1 Enhancing programme and project
management of defence acquisition
1. In 2004-05 following two years of large forecast
cost increases, the Department took steps to bring its Equipment
Plan under control and to deal with continuing cost increases
on some individual projects. For the projects in the Major Projects
Report, forecast costs were reduced by some £700 million
mainly by cutting equipment capability or numbers.[5]
Given previous poor performance in controlling the costs of the
projects in the Major Projects Report, reductions were inevitable.
The Department said that it had only undertaken these cuts after
taking a serious look at what capability it needed in the light
of the current threat and had identified the least damaging solutions.[6]
In some cases, the threat in certain areas had declined, for example,
the submarine threat, and in others fewer weapons were needed
as the Department was purchasing fewer planes, ships and helicopters.[7]
2. We have previously recommended that the Department
be willing to trade off capability to manage cost increases and
to ensure more timely delivery of individual projects.[8]
This trade-off should not result in the delivery of a level of
capability insufficient to meet the needs of the Armed Forces,
but should mean that project teams do not continue to pursue incremental
refinements at unplanned expense in cost and time. The best time
to make major trade-offs is in the assessment phase when decisions
have yet to be reached as to how best to deliver the required
capability and substantial funding has not yet been committed.[9]
But it is important to retain some scope to trade capability later
to bring projects back on track when things go wrong.
3. As projects come forward for approval at the end
of the assessment phase, the Department is now defining a threshold
level of capability representing the minimum acceptable level
below which the equipment would not be worth buying. It also agrees
an objective level of capability, representing the full capability
it would wish to have. These measures, together with the cost
and time ranges approved by the Department, define the envelope
within which trade-offs may be made between cost, time and performance.
This information is shared with the contractor.[10]
4. Meeting either the threshold or objective levels
will not necessarily deliver the required capability to the front-line.
As currently defined, these levels only cover technical aspects
of performance and not the quantity of weapons or platforms required.
For example, although the Meteor missile is currently forecast
to achieve 100% of its Key User Requirements, a recent £55
million cut in the numbers of missiles procured is not taken into
consideration when measuring overall capability.[11]
Consequently, a project could meet all requirements, but not meet
the operational needs of the frontline because the available numbers
of weapons are too low.
5. The Department has decided to collaborate with
France on the Demonstration Phase of the Future Carrier project,
and under the terms of the agreement, France will meet a third
of the Carrier's demonstration costs already borne by the Department.[12]
This contribution will include payments of £55 million, with
approximately an additional £45 million at the end of the
Demonstration Phase if France decides to remain with the project
into the Manufacturing Phase. This collaboration should generate
economies of scale benefits for the United Kingdom but consequential
risks to the in-service date for the Future Carrier will need
to be managed.[13] France
has no joint control over the Demonstration Phase of the Future
Carrier,[14] and the
intended economies arising from collaborating with France are
to be driven by industry, not Governments. Industry demonstrated
its ability to produce such economies of scale on the shared technology
used to meet the Storm Shadow/Scalp cruise missile requirement
for the United Kingdom and France, respectively.[15]
6. Previous European collaborative projects, such
as the Typhoon aircraft, have been beset by a lack of management
direction and problems created by the agreement that the share
of work given to the industry in each partner country be in proportion
to the intended equipment buy, rather than being allocated to
those contractors providing the best value for money. Conversely,
projects involving the United States of America have a dominant
partner, but British control over these projects is more limited.[16]
For example, the Department would prefer that the United States
of America commissioned a second engine for the Joint Strike Fighter
which would involve British industry in its development and is
making its views known.[17]
5 C&AG's Report, para 1.3 Back
6
Q 5 Back
7
Q 32 Back
8
3rd Report from the Committee of Public Accounts, Ministry
of Defence: Major Projects Report 2004 (HC 410, Session 2005-06)
Recommendation 5, p4 Back
9
Q 29 Back
10
Q 30 Back
11
C&AG's Report, p25 Back
12
Q 18 Back
13
Q 21 Back
14
Q 14 Back
15
Q 20 Back
16
Q 43 Back
17
Qq 26-28 Back
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