RISK 5: Technology and latent defects
Definition The technology being used to provide the asset or service may not be fit for purpose throughout the life of the contract, perhaps because of inadequate design or unexpected use or misuse by the user. There is also the risk of whether value for money will be achieved where changes are required. Latent defects (inherent faults in the operation of an asset which come to light after the asset is in use) may also impact services. Changing the use of an asset may impact on the ability to identify that latent defects have occurred.
Reason for overall assessment of this risk category in the eight case study projects: Some risks to value for money The Department relies on specialist technology on a number of its projects, for example in equipment, training and communications. There are risks that the technology might fail or, given the fast changing environment in which the Department operates, it might need updating in a situation where competition might not be possible because of reliance on the original supplier. There is also evidence from the projects we examined that if the Department has changed the way an asset is being used, it may be difficult for the Department to prove whether a defect is a latent defect (for which the contractor is liable) as opposed to a defect which has arisen from the change of use. Whilst these are issues that could arise under any form of procurement project teams need to be alert to the risk that the value for money expected when letting a PFI contract is eroded as projects are adapted to changing needs. NOTE 1 This project did not proceed to contract and is not part of the current Department portfolio. |
2.27 The Department operates in a fast moving and often unpredictable environment. What it needs from its projects may, therefore, change more rapidly than other government Departments. Many defence projects, including PFI deals such as Heavy Equipment Transporter, Field Electrical Power Supplies and the Strategic Sea Lift Roll-on Roll-off Ferries (RORO) project, are used to support the front line operations. The usage of equipment may, therefore, need to change and adapt to operational circumstances at short notice.
2.28 The Department relies on specialist technology on a number of its projects, for example in equipment, training (including flight simulation) and communications. The Department faces general risks that the technology might fail or, given the fast changing environment in which the Department operates, it might need updating in a situation where competition might not be possible because of reliance on the original supplier. These are risks that would arise in any form of procurement. The following issues arose in the case study projects.
■ Medium Support Helicopter Aircrew Training Facility project: A number of changes have been made to reflect alterations to the aircraft which the training simulator seeks to replicate. Changes of this type are a risk of using training simulators, whether they are procured conventionally or through PFI. Further changes to the simulators may be needed, but for the foreseeable future, these changes should be mostly capable of being replicated on the simulators without the need for a full technological update. Users will however expect the simulator to be kept up to date over the life of a contract that may run until 2037.
■ Defence Fixed Telecommunications Service: The services being delivered by this contract have been successfully changed over time, in response to the Department's requirements for enhanced methods of communication through new technology since the contract was let in 1997. The Department's project team has used benchmarking procedures to test the value for money of additional services and has achieved some price reductions as a result.
2.29 As noted in the findings relating to Risk One on the development of projects the Field Electrical Power Generators and Heavy Equipment Transporters have been used in conditions outside those envisaged by the contract specification. If there are subsequently faults with these projects where there has been a change in use the Department may find it difficult to show whether the fault is a latent defect relating to the original provision of the equipment. The contractor is liable for latent defects whereas remedying a fault arising from the Department's change in the use of the equipment is likely to be a cost to the Department. The Department guidance expects project teams to take account of the risk of any additional costs in remedying defects in their value for money case for making changes to a project.