MoD must ‘get a grip on understanding costs and risks’

Gurjit Degun
12 May 2014

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13 May 2014 | Gurjit Degun

The Ministry of Defence (MoD) must “get a grip on understanding costs and risks”, Public Accounts Committee (PAC) chairman Margaret Hodge has said.

Today’s PAC report said that cost controls for some of the MoD’s projects for its Equipment Plan “remain poor despite improvements”.

It examined the department’s latest update on its 10-year Equipment Plan, which forecasts expenditure plans to deliver and support the equipment for the Armed Forces. Each year, the MoD also presents a Major Projects Report to government, providing details on cost, time and performance of the largest defence projects.

The PAC said the affordability of the overall Equipment Plan is still “uncertain” even though the MoD has “made progress in improving its control over the costs of its largest projects and its financial management of major equipment procurement”.

The report also explained that the department needs to “properly understand” costs that account for over half of the annual spend of £164 billion on the Equipment Plan. “It under spent on the Equipment Plan by £1.2 billion in 2012-13, but does not know the reasons for the under spend and so cannot be certain that it is not storing up costs for future years,” the report said.

“Project and cost control of individual projects is still too often not well managed. Project teams do not yet have enough staff with the right skills to employ proper cost and risk management techniques, good practice in cost and risk modelling is not consistently applied.”

PAC chairman Margaret Hodge added: “If the department does not address this under spending it will be tempting for the Treasury, in seeking further public expenditure reductions, to take these under spends as savings at the expense of the defence equipment capabilities our armed services need.

“The MoD also does not properly understand the costs of maintenance and technical support, despite the fact that such support costs, £87 billion over 10 years, account for over half of the spend on the Equipment Plan budget.

“It also does not know whether its contingency of £4.7 billion is a sufficient buffer against risks to the Plan, for example if planned savings fail to materialise.

“For its part, the ministry needs to get a grip on understanding costs and risks across the piece.”

Defence minister Philip Dunne said: “We are confident that the £164 billion 10-year Equipment Plan is not only affordable, but sustainable, meaning we no longer have to make short-term cuts that delay programmes. By balancing the budget for the first time in a generation, we are now able to prudently protect our underspend thanks to an exceptional agreement with the Treasury so we are ready to fund future priority projects and ensure our Armed Forces get the equipment they need at the best value for the taxpayer.”

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