ICAEW 26 June 2020: NAO reports on challenges remaining to the Carrier Strike programme, including cost overruns since their last report in 2017.
The National Audit Office (NAO) has published the latest in a series of challenging reports on defence procurement with a critique of the Ministry of Defence (MoD) programme to establish two fully operational carrier strike groups.
This is a complex multi-year effort that has seen the building of the HMS Queen Elizabeth and HMS Prince of Wales aircraft carriers at a cost of £6.4bn, the initial order of 48 fighter aircraft (out of a long-term plan for 138), and the planned integration of carriers, warships, radar systems and support ships with navy personnel into two fully combat capable carrier groups.
This report focuses on the last three years of development since 2017 – a period that has seen the Royal Navy complete and launch two new aircraft carriers, receive and test the initial batch of aircraft, construct essential on-shore infrastructure, and undertake extensive training of sailors and aircrew.
Key highlights from the report include:
- There was a further cost overrun of £193m on building the two aircraft carriers, equivalent to 3% of their total cost of £6.4bn.
- The MoD has spent £6.0bn to date on 48 Lightning II fighter jets, of which 18 have been delivered on schedule. Port and military airfield facilities have now been completed.
- The Crowsnest airborne radar system is 18 months behind schedule, affecting carrier group capabilities in the first two years of operation.
- The MoD delayed seven of its 48 jets on order to 2025 to accommodate budgetary pressures, with the approved cost now at £10.5bn, a £1.0bn or 15% increase.
- Funding has not yet been made available for enough Lightning II jets to support the carriers through to the 2060s as planned, with no commitment as yet to order the remaining 90 jets.
- The MoD has been slow to develop the support ships needed to operate carrier strike group, with only one ship currently in operation – with delays in ordering three new support ships potentially hampering operations until 2028 or later. The MoD has also not provided the necessary funding for logistics projects and munitions.
The NAO reports that the MoD is making progress in delivering key milestones, albeit with some caveats.
- Initial operating capability for one carrier group and 12 jets is expected to be achieved by December 2020 on schedule, albeit with more basic radar capability than originally planned.
- There is a tight schedule to deliver ‘full operating capability’ by 2023 (two carrier groups with up to 24 jets) and the planned extended capability by 2026 to deliver a wide range of air operations and support amphibious operations worldwide.
- Significant questions need to be answered about the place of the carrier groups within defence strategy, the investment prioritisation necessary to ensure that they can operate for the planned life-span of 50 years, and a clear understanding of the full costs of operating the carrier groups in the context of a Defence Equipment Plan that is currently unaffordable (as reported in several other NAO reports).
The NAO conclude by making a series of recommendations for strengthening programme management, ensuring there is a clear view of future costs, and on monitoring new governance arrangements that have recently been put in place. The NAO also recommends transferring lessons learned from the Carrier Strike programme over to other major defence projects.
Gareth Davies, the Comptroller & Auditor-General for the United Kingdom and the head of the NAO, commented on the good progress made by the MoD to deliver Carrier Strike. But he also stressed the need for greater attention to be paid to the supporting capabilities essential for full operability, and the need for the MoD to get a firmer grip on future costs.
Martin Wheatcroft FCA, advisor to ICAEW on public finances, said:
“In many ways, the MoD receives quite a positive report card from the NAO on the good progress that it has made over the last three years, improving on much less complementary reports in 2017 and before.
However, as the NAO reports, the MoD continues to struggle to deliver major procurement programmes within a defence budget that is unaffordable and there remain significant issues that need to be addressed. The extent to which further funding will be provided in the long-delayed Spending Review later this year is yet to be seen.”