12. The vast majority of cost increases over the past decade have occurred on the Department's largest projects.31 Astute submarines and Nimrod aircraft are two such big projects, both of which were contracted for in the mid-1990s following open competition.32 In both cases BAE Systems had underestimated the complexity and design challenge, leading to substantial cost increases of around £900 million and £789 million, respectively.33
13. One reason for these cost increases is the nature of the contracts. As they were fixed price, BAE Systems did not have to provide any details to the Department on the progress and problems it was experiencing. It was only in 2002-03, over five years after both projects were approved, that the Department became aware of the problems that BAE Systems was experiencing.34 There is a similar story with the A400M transport aircraft project, where cost increases currently stand at £607 million.35 Costs on the Queen Elizabeth carriers - the only large project conventionally procured over the past decade - have also increased by £2.8 billion, with further uncertainties on this project still to come.36
14. Cost underestimates by industry have, in the main, been underwritten by the taxpayer.37 Although BAE Systems suffered some losses it was able to increase the cost for subsequent boats on the Astute programme by nearly 75%38 and is currently in negotiations with the Department for settlement costs following the cancellation of Nimrod.39 In recent years the Department has attempted to limit the risks and potential cost increases for the taxpayer through buying in batches and increasing off-the-shelf procurement.40 It also performs audits of company overheads and has greater access to company information, such as hourly rates, amount of work performed, and cost of components.41
15. In our Major Projects Report 2010 we concluded that the appointment terms of Senior Responsible Owners were too short, and recommended that SROs remain in post during key phases of a project lifecycle. We also noted that some SROs were given a demanding portfolio of projects to manage.42 Although the Government accepted our recommendation little appears to have changed from last year.43 One SRO we highlighted last year was Brigadier Paul Jacques, who had been responsible for six projects. The Department told us that he was no longer the SRO as he had been promoted. However, his replacement, Brigadier John Brittain, is still responsible for the same six projects with a value 'north of £17 billion'.44
16. As part of Lord Levene's review, the Department told us that it is reviewing the roles and responsibilities of SROs and has agreed to consider our previous recommendation on SROs as part of this process.45 Overall, the Department considered that it was making good progress in implementing Lord Levene's recommendations. The Vice Chief of Defence Staff and the Second Permanent Secretary hold weekly meetings where they hold people to account for the work being done in response to Lord Levene's report.46
17. The Department explained that a number of reforms have already been made within Defence Equipment and Support (DE&S), the organisation responsible for delivering equipment for the armed forces. The DE&S Board has been restructured so that there are now four, three-star officers covering the totality of the programme, rather than a single Chief Operating Officer. All personnel between colonel and two-star rank are given four year appointments, and these posts are now subject to open competition.47 The Department also told us that a new, more senior, Finance Director will be joining in 2012. The Department did, however, note that they face challenges in attracting appropriately qualified finance staff, with only half of their management accountants professionally qualified.48
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31 Q 118, C&AG's Report, Figure 12
32 Q57
35 Q 137, C&AG's Report, Figure 2
36 Committee of Public Accounts, Fifty-sixth Report of Session 2010-12, Providing the UK's Carrier Strike Capability, HC 1427
38 Qq 29-32. Astute boat 4 was approved at £1.28 billion, whereas Boats 1-3 were approved at £2.33 billion (or £0.743 billion each).
39 Qq 75-76
41 Q32
42 Committee of Public Accounts, Twenty-third Report of Session 2010-11, The Major Projects Report 2010, HC 687, conclusion 3
43 Qq 89-90
45 Q88
46 Q 128
47 Qq 99-100