Carrier Strike: the 2012 reversion decision - Public Accounts Committee Contents

Conclusions and recommendations

1.  The Carrier Strike programme comprises two new aircraft carriers, the aircraft that will operate from them, and a new helicopter-based early warning radar system (known as 'Crowsnest'). As part of the 2010 Strategic Defence and Security Review, the Department decided to change the type of aircraft to be flown from the carriers from the Short Take-Off and Vertical Landing (STOVL) variant of the Joint Strike Fighter to the carrier variant. In 2010 the decision was justified by claiming the alternative aircraft would both save money and enhance capability. Yet 18 months on the Department yet again changed its mind. In May 2012, the Department asserted that the benefits expected from switching to the carrier variant of the aircraft would not be achieved, the costs of switching would be significantly higher than projected, and it would delay the operation of the new carriers. Accordingly, the Department decided to revert to the original aircraft type and announced that it would once again be buying the STOVL variant. That change of mind will cost the taxpayer at least £74 million more, though final costs will only be known in 2014.

2.  The Department has a history of making poor decisions, based on inadequate information. In this case, the Department provided decision makers with deeply flawed information on the benefits of changing the type of aircraft which included basic errors, such as omitting VAT and inflation from the costs of converting the carriers. The Department attributed these mistakes, which have cost taxpayers at least £74 million, to the process being rushed and secret.

Recommendation: For the 2015 Strategic Defence and Security Review, the Department must plan now to provide decision makers with improved information, sufficient time to consider options rationally and avoid repeating the mistakes of the 2010 decision.

3.  In justifying its further changes the Department said it had altered its view on the urgency of securing the new capability in service and on how it was going to operate with our allies in deploying the aircraft carriers. It does not make for good planning to have a constant change of view which results in changes to specification and requirements.

Recommendation: The Department must determine its needs and requirements thoroughly and transparently and then do all it can to stick to these over time.

4.  The component elements of the programme will be delivered piecemeal, reducing the benefits from the sums invested. There is a two year gap between the planned delivery and initial operation of the first carrier and aircraft in 2020, and the early warning radar system Crowsnest in 2022, which is essential to protecting the carrier and its crew. In addition, some support shipping will be 30 years old when the carrier comes into service but the Department does not yet have funding to replace them.

Recommendation: The Department needs to align the delivery of the various component projects of Carrier Strike to make the most effective use of its significant investment. It must provide decision makers with the necessary information to prioritise and allocate appropriate funding for the programme and the support shipping to operate the carriers, as part of the 2015 Strategic Defence and Security Review.

5.  Carrier Strike remains a high risk programme as the Department has little control over the technical risks and costs involved in acquiring the aircraft. Despite assurances from the Department, we are not convinced that it has the aircraft contract under control. Although Carrier Strike is over five years from planned operation, significant technical issues, costs and delivery dates for the aircraft are not resolved. There are also significant cost risks associated with in-service contracts for maintenance which have yet to be resolved.

Recommendation: The Department must seek to minimise outstanding risks as soon as possible and it should, drawing on its experience of other aircraft programmes such as Tornado and Typhoon, exert its influence with international partners to ensure that the support arrangements take full account of UK requirements.

6.  The Department has not yet completed crucial negotiations with industry over the carriers. The current carriers' contract is not fit for purpose as it fails to provide industry with any real incentive to control costs. The Department has not been able to transfer delivery risks to contractors and has struggled to manage its relationship with UK industry.

Recommendation: The Department must establish clear cost and time baselines for the completion of the carriers, which the Department must use to monitor progress.

7.  Despite having some 400 staff working on Carrier Strike there is a risk the Department is not managing the programme effectively. Although the Department employs some 400 people on this programme, it may not have the right procurement skills to manage the risks in delivering Carrier Strike effectively. We recognise there have been cuts to this function, but question whether the team is now the right size or if further significant reductions are possible. We are concerned that the Department's staff are wasting their time with bureaucracy and duplicated effort in having to make detailed checks on the operations of contractors, raising a question as to the quality of the contracting process.

Recommendation: The NAO should examine whether the Department has the appropriate mix of staff, skills and capability in procuring equipment and support from industry and whether the Department's processes for managing contracts are fit for purpose.

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Prepared 3 September 2013