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• Report: Ministry of Defence equipment plan 2013-23 and major projects 2013
• Report: Ministry of Defence equipment plan 2013-23 and major projects 2013 (PDF)
• Inquiry: Ministry of Defence equipment plan 2013-23 and major projects 2013
• Public Accounts Committee

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:

"The Ministry of Defence has made some progress this year in controlling costs on its major projects and managing the way it procures equipment.

However, we still have concerns over whether the MoD’s Equipment Plan is affordable.

There are some big uncertainties. The Ministry underspent by a huge £1.2 billion on the Equipment Plan in 2012-13. Yet it has no idea whether this is because of genuine savings or whether costs are simply being stored up for later years because of delays on projects.

If the Department does not address this underspending it will be tempting for the Treasury, in seeking further public expenditure reductions, to take these underspends as savings at the expense of the defence equipment capabilities our armed services need.

The MoD also does not properly understand the costs of maintenance and technical support, despite the fact that such support costs, £87 billion over ten years, account for over half of the spend on the Equipment Plan budget.

It also does not know whether its contingency of £4.7 billion is a sufficient buffer against risks to the Plan, for example if planned savings fail to materialise.

The affordability of the Equipment Plan is heavily reliant on achieving significant savings in some of its major programmes. For example, the MoD has assumed savings of over £2 billion in two large programmes, the Complex Weapons and Submarine Enterprise Performance Programmes, but achieving these will be a challenge. Any changes to these two programmes could jeopardise the expected savings and so put affordability at risk.

We are concerned that, despite improvements, cost control of some individual projects remains poor. Project teams do not yet have enough staff with the right skills to employ proper cost and risk management techniques.

The MoD urgently needs to address the shortage of skills across its critical functions. It told us that it needed to be able to pay more to attract and retain people with specialist skills. At the moment it is spending £400 million a year on technical support from consultants.

Treasury and Cabinet Office should look across Government at skills shortages and go for solutions that do not require bureaucratic reorganisations as the only route to enabling Departments to recruit skilled people at market rates.

For its part, the Ministry needs to get a grip on understanding costs and risks across the piece."

Margaret Hodge was speaking as the Committee published its 57th Report of this Session which, on the basis of evidence from Jon Thompson, Permanent Secretary, David Williams, Finance Director, Bernard Gray, Chief of Defence Materiel and Air Marshal Sir Stephen Hillier, Deputy Chief of Defence Staff, Ministry of Defence, examined The Ministry of Defence Equipment Plan 2013–23 and Major Projects Report 2013.

The Ministry of Defence (the Department) has made progress this year in improving its control over the costs of its largest projects and its financial management of major equipment procurement. But against a long history of escalating costs on its major projects, the affordability of the overall Equipment Plan is still uncertain.

The Department still has work to do to properly understand the support costs which account for over half of the annual spend on the Equipment Plan. It underspent on the Equipment Plan by £1.2 billion in 2012-13, but does not know the reasons for the underspend and so cannot be certain that it is not storing up costs for future years. Project and cost control of individual projects is still too often not well managed. Project teams do not yet have enough staff with the right skills to employ proper cost and risk management techniques, good practice in cost and risk modelling is not consistently applied. The Department does not have the robust measures of outturn against forecasts it needs to fully understand the variations in spending against plan, but is moving forward in this area. Any further increases in costs on major projects, such as those which affected the Carriers project in 2012-13, could also put the overall affordability of the Equipment Plan at risk. The Department needs to do further work to develop its overall understanding of the risks to the Equipment Plan, and whether its contingency of £4.7 billion is set at the right amount. It is relying on achieving over £2 billion of savings in two of its major programmes, but achieving these savings will be a challenge. Its plans are based on the assumption of a 1% real terms increase in the Equipment Budget from 2015 until 2023. Given the state of the public finances The Department should plan how it would manage on a reduced budget. It also needs to resolve its skill shortages in areas of expertise that will be vital to managing its major projects and keeping its spending plans on track.

Full article, Conclusions and recommendations