Britain reins in defence equipment costs and project delays

LONDON Thu Jan 10, 2013 12:17am GMT

A plaque is seen on the Ministry of Defence building entrance in London, September 15, 2010. REUTERS/Suzanne Plunkett

A plaque is seen on the Ministry of Defence building entrance in London, September 15, 2010.

Credit: Reuters/Suzanne Plunkett

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LONDON (Reuters) - Britain's Defence Ministry has begun to improve the way it handles major procurement areas, but must still do more to keep costs and delays under control, parliament's spending watchdog said on Thursday.

MPs and state agencies have frequently criticised the Ministry of Defence (MoD) in recent years for letting costs and timelines on multi-million dollar programmes run out of control.

That criticism has grown more acute as Britain struggles to rein in a big budget deficit through state spending cuts that have squeezed voter incomes.

"In respect of its largest defence projects, there are early signs that the Ministry of Defence has begun to make realistic trade-offs between cost, time, technical requirements and the amount of equipment to be purchased," the National Audit Office said in a statement on its latest report into MoD projects.

The report covers the ministry's 16 largest projects, including A400M transport aircraft built by Airbus, Astute submarines and aircraft carriers built by BAE Systems, and the Future Strategic Tanker Aircraft programme.

The audit office said in the 2011/2012 budget year under a Conservative-Liberal Democrat coalition there had been a total slippage of 139 months in forecast delivery times, and a cost increase of 468 million pounds.

That meant that, since the projects were approved, costs had increased by about 6.6 billion pounds, or 12 percent. Delays across the 16 projects totalled 468 months, the office said.

The MoD said the cost increase for the last year represented 0.8 percent of the 16 projects' total value of 63 billion pounds, less than the rate of inflation for the year.

It also compared the 468 million pound rise to what it said was an increase of 3.3 billion pounds over the last year of the previous, Labour government in 2009/10.

"There will always be factors over which the (MoD) has limited control, but it must do more to learn from previous projects .... the Department has more to do to address its long-standing issues on project performance," said Amyas Morse, the head of the National Audit Office (NAO).

The office conceded that fuel price inflation of 336 million pounds over the past year in the strategic tanker programme - a project to lease refuelling aircraft - was not the fault of the MoD, and said cost overruns and delays were to be expected in technically challenging projects such as the aircraft carriers.

Defence Secretary Philip Hammond said the government had "taken the tough decisions necessary to get the equipment plan under control".

"Fuel inflation and other factors outside of the department's control are responsible for three-quarters of the cost increase over the past year," he said.

The EADS-led AirTanker consortium behind the tanker aircraft said rising fuel prices were not an intrinsic part of the project and should not have a bearing on assessments of programme delivery.

(Reporting by Mohammed Abbas; Additional reporting by Brenda Goh; Editing by Kevin Liffey)

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