performance in the year ended 31 March 2004 for the 20 largest projects where the main investment decision had been taken and the ten largest projects in the assessment phase. For the 20 largest projects, the Ministry of Defence (the Department) forecast the costs at £50 billion, an increase of £1.7 billion in the last year (compared to £3.1 billion in the previous year), bringing them to £5.9 billion over the target cost set at approval (or 13% of the total forecast set at approval). The 20 projects have also had further delays, totalling 62 months, to their expected delivery dates, bringing the cumulative delay to 206 months. Cumulatively, these in-year cost increases and delays place additional pressures on an already-stretched defence budget and mean that the Armed Forces will not be getting the most effective capability at the right time. There will be further cuts or cancellations in equipment, and the Armed Forces will have to operate older, less-capable, less efficient equipment for longer.
Although the Department's performance on delivering equipment to cost and to time is disappointing, its performance on meeting defined capability requirements continues to be good. Eighteen of the 20 projects are expected to meet their key user requirements.
The principles underpinning Smart Acquisition are sound, but have not convincingly improved defence procurement because they have not been consistently applied. On large complex projects, problems in the demonstration and manufacture phases have often resulted. Performing sufficient work in the earlier assessment phase would have created a better chance of identifying potential problems and putting mitigating action into place. The Defence Procurement Agency's recent reforms to reinvigorate Smart Acquisition should promote better applications of the principles but the Agency will have to work hard to ensure that the new reforms succeed where previous initiatives have failed. All stakeholders in defence procurement will need to work closely together with the shared aim of improved acquisition.
to view Report