Ministry of Defence: Major Projects Report 2006
Publication of 46th Report, 2006-07
Edward Leigh MP, Chairman of the Committee of Public Accounts, today said:
“The Ministry of Defence is confident that its performance in implementing big defence equipment projects is improving. Fourteen projects have been reported as incurring no new delays in the last year. But the truth is that the Department’s track-record in managing these projects is pretty dire and it is too early to say whether its confidence is genuinely justified.
“The total cost of 20 of the biggest projects is now forecast to be some £2.6 billion higher than the budget agreed at the outset. If the MOD is to keep the costs and delivery timetable of future large projects firmly under control, then it must learn from its mistakes in respect of some of the biggest current projects.
“The Astute Class submarine project provides important lessons in how the mismanagement of technical and commercial risks can drive up cost and increase delay. It is the duty of the MOD to apply those lessons remorselessly in its planning for the £19 billion successor to the UK’s nuclear deterrent.
“For years this Committee has urged the MOD to live within its means. We are pleased to see efforts by the Department to control the costs of projects. But old habits die hard. More than half of the sum which the MOD has claimed to save has simply been loaded on to other budgets. We have no idea what cuts will have to be made to other activities of our Armed Forces as a result of this massaging of the figures.”
Mr Leigh was speaking as the Committee published its 46th Report of this Session which, on the basis of evidence from the Ministry of Defence, examined three main issues: the impact of the cost saving measures identified by the Departmental Reviews in 2005-06, the performance of individual projects, and the Department’s initiatives to improve acquisition performance. As an annual report, the Committee’s conclusions and recommendations should be read in conjunction with the findings of earlier Major Projects Reports as part of a sequence of recommended improvements.
The Major Projects Report 2006 provides information on the time, cost and performance of 20 of the largest projects of the Ministry of Defence (the Department) where the main investment decision (known as Main Gate) has been taken; and the top ten projects in the earlier Assessment Phase.
During 2005-06, the Department undertook a review of the 20 post-Main Gate projects to control its costs better. This Review has reduced the costs of these projects as recorded by the Major Projects Report by £781 million. Of this sum, £91 million is attributable to a rebate and exemption from HM Revenue and Customs. £242 million result from steps taken by the Department to stay within its budget through better management of commercial and contractual arrangements, more cost effective means of delivery, re-assessing quantities required, and more appropriate accounting treatments. However, £448 million of costs were either re-classified as expenditure in other procurement or support budgets or transferred to other budgets for corporate management. These re-allocations have achieved cost reductions for the individual projects but do not represent a saving to the Department as a whole. By transferring the costs elsewhere it may potentially have to forego activities which could otherwise have been provided.
Total forecast costs for the approved projects now amount to £27 billion, some 11% over budget. Forecast in-service dates slipped 33 months in-year, and there is a cumulative delay of 433 months for the projects over their lives so far. The Department expects that 17 projects will meet their Key User Requirements, one fewer than in 2005-06.
The Department is placing increased emphasis on through life management of Defence projects, involving the life-cycle management of the products, services and activities required to deliver integrated capability to the customer. To this end, the Department has merged its Procurement and Logistics functions into the Defence Equipment and Support organisation.