Major defence projects billions over budget
Summary
A two volume report from the National Audit Office identifies the Ministry of Defence’s overspend of £6 billion on its largest projects because of short term changes made to its overall budget.
Volume I of the report, 'The Major Projects Report’ (HC 1520-I), indicates action taken by the Ministry of Defence to balance its overall budget in the short term following the Strategic Defence and Security Review.
For the third successive year, central planning decisions taken by the Department, including project delays, have had the biggest impact on cost growth.
A breakdown of costs includes that:
- central planning decisions account for £237 million of the increase;
- £113 million relates to decisions to enhance capability;
- macro-economic factors, such as adverse foreign exchange rates, account for £176 million of the increase; and
- cost overruns from project-specific technical issues account for £53 million.
During 2010-11, there was a total increase of 30 months (with an average two months per project) in the forecast time to complete these projects and bring them into service. This brings the total delay on all 15 projects to 26.8 years.
Long term cost analysis by the NAO has shown that the difference between the approved and forecast costs of all projects which have had their main investment decision approved since 2000 is £10.6 billion (an 11.4% increase).
Additional costs have been avoided by reducing the amount of equipment the Department originally planned to buy. Had the Department not reduced equipment numbers, cost growth could have been between £18.2 billion and £19.4 billion (approximately 20%) above the approved costs.
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