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U.K. Improves Program Cost Control; Delivery Schedules Still Poor

Jan. 9, 2013 - 07:02PM   |  
By ANDREW CHUTER   |   Comments
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LONDON — Britain’s Ministry of Defence got a better grip on equipment program costs in 2011-12 but its control over delivery times was as bad as ever, according to a report on major projects by the governments spending watchdog.

The National Audit Office (NAO) study into Britain’s 16 biggest defense programs pointed to an overall 139-month (11.5 years) increase in delays in forecast completion times of projects during the year. Missiles, Chinook helicopter upgrades, Typhoon fighters and the Falcon communications system led the list of 10 programs to have suffered delays during the 2011-12 financial year.

The NAO recorded 2010-11 delay figures, which covered 15 projects, at just 30 months.

Total program costs rose 468 million pounds ($752.8 million) but a whopping 336 million pounds of that was out of MoD or contractor control because of forecast increases in fuel costs associated with operating a fleet of in-flight refueling/transport aircraft in a private finance deal with Airtanker, set to run a further 24 years.

The EADS-led Airtanker consortium sought to distance the Future Strategic Tanker Aircraft (FSTA) program from the fuel cost increases Jan. 9 by taking the unusual step of releasing the contents of a letter it had sent earlier to NAO boss Amyas Morse, pointing out fuel was the responsibility of the Royal Air Force and outside its contractual terms and therefore shouldn’t be attributed to the FSTA program.

Three of 14 converted Airbus A330 airliners have already been delivered to the U.K. for use in the 12 billion pound private finance program. The aircraft have started transport duties but are not scheduled to begin in-flight refueling until next year.

Other headlines in the NAO’s annual Major Projects Report include:

• A decision by the MoD not to field a 32 million pound modification of the BAE Systems Falcon communications network developed for deployment in Afghanistan after cryptographic technology issues delayed fielding to the British Army, and the Royal Air Force delayed the program by 15 months.

• Rocket motor and warhead development problems on MBDA’s Brimstone 2 missile, which was designed to meet the RAF’s Selected Precision Effects at Range Capability 1 Block 1. The report also said MoD was committed to a Block 2 program. Inservice date has slipped from 2012 to 2015.

• Meteor beyond-visual-range, air-to-air missile in-service date on Typhoon put back 23 months to June 2017 as a result of delays to completing the first element of the fighter’s future capability improvement, not because of problems with the weapon itself.

• The RAF faces a tactical airlift shortfall of a third from 2022 when the C-130J is scheduled to be withdrawn.

• On the plus side, the NAO reports MoD actions on the upcoming Type 26 Global Combat Ship as evidence the department has started to take a more balanced approach to affordability and requirements.

• At various points in 2017, there will be critical gaps in air transport and infight refueling capability.

• MoD decided not to conduct a capability demonstration of the Fire Shadow loitering weapon program in which the MoD had invested 207 million pounds and is deciding whether it has a future.

• Ninety nine percent of technical specifications are forecast to be achieved by the time the equipment enters service. With poor performance being the perceived norm at Britain’s Defence Equipment and Support organization, publication of the annual Major Projects Report by the NAO had usually been the signal for something akin to a public flogging of the MoD for its inability to control program costs and delays.

This year, though, the NAO’s criticism appears more muted.

Amyas Morse, the head of the NAO, said in a statement that the MoD faced a “difficult task striking a balance between delivering capabilities it wants and those it can afford. There will always be factors over which the Department has limited control, but it must do more to learn from previous. ... The MoD has more to do to address its longstanding issues on project performance.”

Senior executives in London wondered whether Morse and his NAO team might be keeping their powder dry ahead of the publication in the next few weeks of an investigation into the affordability of the MoD’s 159 billion pound, 10-year equipment spending plan.

One executive said it could also be an “acknowledgement that the MoD is beginning to make progress in controlling its costs even though more work needed to be done.”

It will be the first time the NAO has audited the MoD’s 10-year equipment procurement and support program for affordability.

The Conservative-led coalition government submitted the figures last year in what is expected to be an annual audit by the watchdog as part of MoD efforts to keep previously uncontrolled spending in check.

One executive said he thought Philip Hammond, the defense secretary, might be in for a tougher time on affordability than he has been in the major projects report scheduled to be published in London Jan 10.

Last year, Hammond claimed to have balanced the books at the MoD for the first time in years after big cuts to equipment, personnel and capability reduced a 10-year funding gap in excess of 74 billion pounds.

The funding shortfall was generated by unaffordable commitments inherited from the previous Labour administration and a more than 8 percent cut in real terms in the budget between 2010 and 2014 as part of ongoing government austerity measures.

Things may be improving, although it’s dangerous to draw too many conclusions from one year’s results, but some of the statistics released in the Major Projects Report still make unpalatable reading.

The total time to complete the 16 projects has gone from 159 years at their time of approval to an estimated 195 years — a 29 percent slippage against original planned project length .

Costs have risen 11.7 percent from 56.5 billion pounds when the projects were approved to 63.1 billion pounds now.

FSTA, the two Queen Elizabeth class aircraft carriers and the A400M airlifter program resulted in a 637 million pound net increase in the three projects. Cost reduction on Type 45 destroyers, the Astute nuclear attack submarine and Typhoon fighter cost overruns helped restrict the total overspend to 468 million pounds.

The MoD’s decision to do a U-turn and revert to the F-35B short-takeoff fighter to equip the aircraft carriers now under construction, rather than the conventional takeoff F-35C version, happened after the NAO reporting period.

The NAO expects to publish a report on the government’s F-35B decision later this year.

The MoD defended its procurement performance in a statement saying the cost increase represented just 0.8 percent of the 63 billion pound total value of the projects under review, seven times lower than the last year of the previous government in 2010.

Hammond said the government had taken the “tough decisions necessary to get the equipment plan under control. Fuel inflation and other factors outside the department’s control are responsible for three-quarters of the cost increases over the past year”

The MoD statement failed to make any mention of the 139-month slippage in program completion over the year.

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