NATIONAL AUDIT OFFICE REPORTBY THE COMPTROLLERAND AUDITOR GENERAL The 1991 Statementon Major DefenceProjects ORDEREDBY THE HOUSEOFCOMMONS TO BE PRINTED 10 JULY1992 LONDON:HMSO 121 f7.95 NET THE 1991 STATEMENT ON MAlOR DEFENCE PROJECTS This report has been prepared under Section 6 of the National Audit Act, 1983 for presentation to the House of Commons in accordance with Section 9 of the Act. John Bourn National Audit Office Comptroller and Auditor General 25 June 1992 The Comptroller and Auditor General is the head of the National Audit Office employing some 900 staff. He, and the NAO, are totally independent of Government. He certifies the accounts of all Government departments and a wide rangeof otherpublic sectorbodies; and he hasstatutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources. THE 1991 STATEMENT ON MAJOR DEFENCE PROJECTS Contents Page Part 1: Introduction 1 Part 2: Analysis of the 1991 Statement 3 Part 3: Changes to the format of the Major Projects Statement 9 Part 4: Lessons from specific projects 12 Part 5: The Auxiliary Oiler Replenishment Vessel 20 Glossary 29 Appendices 1. Extracts from the 1991 Major Projects Statement 31 2. Project Summary Sheet 40 THE 1991 STATEMENT ON MAJOR DEFENCE PROJECTS Part 1: Introduction Origin of the Statement Major Projects Statement itself is provided, in full, to the Committee by the Department. 1.1 The 1991 Major Projects Statement is the tenth to be produced by the Ministry of Defence (the Department). The Statement The form of the Statement was introduced at the request of the Committee of Public Accounts and stemmed 1.5 The Major Projects Statement comprises from their 9th Report, Session 198142, three tables with explanatory notes and an which criticised the absence of any annex with project descriptions. Key extracts requirement for the Department to inform from the Statement are reproduced in Parliament about the costs of major defence Appendix 1. Briefly, the tables include the projects. The Statement was intended to following information: provide improved visibility of the progress Table I-Projects for which the Treasury and costs of major defence equipment have authorised expenditure totalling f250 projects. million or more. Details are provided on the original and current estimates of both total 1.2 In previous years both the Major Projects project costs and timescale. Statement and the associated National Audit Office memorandum were provided to the Table II-Estimates, at present prices, of Committee of Public Accounts on a additional expenditure on those projects confidential basis. At a hearing, in November already shown in Table I which is planned 1991, to consider the 1990 Statement the and in clear prospect, but is not yet formally Committee expressed concern at the extent approved; for example, where some public to which the Statement and accompanying statement gives reasons to believe that National Audit Office memorandum were Ministers will or may wish to incur afforded relatively high security expenditure in due course. classifications. Table III-Projects in the early stages of development expected to qualify for 1.3 In the light of these developments and in inclusion in Table I and on which actual keeping with the current drive towards more expenditure has reached 00 million or more. open government the Department, in discussion with the National Audit Office, have sought to minimise the extent to which Examination by the National facts and figures in the 1991 Statement and associated report are given a security Audit Office classification. As a result, both the 1991 Statement and the National Audit Office 1.6 The Major Projects Statement is not an report on the Statement contain very little accountable document and the National information of a classified nature. For the Audit Office do not verify its completeness first time this has enabled the National Audit and accuracy in detail. Rather, they seek to Office to publish its findings, together with highlight aspects that arise from the key information from the Statement itself. statement. 1.4 Inevitably, a very small number of facts and 1.7 The main areas examined by the National figures are commercially sensitive and cannot Audit Office in relation to the 1991 Statement be included in this report since disclosure lVt?R?: could undermine the Department’s an analysis of the 1991 Statement negotiating stance and/or the contractor’s (al focusing on those projects appearing to commercial position. The National Audit show the greatest cost variances and in- Office have provided the Committee of Service date slippages (Part Two); Public Accounts with a separate memorandum covering these areas. The 1 THE 1991 STATEMENT ON MAJOR DEFENCE PROJECTS (b) consideration of the ways in which data Cd) an examination of the Auxiliary Oiler presentation could be improved to Replenishment (AOR) Vessel increase the usefulness of the Statement programme (Part Five). and how submission could