Ministry of Defence equipment procurement performance improving – but risks remain

The Ministry of Defence’s equipment procurement budget is now more stable,  but there are still risks to the affordability of the military equipment plan according to an annual review from the government's auditor.

In its Ministry of Defence Major Projects Report for 2013 the National Audit Office concludes that management of the procurement programme compares favourably with last year, despite a £754m increase in the cost of the Queen Elizabeth class aircraft carriers currently under construction.  With the exception  of the aircraft carriers, there have been no significant cost increases and only minimal in-year delays.

Work to address the 'affordability gap' and create greater certainty around the equipment budget and costs appears to have improved the Department’s ability to manage the Equipment Plan.  However, the NAO warns that risks remain, most significantly around equipment support costs, which are not subject to the same degree of scrutiny as procurement costs.  The Audit Office fears a £1.2 billion underspend on the Equipment Plan in 2012-13 may lead to increased costs and delay in future years.

The £754 million increase in the cost of the aircraft carriers was partially offset by a total cost decrease of £46 million across the 10 remaining projects examined by the Audit Office, resulting in a net increase in costs of £708 million.

Three of the projects examined in the report experienced delays during the year, amounting to a total of 17 months. The total forecast delay to the in-service date for of the nine projects amounted to 301 months – an increase of 21 per cent in the forecast time to complete the projects since approval.  A third of projects this year reported delays compared to over half of the projects in last year’s report, although the Audit Office was unable to report on timings for two further projects.

The reports outline progress with three of the Ministry of Defence's nuclear programmes – the Astute class submarine programme, the 'Successor' programme for replacing Trident nuclear weapon submarines, and the Core Production Capability project for rebuilding the factory operated in Derby by Rolls-Royce where cores for the Royal Navy's nuclear-powered submarine reactors are made.

The largest assumed efficiency saving in the 2013 – 2023 Defence Equipment Plan relates to the Submarine Enterprise Performance Programme, which aims to improve commercial arrangements and efficiency across the submarine sector over the next decade.  Spending amounting to £926 million on the Astute and Successor programmes will no longer be required as a result of efficiency savings the Ministry of Defence believes it can achieve under the programme.  NAO points out that there will be “significant potential risks” to the affordability of the Equipment Plan if the assumed cost efficiencies are not met.

A reduction in forecast costs of £26 million during the past year was made on the Astute programme through the batch buying of materials for Astute Boats 5, 6 and 7 and was achieved as part of the  the Submarine Enterprise Performance Programme arrangements.

The forecast costs of the Core Production Capability project were also reduced by £26 million by negotiating a reduced profit rate with Rolls-Royce.  On the down side, the negotiations have resulted in a three month delay to the project.

The report notes that the Astute programme has yet to demonstrate its ‘top speed’ key performance measure, as the two Astute class submarines currently in service with the Navy have yet to prove their ability to reach the underwater speeds required of them. Full speed trials have been undertaken and the results are subject to ongoing analysis and discussion with the submarine manufacturer, BAE Systems.

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