Navy's error on warships costs £1.5 billion

23 June 2009

24 June 2009 | Jake Kanter

"Serious mistakes" by the Ministry of Defence (MoD) put the procurement of Royal Navy destroyers £1.5 billion over budget and two years behind schedule, according to a government report published yesterday.

The Public Accounts Committee (PAC) said the project to build six Type 45 Destroyers, approved in 2000, had overspent £1.5 billion and was two years late because of "unrealistic" cost and time objectives set at the start.

The MoD entered a fixed-price contract creating a "massive risk" that costs would increase because many of the elements had not been specified or priced. In addition, 80 per cent of the Type 45 was based on new technology and equipment, but the department was not fully prepared for the potential technical problems.

Following a review, the MoD renegotiated the Type 45 contract in 2007 and there were no further cost increases or delays. The first ship is expected to enter service later this year, but the programme will not reach full capacity until 2011, PAC reported.

It recommended that the MoD improve understanding of technical risks and avoid over-specification. The PAC also said it should assess whether there is sufficient funding available to deliver projects before entering commercial agreements.

Committee chairman Edward Leigh said: "Persistent over-optimism and underestimation of the technical challenge, combined with inappropriate commercial arrangements, led to burgeoning costs and serious delays."

Responding to the report, Quentin Davies, Minister for Defence Equipment and Support, said: "They [PAC] rightly recognise the Type 45 will provide the Royal Navy with a world-class military capability, and they note the improvements made on the programme over the past two years."

A fuller MoD response will be submitted later in the year via a Treasury minute.

SMjun2009

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