Conclusions and recommendations
1. The Department has reduced the forecast
costs of its top 19 projects by some £700 million. These
reductions in forecast costs were not the result of better project
management but were cuts needed to bring the Defence Equipment
Plan under control.
The Department achieved these reductions by cutting the numbers
or capability of equipment, and has yet to demonstrate that it
can consistently manage individual projects to deliver the planned
operational benefits to the Armed Forces to cost and time.
2. Some of the latest capability cuts are
short-term expediencies which may result in an erosion of core
defence capability or in higher costs throughout the life of individual
projects. When deciding how to live within
its overstretched budget, the Department should not make short-term
cuts without first spelling out the longer-term negative impacts
in terms of core capability or poor value for money.
3. The Department's defined levels of capability
do not include the quantity of equipment bought. So they can allow
quantities to be cut to offset cost overruns, without affecting
measured capacity. In defining threshold
levels (minimum acceptable capability) and objective levels (full
capability desired) for equipment capability on projects coming
forward for approval, the Department should reflect quantities
as well as performance characteristics.
4. Despite previous assurances that it had
restructured many of its older projects, at considerable cost,
to address past failures, the Department still attributes much
of its historic poor performance to so called "toxic legacy"
projects which continue to accumulate considerable time and cost
overruns. The Department cannot indefinitely
hide behind past deficiencies, while claiming to be taking a proactive
approach to addressing the problems. It is time that these projects
were put on a firm footing with realistic performance, time and
cost estimates against which the Department and industry can be
judged.
5. The Department has improved its practice
in setting meaningful in-service dates, but still not all future
in-service dates represent the delivery of useable capability
to the frontline. In defining these dates
it needs to incorporate areas such as logistic support and training
to enable the Armed Forces to use the equipment effectively.
6. In co-operating with the United States
on defence projects, the United Kingdom is the junior partner,
which reduces our influence over the project's direction.
Conversely, a lack of focused leadership has stymied progress
on many European collaborative projects. The Department should
routinely analyse co-operative projects to see how far the expected
benefits are delivered, so that it can make better informed decisions
before committing to future co-operative acquisitions.
7. The Department has introduced key supplier
management to assess the performance of its 18 largest suppliers,
but much of the innovation which will drive better acquisition
performance comes from the second and third tiers of the supply
chain. The Department considers that these
arrangements have already had a beneficial impact by focusing
suppliers on areas for improvement, but to maximise the benefits
the Department should progressively extend the principles of key
supplier management through its supply chain.
8. The Defence Industrial Strategy aims to
promote a sustainable and globally competitive defence manufacturing
sector but the Department has not traditionally quantified or
measured these wider benefits. The Department
should more accurately quantify what these wider beneficial outcomes
might be at the time defence acquisition decisions are made, and
should monitor their achievement throughout the life of the project.
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