Ministry of Defence : major projects report 2009, twenty-third report of session 2009-10, report, together with formal minutes, oral and written evidence

This report examines whether the Ministry of Defence's (MoD) governance and budgeting arrangements are fit for purpose and whether it understands the serious implications of reprioritising projects after committing to them.

The Committee identifies the serious consequences of failings in the governance and budgetary processes.

Even using the MoD's own, over-optimistic estimates, the defence budget is unaffordable by some GBP 6 billion.

The exact size of the gap is dependent on the assumptions made about future funding, but the gap could easily be GBP 36 billion.

Intentional decisions to delay some projects have increased total procurement costs and represent economies of the short term and overall are poor value for money on the specific projects affected, the report said.

The decisions were taken as part of a wider package to try to make the defence programme affordable over the next few years.

They account for two thirds of the GBP 1 billion of cost increases on projects in the last year.

Crucially, they mean the Armed Forces will not get the operational benefits of new capabilities as quickly as expected. Decisions to delay projects, change requirements and reduce the numbers of equipments being procured adversely affect the MoD's ability to secure value for money from its commercial partners.

The MoD is in the strongest negotiating position with industry before it places a contract.

Slowing projects down once started almost inevitably increases their costs and takes pressure off contractors to become more efficient.