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

2  Risks to the delivery of the Carrier Strike programme

11. The Carrier Strike programme remains high risk. There are significant technical and commercial risks to the timely and affordable delivery of aircraft and the carriers.[18]

12. In its evidence to the Committee in July 2011, the Department made a strong case for its 2010 decision to reject the STOVL variant to avoid its limitations, which included a shorter range, a smaller bomb bay payload (making integration of UK weapons more difficult), an extra engine and greater complexity, compared to the carrier variant it was then intending to buy. The Department had also pointed out that a vertical landing on the carrier would require significant power and produce a lot of heat and blast, which would have an impact on deck coatings. In hot climates, the aircraft would need to drop its weapons before landing.[19]

13. Given these shortcomings, we questioned why the Department had decided to switch back to the STOVL variant of the aircraft. The Department explained that its confidence in the STOVL variant had increased since 2010. For example, it expected to implement a solution, known as 'ship-borne rolling vertical landing', to enable the aircraft to land on the carrier in hot weather. Despite these assurances we are concerned that significant risks remain.[20]

14. The Department accepted that it has limited control over the final costs of the aircraft, but maintained that it was gaining increasing confidence in the cost estimates and hoped the cost of each aircraft would fall by 2018.[21] The Department explained that it would negotiate on price two years ahead of time and that the price of aircraft would reduce as the number ordered increases. The biggest influence on price would be if there were a significant reduction in the number of aircraft bought by the USA, as this would result in the UK having to bear a higher proportion of the aircraft's fixed developmental and production costs.[22]

15. The Department acknowledged it was also exposed to movements in the sterling-dollar exchange rate. It told us it hedges against the risk of long-term adverse foreign exchange movements to provide some smoothing to exchange rate variations, but a significant move in the sterling-dollar exchange rate would inevitably affect the cost of the aircraft.[23]

16. The Department is currently renegotiating the carriers' contract and its wider maritime agreement with UK industry, with a view to incentivise contractors more by transferring cost risk. The Department accepted that its original cost-plus contract with industry for the aircraft carriers contains only very limited incentives for the contractors and it does not put any real onus on the contracting companies to keep down the cost of the carriers.[24] Currently, the contractors will continue to make a profit until the £5.24 billion target cost has been exceeded by £2.5 billion.[25] The Department acknowledged the importance of changing the terms of the contract, and of transferring significant risks to the contractors, if it is to achieve value for money. The Department aims to conclude negotiations over summer 2013.[26]

17. The Department has some 400 staff working on the three core Carrier Strike projects - the Joint Strike Fighter, the aircraft carriers and Crowsnest.[27] The Department maintained that these numbers were necessary when dealing with industry on major projects. The Department justified this approach based on its experience of the Astute project, where it had initially taken a more hands-off approach but then had to step back in to tackle a number of problems which it then struggled to address.[28]

18   Qq 21 - 35, 75, & 108 - 113 Back

19   'Providing the UK's carrier strike capability' Committee of Public Accounts, HC 1427, 56th Report, 2010-2012, 29 November 2011; Q 111 Back

20   Qq 17, 21 - 35 & 75; C&AG's report, para 3.8 - 3.11 Back

21   Q 18 Back

22   Qq 26, 75 Back

23   Qq 17, 21 - 35 & 75; C&AG's report, para 3.8 - 3.11 Back

24   Q 108 Back

25   C&AG's report, para 3.13 Back

26   Q 108 Back

27   Ev 17 Back

28   Q 99 - 105 Back

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Prepared 3 September 2013