Ministry's 'culture of over optimism' to blame for underestimating cost of 15 projects as well as delays, says committee of MPs (Guardian, Friday 10th February)Britain's 15 biggest defence projects are expected to cost £6bn more than first estimated and will be delayed by a combined total of 26 years, a parliamentary watchdog reports today.
Too often the taxpayer has had to pick up the bill for the Ministry of Defence underestimating the risks involved in procuring complex weapons systems, the Commons public accounts committee (PAC) says.
The committee identifies three large projects bedevilled by long delays and huge overspend. These include the repeatedly delayed Nimrod maritime patrol aircraft, upon which £3.4bn was spent before it was scrapped, to save an estimated £1.9bn in running costs over the next 10 years.
The MoD will incur further costs from cancelling contracts and substituting alternative capabilities. The committee has asked the National Audit Office to investigate the decision to scrap Nimrod aircraft as well as all of Britain's Harrier jump-jets.
It also wants investigation of the delays surrounding the nuclear-powered Astute submarine fleet, which led to an extra £1.9bn in costs, and of the expenditure on two large aircraft carriers, the cost of which has so far risen by £2.8bn over the £3.5bn estimated when first approved in 2008. The PAC believes the carriers could end up costing as much as £12bn.
The report says that hurried attempts to save money have created problems for the future. "Decisions to save cash in the short term – deferring spending and reducing equipment numbers – have added significant long-term costs to the defence programme, and so represent poor value for money," it says.
It adds that last year's strategic defence and security review had to address the £42bn gap between the defence budget and forecast expenditure, including spending on the equipment programme. Since then there have been two more reviews, which have made further cuts in that programme in attempt to save further money.
Despite three reviews, Friday's report says, the MoD can say only that the defence budget is "broadly in balance".
The MPs comment: "It is unacceptable that the department still cannot identify the extent of the current gap between resources and expenditure."
They add that a culture of over-optimism continues at the ministry when it comes to costing projects. They point out that the financial burden incurred by underestimating project costs has fallen mainly on taxpayers, who have had to underwrite them.
The forecast for completion of the 15 largest defence projects increased by £466m last year alone.
Since the projects were first approved their estimated costs have risen by £6.1bn, bringing the combined total to about £60bn. Together, the projects are expected to be completed 322 months later than planned.
The PAC says the MoD's performance has improved, and that recent projects have had lower cost increases and fewer technical problems than earlier ones.
Today's report also points out that cutting equipment numbers after contracts have been signed usually represents poor value for money, as it invariably increases unit costs.
The MoD has recently decided to reduce the number of Puma and Chinook helicopters by four and 10 respectively, and it is buying three fewer European A400M transport aircraft. This reportedly has contributed to a 46% increase in the cost of each A400M plane.
Margaret Hodge MP, the Labour chair of the PAC, said: "Decisions to delay or cut programmes to save money in the short term continue to lead to increased costs in the longer term and do not represent good value for money."
She added: "We welcome the fact that there are signs of improvement. Projects approved since 2002 have shown significantly lower cost increases."
However, she said, the committee was concerned that the MoD was still unable to set out openly the extent of the gap between its income and expenditure, and how and by when it would balance this year's budget. "The department must publish that information urgently."
The MPs say that in light of current economic conditions it would be unrealistic for the MoD to plan spending on the assumption it will get a 1% increase in its equipment budget after 2015‚ a factor defence chiefs had been demanding.
