Supplementary memorandum submitted by
the Ministry of Defence
Questions 4-7 (Mr Edward Leigh): Transfer of £1
billion worth of defence procurement between budget lines
The principle applied to the transfer of costs
from the projects listed was to ensure that the costs were allocated
in such a way that the performance of individual project teams
in controlling direct project costs could be effectively monitored
and measured, for example in maintaining Defence critical industrial
capability, in accordance with the Defence Industrial Strategy.
Where costs have been transferred to other equipment and support
budgets we have sought to absorb the impact across the wider equipment
and support programme (some 600 project lines) by managing them
within the context of the Department's Planning Round process.
In each Planning Round cost growth is addressed (as well as the
introduction of new capabilities and priorities) across the whole
equipment procurement and support programme.
Capability Audits and Balance of Investment
reviews identify where opportunities exist for the Department
to make choices on how to re-balance the equipment and support
programme, taking into account current pressures such as operations
and the need to deliver Defence priorities. It also allows the
Department to review its priorities and seek to absorb the transfer
of costs from the MPR community within the headroom generated
across the wider equipment and support programme. Investment can
then be reduced (or indeed increased) accordingly in areas of
capability and support, with least impact on current outputs and
operations to accommodate these costs; we are not able to identify
specific reductions relating to specific transfers, and the related
impacts, as they are dealt with across the whole plan.
Question 110 (Keith Hill): It is the case, is
it, that these kind of slippages in time and in cost are experienced
across the board by our allies and indeed in other countries,
as far as we can tell? Perhaps we could have one or two examples
of that
Comparison of MoD performance in terms of time
and cost to that of our allies and indeed other countries is difficult
as the fundamental assumptions underpinning the project can be
difficult to establish or vary significantly. The baseline for
a like for like comparison is therefore difficult to establish.
Nevertheless, a number of studies and benchmarking exercises over
the past few years have confirmed that in general terms the MoD
compares favourably in its overall acquisition performance compared
to International Counterparts. Following the Committee of Public
Accounts hearing on Major Projects Report 2006 a specific comparison
of cost history of nuclear attack submarine construction in the
United Kingdom compared to the United States of America was provided.
This confirmed that despite cost overruns on the Astute Class
submarine the forecast outturn was below the trend line four comparable
submarine projects.
Although a comparison of individual projects
on a like for like basis remains difficult a number of studies
and benchmarking exercises have focused on a more generic assessment
of performance. These include:
— The former Defence Procurement Agency
(DPA) undertook an annual assessment of how good Project Management
Capability was compared to other project management organisations,
including the Australian Department of Defence, by applying the
Human Systems Ltd Corporate Practice Assessment. The DPA scored
highly in terms of its approach, coming second overall in the
entire network and ranked ninth overall for its deployment. Overall
the DPA ranked in the top quartile of participants. This assessment
will continue for Defence Equipment & Support.
— Work by HVR Consulting Services Limited
in 2005, at the request of the Department, to scrutinise cost
and time estimates for 22 major programmes, using information
from the Major Projects Report 2004, and comparing this to outcomes
in other nations and historic Departmental projects. Thirteen
of the projects scrutinised were forecasting to deliver at or
below the cost forecasts produced by the model, and 21 projects
were expected to deliver ahead of the schedule determined from
analysis of comparable programmes.
— The RAND report—Why has the
cost of Navy Ships Risen?—a macroscopic examination of the
trends in US Navy ship costs over the past decades published in
2006 stated that the cost of US nuclear attack submarines was
$2.427 billion. This figure was also quoted by the Electric Boat
President John Casey during a briefing in June 2006. A generic
exchange rate for that period would make the cost of each boat
some £1.403 billion. Current projections suggest that in
steady state production ASTUTE will outturn below £1 billion
per hull.
— In 2005 John Dowdy of McKinsey &
Company and Megan Schwartz of University College London's Defence
Engineering Group published a comparison between the US and UK.
This set out to compare performance of 20 major projects spanning
the last decade with the sample constructed to yield a small number
of comparable programmes in each major project category. The analysis
of the sample by Dowdy & Schwartz showed that the US has suffered
four times greater cost overruns than those experienced in the
UK, with an average 29% increase in the US, versus 8% in the UK,
as measured by unit costs versus original approval. In schedule
performance the average delay for the sample was 46% for the UK
and 41% for the US, although the US analysis was based on less
data. The US result was also significantly influenced by delays
on one programme—the V22. With this removed average schedule
overrun reduced to 23%. The article did, however, acknowledge
that a direct comparison was difficult.
— The United States Government Accountability
Office (GAO) carries out an annual assessment of selected defence
programmes and although, as highlighted earlier, it is not sensible
to make any direct comparison the most recent report, published
31st March 2008 shows that for the 95 programmes assessed total
acquisition costs increased 26% from first estimates and the average
schedule delay in delivering Initial Capabilities was 21 months.
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