The costs arising from projects delays are not solely borne by the Department. Depending on the nature of the contract and circumstances of the delay, Industry may have to absorb some of the additional costs resulting from delays.
For example, following identification of issues in the Nimrod and Astute projects during late 2002, contracts on these two projects were renegotiated. BAE Systems bore £750m of exceptional charges as a result of the re-assessment184. Correspondingly, additional delays of 40 and 43 months were declared by the NAO in the 2003 MPR185. Other publicly-declared examples are summarised in Table G-4.
Generalising known examples across all projects based on the Main Gate50 approved cost of the D&M phase (c.£70bn, as given in Table G-3) and average delay per project per year (2.5 months p.a., ibid.) implies an upper bound of the cost to industry for delay of c.£350m p.a. A lower bound based purely on known examples, which are generally limited to large, fixed price projects with listed industrial partners, suggests an extreme lower bound of c.£100m p.a.
Project | Manufacture phase contract | Latest forecast delay | Estimated cost to industry (% of MG50 forecast) | Cost per month of delay as % of MG50 |
Nimrod MRA4 | Fixed / TCIF | 92 months | £800m (28%) | 0.3% |
Astute | Fixed / TCIF | 57 months | £250m (10%) | 0.2% |
A400m | Fixed | 50 - 100 months186 | c.£200m187 (8%) | 0.1% |
Average |
|
|
| 0.2% |
Source: CMIS; Company annual reports; Press; Review teams
Table G-4: Examples of hidden industry costs arising from delay
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184 BAE Systems Annual Review 2002 (Feb 2003)
185 Major Projects Report 2003, NAO (Jan 2004)
186 Approximate range based on press commentary since the 24 month delay reported in NAO's 2008 Major Projects Report. MoD's own estimate remains commercially sensitive at this stage
187 UK share based on order of 25 aircraft