NAO highlights cost of delayed refuelling aircraft deal

30 March 2010

30 March 2010 | Helen Gilbert

Procurement shortcomings resulted in the UK Ministry of Defence (MoD) failing to get the best deal for its £10 billion programme to provide 14 refuelling tankers for the Royal Air Force.

According to a report out today by public spending watchdog the National Audit Office (NAO), the MoD signed the deal – which has been delayed for more than five years – following a decision to opt for a private finance initiative (PFI). The report said the PFI decision was driven by affordability pressures and made without a sound evaluation of other procurement routes that would have demonstrated whether the PFI option achieved best value for money.

The NAO also warned there could be further delays if the MoD decides the refuelling tankers, being bought under the Future Strategic Tanker Aircraft (FSTA) programme, should be fitted with flight deck armour and other protective equipment to enable them to operate in “high-threat environments” such as Afghanistan. The modifications could cost several hundred million pounds, the report said.

It added that the delay to the FSTA programme meant the MoD was relying on ageing and increasingly unreliable Tristar and VC10 aircraft to provide air-to-air refuelling and air transport to Afghanistan.

Amyas Morse, head of the NAO, said: “Shortcomings in the early stages of the project put the MoD in a position where the operational pressures of an ageing fleet and the need to maintain the vital airbridge restricted its ability to deliver a solution which achieved value for money.”

He added that despite taking five years longer than planned to sign a contract, the MoD’s progress in delivering the FSTA project had improved since contract signature, and the project is meeting its delivery milestones. “But there is more work for the MoD and its suppliers to do to get the best out of the deal,’ he said.

An MoD spokesman said the department was pleased the NAO acknowledged that the project has achieved all its delivery milestones since the contract was signed to replace the RAF’s air-to-air refuelling and military transport aircraft.

“We recognise there were problems in the early stages in the way we conducted this procurement but lessons have since been learned by the MoD and subsequent deals have introduced mechanisms to ensure greater transparency of costs,” he said.

Meanwhile, UK defence suppliers have called for improved procurement to help give the economy a route out of the recession. Publishing its manifesto, ADS – the UK's aerospace, defence and security trade organisation – said the industry represents 10 per cent of UK manufacturing, is number one in Europe and generates £35 billion per year for the UK economy. Ian Godden, ADS chairman said: “Reform of defence procurement is a vital immediate priority.”

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