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16 Nov 11. Report by the Comptroller and Auditor General.

Action taken by the Ministry of Defence to balance its overall budget in the short term following the Strategic Defence and Security Review has contributed to a near £500m in-year cost increase in the 15 largest defence projects, a report by the National Audit Office has revealed. When coupled with previous cost growth, these projects are now £6bn above forecasts made when the main investment decisions were taken.

For the third successive year, central planning decisions taken by the Department, including delaying the Astute submarine project, have had the biggest impact on cost growth, accounting for £237m of the increase. Of this, £113m relates to decisions to enhance capability. Macro-economic factors, such as adverse foreign exchange rates, accounted for £176m of the increase. Cost overruns from project-specific technical issues accounted for £53m.

The Strategic Defence and Security Review delayed the Successor nuclear deterrent submarine in-service date to 2028. To avoid a production gap in the submarine construction industry, and to further save costs in the short term, the Astute programme was slowed. This has added £200m to the forecast cost in 2011, and delayed the introduction of the Astute submarines by an average of 28 months. Submarines will now take over a decade each to complete.

During 2010-11, there was a total increase of 30 months (with an average two months per project) in the forecast time to complete these projects and bring them into service. This brings the total delay on all 15 projects to 26.8 years. The most significant changes were a 12-month delay in the timetable for the Watchkeeper unmanned aerial vehicle project, which was largely due to the contractor’s failing to deliver against the agreed schedule, and a 13 month delay on the Astute project.
Long-term cost analysis by the NAO has shown that the difference between the approved and forecast costs of all projects which have had their main investment decision approved since 2000 is £10.6bn (an 11.4 per cent increase). Additional costs have been avoided by reducing the amount of equipment the Department originally planned to buy. Had the Department not reduced equipment numbers, cost growth could have been between £18.2bn and £19.4bn (approximately 20 per cent) above the approved costs.

Amyas Morse, head of the National Audit Office, said today, “The Ministry of Defence has been hampered by a legacy of poor planning and performance on some past projects, and the resulting cuts and delays are not value for money. But it is welcome news that the Department has finally accepted that the financial position it is in is serious and is actively working towards balancing its books in the longer term.”

The 15 major projects examined by the NAO were: the A400M transport aircraft, the Airseeker surveillance system, the Astute programme, the Beyond Visual Range air-to-air missile, the Future Strategic Tanker Aircraft, the Joint Combat Aircraft, the Lynx Wildcat helicopter, the Merlin Capability Containment Programme, the Puma Life-Extension Programme, The Queen Elizabeth Class Aircraft Carrier, the Specialist Vehicle, the Type 45 Destroyer, the Typhoon aircraft, the UK Military Flying Training System and the Watchkeeper surveillance vehicle.

In response to the National Audit Office’s Major Project Review 2011, Defence Secretary Philip Hammond said, “This Government inherited a black hole in the Defence budget, and the NAO has rightly welcomed the fact that we are now balancing the MOD’s books. We have got a grip on the equipment programme through the difficult decisions taken in the SDSR and radical reform of the Department. The trend of vast cost increases seen under the last Government has been halted. The 0.9 per cent overall increase this year is still too much, but it is seven times lower than the last year of the prev

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