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NAO blasts MoD for £1.35bn project cost overruns

9 January 2020 | By Neil Gerrard

The MoD must foot the bill for the cost increases (Image: Paula Joyce, Dreamstime)

The National Audit Office (NAO) has blasted the Ministry of Defence (MoD) for “poor management” of three infrastructure projects on its nuclear-regulated sites that led to a total cost increase of £1.35bn and lengthy delays.

The news comes as Dominic Cummings, chief special adviser to Prime Minister Boris Johnson, is expected to launch a probe into wasteful spending by the MoD.

The UK’s continuous-at-sea nuclear deterrent relies on a network of equipment, people and infrastructure. To maintain that infrastructure, the MoD needs to complete three complex construction projects, valued at a combined total of £2.5bn - but all are running late and over-budget.

The three projects are:

The NAO found that the way the MoD set up the contracts means that it, and not its contractors, must foot the bill for these cost increases as it did not share out the financial risks.

Additional nuclear-related regulations, the limited pool of suppliers and the complexity of the designs have all contributed to the problems, particularly in the early stages.

The NAO acknowledged that after problems in the earlier, riskier stages of the projects, the MoD has made progress, with some of the construction now complete. But it warned that it still needed manage the remaining commercial risks and learn the lessons for future projects.

Costly designs

It found that some of the designs may have been more costly than necessary, mainly as a result of construction starting before the requirements or designs were fully developed, and changes to the project management or commercial approach.

Following delays to MENSA, the MoD and AWE had to continue using existing infrastructure. The MoD expects it will have spent £21m between 2016-17 and 2019-20 on site upgrades to continue to comply with regulations and be able to use the Burghfield site.

The NAO contended that the MoD could have learned more from the early stages of other nuclear infrastructure projects concluded in the UK and elsewhere, after similar challenges arose for the MoD in the 1980s and 1990s, as well as in American defence projects and UK civil nuclear projects, such as at Sellafield.

The MENSA facility was completed in October 2019, and the first of the CPC facilities is expected to be completed in early 2020. Construction of one of the Primary build facility buildings is also largely complete. The MoD has also made changes to improve its oversight of infrastructure projects and its relationships with contractors and regulators.

Renegotiated contracts

Some contracts have also been renegotiated or improved for later phases with the aim of reducing costs going forward.

Gareth Davies, the head of the NAO, said: “While these infrastructure projects are complex, the MoD has encountered similar challenges before in its nuclear work. Although it has recently introduced changes to enhance its oversight of the projects and improve its contracts with suppliers, it should have learnt earlier from past mistakes and the experience of others in the nuclear sector.

"Instead, the MoD’s failure to mitigate commercial and delivery risks early on has led to project delays and cost increases, as well as impacting its wider work.”

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