The Ministry of Defence (MoD) has been “over-optimistic” in its forecasts of procurement savings over the next 10 years, according to the National Audit Office (NAO).
In a report on the MoD’s Equipment Plan 2014-2024, which sets out how much the department expects to spend on materiel, the NAO said the MoD had “removed more than £6 billion from budgets within the plan in anticipation of achieving significant savings”.
The plan, which totals £162.9 billion, includes a procurement budget, where savings of £2.25 billion are predicted, and a support budget, where £4.1 billion of savings are expected.
The NAO said “only a limited proportion of the anticipated savings have been achieved so far” and “if savings are not achieved the department will need to adjust its budgets, possibly requiring it to use money set aside for future projects or to delay or cancel existing projects”.
“Project teams continue to make over-optimistic forecasts of procurement and support costs,” said the NAO. “Budgets set using over-optimistic forecasts could result in overall budgets for procurement and support being significantly understated."
The NAO said a contingency of £4.6 billion across the 10-year plan "may not be enough to mitigate the combined effects of underestimates in project team forecasts of procurement and support costs" and if it was insufficient "the department would need to draw on the £9.2 billion set aside to deliver equipment needed for wider defence capability currently outside the core programme".
The NAO also reviewed the MoD’s forecast costs for a range of defence projects and found these had “not changed significantly during 2013-14”.
Amyas Morse, head of the NAO, said the review revealed “a number of positive features, not least the relative stability of forecast project costs”.
“The Ministry of Defence has, however, chosen a higher risk approach to managing the affordability of the equipment plan by relying on over-optimistic forecasts of costs and future savings, not all of which might be achievable in reality,” he said.