The UK Ministry of Defence's procurement practices have shown signs of improvement, but major cost overruns are still being encountered as the department "continues to struggle to live within its means", according to a new report from the parliamentary Public Accounts Committee (PAC).
Detailing a total cost increase of £466 million ($735 million) on the UK's 15 most expensive military projects for the period 2010-11, the committee notes a "trajectory of improvement" and says problems are largely linked to deals signed before 2002. Technical issues have not affected any of the programmes launched since 2008, the cross-party group adds.
Worth a total of £60 billion, the projects assessed are now running at a combined £6.1 billion, or 11.4%, above their approved costs and an average of 21 months late, the report says.
Calling on the MoD to "establish a culture of realism and transparency in the way it manages its equipment programme", the report cautions: "The department has made a number of decisions to save cash in the short term without a full understanding of long-term costs and the knock-on effect of increased costs in other areas of the defence budget."
© Richhrly gallery on flightglobal.com/AirSpace
One example is the decision to cancel the Royal Air Force's BAE Systems Nimrod MRA4 maritime patrol aircraft programme after an investment of £3.4 billion, which the PAC says was taken "without a full and complete knowledge of the cost implications". The MoD expects to save £1.9 billion in support costs over a 10-year period by not bringing the aircraft into service, but is still in negotiations to compensate its supplier.
The committee has asked the UK's comptroller and auditor general to assess the value-for-money implications of the decision, along with another that led to the premature retirement of the RAF's and Royal Navy's BAE Harrier ground-attack aircraft.
Additional costs have been incurred by reducing the size of planned orders for new Boeing CH-47 Chinook and upgraded Eurocopter Puma transport helicopters, as well as by trimming the RAF's future fleet of Airbus Military A400M airlifters from 25 to 22 aircraft, the committee says. Once combined with a wider UK programme increase of £607 million, the latter action has seen the A400M's per-aircraft unit cost rise by 46%, the 11 February report says.
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The UK trimmed its A400M order to total 22 aircraft
Contained within the UK government's Strategic Defence and Security Review of late 2010, the MoD's ongoing package of equipment and personnel cuts are intended to address part of a £38 billion "black hole" in the defence budget that it identified for the 10-year period to 2020.
But despite its actions to date, the PAC warns that the defence budget is still only "broadly in balance", and that the MoD's expectations of increased future spending to support its 10-year equipment plan are overly optimistic.
"The department was told at the time of the Comprehensive Spending Review settlement that it could expect 1% real-terms equipment budget increases from 2015. It is planning its budget on this basis, but in the light of current economic conditions that assumption may be unrealistic," the committee concludes.
Publication of the new report comes two days after the UK's National Audit Office (NAO) released another assessing the MoD's management of reduction measures, which include laying off 25,000 military personnel and 29,000 civilian staff by 2015.
"The urgent need for the department to cut costs means it is having to cut its head count in advance of planning in detail how it will operate in the future," the NAO said. "Without real changes to ways of working, cutting head count is likely to result in the department's doing less with fewer people or, alternatively, trying to do the same with greater risk."