Conclusions and recommendations
1. The Department's Review of 20 of its largest
projects cut their forecast costs by £781 million, but £448
million of this expenditure did not result in a saving to Department
as a whole as it was transferred to other budgets. The
Department will have to forgo other—so far unspecified—activities
which might otherwise have been financed from those budgets. As
an integral part of any further reviews, the Department should
quantify the opportunity cost to the recipient's budget of having
to absorb such transfers of expenditure, and the impact on their
continued ability to plan and deliver the capabilities originally
expected from those budgets.
2. The Department has made investment decisions
based upon inaccurate forecasts. Such
decisions should be contingent on the outcome of an expert independent
assessor's examination of the technical, financial and commercial
maturity of the major projects and the likelihood they will deliver
military benefits anticipated, similar to the examination conducted
on the Future (Aircraft) Carrier.
3. The cost increases and delays on the Astute
Class submarine project in part stem from failure to preserve
the submarine supply chain. The Defence
Industrial Strategy, introduced in December 2005, provides a framework
against which to make judgements on the sustainment of critical
industrial capabilities. The Department should routinely quantify
the cost implications and operational benefits of sustaining critical
defence capabilities for individual projects. The Department will
also need to apply the learning from the Astute project in planning
for a successor to the nuclear deterrent.
4. The Government has announced plans to embark
on a major project to build a successor to the nuclear deterrent,
which is estimated to cost in the region of £19 billion and
take up to 18 years. Many of the cost
overruns on older projects have been due to over-ambition in the
original design and a failure to properly understand and budget
for costs. The Department will need to apply the learning from
Astute to this new project, including how to realistically plan
and use Computer-Aided Design; keeping to the required timescale
in the design and build cycle; and using new methods of construction
pioneered in the United States of America.
5. Key staff are neither held to account for
a project's failure, nor rewarded for its success. The
Department will now promote staff in post to retain vital skills,
and continuity at key stages of projects, or move staff on in
case of failure. The Department should document its approach and
how it will measure success, so as to evaluate the expected benefits
against the outcomes; and it should share its learning with other
government departments.
6. The Department has not received a share
of the gains on the restructuring of the Skynet 5 satellite communications
deal. It is also doubtful whether the
gain achieved by the contractor, Paradigm, is balanced by the
increased risk Paradigm was taking on under the restructured deal.
Rather than relying on theoretical models and contractor assurance,
the Department should determine the share of the gains to which
it is entitled.
7. The Department has not always sufficiently
understood the capabilities of its key suppliers, to act as an
intelligent customer. The Department should
build on its Key Supplier Management initiative and work with
suppliers to identify areas where more joint training and skills
development would help develop a stronger shared ethos and mutual
understanding.
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