MoD shake-up: Major projects to be assessed every quarter - Fox

Published by Ross Macmillan for 24dash.com in Communities

Defence Secretary Liam Fox today outlined plans to tackle the financial mismanagement that blew a £36 billion hole in his department's budget.

He said "fantasy projects" which make their way into the defence programme have to stop, and the department's biggest projects will be regularly assessed.

Speaking to the BBC, he said: "One of the criticisms by the public accounts committee was that projects get started with no real budgets to follow through.

"So I have asked the new Chief of Defence Materiel in the MoD to ensure that no projects begin unless we're sure that there's a budget for development and in procurement and deployment, because otherwise we end up with fantasy projects which are not much more than a wish list, and that has to stop."

Dr Fox laid the blame for overspending squarely on Labour, saying it had created a "conspiracy of optimism".

The Defence Secretary said it was "completely unacceptable" that within the last year of the previous government, two projects alone cost an extra £3.3 billion.

He said: "One of the things that needs to be done is to tackle what is referred to as the culture of optimism, or the conspiracy of optimism as it's sometimes called, where projects come in at unreasonably low prices to get into the defence programme only to find that the costs mushroom later on.

"That's why I think we need to have proper cost assessments very rigorously done from the outset."

The intervention comes after an influential group of MPs warned that the Ministry of Defence has yet to prove it has got the necessary grip on procurement.

The House of Commons Public Accounts Committee has given the department two months to provide precise details on its forecast for the cost of implementing last year's Strategic Defence and Security Review (SDSR).

Dr Fox said he intents to introduce controls where the 20 major projects in the MoD, by value, have to be assessed every quarter that they are on budget and on time.

He said: "If there is a problem with them we will bring in the management team to be answerable for their conduct and, if necessary, I will publish the projects concerned so that shareholders will know exactly which projects might be at risk and the profits of companies at risk in the future."

Dr Fox said the decision to scrap the Nimrod MRA4 aircraft was necessary, and the project was an example of one that is delayed and runs over-budget.

He said: "These aircraft were nine years delayed. They still weren't airworthy and they still had cost the taxpayers billions of pounds.

"What I am doing today is to make we sure don't get another Nimrod project like that because we need to have real time control of these projects.

"It's quite unacceptable that a project should run nine years beyond its time and cost the taxpayers billions with nothing being done to redress that."

The SDSR decisions to cancel the Nimrod and withdraw the Sentinel surveillance aircraft involved the MoD accepting "greater operational risks" and writing off nearly £5 billion of taxpayers' money, the committee said.

"Such decisions are never desirable," said the Public Accounts Committee's (PAC) Major Projects Report.

"The fact that the Department has been pressured to make them offers a compelling argument why it must address the problems which have affected defence procurement for decades and on which our predecessors have commented extensively.

"If it does not, the cycle of failure will continue, with badly needed capabilities being delivered later than planned and cost increases crowding other capabilities out of the equipment programme."

The committee was responding to a National Audit Office report which found in October that the "black hole" in MoD procurement increased by £3.3 billion in Labour's final year in office alone to reach around £36 billion.

It considered decisions in four projects which between them cost the taxpayer more than £8 billion.

The SDSR was published days after the National Audit Office (NAO) report and provided the MoD with an opportunity to re-examine its commitments and make them affordable within the existing budget, said today's PAC report.

The Defence Review slashed billions from spending plans by cutting back on warships, fast jet fighters and thousands of soldiers, sailors and airmen. The department has already started to renegotiate a large number of contracts.

But committee chair Margaret Hodge warned: "In the wake of the Defence Review the MoD still has to spell out whether and how it has got its defence procurement budget under control. The MoD must demonstrate the same discipline in its defence procurement that our forces demonstrate in the field."

The MoD has not yet provided cost data to back up its opinion that fitting catapults and arrester wires to the Royal Navy's new aircraft carriers to allow them to carry a different type of plane will save money, said the report.

The two ships are being built at a cost of £5.2 billion, but as a result of decisions made in the SDSR there will be no planes available for 10 years and one carrier will be mothballed almost immediately.

Today's report said the former administration's handling of the aircraft carrier contract had set "a new benchmark in poor corporate decision-making".

The contract was signed by the MoD in 2008 in the knowledge that it was unaffordable, with the hope that £500 million savings could be found elsewhere in the defence budget, said the report.

When that proved impossible, the department negotiated a two-year delay "without full knowledge of the financial implications of that decision", which eventually amounted to around £1.6 billion.

The cancellation of Nimrod MRA4 sparked controversy last month when the aircraft began being broken up for scrap before even entering service.

The plane, intended to provide anti-submarine and anti-surface warfare capability, was nearly 10 years behind schedule and the decision to scrap it involved writing off more than £3.6 billion of taxpayers' money, said today's report.

Meanwhile, the Sentinel surveillance aircraft which provides long-range radar cover for troops in Afghanistan is expected to be taken out of service in 2015, some 20 years earlier than planned, having cost £1 billion.

And the report detailed a "high-risk decision, based on over-optimism, which cost the taxpayer dear" taken by the MoD in 2004 to remove £1 billion in funding for the Typhoon combat aircraft in the hope that a contractual requirement to buy a third tranche of Eurofighters would eventually be waived.

In the event, the MoD had to commit a further £2.7 billion to the project in 2009/10 to honour its commitments, buying 16 additional aircraft which officials "found it difficult to justify ... on military capability grounds".

Ms Hodge said: "In this one hearing, when we were able to focus on only four projects, we identified over £8 billion of taxpayers' money which has been written off or incurred simply for reasons of delay.

"The scale of the budget shortfall has pressurised the MoD into taking the difficult decision to cancel important military capabilities like Nimrod and Sentinel, thereby increasing operational risks and writing off nearly £5 billion.

"The Department has also been taking short-term decisions to delay and rescope individual projects to keep its in-year spending within the voted limits.

"Such decisions have been taken without a full understanding of the financial implications. The consequence has been hugely damaging - in just one year an increase of over £3 billion in the overall cost of the Department's major projects."

Mrs Hodge told BBC Radio 4's Today programme that generals often competed with each other for the latest equipment or against civil servants for funding, she said.

There was also evidence many projects were levered in to budgets in the hope the Treasury would pick up the bill for extending the schemes, Mrs Hodge said.

She said the £8 billion wasted on projects, including scrapping Nimrod, was money "down the drain". Mrs Hodge rejected Dr Fox's assertion Labour was to blame for financial mismanagement in the MoD.

She told the programme: "I just think that the Labour Government got things wrong but I think it is naive and wrong to presume that you can simply blame a bunch politicians.

"I think there are cultural issues. There is a culture of optimism that dominates the MoD - get something into the budget, doesn't matter if it costs more over time as long, as we have got it in.

"There is this issue of nobody being the final arbiter of decision-making, whether it's the generals competing or the generals against the civil servants. You need to stop that.

"There is the issue that no individual is actually responsible from start to finish for a project. Nobody owns a project, nobody is accountable for a project and there is the issue that people are economical with the truth about the actual costs of each individual project.

"That's not about politics, that's about a long-ingrained culture in the MoD. I wish Liam Fox well, but I think if he simply tries to blame a bunch of politicians he is in the wrong place."