HMS Defender was harassed by the Russian military as it travelled close to Crimea © Yulii Zozulia/ Ukrinform/Barcroft Media via Getty Images
HMS Defender was harassed by the Russian military as it travelled close to Crimea © Yulii Zozulia/ Ukrinform/Barcroft Media via Getty Images

MoD 'lacks ability to execute contracts'

24 June 2021

UK military contracts often face cost overruns and lengthy delays because of poor MoD procurement practices and talent shortages within the function, according to the National Audit Office (NAO).

In a report the NAO said poor project management and inadequate performance by suppliers as well as short-term financial planning were hindering contracting at the ministry.

The report cited underperformance against contract by suppliers, lack of project management skills, and a lack of supervision to check whether the MoD was securing value for money as costs and schedules evolved.

The report said the MoD had “historically struggled” to recruit and retain staff with the skills and expertise required to manage programmes and oversee suppliers effectively.

The shortage of qualified staff was a particular problem when it came to digital programmes because the department is competing with a range of public and private sector organisations for this talent.

This leads to a reliance on contractors, which in turn stops the MoD from organically developing its own in-house expertise.

“The MoD will continue to rely on contractors for the foreseeable future but has established relationships with private sector partners to reduce these costs,” said the report.

An emphasis on short-term cost savings meant suppliers were often reluctant to take on risk.

After reviewing 20 programmes worth a combined total of £120bn, the NAO said: “Some suppliers have consistently failed to deliver to time and to cost, resulting in the armed forces not receiving, when needed, all of the equipment originally planned.”

The report found in many cases costs had begun to overrun even before the contract was signed.

In nine of the audited programmes the forecast cost increased prior to the main investment decision, in three cases by more than 59%. Two of these cases were high-profile military procurement packages: the Army’s Challenger III tanks and the Navy’s Type 31e frigates.

And 13 of the programmes examined by the NAO are forecasting net delays of 254 months in going into service due to factors such as over-optimistic scheduling.

One programme – the A400M military transport aircraft – was delayed by around six and half years.

The MoD’s response to cost increases in some cases was to reduce the number of units to be procured to remain within budget. 

“A lack of technical ability to execute contracts to an agreed timetable was a recurring issue for both the MoD delivery teams and suppliers,” said the report. “Suppliers often fell short of defence requirements and MoD delivery teams highlighted issues with their ability to project manage effectively, particularly managing other parts of the supply chain.”

Gareth Davies, the head of the NAO, said: “Too often the MoD doesn’t deliver its major equipment contracts as planned due to a combination of supplier underperformance, a failure of the MoD and suppliers to get to grips with the technical complexity of projects, and [resorting to] short-term solutions to affordability problems.”

The report said that initiatives by the ministry to improve contract delivery with suppliers were at a relatively early stage but had “the potential to address some of the challenges raised in the report”.

An MoD spokesperson said the NAO’s recommendations would be carefully considered, while programmes and training were supporting procurement teams.

“We are responsible for delivering a huge range of complex equipment programmes,” they said. “Aided by our £24bn spending settlement, we remain committed to delivering value for money through new streamlined processes and developing our industry contracts with a focus on delivery.”

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