Overruns ahoy! Is the Type 31 programme headed for troubled waters?

By Jeremy Hutton, Policy Analyst 

Last week the prime minister proudly pledged to “bring shipbuilding back to the UK.” This of course came as something of a surprise, as all of Britain’s current and future warships are British-built anyway.

Nevertheless, underpinning this was the announcement that Babcock International had been awarded the contract to build five Type 31 frigates. Although it is heartening that the government is committed to supporting the Royal Navy, the Type 31 programme may be headed for stormy seas. My latest research paper examined a range of government major projects and found that over-optimism was a frequent cause for overruns. Amongst the 10 projects examined, three ongoing defence projects accrued a hefty £5.65 billion in cost overruns. Given the reputation that the ministry of defence has for going over budget, this unfortunately was not a great surprise. It is with this track record in mind that the Type 31 programme should be viewed with scepticism.

The Type 31 concept emerged following the 2015 strategic defence and security review, which lowered the number of Type 26 frigates to be ordered from 12 to eight. The Type 31 project would fill this gap, but with ‘lighter’ and more ‘flexible’ vessels designed with export potential in mind. Most remarkably however, the National Shipbuilding Strategy ambitiously declared each ship should cost no more than £250 million on average.

Given that the Type 26 frigate is set to cost closer to £1 billion per ship, this low estimate has been granted with more than a little pessimism.

Save the Royal Navy soon questioned the viability of this figure, pointing out that “no Western nation has built a credible frigate even close to this price.” The winning Arrowhead 140 design is based on the Danish Iver Huitfeldt frigate, which reportedly cost around £300 million per ship when built several years ago. In even greater contrast to the Type 26, the five Type 31s are all to be introduced by the end of the 2020s. A remarkably swift turnaround in contrast to other naval procurement projects.

The procurement process encountered a hiccup in 2018 when the bidding process was suddenly suspended amid rumours there had not been enough cost-compliant bids. Whether that was the genuine reason for the suspension is unknown, but it was certainly not far-fetched.

Commentators have since speculated that the £250 million figure could be presented as a base cost, excluding the cost of a range of expensive sensory equipment for a start, or that some equipment could be recycled from the Type 23 frigates being phased out. The latter option had been anticipated as a potential cost saver for the Astute-class submarines, as explained in the cost overruns report, but it didn’t work out then and may not now. The former option has become an increasingly likely scenario, though will do little to dissuade accusations of cost overruns.

As my paper showed, government major projects are often guilty of optimism bias and it seems likely the Type 31 frigate project is no exception. Should the procurement team at the MoD, led by able minister Anne-Marie Trevelyan, somehow produce the 5 ships within budget and on time then it will be a commendable achievement, turning the tide on a recent history of botched defence procurement. Yet as things stand, getting the first ship in the water by 2023 and for an average cost of just £250 million per ship seems a tall order.

If the prime minister is serious about reviving the British shipbuilding industry, ordering a batch of ships that government probably knows will arrive over budget and possibly behind schedule is surely an odd way to go about it. Assuming the government wants to build a reputation for excellence, it should come clean about the true costs of Type 31 before it’s too late. This would ensure the Type 31 is launched not as yet another example of chronic cost overruns, but as the standard bearer of a rejuvenated and competitive British shipbuilding industry.

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