Progress on costs but concerns over MoD's equipment plan 2013-23
13 May 2014 01:29 PM
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