20 Sep 18. Multiple Risks To Delivery Of Continuous At-Sea Deterrent. PAC seeks new assurances on Nuclear Enterprise in context of challenges facing MoD.
REPORT SUMMARY
Since 1969, the Ministry of Defence has maintained a submarine-based nuclear deterrent to support the Government’s national security policy. Over the next 10 years, it faces significant pressures to provide the network of programmes, equipment and people, often termed the ‘Nuclear Enterprise’, necessary to provide this continuous at sea deterrent. At a time when, across the Enterprise, major organisational and governance changes have still to take full effect, the Department needs to bridge a £2.9bn affordability gap, ensure it fills identified skills gaps, sustain its supply chain, and make important decisions on significant, high-profile projects. These include infrastructure upgrades and the defueling and dismantling of the 20 submarines held by the UK. If these complex interdependencies are not managed, alongside the many contractual relationships on which the Enterprise depends, the Department’s ability to provide the continuous at sea deterrent will be put at risk.
COMMENT FROM PAC CHAIR MEG HILLIER MP
“The pressures bearing down on the Ministry of Defence have been laid bare by my Committee this year. In January we reported on the challenges the MoD faces in delivering Carrier Strike – a hugely complex, costly programme intended to be at the heart of national defence for years to come. In May we highlighted concerns that the MoD could find itself more than £20bn short of the funding required to buy all the equipment it says it needs. Last week we recommended action to address the MoD’s ‘make do and mend’ approach to staffing its defence commitments in the face of significant skill shortages in critical trades. There are ongoing concerns about the MoD’s management of its estate and the sometimes woeful standard of accommodation provided for Forces personnel. These challenges, taken with the cost, complexity and risks to delivery of the Nuclear Enterprise, give rise to serious questions about the MoD’s ability to meet its national security commitments. In the past there has been significant slippage across Enterprise programmes. The MoD must now bridge an affordability gap running to nearly £3bn, fill critical skill gaps and ensure its supply chain is maintained effectively – all at a time of significant uncertainty in international politics and trade. I am particularly concerned that the infrastructure available to support the Enterprise is not fit for purpose. The UK has 20 submarines awaiting disposal, nine of which contain fuel. The MoD admits that while it has previously put off dismantling submarines on grounds of cost, this is no longer acceptable on grounds of safety and reputation. The MoD needs to get on top of this quickly and, in general terms, be more open about progress being made with management and delivery of the submarine-based deterrent. It must ensure Parliament has the detailed information it needs to make informed and meaningful judgements.”
CONCLUSIONS AND RECOMMENDATIONS The scale, interdependencies and complexities of the Nuclear Enterprise create timetable risks across programmes. In providing a continuous at sea deterrent, the Department must coordinate various elements including four nuclear deterrent, and six attack, submarines, an estimated 30,000 people and the infrastructure to support them. It must also bring in new submarines as existing ones leave service, and sequence the use of its dock space between submarines needing maintenance and those to be stored for disposal. The Department has not met many previous promises and past programmes have slipped. For example, all seven of the Department’s new attack submarines, the Astute class, were, or are expected to be, delivered late. There have also been delays to the construction of new propulsion production facilities and to the submarine dismantling programme. In 2009, we reported that the Department needed to bring into service its new Dreadnought-class submarines by 2024, when the Vanguard-class starts to leave service. The Department now expects to introduce the Dreadnought-class from the early 2030s and keep the Vanguards operational for at least 37 years, 13 years longer than the design life. The Department provides Parliament with a short annual update on some of these developments, focusing in particular on the Dreadnought programme.
Recommendation: Given the history of significant slippage across different Enterprise programmes, in its annual update to Parliament the Department should set out clearly its key milestones for the next 20 years, with their associated interdependencies, in order to make it easier to track progress across different aspects of the Enterprise, not just the development of Dreadnought. Organisations across the Enterprise, including SDA, DNO, and the Navy and government contractors face continual challenges, including in attracting and retaining the range of skills they need. Initial feedback on the newly established governance arrangements, such as the creation of DNO and SDA, has been broadly positive, with the expectation they will address organisational weaknesses we identified in 2009. However, the Department recognises that it needs to continually review the effectiveness of these arrangements and change them if necessary. Both organisations continue to face challenges in obtaining the right skills, particularly commercial and nuclear expertise, which are in short supply nationally. This has also been problematic for contractors and the Navy, although there have been some recent improvements addressing shortages across Navy military personnel.
Recommendation: The Department should regularly review how its new organisational structures and arrangements are working, and ensure it has the right skills by filling recognised gaps as soon as possible, developing succession plans for senior posts and, where appropriate, working with contractors and government to ensure they and the Department have the skills needed. In providing the Enterprise, the Department relies on four main contractors, whose past performance has been poor, and around 1,500 sub-contractors, many of which are small and specialist. The Department recognises that past contractor performance in building submarines, including the Astute class, has been poor. Consequently, it has rated its commercial relationships as a high risk to programme delivery for Dreadnought. It has introduced a number of changes designed to improve performance, including new ‘alliance’ working arrangements between the main contractors on Dreadnought. The SDA recognises the potential fragility of its main contractors’ supply chains and is now working to understand them better, develop continuity plans if necessary, and to consider common standards across sub-contracts.
