17 Feb 2014

Reports examine affordability of MOD Defence Equipment Plan

Business graphSummary: Two new reports released by the National Audit Office have outlined the affordability of the MOD’s ten-year Equipment Plan, concluding that work to lay the foundations for future stability in the spending plans has had a positive effect on the Department’s ability to maintain an affordable Equipment Plan.

The MOD’s ten-year Equipment Plan sets out its forecast expenditure plans to provide the equipment the Armed Forces require to meet their objectives. The Plan is split between equipment procurement and support expenditure, which in 2013-14 combine to form 40% of the Department’s planned spending of £164bn.

Addressing the affordability gap

The NAO report examining the affordability of the Plan – Equipment Plan 2013 to 2023 – concludes that there has been significant work done to address the affordability gap assigned to the planned projects. However, there have also been concerns raised about some of the tracking and transparency surrounding the spend, as well scrutiny over the remainder of the expenditure budget.

Around the half of the budget relating to equipment support costs has yet to undergo the same analysis as has been given to equipment procurement, resulting in an inability to judge the effectiveness of this area of the Plan.

In addition, the department does not understand the implications of its £1.2bn underspend on the Equipment Plan in 2012-13, which could lead to issues in future including a risk of slippage against programme implementation and costs in future years.

Major Projects 2013

The NAO Major Projects Report 2013 also examined the MOD spend on large projects, focusing particularly on the final cost of projects in comparison to projections. It concluded that with the exception of a £754m overspend on Queen Elizabeth Class Carriers due to a change in the project requirement, the performance of the other major projects during 2012-13 has resulted in no overall significant cost increases and minimal delays in comparison to previous years.

Excluding the Carriers, there was an overall net cost decrease of £46m across the ten remaining projects outlined in the Major Projects Report.

Despite the positives outlined in the reports, there are risks to the affordability of the plan over the coming years.

As Amyas Morse, head of the National Audit Office, outlined:

“With the exception of the aircraft carriers, the MOD’s largest projects have not shown significant increases in costs over the year and only small in-year delays. However, there remains a legacy of large complex projects that have already suffered significant cost increases and delays. Despite the increased stability there are still risks to affordability. Most significantly the Department has not subjected the half of its equipment budget related to support to the same degree of scrutiny as its procurement costs. Nor can it be certain that the impact of a £1.2bn underspend on equipment and support in 2012-13 will not cause some increased cost and delay further down the line.”

Defence industry insight

While opportunities still exist and the MOD looks to ensure that the £160bn plan remains in place over the next ten years, defence suppliers need to be aware of updates in costings, planned expenditure or budgetary changes and news of coming opportunities in the defence industry.

Learn more about the Defence Contracts International service and ensure you are best placed to benefit from upcoming opportunities.