be speeded Summaries of the main points arising from up (Part Three]: the National Audit Office examination are (c) the lessons that can be drawn from a contained within each individual section more detailed examination of three under the heading “Key Points”. projects: Multiple Launch Rocket System (MLRS) III, DROPS and Harpoon (Part Four): 2 THE 1991 STATEMENT ON MAJOR DEFENCE PROJECTS Part 2: Analysis of the 1991 Statement Introduction In addition, the following factors can also distort comparisons: 2.1 The 1991 Major Projects Statement covers 31 with the reduced number of projects, a projects which vary widely in character. large cost variation on just one or two Table 1 of the Statement (see Appendix 1) projects can have a major and perhaps shows 24 projects, either in full development misleading impact on the overall picture; or production, with total estimated expenditure, at March 1991, of f15 billion moving to the lower force levels set out (1991 prices). Two projects entered Table 1 in “Britain’s Defence for the 90’s” has for the first time in 1991 (JTIDS and UNITER) involved large cuts in production whilst seven projects previously reported numbers. Currently, only estimated have been omitted on the grounds that outturn is adjusted to reflect changes in expenditure is largely complete. These are production quantities. Since Treasury the Single Role Minehunter, Type 2400 Approvals remain unchanged this affects Submarine, Sting Ray, Blowpipe/Javelin, E3- the validity of overall comparisons AEW, Harrier GRS-7 and ALARM. Possible between estimated and approved costs; further expenditure of El5 billion on five in a few cases year-on-year comparisons projects is detailed in Table 2. are made difficult by the corrections relating to prior year n&statements. For 2.2 Table 3 records details of seven projects example, the 1991 Statement records that which are expected to qualify for Table 1 Treasury Approvals were previously once they have received full Treasury overstated for the Sonar 2054 project. Approval (see Appendix I). Five projects previously included in Table 3 have been Consequently, the National Audit Office have omitted from the 1991 Statement. These are concentrated their examination of the 1991 SA80, CRARRV, NIS, Airbourne Anti- Major Projects Statement on those projects Armour Weapon and IUKADGE. In two cases where cost and in-Service date variances (NIS and the Airborne Anti-Armour Weapon) appear most marked. the future of the projects is under review, meaning that the likelihood of them Figure 1: Projects reported in MPS 1987-1991 subsequently qualifying for Table 1 is Year Number of Projects uncertain. In one case (CRARRV) expenditure is now estimated at f227 million 19881987 li (1991 prices) meaning that it does not reach the cut-off required for inclusion in Table 1. 19891990 2 In the case of SABO estimated total 1991 24 expenditure is f284 million but, because Source: Table /, Major Projects Statements 1987.1991 Treasury Approvals for development and Figure 1 shows that projects disclosed in Table 1 to MPS have production currently stand at f236 million, fallen from 40 in 1987 to 24 in 1991. the project has been omitted as it falls below the cut-off for Table I. IUKADGE has been omitted on the basis that expenditure is Variations in projected costs largely complete. 2.4 Treasury Approval for the Department’s 2.3 This report reflects the fact that the marked procurement expenditure is given as a fixed reduction in the number of projects in Table figure, usually with a 20 per cent tolerance. 1 (see Figure 1) to just 24 projects in 1991 and is not uprated for inflation. However, in means that drawing conclusions about the the Major Projects Statement and in this Department’s success in managing projects, Report project costs, at the time of Treasury especially given the variety of project types, Approval have been uprated to 1991 prices to runs the risk of painting a misleading picture. allow cost comparisons to be made in real 3 THE 1991 STATEMENT ON MAJOR DEFENCE PROJECTS terms. A comparison for Table 1 as a whole Office have identified three cases where between estimated and approved costs, shows certain costs have yet to be incurred but a 2.7 per cent increase of estimate over estimated cost overruns have been approval. The National Audit Office have exaggerated by including, in the total reviewed all projects in Table I where the estimated costs, items not yet covered by individual cost variances appear to be greater extant Treasury Approvals. than five per cent to establish the reasons for . DROPS-The 28.8 per cent cost variance this variance. From this analysis the National is wholly attributable to the inclusion, in Audit Office have identified two features total estimated costs but not in total which prevent proper comparisons being approved costs, of production quantities made: for which Treasury Approval has not yet l projects where items are included in total been sought.