Recommendation: The Department should continue to push for high performance across contractors by using more joint incentives and closer working in future contracts, and ensuring a common approach to the supply-chain across contractors. It should update the Committee by March 2019 on ongoing work to understand the supply-chain and its fragility, explaining any contingency plans it will put in place. Wider political arrangements, such as international trade arrangements, could impact on the Enterprise. To provide a continuous at sea deterrent, the UK works with both contractors and allied countries, in particular, the United States and France. The Department is currently involved with US counterparts in relation to the Trident missile programme. On US steel tariffs, the Department says it is not materially concerned about the direct impact of tariffs, but was considering the indirect effect on UK suppliers should their export markets diminish. The Department acknowledges that the UK’s departure from the European Union could affect its supply chain, alongside potentially impacting on the availability of skills availability and regulatory arrangements.
Recommendation: As we get clarity on future international arrangements, the Department should set out for the Committee, by the end of the year, how it will manage the uncertainties arising from political developments and in particular how it will ensure the ongoing prosperity of its supply chain. The Department’s infrastructure, including its facilities to maintain and decommission submarines, does not effectively support the Enterprise. The age and condition of the Enterprise’s 13 UK sites varies, and the Department currently has 52 programmes (valued at £4.9bn) underway to upgrade and renew the estate and facilities across the Enterprise. However, the Department’s infrastructure programmes have a history of problems. For example, upgrades to the AWE warhead assembly facility are six years late, with a 146% (£1.1bn) cost increase, arising in part because the Department started to build with only 10-20% of the design complete. The Department also does not have enough berthing space at HM Naval Base Devonport to maintain and defuel submarines. The UK currently has 20 submarines awaiting disposal, nine of which contain fuel. The Department stated that, although they had deferred dismantling on affordability grounds in the past, this was no longer acceptable on safety and reputation grounds. The Department has started work dismantling its first submarine, which it expects to complete in the mid-2020s.
Recommendation: As a priority, the Department should review and determine its future infrastructure requirements to enable it to better plan and control the costs of these projects, and end the practice of delaying disposal of out of service submarines. Its annual report to Parliament on Dreadnought should also include a progress update on the decommissioning of submarines and key infrastructure programmes. Decisions over the next few years will affect, and potentially increase, costs across an Enterprise that is already unaffordable. The Department has identified a £2.9bn affordability gap across equipment and support programmes in the 10 years from 2018-19, representing 6% of the costs for that period. This figure already takes account of the Department’s decision to delay programmes, commitments to deliver £3bn efficiency savings, and HM Treasury’s agreement for the Department to use £600m of the Dreadnought class contingency in 2018-19. The inherent uncertainties of long-term nuclear programmes, alongside decisions set out above, may affect Enterprise costs. The Department says it cannot guarantee Dreadnought will not exceed its current £31bn budget, given uncertainties such as inflation and foreign exchange rate. Looking beyond 2018-19, the Department’s Modernising Defence Programme will consider further options across nuclear programmes to address the affordability gap.
Recommendation: Given the identified affordability gap, the Department should write to the Committee, following the outcome of the Modernising Defence Programme review and decisions on infrastructure programmes and refuelling, setting out how it will ensure that the funds it needs for the Enterprise are available.
House of Commons and House of Lords Hansard Written Answers
Asked by Tulip Siddiq
(Hampstead and Kilburn)
Asked on: 06 September 2018
Ministry of Defence
International Military Services: Accountancy
171475
To ask the Secretary of State for Defence, for what reasons International Military Services Ltd financially reports under UK Generally Accepted Accounting Principles for small companies rather than the reporting standard for public bodies of International Financial Reporting Standards.
A
Answered by: Stuart Andrew
Answered on: 14 September 2018
International Military Services Ltd reports its annual accounts in accordance with the UK Government’s guidance on preparing annual accounts for a private limited company. This states that a private limited company must meet either the UK Generally Accepted Accounting Practice or the International Financial Reporting Standards.
Asked by Tulip Siddiq
(Hampstead and Kilburn)
Asked on: 06 September 2018
Ministry of Defence
Iran: International Military Services
171477
To ask the Secretary of State for Defence, if he will (a) publish the value of contingent liabilities relating to the ongoing dispute on the International Military Services Ltd debt to Iran and (b) identify the portion of that liability that relates to government to government contracts.
A
Answered by: Stuart Andrew
Answered on: 14 September 2018
There are no contingent liabilities to the ongoing dispute on the International Military Services Ltd debt to Iran. International Military Services Ltd is a commercial company and its published accounts identify provisions made for liabilities.
Asked by Tulip Siddiq
(Hampstead and Kilburn)
Asked on: 06 September 2018
Treasury
International Military Services
171484
To ask the Chancellor of the Exchequer, whether the (a) assets and (b) liabilities of International Military Services Ltd are exempt from consolidation in the whole of Government accounts.
A
Answered by: Elizabeth Truss
Answered on: 14 September 2018
The Whole of Government accounts consolidates organisations that have been classified as public sector by the Office of National Statistics (ONS).
The classification guidance can be found at:
https://www.ons.gov.uk/methodology/classificationsandstandards/economicstatisticsclassifications/introductiontoeconomicstatisticsclassifications
The assets and liabilities of International Military Services Ltd have been consolidated into the Whole of Government accounts in the form of a prepayment and payables, which feeds through from the accounts of Ministry of Defence.
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/727618/CCS207_CCS0318104056-1_MOD_ARA_2017-18_-_Web_PDF.pdf
Disclosure can be found in ‘Note 12 Trade receivables and other assets’ page 186, and ‘Note 14 Trade payables and other liabilities’ page 188.