Conclusions and recommendations
1. The cost overruns and schedule slippages
recorded in the Major Projects Report 2003 mean that the services
will not receive the equipments they need when they have said
they need them. Where
cost and time overruns on individual projects are significant
the Department should better understand and be able to explain
the adverse effect on the future Equipment Programme and the operational
capabilities which the Armed Forces will have to forgo.
2. The Department has accepted a greater share
of risk on the Astute and Nimrod projects, yet was unable to give
firm assurances on timescales and costs. By
the time of the next Major Projects Report the costs should be
well understood, and the Department should clarify the implications
of the risks they are assuming.
3. The Department has developed Technical
and Integration Readiness Levels to help understand programme
risk. Developing a constructive relationship
with industry is central to successful project delivery. The Department
should develop Commercial Readiness Levels to provide a quantified
basis upon which to assess the strength of its relationships with
industry on individual projects.
4. The Department's policy is to spend 15%
of the initial procurement costs of a system in the Assessment
Phase. Yet it currently spends less than 5%. It should follow
its own policy.
5. In a number of cases, such as the Astute
submarine and the Support Vehicle, the Department and industry
made poor decisions and committed to unrealistic programmes.
The Department is in a long lasting relationship with many of
its suppliers where success will only be achieved by establishing
programmes which hold the prospect of securing a fair risk and
reward balance. The Department and industry should explore how
better to share information on costs, risks and potential opportunities
for mutual gain to help both partners to structure deals appropriate
to the circumstances of individual programmes.
6. Experience on, among others, the Nimrod
and Astute programmes, highlights that agreeing long-term fixed
price contracts covering both development and production for complex
defence equipment programmes is not workable.
7. In the past, the relationship between the
Department and its contractors has too often been characterised
by an emphasis on what to do in case of failure and a culture
based on the apportionment of blame. In
agreeing future programmes the Department and industry should
define commercial arrangements which provide a financial incentive
to both parties to improve on cost, time and performance estimates,
without setting targets which are easy to beat and so provide
a false impression of success.
8. The definition of value for money in the
Defence Industrial White Paper is broad and, in theory, embraces
the concerns of government and industry. However, tensions and
misunderstandings remain. In making future
decisions it will be important for the Department fully to involve
other government departments and industry from the outset in evaluating
the full range of potential outcomes, including implications for
industrial capacity and skills.
9. Appointing Senior Responsible Owners to
co-ordinate the delivery of major capabilities such as Carrier/Strike
is sensible. As envisaged by the Department, however, the role
seems to be without direct managerial or budgetary control.
The Department should provide a clearer account of exactly how
Senior Responsible Owners will fit into the procurement system.
10. The Department should develop measures
for the whole equipment lifecycle covering time, cost and quality
issues. The measures which the Department
is introducing to measure improvements in procurement performance
focus mainly on the acquisition stage.