The Ministry of Defence has overseen a £1.35bn spike in costs across three projects to update its nuclear estate, which are running up to six years late, the National Audit Office has said.
Partly to blame for the issues with the three projects – crucial for the nation's at-sea nuclear deterrent – is the ministry’s failure to learn lessons from its own experiences in the 1980s and 1990s, the public-spending watchdog said in a report today.
The NAO report comes just three weeks after defence secretary Ben Wallace signalled that a major shakeup of defence procurement was a priority for the government in the wake of December’s general election, and that it would be led by chief special adviser Dominic Cummings.
The NAO’s latest report looks at three ongoing construction projects for facilities at nuclear-regulated sites: the Mensa nuclear-warhead assembly facility at the Atomic Weapons Establishment near Reading; core production capability facilities at Rolls Royce’s Raynesway site in Derby; and BAE Systems’s Barrow-in-Furness shipyard. The Cumbria facilities are intended to allow for a modular-build approach for the Dreadnought-class submarines.
The watchdog said the three schemes were among 52 current Nuclear Enterprise infrastructure projects, but their original project budgets of £1.17bn had accounted for 24% of the combined value for all 52 nuclear infrastructure schemes.
It said the schemes were now projected to cost an additional £1.35bn, or 115% more than they were initially. All were all delayed by at least 1.7 years – and in the case of Mensa, 6.3 years.
The NAO said the MoD’s reliance on monopoly site operators – AWE, Rolls Royce and BAE Systems respectively – had weakened its commercial negotiating position for the work and left it more likely to hold more of the contractual risks for the projects.
The situation was compounded by the MoD’s practice of starting to build new facilities before the requirements and designs were finalised. It said almost half of the £1.35bn increase in costs was attributable to projects starting too soon on site – and then requiring variations to build contracts.
“The inherent uncertainties of early designs do not incentivise site operators, or their sub-contractors, to negotiate and share risks, increasing risks for the department,” the report by NAO head Gareth Davies said.
He concluded: “The challenges with these projects were not unique. It is therefore disappointing to see that in their early days the department made the same mistakes, also experienced by others, as were made more than 30 years ago.
“To secure value for money, the department should have managed the inherent challenges of these projects, such as not starting construction too soon and allowing some flexibility, as well as addressing the risk of not having a statutory role to agree cost-effective designs. In not doing so, the department’s early management of these projects has not delivered value for money.”
Davies noted that the department had started to get to grips with the challenges it faced through revised commercial, regulatory and governance arrangements. But he said it was “too early to tell” whether the measures would be effective.
Among the NAO’s recommendations was that the MoD make the best use of procurement powers to ensure that site operators share some risk. “The department should fully consider using all available levers to reduce its risk exposure, including the Single Source Contract Regulations or by splitting commercial arrangements into stages with agreed milestones for defined work,” it said.
The watchdog also called on the department to continue its efforts to develop nuclear capacity and skills – both in house and among its contractors – to make it better able to “sequence its major projects to develop a smoother work profile and more stable job market”.
An MoD spokesperson said the department was “committed to strengthening the management of nuclear programmes”, including through investing significantly in infrastructure and working closely with regulators and partners.
“As the National Audit Office has acknowledged, nuclear infrastructure projects are often large and complex with niche designs,” they said. “We are carefully examining the conclusions in their report and will respond formally in due course.”
Garry Graham, deputy general secretary of the Prospect union, whose members include government scientists and engineers, said procurement was “always difficult” for complex projects with high technical specifications. However, he encouraged the MoD to heed the NAO’s human-resources advice.
“One particular area of concern is the cited difficulty in sourcing appropriately skilled workers which puts unacceptable pressure on those staff delivering the project,” he said.
“If civil and military nuclear activity is to be successful we need a pipeline of talent in terms of skills and experience. This demands investment and it demands making proper use of the expertise and workforce-knowledge specialist unions such as Prospect can provide.”