Ministry of Defence's equipment spending plans 'more stable than last year'

Will Green is news editor of Supply Management
26 October 2015

A review of the Ministry of Defence’s (MoD) spending plans by the National Audit Office (NAO) has found “little sign of in-year cost growth or increase in forecast costs”.

In a report the NAO said the MoD’s 10-year Equipment Plan, which includes the costs of procurement and support of military equipment between 2015–2025, was valued at £166.4 billion, up £700 million on the 2014-2024 period, across the nine years they have in common.

However, across the whole 10-year period the 2015–2025 plan was £3.5 billion more expensive, due to a planned increase in spending of £2.8 billion in 2025, said the NAO.

A review of the forecast cost of 13 major projects, where the MoD plans to buy equipment, showed costs “remained stable” during 2014/15 and reduced by £247 million, largely due to “an accounting adjustment on the Typhoon fighter jet project”.

“Forecast costs reduced on five other projects and increased in three, notably the Astute submarine project,” said the report.

The NAO said of the 17 total projects it reviewed, “most teams’ approach to and understanding of risk management is now reasonable”.

“However, we still have concerns about how a core of procurement and support teams in our sample value risks and incorporate those risks into cost models,” the report said. “In seven projects we found that teams were using inflation rates which were either out of date or not evidence-based.”

The report also warned procurement costs could be underestimated by as much as £2 billion, with “three quarters of this amount attributable to four projects, including the Successor and Astute submarines and Type 26 warship”.

Echoing concerns in its last assessment, the NAO said the MoD’s £4.3 billion contingency fund may not be enough and there was a risk the department would have to draw on a £9.5 billion pot it has set aside “to deliver wider defence capability”.

“The Equipment Plan looks more stable than last year and progress has been maintained,” said the report.

“The department will need to remain vigilant, however. Uncertainties about future cost increases of some very high-value projects that are still at the pre-contract stage, together with the department’s need to make room in its budget for the support costs of a range of new equipment currently being procured, show that the drivers of cost increases remain present.”

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