1.The scale, interdependencies and complexities of the Nuclear Enterprise create timetable risks across programmes. In providing a continuous at sea deterrent, the Department must coordinate various elements including four nuclear deterrents, six attack submarines, an estimated 30,000 people and the infrastructure to support them. It must also bring in new submarines as existing ones leave service, and sequence the use of its dock space between submarines needing maintenance and those to be stored for disposal. The Department has not met many previous promises and past programmes have slipped. For example, all seven of the Department’s new attack submarines, the Astute class, were, or are expected to be, delivered late. There have also been delays to the construction of new propulsion production facilities and to the submarine dismantling programme. In 2009, we reported that the Department needed to bring into service its new Dreadnought-class submarines by 2024, when the Vanguard-class starts to leave service. The Department now expects to introduce the Dreadnought-class from the early 2030s and keep the Vanguards operational for at least 37 years, 13 years longer than the design life. The Department provides Parliament with a short annual update on some of these developments, focusing in particular on the Dreadnought programme.
Recommendation: Given the history of significant slippage across different Enterprise programmes, in its annual update to Parliament the Department should set out clearly its key milestones for the next 20 years, with their associated interdependencies, in order to make it easier to track progress across different aspects of the Enterprise, not just the development of Dreadnought.
2.Organisations across the Enterprise, including SDA, DNO, and the Navy and government contractors face continual challenges, including in attracting and retaining the range of skills they need. Initial feedback on the newly established governance arrangements, such as the creation of DNO and SDA, has been broadly positive, with the expectation they will address organisational weaknesses we identified in 2009. However, the Department recognises that it needs to continually review the effectiveness of these arrangements and change them if necessary. Both organisations continue to face challenges in obtaining the right skills, particularly commercial and nuclear expertise, which are in short supply nationally. This has also been problematic for contractors and the Navy, although there have been some recent improvements addressing shortages across Navy military personnel.
Recommendation: The Department should regularly review how its new organisational structures and arrangements are working, and ensure it has the right skills by filling recognised gaps as soon as possible, developing succession plans for senior posts and, where appropriate, working with contractors and government to ensure they and the Department have the skills needed.
3.In providing the Enterprise, the Department relies on four main contractors, whose past performance has been poor, and around 1,500 sub-contractors, many of which are small and specialist. The Department recognises that past contractor performance in building submarines, including the Astute class, has been poor. Consequently, it has rated its commercial relationships as a high risk to programme delivery for Dreadnought. It has introduced a number of changes designed to improve performance, including new ‘alliance’ working arrangements between the main contractors on Dreadnought. The SDA recognises the potential fragility of its main contractors’ supply chains and is now working to understand them better, develop continuity plans if necessary, and to consider common standards across sub-contracts.
Recommendation: The Department should continue to push for high performance across contractors by using more joint incentives and closer working in future contracts, and ensuring a common approach to the supply-chain across contractors. It should update the Committee by March 2019 on ongoing work to understand the supply-chain and its fragility, explaining any contingency plans it will put in place.
4.Wider political arrangements, such as international trade arrangements, could impact on the Enterprise. To provide a continuous at sea deterrent, the UK works with both contractors and allied countries, in particular, the United States and France. The Department is currently involved with US counterparts in relation to the Trident missile programme. On US steel tariffs, the Department says it is not materially concerned about the direct impact of tariffs, but was considering the indirect effect on UK suppliers should their export markets diminish. The Department acknowledges that the UK’s departure from the European Union could affect its supply chain, alongside potentially impacting on availability and regulatory arrangements.
Recommendation: As we get clarity on future international arrangements, the Department should set out for the Committee, by the end of the year, how it will manage the uncertainties arising from political developments and in particular how it will ensure the ongoing prosperity of its supply chain.
5.The Department’s infrastructure, including its facilities to maintain and decommission submarines, does not effectively support the Enterprise. The age and condition of the Enterprise’s 13 UK sites varies, and the Department currently has 52 programmes (valued at £4.9 billion) underway to upgrade and renew the estate and facilities across the Enterprise. However, the Department’s infrastructure programmes have a history of problems. For example, upgrades to the AWE warhead assembly facility are six years late, with a 146% (£1.1 billion) cost increase, arising in part because the Department started to build with only 10–20% of the design complete. The Department also does not have enough berthing space at HM Naval Base Devonport to maintain and defuel submarines. The UK currently has 20 submarines awaiting disposal, nine of which contain fuel. The Department stated that, although they had deferred dismantling on affordability grounds in the past, this was no longer acceptable on safety and reputation grounds. The Department has started work dismantling its first submarine, which it expects to complete in the mid-2020s.
Recommendation: As a priority, the Department should review and determine its future infrastructure requirements to enable it to better plan and control the costs of these projects, and end the practice of delaying disposal of out of service submarines. Its annual report to Parliament on Dreadnought should also include a progress update on the decommissioning of submarines and key infrastructure programmes.
6.Decisions over the next few years will affect, and potentially increase, costs across an Enterprise that is already unaffordable. The Department has identified a £2.9 billion affordability gap across equipment and support programmes in the 10 years from 2018–19, representing 6% of the costs for that period. This figure already takes account of the Department’s decision to delay programmes, commitments to deliver £3 billion efficiency savings, and HM Treasury’s agreement for the Department to use £600 million of the Dreadnought class contingency in 2018–19. The inherent uncertainties of long-term nuclear programmes, alongside decisions set out above, may affect Enterprise costs. The Department says it cannot guarantee Dreadnought will not exceed its current £31 billion budget, given uncertainties such as inflation and foreign exchange rate. Looking beyond 2018–19, the Department’s Modernising Defence Programme will consider further options across nuclear programmes to address the affordability gap.
Recommendation: Given the identified affordability gap, the Department should write to the Committee, following the outcome of the Modernising Defence Programme review and decisions on infrastructure programmes and refuelling, setting out how it will ensure that the funds it needs for the Enterprise are available.
Published: 21 September 2018