By Richard Johnstone | 13 May 2014
The Ministry of Defence must improve its understanding of the costs and risks in its equipment procurement programme, MPs have said after warning that concerns remain over the overall affordability of its plans.
Examining both the MoD’s £164bn Defence Equipment Plan for the ten years from 2013 to 2023 and its Major Projects Report for 2013, the Public Accounts Committee said the department had made progress in improving the cost control of its largest projects and equipment plans.
However, the report concluded that because the department had a long history of escalating costs on its major projects, the overall affordability of its equipment plan remained uncertain.
PAC chair Margaret Hodge highlighted what she called some ‘big uncertainties’ across the spending plan.
‘The ministry underspent by a huge £1.2bn on the Equipment Plan in 2012/13, yet it has no idea whether this is because of genuine savings or whether costs are simply being stored up for later years because of delays on projects.
‘If the department does not address this underspending it will be tempting for the Treasury, in seeking further public expenditure reductions, to take these underspends as savings at the expense of the defence equipment capabilities our armed services need.’
A better understanding of the spending programme was also needed because the affordability of the equipment plan was heavily reliant on achieving significant savings in some of its major programmes, she added.
‘For example, the MoD has assumed savings of over £2bn in two large programmes, the complex weapons and [the] submarine enterprise performance programmes, but achieving these will be a challenge. Any changes to these two programmes could jeopardise the expected savings and so put affordability at risk.
‘We are concerned that, despite improvements, cost control of some individual projects remains poor. Project teams do not yet have enough staff with the right skills to employ proper cost and risk management techniques.’
Given these uncertainties, the department needed to be sure that its current £4.7bn contingency fund for the decade-long programme was set at the right level, Hodge said.
‘Its plans are based on the assumption of a 1% real-terms increase in the Equipment Budget from 2015 until 2023. Given the state of the public finances, the department should plan how it would manage on a reduced budget.’
Responding to the report, defence equipment and support minister Philip Dunne said: ‘I am pleased that the PAC has recognised the radical changes that have taken place to bring spending and procurement under control.
‘We are confident that the £164bn ten-year equipment plan is not only affordable, but sustainable, meaning we no longer have to make short-term cuts that delay programmes.’
