A companion work to the main report (HCP 64-I).

The current defence programme is unaffordable. The Ministry of Defence (MOD) has already reduced the deficit between the defence budget and planned expenditure by £15 billion, but a shortfall of between £6 billion and £36 billion remains. The financial crisis means a substantial increase in funding is unlikely, and closing the gap will require bold action as part of the Strategic Defence Review which is expected after the General Election. The MOD has reduced equipment numbers being bought on some projects and taken short-term decisions to slip other projects, but this approach will lead to long-term cost increases. In 2008-09, costs on the 15 major defence projects examined by the NAO increased by £1.2 billion, with two thirds (£733 million) directly due to the decision to slow projects. This approach does not address the fundamental affordability problems, increases through-life costs and represents poor value for money on the specific projects affected. There are signs of improvement in project cost control with innovative decisions being taken to ensure progress but unless the MOD addresses the underlying budgetary and governance issues it will not consistently deliver value for money nor will the operational benefits of expensive new capabilities be available to the Armed Forces in a timely manner or in the numbers originally planned. The current cost of 15 major military projects has risen by £3.6 billion, compared with the expected costs when the investment decisions were taken. The total slippage, averaged over the 14 major projects with in service dates, is over two years per project.

President Obama and the UK Labour and Coalition governments have all backed the renewed momentum for serious progress towards a world free of nuclear weapons, whilst the UK finds itself embarked on a controversial and expensive programme to renew its Trident nuclear weapons system. What does the UK process tell about the prospects for disarmament?

Central departmental decisions by the Ministry of Defence to try to balance the defence budget have reduced its cash-flow requirements in the short-term but at a long-term cost that represents poor value for money for the taxpayer. Not making realistic budgetary provision for all likely project outcomes and slowing down projects has resulted in a £3.3 billion increase in a single year, 2009-10, in the total cost of the 15 largest defence equipment projects. For the second successive year the cost performance on the majority of projects has been broadly stable and the rate of timescale slippage has also reduced significantly since last year and 98 per cent of Key Performance Indicators are expected to be met. The MOD did not make realistic budgetary provision for all potential costs, for example, on the Typhoon combat aircraft where the Department decided that it needed to spend £2.7 billion on the programme including the purchase of 16 additional aircraft to meet contractual agreements. It has slowed down projects such as the Queen Elizabeth Class aircraft carriers, leading to further project cost growth of £650 million. And, to address cost overruns, the Department has also reduced the number of items, and therefore capability, to be procured. The MOD recently undertook to report annually to Parliament on the affordability of its ten-year equipment plan, which should help deter the corporate practices which have adverse value for money implications.

This is a companion volume to the main report (HC 1520-I, ISBN 9780102976786)

The Major Projects Report 2008 provides information on the time, cost and performance of 20 of the largest military equipment projects being undertaken by the Ministry of Defence, where the main investment decision has been taken, as well as the top 10 projects in the earlier Assessment Phase. In the last year, the 20 biggest projects suffered a further £205 million of cost increases, and 96 months additional slippage. This is the worst in-year slippage since 2003. The total forecast costs for these projects have now risen to nearly £28 billion, some 12 per cent over budget. Total slippage stands at over 40 years, a 36 per cent increase on approved timescales. The number of Key User Requirements reported as being "at risk" of not being met has also increased from 12 to 16 in the last year. This is a disappointing set of results, particularly because the problems are being caused by previously identified failures such as poor project management, a lack of realism, not identifying key dependencies and underestimating of costs and timescales. The reoccurrence of these problems suggests that the Department's latest acquisition reforms, introduced in 2001, are not yet resulting in the Department making better investment decisions or improving the execution of its defence projects. Project delays also have a detrimental impact on operational capability and costs, in some cases forcing the Department to buy interim vehicles and continue using equipment suffering from obsolescence in Afghanistan and either older Hercules aircraft will have to serve beyond their planned out of service date, or other transport aircraft will have to be bought or leased to address a growing gap in capability.

This is a companion volume to the main report (HCP 98-I, ISBN 9780102951486) and a third volume (HCP 98-III, ISBN 9780102951509) which examines the landing ship dock (auxiliary) project

High quality cost estimating gives a business leader confidence to make rational financial decisions. Whether you are a business leader or a cost estimating manager, you have a vested interest in understanding whether you can depend on your organisation's ability to generate accurate cost forecasts and estimates. But how can business leaders have confidence that the cost information that they are being provided with is of high quality? How can a cost estimating manager be sure that their team is providing high quality cost information? QinetiQ's Cost Engineering Health Check is used as a capability benchmarking tool to identify improvement opportunities within their clients' cost estimating capability, enabling them to focus on areas that have the potential to increase their competitiveness. High quality estimating leads to accurate budgets, a reduced potential for cost growth, accurate evaluation of risk exposure, and the opportunity to implement effective earned value management (EVM). The Cost Engineering Health Check employs a standardised competency framework that considers all aspects of cost estimating capability, and provides an objective assessment against both best practice and the industry standard. This framework is based on QinetiQ's long established, tried and tested, Knowledge Based Estimating (KBE) philosophy comprising Data, Tools, People and Process, with additional consideration given to cultural and stakeholder assessments.

The mission of the MoD's (Ministry of Defence's) Defence Equipment and Support (DE & S) organisation is to equip and support our Armed Forces for operations now and in the future. Support to current operations in Afghanistan and Iraq has taken priority and the organisation has performed well. The Urgent Operational Requirement (UOR) system remains highly effective in enabling vital equipment to be provided quickly to the two theatres to meet rapidly changing threats, but there are concerns that UORs represent a partial failure to equip our forces for predicted expeditionary operations, and on their effects on the core budget in future years. DE & S' performance in procuring longer-term equipment declined significantly in 2007-08. The forecast costs for the 20 largest defence projects increased by £205 million and the forecast delays increased by some 100 months in the year. The improvements promised by both the long-standing application of the principles of 'smart procurement' and the more recent formation of the DE & S organisation appear not to have materialised. The FRES (Future Rapid Effect System) programme has been a fiasco, being poorly conceived and managed from the outset. The Committee condemns the failure to date to publish an updated version of the Defence Industrial Strategy and considers that its continuing absence increases the risk that the UK Defence Industrial Base will not be able to meet the future requirements of our Armed Forces. Finally, the UK's future military capability depends on the investment made today in Research and Development. Sufficient funding for defence research needs to be ring-fenced and the MoD must recognise the very high priority of research and reverse the recent cut in research spending.

Defence policy is of continuing interest and concern to all nations. There are armed conflicts and new threats. Difficult choices cannot be avoided. This book has three aims. First, to identify the typical questions raised by economists when studying defence policy. Second, to show how simple economic analysis can be used to answer these questions and contribute to our understanding of defence issues. Third, to provide a critical evaluation of defence policy.