Shooting ourselves in the foot: What's the problem with defence procurement ?

By Jeremy Hutton, Policy Analyst

Defence procurement is a constant bugbear of British governments. Numerous administrations have promised to fix it, all came up short. So what is going on? Is there actually a problem to be fixed, or is it one of perception? Do other countries share similar issues?

The Royal Navy’s two mammoth aircraft carriers are probably the most likely targets for critics of procurement at the MOD. As I covered in a paper looking at cost overruns in 2019, the cost and time of getting them to sea has been around double what early estimates predicted and there were several occasions when it was unclear if they would both make it to sea at all. Even now, the programme could be scaled back. How did costs spiral so far?

The most significant period for cost increases occurred between 2007, when the main investment decision was made, and July 2010, just before the Security and Defence Spending Review of that year. The reason for these increases was, in large part, because of a 2008 decision to slow the build of the carriers in order to ease pressure on the MODs annual budget. In making the decision, the MOD had expected this would increase the project cost by around £900 million based on industry-provided estimates. In the end, it increased the total project cost by £1.56 billion. To put it crudely, that was nearly the equivalent of a single aircraft carrier at the 2007 forecast cost (which expected two carriers for £3.65 billion).

In fairness, this decision was taken in the aftermath of the 2008 financial crisis, and the funds were redirected towards the war in Afghanistan. Nevertheless, it was a costly decision which continuously drained the MOD’s coffers through the last decade.

Nor is this the only instance of the MOD knowingly gerrymandering major projects to fund its day to day budget. 

The Astute-class submarine programme had its initial production slowed around the same time as the aircraft carriers. This not only increased programme costs by £400 million, but also led to forecast costs of £38 million to run the older Trafalgar-class submarines for longer.

Of course, intentional delays are not the only cause for cost overruns. Issues in the procurement of MOD major projects are far from uncommon. According to the 2018-19 major projects report, the MOD has 35 ongoing major projects, and of these just three were given a positive green rating in the traffic light rating system. These discussed instances do however beg the question of whether the current MOD funding formula is appropriate for the scale of the department’s projects and its responsibilities. 

Saving today to overspend tomorrow is not a strategy anyone would recommend, but clearly the MOD has struggled to proceed with procurement projects, which in turn increases costs down the line. In recent months there has been much trumpeting of Dominic Cumming’s desired Whitehall reforms. Meaningful change here could save taxpayers billions, and is a noble ambition for the Prime Minister’s chief adviser.

In the past, these projects were slowed later into the programme, but might it also be the case that similar costs are being factored in from the get go? This would effectively mean that projects are costing more than necessary, but over a longer period of time. This would effectively conceal overruns by accepting the MOD can’t afford to procure them any quicker, even if to do so might be ultimately cheaper.  Although this is speculation, looking at an estimated future frigate procurement schedule produced by Save the Royal Navy, this doesn’t seem far-fetched. The first Type 26 Frigate, HMS Glasgow, is not expected to enter service until the mid-2020s despite being laid down in 2017. This means construction could take as long as 8-9 years. By contrast, the first Type 45 Destroyer, HMS Daring, began construction in 2003, was launched in 2006, and began sea trials in 2007. The Type 31 frigates, which were only ordered in late 2019, could mostly be in service before the first Type 26.

Is the Type 26 a more advanced vessel than either the Type 45 or Type 31?  Without a doubt. But given the history of other recent naval procurement projects and the continued pressure on the defence budget (and, naturally, the painfully slow construction)it would be unsurprising if the Type 26 project has become yet another case of save today, overspend tomorrow. Perhaps if the UK is ever to get value for money from defence, projects should be funded differently, in a way that locks in funding at an earlier stage and, less as an inevitable running cost, but more as an investment to reduce, where possible, future expenditure.

There is also the problem of holding top mandarins accountable for long-term projects. A programme like Carrier Strike will see many civil servants pass through its doors over the lifetime of the project. Some will move on to other parts of the civil service, others will retire, or perhaps move to a private sector role. This will leave them willing to make decisions that may have negative long term consequences (as with Carrier Strike), but some short term advantages. If the MOD is ever to get the confidence of politicians, and critically, the Treasury, this culture of can kicking needs to stop. So far, the present defence secretary Ben Wallace has displayed a refreshingly no-nonsense attitude to some of the issues facing the British military. Hopefully, under his leadership, the UK can turn a page on its recent history of bungled defence procurement and once and for all stop shooting itself in the foot.

Any images used in association with this blog are used under the terms of the Open Government Licence.