In a report published today, Wednesday 13 May 2020, the UK Parliament’s Public Accounts Committee says the Ministry of Defence has left the taxpayer to shoulder huge cost increases due to the MoD’s poor contract design and management.
The MoD said it “immensely regretted” the huge waste of taxpayers’ money, which was caused by poor management of three nuclear infrastructure projects, resulting in a combined cost increase of £1.35 billion and with delays of between 1.7 and 6.3 years.
The department also admits that costs could keep rising, as its poor contract design has left the taxpayer to assume financial risk, while doing little to incentivise contractors to improve their performance.
The report finds, as the department itself admitted, that the risks associated with nuclear programmes, civil or military, are too large for private companies, and must be managed by the department, regardless of whether it owns the relevant sites or not.
Lessons to be learnt
The MoD was unable to explain why it has repeated past mistakes – many of which have been repeatedly commented on by the National Audit Office and Public Accounts Committee for more than 30 years – and has failed to learn lessons from comparable projects in the civil nuclear sector and in the United States. The MoD accepted that it must not operate in the same way in the future.
The Committee heard evidence on three of the most significant projects under construction:
-- the AWE plc project MENSA at Burghfield (forecast cost £1.8 billion, completion 2023), where the Department is building a new nuclear warhead assembly and disassembly facility
-- the Rolls Royce owned and operated Core Production Capability facilities at Raynesway (forecast cost £474 million, completion 2026), where the Department is replacing facilities so it can produce the latest nuclear reactor core designs
-- the BAE Systems-owned Barrow shipyard facility (forecast cost £240 million, completion 2022) to allow modular build of Dreadnought-class submarines
Meg Hillier MP, Chair of the Public Accounts Committee, said: “To utterly fail to learn from mistakes over decades, to spectacularly repeat the same mistakes at huge cost to the taxpayer – and at huge cost to confidence in our defence capabilities – is completely unacceptable. We see too often these same mistakes repeated.
“The Department knows it can’t go on like this, it knows it must change and operate differently. The test now is to see how it will do that, and soon.
“We expect the MoD to report to us later this year, in its 2020 update on the Dreadnought nuclear submarine programme, on how it is working with industry and other departments to develop and keep in place the skills it badly needs to take forward nuclear work. We also expect a detailed assessment, of whether the current ownership arrangements for nuclear regulated sites are in the best interests of the taxpayer, to be provided to us by the end of this year.”
The Ministry of Defence (the Department) maintains a submarine-based nuclear deterrent, which relies on a network of programmes, equipment and people, including specialised infrastructure.
Poor management of three on-going critical infrastructure projects on nuclear-regulated sites has contributed to a combined cost increase of £1.35 billion and delays of between 1.7 and 6.3 years.
Each project suffered significant problems in its early stages and the Department said it immensely regretted the amount of taxpayers’ money lost. It accepts that poor contracting had made it difficult to incentivise better performance from contractors, and that it had not engaged effectively with the nuclear regulatory bodies. It also describes its arrangements for the Nuclear Enterprise in the past as ‘fragmented and balkanised’, with insufficient recognition of the interdependencies between projects.
Since 2016, the Department has negotiated some changes to the contract at one of the three programmes—MENSA—to reduce its financial risk exposure. It has also made some improvements to the oversight of the nuclear enterprise, including the infrastructure projects, through creation of the Defence Nuclear Organisation and the Submarine Delivery Agency.
As a result, the Department considers it now has a better understanding and control of the programmes. It has also worked to develop better relationships with the regulators to ensure there is a more effective discussion about the balance between risk and value for money, although it is too early to assess whether all these reforms have been effective. The Department acknowledges that it still has shortages of the specialist skills it needs.
Click here for the full report (22 PDF pages), on the UK Parliament website.