The MoD has fought off criticism from MPs that a £3bn cost overrun on 25 major military projects was ‘unacceptable’, as was the upward trend in costs.
The House of Commons public accounts committee (PAC) said it was disappointed that the MoD ‘could give us no sense of the speed or scale of improvements it hoped to achieve in relation to cost control’.
John Spellar, defence procurement minister, said the PAC report covered the year to March 1997, before Labour came to power. The Government was ‘determined to tackle the problems of cost overrun and delay in defence procurement’, he said.
‘This is precisely why we started the Strategic Defence Review, when we identified many of the same problems as the committee,’ Spellar said. ‘We are confident that Smart Procurement will deliver significant improvements in the performance of the MoD and better value for money for the taxpayer.’
MPs attacked the MoD for not extracting adequate damages from contractors for problem-prone equipment. An example given was Vickers’ Challenger 2 tank contract, over which the MoD chose not to recover £38m in liquidated damages. Even though the MPs accept that the MoD might not have had any alternative, they said they expected the ministry ‘to draw up their contracts with sufficient provision to protect the taxpayers’ interests, and then to pursue fully any contractual remedies’.
There were cost overruns on an average of 9.1% of approved projects, the report said, while time overruns averaged 37 months.
But the MPs said they were encouraged by the increasing use of firm price contracts which cannot be changed for example, for Eurofighter, which has had firm price arrangements for five years.