Poor contracts leave public facing £1.35bn nuclear defence bill

Will Green is news editor of Supply Management
13 May 2020

Poor contract design and management has left the taxpayer “shouldering ballooning costs” associated with the UK’s nuclear defence deterrent.

In a report the Public Accounts Committee (PAC) said poor management of three nuclear infrastructure projects had resulted in a combined cost increase of £1.35bn and delays of between 1.7 and 6.3 years.

The PAC said the Ministry of Defence’s (MoD) previous contracts had been “poorly designed” and had “left the taxpayer to shoulder the burden of cost increases while doing little to incentivise contractors to improve performance”.

The report was based on projects to build a new facility to assemble and disassemble nuclear warheads, known as Project Mensa (forecast cost £1.8bn), another to replace a facility producing nuclear reactor cores (£474m), and a third to allow modular build of Dreadnought-class nuclear submarines (£240m).

The PAC said Mensa accounted for £1.07bn of the cost increases. Half (48%) of total cost increases, totalling around £400m on Mensa, were due to construction starting before requirements or designs were “sufficiently clear”, which was “time-consuming and costly to subsequently rectify”.

The report said nuclear defence was a “monopoly environment” with four contractors holding 97% of contracts, by value.

It said the MoD accepted criticism that contracts were not well designed and it would not operate in this way in future, with measures including around £37bn of contracts – 252 in total – now subject to single sourcing regulations.

The PAC said it was “unacceptable” that the MoD had failed to learn lessons from previous mistakes and it “cannot explain why it has not learned from these experiences, started before requirements were sufficiently mature, and had not engaged sufficiently with the regulators in the past”.

PAC chair Meg Hillier said: “To utterly fail to learn from mistakes over decades, to spectacularly repeat the same mistakes at huge cost to the taxpayer – and at huge cost to confidence in our defence capabilities – is completely unacceptable. We see too often these same mistakes repeated.

“The department knows it can’t go on like this, it knows it must change and operate differently. The test now is to see how it will do that, and soon.” 

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