The Ministry of Defence has responded to a report on delays and escalating costs in its major projects by calling on industry to ‘raise its game’ in delivering equipment on time and on budget.

The National Audit Office’s Major Projects Review looked at the top 20 defence equipment projects in the MOD to the year ended March 31, 2003, revealing that four older projects were responsible for the bulk of the £3.1 billion increase in costs over budget and the total slippage time of 144 months.

The four projects – the Astute-class submarines, the Advanced Air-Launched Anti-Armour Weapon, the Nimrod maritime patrol aircraft upgrade and the Typhoon, formerly the Eurofighter – between them accounted for £2.7 billion of the increased costs (87 per cent of the total) and 113 month (79 per cent) of the time slippage.

All four projects experienced “technical difficulties”, as they deal with equipment at the cutting edge of technology.

These projects were approved before the introduction of the ‘Smart Acquisition’ system of purchasing in 1998, and the NAO study concluded that ‘Smart’ projects are demonstrating more effective control over cost and delivery – although there is no room for complacency.

“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,” said the head of the NAO, Sir John Bourn.

“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.

“The MOD recognises the challenge these concerns present and is giving new impetus to the development of improved acquisition.

“Its approach to managing risk continues to develop, but there is evidence that risks on some projects have still not been sufficiently reduced.

“Future Major Projects Reports will assess whether this management of risk can be translated into better cost and time control.”

Lord Bach, Minister for Defence Procurement, warned: “The improvements that we are making to the way we conduct our business will not, by themselves, address the problems reported by the NAO.”

He said industry must take a share of responsibility for difficulties that have been encountered.

“They must also raise their game to improve performance across acquisition and ensure that projects are delivered to cost and time,” he said.

“We will insist on improvements in industrial project management as a condition of doing business with us."
The three Astute-class boats were ordered by the MOD n 1997 for £1.9bn, with the first of the trio – intended to replace the Navy’s existing hunter-killer submarines – earmarked to join the Fleet around 2005.

The NAO said problems with Astute centred on new design techniques using computers, a shortage of skilled workers at BAE Systems’ yard in Barrow-in-Furness, where the boats are being built, and the sheer complexities of the vessels meant Astute herself was running 43 months late with a predicted extra cost to the programme of £886m.

The auditors say BAE and the DPA, which oversees new equipment projects for the three Armed Forces, have got to grips with many of the problems dogging Astute. The first, HMS Astute, is now due to enter service in 2008, and the second, HMS Ambush, was laid down towards the end of last year.

The NAO is totally independent of Government, and certifies the accounts of all Government departments and a wide range of other public sector bodies.

As head of the NAO, Sir John has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources.