THE NAO Report on Major Defence Projects 2006

On the face of it, the National Audit Office’s report on MoD’s major projects contains good news:


“The Department [MoD] paid particular attention to the past recommendations of the Committee of Public Accounts which have stressed the need for the Department to live within its means.”


As a result of an in-year review of these major projects, MoD has reduced the cost of its major projects by some £781 million. Sound good?


Ah! But things are never quite what they seem. Digging into the body of the report, we can get a more accurate insight into MoD’s control of project costs and schedules.



Some 57 per cent of the savings made as a result of this review have been achieved by re-classifying procurement expenditure as support expenditure, so that although there is an apparent cost reduction in these projects, there is no overall savings to the defence budget. Furthermore, other savings have accrued from reductions in quantities. For example, the numbers of GMLRS rockets to be bought have been reduced well below the amounts recommended by updated operational analysis; and there has been a reduction in the number of A400M aircraft to be fitted with Defensive Aids Suites (DASS). These are savings through capability reductions not cost reductions brought about by good procurement husbandry.


Thus, instead of an in-year reduction in the cost of these projects (excluding Typhoon for which no figures are given) of £122 million, there is in fact an in-year increase of £471 million.  



While most of the major projects experienced no delay in-year and two actually had negative delay, five sustained significant in-year delay – BVRAAM (+12 months), NLAW (+8 months), Type 45 (+7 months), Panther (+6 Months) and Trojan/Titan (+5 months).

These are in-year delays. Total delays to projects are much less easy to determine from the Report as it only reports delays since the last approval point. But by delving back into previous NAO reports it is possible to see that delays are still very significant. Some examples are as follows.


When one of the stated reasons for the UK withdrawing from the European Horizon frigate was delay to the ISD, it is ironic that Horizon will now be in service before the Type 45.


The Effect of Smart Acquisition

All of these projects are labelled smart – that is, they were all initiated after the Smart Acquisition initiative was launched. But Smart Acquisition took some time to get off the ground and then two years later sank back into torpidity. Over the last couple of years, however, the underlying principles of that initiative have been revitalized and re-stated in the Defence Industrial Strategy. It is possible, therefore, to blame the large cost and time overruns on problems before the last two years. We ought to look at what has happened more recently.


This is difficult to assess, but the performance of the pre-Main Gate projects should give us a clue. The Report gives only scanty information, with no forecast to completion of the projects, only costs of the Assessment Phases.


Nevertheless, there are some pointers. For example, Assessment Phase costs have shown some significant increases – FSTA +130%, FRES +474% and CVF +155%. One of the Smart Acquisition principles is to spend more upfront to de-risk projects before Main Gate, so large spends on Assessment Phases ought to be applauded. However, the huge increases in the Assessment Phase costs of these three projects suggest either poor management or a conspiracy of optimism.


NAO Report Delays Table

If increases in the cost of the Assessment Phases lead to less risk at Main Gate, it will have been well worth while and will have shown the value of Smart Acquisition principles.


Smaller Projects

The NAO only reports in detail on the larger projects – this report covers twenty of the largest post-Main Gate projects and ten pre-Main Gate projects. Although these account for a large percentage of the total equipment procurement spend, they are only a small percentage of the total projects. Many of these are small in cost and simple in procurement process terms. Without an independent report on these, it is impossible to get a clear idea about the overall procurement position. Do they gain from being below the political radar, or do they suffer from a lack of strong proponency? It would be good to know.


By Bill Kincaid, Editor, RUSI DEFENCE SYSTEMS

 The views and comments offered here do not necessarily reflect those of the Royal United Services Institute

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