6 As well as assessing progress in-year, this report provides trend analysis of spending for all post-main-gate equipment projects covered in the annual report since 2000. The projects we examined represent around 90 per cent of the total value of post- main-gate equipment projects (with a value of over £200 million) currently being funded by the Department.
7 Our cost analysis in Figure 1 shows that the difference between the approved and forecast cost of all projects since 2000 is £10.6 billion, which is an 11.4 per cent increase. Additional costs have been avoided by reducing the numbers of equipment the Department originally planned to buy. Had the Department not reduced equipment numbers, cost growth could have been between £18.2 - £19.4 billion, depending upon assumptions made on equipment costs - approximately 20 per cent over the originally approved costs.
Figure 1 | |||
Description | Projects approved in 2001 or before | Projects approved in 2002 or after | Total |
Number of projects | 33 projects | 30 projects | 63 projects |
A. Approved cost | £57.2 billion | £35.5 billion | £92.7 billion |
B. Forecast cost | £66.8 billion | £36.5 billion | £103.3 billion |
C. Reported cost increase (B-A) | £9.6 billion | £1.0 billion | £10.6 billion |
Percentage increase | 16.8 per cent | 2.8 per cent | 11.4 per cent |
NOTE 1 Analysis includes all projects reported in the post-main-gate population since the Major Projects Report 2000. Astute boats five and six are excluded from the above table as they have not yet achieved their main investment decision. Total approvals for these two boats are for initial build items only and total £1.1 billion, with only a marginal variation between approved and forecast costs. | |||
Source: National Audit Office analysis of Departmental data | |||
8 However, Figure 1 also illustrates that total cost growth on all post-main-gate projects approved before 2002 was, at 16.8 per cent, significantly higher than the 2.8 per cent total cost increase on all projects approved since 2002. Most of this latter cost growth has come on the Queen Elizabeth Class aircraft carrier. If this large project is excluded from the analysis, there would have been a net saving of £839 million from projects approved in or after 2002. More generally, larger projects have disproportionately suffered from cost increases. Almost all were approved before 2002, yet they still comprise the vast majority of the £10.6 billion (11.4 per cent) cost overrun, noted above. This indicates that the Department continues to live with the consequences of cost increases on projects approved before 2002, and particularly the legacy of significant cost overruns on larger projects.
9 Our wider analysis in Figure 8 on page 20 also indicates that cost growth was primarily driven by project-level difficulties, such as design and contracting issues, up to 2008; adding £7.5 billion to project costs. There have recently been relatively small increases in project-level costs, which point to continuing stable project performance. This is despite Departmental planning decisions having added £4.2 billion to forecast costs since 2009.