The Ministry of Defence overspent by £3.3 billion last year, and turned to project management software to help control its costs.
The National Audit Office, which monitors government spending, noted that the MoD had developed a system in-house called ‘Sentinel’ to help manage its projects and bring them on schedule.
Public disclosure of the £3.3 billion cost overrun in the NAO report came only days ahead of this week's government Strategic Defence Review, under which a range of costs are set to be slashed, even leading to US Secretary of State Hillary Clinton raising the alarm over UK cost cuts. It has been speculated that the Defence Review could see a cost reduction to a £7.1 billion advanced soldier radio terminals programme with HP.
The NAO said the cost overrun comprised principally of the MoD overspending by £2.7 billion on RAF Typhoon fighter planes, owing to contractual obligations to buy more planes, as well as £650 million spending above what was budgeted for aircraft carriers. There were also some smaller in-year overspends on other projects.
It noted that in spite of the multibillion pound cost overruns, the MoD was taking action to improve how it handles projects, and had reduced overruns in many of the smaller contracts that are running.
A key factor in this, according to the NAO, is the “recent” implementation by the MoD equipment procurement arm, Defence Equipment and Support, of the project management system.
“This system uses a number of metrics to quantitatively assess the overall ‘health’ of selected projects,” the NAO noted. “By providing early warning of emerging issues, Sentinel is a potentially important step forward for the department as it seeks to sustain the emerging trend of improving project performance.”
The NAO said cost performance was “largely stable” on 13 large projects, aside from the Typhoon fighters and aircraft carriers. Additionally, the average times projects had slipped fell from seven months last year to two months.
But the MoD also overspent on projects with a high IT content, including a £9 million in-year overrun on a radio and computer systems project for soldiers, called the Future Integrated Soldier Technology scheme - under which the government is integrating equipment, weapons and sighting devices with target locating devices.
That project is expected to eventually hit a total cost of £151 million in its lifetime, as additional phases are added. This represents a £125 million 'overrun', as the orginial costs did not have the further phases. The National Audit Office confirmed that the phases were being added as the technology became more mature.
In its report, the NAO said the total MoD cost overruns of £3.3 billion, demonstrated the MoD’s “inability to manage its budget effectively”, representing “poor value for money for the taxpayer”.
Defence secretary Liam Fox blamed the previous government for the failures, stating: "The MoD has been living beyond its means for too long and project costs have been allowed to get out of control. Having inherited a £38bn black hole in the MoD's finances I am determined to balance our books and start ensuring the department operates within its means."