The Major Projects Report 2004 examined the cost, time and technical performance in the year ended 31 March 2004 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 at £50 billion, an increase of £1.7 billion in the last year (compared to £3.1 billion in the previous year), bringing them to £5.9 billion over the target cost set at approval (or 13% of the total forecast set at approval). The 20 projects have also had further delays, totalling 62 months, to their expected delivery dates, bringing the cumulative delay to 206 months. Cumulatively, these in-year cost increases and delays place additional pressures on an already-stretched defence budget and mean that the Armed Forces will not be getting the most effective capability at the right time. There will be further cuts or cancellations in equipment, and the Armed Forces will have to operate older, less-capable, less efficient equipment for longer.
Although the Department's performance on delivering equipment to cost and to time is disappointing, its performance on meeting defined capability requirements continues to be good. Eighteen of the 20 projects are expected to meet their key user requirements.
The principles underpinning Smart Acquisition are sound, but have not convincingly improved defence procurement because they have not been consistently applied. On large complex projects, problems in the demonstration and manufacture phases have often resulted. Performing sufficient work in the earlier assessment phase would have created a better chance of identifying potential problems and putting mitigating action into place. The Defence Procurement Agency's recent reforms to reinvigorate Smart Acquisition should promote better applications of the principles but the Agency will have to work hard to ensure that the new reforms succeed where previous initiatives have failed. All stakeholders in defence procurement will need to work closely together with the shared aim of improved acquisition.
On the basis of a Report from the Comptroller and Auditor General, our predecessors took evidence from the Department on 31 January 2005. They examined three main issues: the impact of the continuing large cost overruns and delays; the challenge of handling large complex projects; and whether the latest reform programme will succeed where previous ones have failed. Our conclusions and recommendations in this Report build upon those of our predecessors on previous Major Projects Reports, in particular, that in 2003. The Department responded positively to our earlier recommendations in the Major Projects Report 2003. Both sets of recommendations should now be progressed as a consistent and coherent programme.