by Darwin Friend, researcher at the TaxPayers' Alliance
There are apparently two certainties when it comes to defence projects: costs and delivery schedules will overrun. Currently, only 5 of 32 major projects are due to be delivered on time. Successive governments of all colours have failed to get a grip on this issue. Despite much being made of the involvement of Dominic Cummings, Ben Wallace is just the latest in a long line of defence secretaries attempting to wrestle with this matter.
The TaxPayers’ Alliance has looked before at how poorly taxpayer’s money is spent on defending the realm. A blog earlier this year by our policy analyst Jeremy Hutton highlighted just how bad the situation is with projects like the Type 26..
With a massive government review of defence and foreign policy now postponed due the virus, Parliament’s Defence Select Committee has separately called for evidence regarding the UK’s defence industrial policy. While much of the focus of the inquiry is on the contribution of the defence industry to the UK economy, the flip side of this is the huge amount of money spent by government on defence procurement. With so much at stake in terms of accountability and public expenditure, we seized the opportunity and provided our detailed response on behalf of hard-working taxpayers.
Across numerous projects, either designed singularly for the UK or through international collaboration, there have been major issues. This has ranged from the A400M aircraft which required a €3.5 billion bailout in 2010, to the AgustaWestland AW159 Wildcat helicopters where the initial cost was £1 billion in 2006 but revised up to £1.7 billion by 2009. It came as little surprise these staggeringly high cost rises resulted in the UK cutting its orders for both projects. Given the delays and cost increases that have been associated with developing unique defence equipment, the UK should not adopt a “Made in the UK” policy. Instead, we should buy more ‘off-the-shelf’ hardware to maximise value for the taxpayer.
Purchasing more off-the-shelf equipment would avoid the time and cost issues which arise when developing complex equipment independently. For the examples above,the UK could have purchased more C-17 aircraft and Black Hawk helicopters at a lower cost. This would also allow for greater interoperability with the UK’s allies. Nor would such a policy be a first, with the United States and Netherlands already using off-the-shelf technology. If it’s good enough for them, then why not for us?
Of course some might argue that such a move would threaten critical national security procurements, such as the Dreadnought-class of ballistic nuclear submarines.. Few would suggest that an off-the-shelf policy should be deployed on such projects. It would be simple to separate projects with critical national security considerations, and those without. Those in the latter category would use an off-the-shelf policy, while the former would be given an exemption. We might find that having the option of commercial off-the-shelf would do wonders for improving the offer from our own defence manufacturers.
Major failures have not always been the fault just of defence providers. It takes two to tango, and they have just as often occurred as a result of failings by the Ministry of Defence. Most notable is the experience between the Army and Capita, which was contracted to manage recruitment. Due to the overly complex contract demands, as well as Capita underestimating the project, an online recruitment system was completed four years late, potentially resulting in 1,300 fewer enlistments. The recruitment target has been missed every year. If the MoD is to ensure the UK defence industries have the appropriate skills and competencies, then it needs to play its part in vetting providers and managing their progress to ensure they can fulfil contract obligations.
By not adequately scrutinising the activity of a provider, the department is willingly allowing targets to be missed. As a recent report by the Public Accounts Committee revealed, Capita made the bid for the recruitment contract as it was “chasing revenue”. Yet the MoD handed them the contract regardless. Failure to properly scrutinise bids inevitably led to spiralling costs and an unfulfilled contract.
There is also the long-running problem of the MoD prioritising the annual budget over long-term value for money. The National Audit Office described it as being “locked into a cycle of responding to short-term financial pressures”. For example, the Protector drone programme saw its budget swell by £187 million due to a two year delay. In the short term, slowing procurement projects and spreading costs over a longer period looks good for the MoD. But in the long run, it requires taxpayers to dig even deeper into their pockets.
Sadly, it doesn’t end there. All of these issues ultimately lead to the MoD failing to provide realistic cost forecasts on a consistent basis. As Mark Francois pointed out at a recent hearing, the MoD’s equipment plan was deemed to be unaffordable by the NAO to the tune of between £2-13 billion. These levels of mis-estimates are simply unacceptable. Of course, the most prominent example is the multi-billion pound Carrier Strike programme, which we analysed in our paper on the cost overruns of major capital projects. Costs soared from £3.65 billion in 2008, to £5.1 billion in 2009, and now to the most recent estimate at £6.8 billion. That’s an increase of £3.15 billion, almost three times larger than the Foreign and Commonwealth Office departmental settlement in 2019-20. These eye-wateringly high costs are not fair for taxpayers. Saving today and overspending tomorrow is not a strategy but a catastrophe waiting to happen.
Things have to change. Value for money for taxpayers has been a secondary consideration for far too long. The MoD can no longer be left to overspend and underestimate, paying above the odds for UK-only equipment and contracts that will never be properly fulfilled. Hopefully, with the coming government mega-review, taxpayers can finally take back control of defence procurement.