G.5. Run-on equipment costs

In the MPR the NAO declare the cost resulting from ISD variation. These costs are the net effect on support costs of having to sustain alternate equipment for the additional period before the new capability can enter service. For example, with regards to the Nimrod MRA Mk4 project the variation in ISD results in additional costs of running on Mk2 aircraft during that period, but there is a saving from reduction in Mk4 aircraft support costs in the same period. The net support costs resulting from ISD slippage given in the 2008 MPR are shown in Figure G-3.

Costs resulting from ISD slippage for Major Projects

Source: NAO Major Project Report 2008

Figure G-3: Run-on equipment costs resulting from ISD slippage for Major Projects

The sample of run-on equipment costs provided in the MPR can be generalised across the entire equipment plan by determining relevant metrics from these major projects and applying them across all projects. (It has been assumed that major projects are representative of category A-C projects and delays to category D projects incur no net run on costs.) Figure G-4 shows two methodologies for generalising across all projects; one by in-year Equipment Procurement Plan spend and the other by Main Gate approval cost. These different approaches consistently suggest that delays incur additional net support costs of £60m - £90m per year.

Note: * 95% significance range

Source: NAO Major Project Report 2008; EPP PR09 (March 24 2009); CMIS (February 2009)

Figure G-4: Two methodologies for generalising net support costs resulting from ISD slippage for Major Projects across all projects

The NAO have suggested in discussions with the Review team that the run-on equipment costs given in the MPR are mostly likely conservative because likely impacts over all DLoDs have not been evaluated. Moreover, data on the Future Aircraft Carrier (CVF) project, whose ISD has been delayed since MPR 2008, suggests that there are currently active projects with run-on equipment costs (per month of delay by Main Gate approved cost) exceeding the examples given in MPR 2008. A further c.£40m p.a. of additional run-on equipment costs has been included in the estimates to account for these two factors.