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The MoD is spending hundreds of millions of pounds a year on unproductive activities because it has commissioned more work than it can afford to pay for, says the Defence Select Committee in its Report, Defence Equipment 2010, which is published today.

In its Report, the Committee notes that both the NAO Major Projects Report 2009 and Bernard Gray’s Review of Acquisition for the MoD have confirmed that the MoD’s ten year equipment programme is unaffordable. Furthermore the MoD’s practice of delaying projects so as to reduce costs in the early years of a programme is adding to overall procurement costs and so further increases the funding gap.

The best example of this can be seen in the delay of the Future Carrier Programme which has achieved short term savings but bigger long term cost increases. The £674 million-plus cost of delay represents over ten per cent of the current estimated total cost of £5.2 billion for the carriers. The Report says that such cost increases are unsustainable.

The Committee considers it shocking that the MoD has apparently made no attempt to calculate the full extent of the costs of delays and that it has therefore taken decisions to delay projects without understanding the full implications of those decisions.

The Report also criticises the management of the lengthy development of the FRES programme to produce a new family of armoured vehicles - now effectively closed. There has clearly been a change of direction with the armoured vehicle strategy, although it is not evident whether this is because of the funding gap, or because a considered analysis has rendered the original concept no longer appropriate. Chairman of the Committee, James Arbuthnot, says “We have tried on many occasions in the past to elicit details about FRES from the MoD without ever receiving clear answers. We can only conclude, with regret, that the MoD has none to give.”

During the inquiry, the MoD told the Committee that it had reduced the overall equipment funding gap from £21 billion in 2008 to £6 billion in 2009 but could not explain how this had been achieved. Chairman of the Committee, James Arbuthnot, says, “The Defence Committee cannot fulfil its scrutiny role for Parliament if the MoD refuses to provide such information about its activities. The MoD will need to provide the next Defence Committee with more accurate and complete information.”  The Report notes that while the MoD’s Acquisition Reform Strategy includes a commitment to increase transparency, it provides no details of any concrete steps or milestones for achieving that ambition. 

The research and technology budget has fallen from £540 million in 2007-08 to £471 million in 2009-10 and will decrease further in 2010-11 to £439 million. Fifteen years ago, MoD research expenditure was £665 million, which equates to £947 million in 2008/09 terms. Chairman of the Committee, James Arbuthnot, says “Spending less on research and technology will make the UK defence industrial base progressively less competitive and will make the Defence Industrial Strategy inoperable. To compromise the future development of defence technology, in order to make proportionately small short term contributions to the management of the equipment programme funding gap, is ill-judged. The research programme cannot be turned on and off at short notice and the benefits can only be realised with a consistent and long term commitment of resources.”

The Committee commends the Government for commissioning and publishing the Gray report, and welcomes the commitments set out in the MoD’s Acquisition Reform Strategy for addressing Gray’s recommendations. It notes, however, that while the MoD has come clean about the extent of its problems with the equipment programme, it will now have to work hard to demonstrate that it will not just return to business as usual, but will instead implement effective reform.

NOTE FOR EDITORS:
The Committee was nominated on 13 July 2005. The Defence Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Ministry of Defence and its associated public bodies.

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