World

January 11, 2013

U.K. military must do more on cost overruns

Britain’s defense ministry needs to set more realistic price and delivery forecasts for its largest equipment projects, a watchdog group said Thursday after finding cost overruns in the hundreds of millions of pounds and numerous deadlines pushed back.

The National Audit Office’s report looked at Britain’s 16 largest military equipment projects and found costs have risen 468 million pounds ($749.7 million) and delivery dates pushed back a total of 139 months over the last year. In one case, a communications system developed for use in Afghanistan has been delayed to the point that it won’t be ready until after British troops are set to withdraw from the country in 2014.

Much of the cost increase came from three projects, with one instance largely due to fuel price inflation, but the fluctuations and delays reduce the ministry’s ability to plan and manage its budget effectively, the report said. Finding ways to save money is increasingly important for the Ministry of Defense now because it has been hit hard by the British government’s pledge to cut 81 billion pounds ($129.8 billion) in public spending through 2015.

“There are early signs that the Ministry of Defense has begun to make realistic trade-offs between cost, time, technical requirements and the amount of equipment to be purchased,” the report said. “Nevertheless, the continuing variances to cost and time show the MOD needs to do consistently better.”

The report analyzed the cost, time and performance of projects including the A400M transport aircraft, the Lynx Wildcat helicopter, the Type 45 Destroyer the Typhoon aircraft and the 32 million pound Falcon communications system , which had been intended for Afghanistan.

Since their initial approval dates, costs have increased by 6.6 billion pounds and the projects have been delayed by 468 months – or nearly a third longer than expected, the Audit Office said.

While it would be unrealistic to expect the defense ministry to identify every risk at the start of complex projects, the report said the persistent problems show the Ministry of Defense “has more to learn from historic performance and, in particular, set realistic timescales, although it believes it has started to do so in some cases.”

Some costs, such as 336 million pounds of fuel price inflation affecting the cost of the Future Strategic Tanker Aircraft, are out of the defense ministry’s hands, but it nonetheless needs to learn from previous projects to make the most of the funds it has, said Amyas Morse, head of the National Audit Office.

“The Ministry of Defense faces a difficult task striking a balance between delivering the capabilities it wants and those it can afford,” Morse said. “There will always be factors over which the Department has limited control.”

Margaret Hodge, chairwoman of the parliamentary committee which oversees the Audit Office’s work, said the panel will hear from the defense ministry later in January to find out what it is doing to “finally get a grip” on costs and delays. “Uncertainties around costs make it harder for the ministry to address looming capability gaps such as in air transport and air-to-air refueling aircraft,” Hodge said.

 




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