By Richard Johnstone | 13 February 2014
The cost of the Ministry of Defence’s project to build two aircraft carriers increased by more than £750m in the last year, but most of the department’s other projects are on track, the National Audit Office has found.
Analysing the department’s slate of 11 major projects, auditors found the aircraft carrier project had been delayed by the decision in 2012 to revert back to the short take off and vertical landing variant of the Joint Strike Fighter. This decision added £120m to the bill, with additional increases coming from design modification and an underestimation of the cost of labour and materials. In addition to the £754m cost hike, the department has estimated there will be a write-off from this decision of £55m.
There was a net cost decrease across the other ten projects, which include construction of seven new submarines, building new armoured fighting vehicle and a weapons programme, of £46m. The costs of all but one of these have changed during 2012/13, with three projects showing increased costs and six reduced costs.
Auditors highlighted this was in contrast to recent years, when the NAO had found significant cost increases on the department’s largest projects. However, The Major Projects Report 2013 stated the legacy of older large and complex projects – and the carriers in particular – continued to have a significant impact on the portfolio as a whole.
Auditor general Amyas Morse said that, with the exception of the carriers, the MoD’s largest projects have not shown significant increases in costs over the year and only small in-year delays.
‘Despite the increased stability there are still risks to affordability,’ he said. ‘Most significantly the department has not subjected the half of its equipment budget related to support to the same degree of scrutiny as its procurement costs. Nor can it be certain that the impact of a £1.2bn underspend on equipment and support in 2012/13 will not cause some increased cost and delay further down the line.’
Responding to the report, Defence Secretary Philip Hammond said there was ‘clear evidence that better financial discipline across the MoD is having a positive effect on the way we procure equipment for our armed forces’.
He insisted that the £754m rise in the cost of the carriers had been budgeted for, and the department had robustly re-negotiated the terms of the contract to prevent further increases.
‘Unlike the past, we do not have to make short-term cuts that delay programmes to simply live within our means,’ he added.
‘Balancing the budget and providing a clearer and more accurate forecast of our future requirements and resources has put the MoD in a stronger position to respond to unforeseen changes and negotiate a better deal with industry.’
