| The Major Projects Report 2003 provides information on the cost, time and technical performance for the 20 largest projects where the main investment decision had been taken and the ten largest projects in the Assessment Phase. For the 20 largest projects, the Ministry of Defence (the Department) forecast the costs (excluding two commercially sensitive ones) to be £51.9 billion, an increase of £3.1 billion in the last year and some 6% over approval. Projects that predate the Department's introduction of Smart Acquisition (Legacy projects) accounted for 87% of the predicted cost overrun, some £2.7 billion. The 20 Projects have slipped an average of 18 months beyond their expected delivery dates, with 9 months of this delay occurring in the last year. Legacy projects were responsible for 79% of this slippage, 114 out of 144 months. The Department expects all projects to meet their key user requirements on delivery.[1]
The principles underpinning the Department's relationship with its contractors have evolved over time from a regime of substantial cost plus contracting in the 1970's, to competition and the commercial approach championed by Lord Levene in the 1980's, though never fully implemented, and now Smart Acquisition. None of these approaches have proved universally successful in delivering and sustaining military capability to cost or time, if only because they were never fully carried through as intended.
The principles underpinning Smart Acquisition accord with recommendations made by this Committee and its predecessors and are sound. However, there has been a gap between the theory and its application.
On the basis of a Report from the Comptroller and Auditor General,[2] we took evidence from the Department (on 23 and 25 February) and BAE Systems (on 23 February). We examined four main issues: the impact of the large cost overruns and delays; how the Department understands and manages risk; what more the Department and industry can do to develop a more constructive relationship; and the way ahead to prevent such poor procurement performance being repeated in future.
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