£3bn overspend identified in MoD equipment projects

Britain's overspend on its defence projects topped £3 billion last year, more than 6% above their approved costs, according to a National Audit Office (NAO) report published today.

The report focused on the MoD's top 20 defence equipment projects, and found that most of the in-year overspend and time wastage related to four older projects – Astute, Advanced Air-Launched Anti-Armour Weapon, Nimrod and the Typhoon Eurofighter. They account for £2.7 billion (87%) of the in-year cost increase and 113 months (79%) of the in-year slippage.

Astute and Nimrod have both suffered from "technical and project management difficulties", leading to the restructuring of both projects, delays to their in-service dates, and the MoD and industry sharing the cost increases, the report said.

The Advanced Air-Launched Anti-Armour Weapon has experienced "technical difficulties", and trials were rescheduled due to the "prioritisation of Storm Shadow" for "operational reasons". Typhoon has also experienced technical difficulties, compounded by the loss of a development aircraft in November 2002. Delays on both projects have led to "increased costs" as resources are tied up in the projects for longer than planned.

On average, defence projects had fallen nine months behind schedule this year alone. As a result, the audit demanded the MoD "improve performance in the longer term".

The MoD’s approach to managing risk continued to develop, but there was evidence that risks on some projects had still not been sufficiently reduced, the report added.

However, despite the massive defence contract overspend the MoD was "expecting to meet" the capability requirements of its customers.

The Smart Acquisition - which was introduced in 1998 to enable the MoD to buy military equipment "cheaper, faster, and better" - had reaped some benefits as those projects had "performed better" in the last year than those predating its introduction, the NAO said.

Of the 20 projects under consideration, 13 were agreed after the introduction of the Smart Acquisition system.

Presenting the report, NAO chief Sir John Bourn said: "Although it is good news that the MoD expects to meet the technical requirements of the armed forces, I am disappointed by the large rises in costs and delays on four older projects in particular.

"There are encouraging signs that some projects are performing better on cost and time, but it is worrying that others seem to be following the historic patterns of cost increases and slippages as they mature."

For its part, the MoD has called on defence industry to "raise its game" in delivering equipment on time and on budget.

Lord Bach, Minister for Defence Procurement, said that the industry must share responsibility for the "serious difficulties that have been encountered".

"We will insist on improvements in industrial project management as a condition of doing business with us," he said.

Shadow Defence Minister Gerald Howarth described the situation as a "scandal".

“The loser is not just the taxpayer but the Armed Forces too. These huge cost overruns are forcing other vital equipment programmes – like the new aircraft carriers - to be cut and/or delayed," he said.

“The war in Iraq showed how vital it is for good kit to reach the front line and save lives. It is about time the government got a grip for the sake of our servicemen.”

(gmcg)