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Poor contracting at MoD leaves taxpayer to shoulder ballooning costs

13 May 2020

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.

Rising costs

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 

Chair's comments

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.” 

Further information

Image: Chris Allen/Creative Commons