House of Commons Public Accounts Committee Ministry of Defence: Major Projects Report 2008 Twentieth Report of Session 2008–09 Report, together with formal minutes, oral and written evidence Ordered by the House of Commons to be printed 30 March 2009 HC 165 Published on 15 May 2009 by authority of the House of Commons London: The Stationery Office Limited £0.00 The Public Accounts Committee The Committee of Public Accounts is appointed by the House of Commons to examine “the accounts showing the appropriation of the sums granted by Parliament to meet the public expenditure, and of such other accounts laid before Parliament as the committee may think fit” (Standing Order No 148). Current membership Mr Edward Leigh MP (Conservative, Gainsborough) (Chairman) Mr Richard Bacon MP (Conservative, South Norfolk) Angela Browning MP (Conservative, Tiverton and Honiton) Mr Paul Burstow MP (Liberal Democrat, Sutton and Cheam) Mr Douglas Carswell MP (Conservative, Harwich) Rt Hon David Curry MP (Conservative, Skipton and Ripon) Mr Ian Davidson MP (Labour, Glasgow South West) Angela Eagle MP (Labour, Wallasey) Nigel Griffiths MP (Labour, Edinburgh South) Rt Hon Keith Hill MP (Labour, Streatham) Mr Austin Mitchell MP (Labour, Great Grimsby) Dr John Pugh MP (Liberal Democrat, Southport) Geraldine Smith MP (Labour, Morecombe and Lunesdale) Rt Hon Don Touhig MP (Labour, Islwyn) Rt Hon Alan Williams MP (Labour, Swansea West) Phil Wilson MP (Labour, Sedgefield) The following member was also a member of the committee during the inquiry. Mr Philip Dunne MP (Conservative, Ludlow) Powers Powers of the Committee of Public Accounts are set out in House of Commons Standing Orders, principally in SO No 148. These are available on the Internet via www.parliament.uk. Publication The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at http://www.parliament.uk/pac. A list of Reports of the Committee in the present Session is at the back of this volume. Committee staff The current staff of the Committee is Mark Etherton (Clerk), Lorna Horton (Senior Committee Assistant), Pam Morris (Committee Assistant), Jane Lauder (Committee Assistant) and Alex Paterson (Media Officer). Contacts All correspondence should be addressed to the Clerk, Committee of Public Accounts, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 5708; the Committee’s email address is [email protected]. 1 Contents Report Page Summary 3 Conclusions and recommendations 5 1 The impact of delays and cost increases on projects 7 2 Managing projects at the early stages 9 3 Delivering successful projects 11 Formal Minutes 14 Witnesses 15 List of written evidence 15 List of Reports from the Committee of Public Accounts 2008–09 16 3 Summary The Major Projects Report 2008 provides information on the time, cost and performance of 20 of the largest military equipment projects being undertaken by the Ministry of Defence (the Department), where the main investment decision has been taken, as well as the top 10 projects in the earlier Assessment Phase. In the last year, the 20 biggest projects suffered a further £205 million of cost increases, and 96 months additional slippage. This is the worst in-year slippage since 2003. The total forecast costs for these projects have now risen to nearly £28 billion, some 12% over budget. Total slippage stands at over 40 years, a 36% increase on approved timescales. The number of Key User Requirements reported as being “at risk” of not being met has also increased from 12 to 16 in the last year. This is a disappointing set of results, particularly because the problems are being caused by previously identified failures such as poor project management, a lack of realism, not identifying key dependencies and underestimating of costs and timescales. The reoccurrence of these problems suggests that the Department’s latest acquisition reforms, introduced in 2001, are not yet resulting in the Department making better investment decisions or improving the execution of its defence projects. In particular, the main investment decisions for Terrier, Soothsayer and the Naval Extremely High Frequency/Super High Frequency Satellite Communications Terminals were made after 2001, yet these were the projects which suffered the largest slippages in 2007–08. Project delays also have a detrimental impact on operational capability and costs. The Terrier and Soothsayer In-Service Dates have already been missed, forcing the Department to buy interim vehicles and continue using equipment suffering from obsolescence in Afghanistan. An additional 3–4 year delay to the A400M aircraft means that either older Hercules aircraft will have to serve beyond their planned Out of Service Date, or other transport aircraft will have to be bought or leased to address a growing gap in capability. On the basis of the annual Report from the Comptroller and Auditor General,1 we took evidence from the Department on the impact of time slippage and cost increases, on managing projects more effectively at the early stages, and on delivering projects successfully throughout their life. 1 C&AG’s Report, Ministry of Defence: Major Projects Report 2008, HC (2008–09) 64 5 Conclusions and recommendations 1. Nine projects have been further delayed in 2007–08. Delays to projects have caused gaps in front-line capability, or increased the risk that gaps may arise in future. In the case of the Terrier armoured engineering vehicle, these gaps have been filled by the purchase of interim equipment but in others, such as the Nimrod MRA 4 aircraft, existing equipment has been kept in service longer than originally intended. In order to better understand and adjust for the impact of delays, the Department needs to measure the full costs of delays to projects, including the costs of maintaining existing equipment in service for longer. 2. The Department has recently announced delays to projects which have not yet reached their main investment decision point. These projects include elements of both the Future Rapid Effect System and the Military Afloat Reach and Sustainability fleet auxiliary programme. Delaying projects to generate short-term savings can create future capability gaps and raise overall project costs. The Department should identify the financial and capability impacts of slipping projects, even if they have yet to pass their main investment decision point. 3. On far too many projects the Department is over-optimistic and sets unachievable cost, time and performance objectives. In future, when making the main investment decision on projects, the Department should develop quantified measures against which to assess how well it has: • understood the capability required and avoided over-specification; • assessed whether the technology can be delivered by industry within the agreed cost and time envelopes; • worked with industry to determine whether they have the right technical and project management skills to deliver the requirement; • identified any key interdependencies with other equipments and developed a strategy in case these impact on the project, and • assessed whether there is sufficient funding available to deliver the project. 4. Recent fixed-priced contracts with industry, for example, on the Terrier and Soothsayer projects, have ensured cost overruns are borne by industry, yet the Department’s influence over these projects has correspondingly been reduced, eroding its ability to tackle project delays. The Department should assess whether the risks to delivery inherent in the type of commercial arrangements it agrees with industry at the start of projects are appropriate. Further, before contracts are placed, it should routinely develop a joint strategy with industry for addressing these risks if they materialise, including, for example, if a gap in capability is created if the project is delayed. 6 5. Although recent progress has been made in licensing project managers, the Department admits that it needs to achieve more consistent skill levels across its procurement staff. The Department should introduce a more consistent approach across its own project management discipline, including further development of staff skills and the use of standardised project management systems. 6. Because many defence projects are very complicated and involve ‘cutting-edge’ technologies and complex commercial arrangements, the Department and industry must work together to solve problems that are likely to occur. Specific actions to encourage both parties to develop a common understanding of the challenges include sharing joint risk analyses and developing more common project and technical management training. 7. The Department is moving towards more incremental procurement strategies on some projects, with work broken into ‘bite-sized chunks’. If well applied in appropriate circumstances, this approach is sensible, but the existing two-stage approval process does not fit well with incremental projects or provide a sound basis for accountability to Parliament. The Department should: • review whether the two-stage approach introduced under Smart Acquisition remains the most appropriate mechanism for delivering all defence projects, and • ensure that publicly reported performance, measured from the decision points for each increment, meet the same rigorous accountability criteria as required for the current key decision point at Main Gate.