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Equipment Plan and Major Projects Report 2014, reforming defence acquisition

Inquiry status: inquiry concluded.

The Ministry of Defence plans to spend £163 billion on military equipment and support over the next 10 years, the largest portfolio of major projects of any Department.  This is managed through a forecast 10-year budget known as the Equipment Plan. Since 2012, the Department has emphasised the importance of the affordability of its core equipment programme. The forecast cost of the Equipment Plan 2014 to 2024 is £1.4 billion less than the forecast cost of the 2013 to 2023 Equipment Plan. However, only a limited proportion of the anticipated savings have been achieved so far and forecasts of procurement and support costs are often over-optimistic.

Budgets set using over-optimistic forecasts could result in overall budgets for procurement and support being significantly understated. The Major Projects Report, which examines the in-year performance of a sample of large procurement projects, shows that the overall forecast cost of the 11 projects examined has not changed significantly during 2013-14. However, it found a misleading picture of spend and forecasts at individual project level, due to weakness in in-year financial management and varying skill levels in cost forecasting and risk management within project teams. This inquiry will challenge the Department on the stability of forecast project costs and how they are monitoring and managing the risk of growing costs.

The MoD has an annual procurement and support budget of £14 billion, managed by the Defence Equipment and Support Organisation (DE&S). DE&S employs around 16,000 people and has running costs of £1.3 billion. To address underlying weaknesses in defence acquisition, the MoD sought a greater role for the private sector by transforming DE&S into a Government-Owned, Contractor-Operated organisation (GoCo). That process was halted in December 2013. Instead, DE&S became a bespoke central government trading entity on 1 April 2014. This inquiry will look at whether DE&S has become more cost-effective since it was formed in 2007; the MoD’s management of the process to contract for a GoCo; and how the Department is designing the bespoke trading entity to ensure that it is well placed to address the underlying weaknesses in defence acquisition.

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