MoD over budget

Combat and communication equipment for the Ministry of Defence has exceeded its forecast cost by more than #3bn, according to a report by the National Audit Office.

NAO chief Sir John Bourn blamed the overspend on cost increases and delays to the MoD’s largest defence projects. The report also said the projects were expected to enter service over three years later than originally planned.

‘Cost variances in the 1997 defence equipment expenditure budget increased on average from 2.6% to 7.5%, while time delays have increased from an average 32 months to 37 months,’ said Bourn.

The NAO examination of the Acute class submarine and Bowman radio systems projects found the procurement strategy had moved from competitive to non-competitive modes.

The report stressed the importance of the MoD acquiring good ‘should cost’ information for non-competitive negotiations, and the potentially adverse effects of departmental deadlines on the successful achievement of objectives in negotiating contracts.

The report also found that technical difficulties on the Hercules transport aircraft and Land Rover utility vehicles projects cost the MoD more than #23m.

The overall cost variance for 20 of the 25 projects had increased by #341m, with #124m of this accounted for by the EH101 ‘Merlin’ helicopter and due mainly to an accident to a pre-production aircraft.

‘Cost increases arise mainly from events which occur between project approval and main contract letting, and from the operation of inflation clauses in fixed contracts.

‘The delays are often caused by technical difficulties and deferring projects to meet budgetary constraints,’ said Bourn.

The MoD accepted the report’s findings in general terms, and said it was taking steps to cut costs and delays.

‘We accept the report for its factual accuracy and will make an official response at our meeting with the public accounts committee later this year,’ said an MoD spokesman.

‘The cost increases and delays were accumulated over many years, and we are taking steps to contain costs as far as possible,’ he added.

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