A cost-saving decision by the Ministry of Defence to delay the introduction of Britain’s two new aircraft carriers would lead to a long term cost increase of £674 million, a House of Commons defence committee report has found.
The report said that the spending increase on the carrier project reflected wider procurement inefficiencies at the MoD, which it said spent hundreds of millions a year on commissioning work than it could afford to pay for.
The highly critical report said that the MoD’s practice of delaying projects to reduce costs in the early years of a programme only served to add to overall procurement costs and further increase the funding gap within the defence budget.
The committee said it was “shocked” that the MoD apparently made no attempts to calculate the full extent of the costs of delays and that it has therefore taken decisions to delay projects without understanding the full implications of those decisions.
The aircraft carriers - HMS Queen Elizabeth and HMS Prince of Wales - were originally due to enter service in 2014 and 2016. But a decision was taken by the MoD in December 2008 to delay the in-service date of the vessels one and two years respectively. The primary aim was to constrain spending on the project during the four years commencing 2009–2013 by slowing the rate of production.
Ministry of Defence figures reveal that this slowdown is expected to yield a short-term total reduction in spending of £450 million. But after 2013, the costs are forecast to increase by £1.1 billion. The net increase in costs of £674 million, which represents more than ten per cent of the current estimated total cost of £5.2 billion for the carriers, comprises £300 million of direct costs such as extending the work of the design and engineering team by two years and £374 million additional inflation due to the extended programme.
The MoD said that these additional costs would be “managed” in conjunction with the Aircraft Carrier Alliance, which is responsible for making the ships. It said: “We continue to work hard to drive down costs in order to agree the final target cost for the carriers in 2010.”
However, the defence committee said that MoD witnesses providing evidence to oral sessions which had underpinned the report were unable to provide further explanation as to how they would achieve this.
© PE Publishing, 5 March 2010
