Part One Contracting for defence equipment

1.1 In our 2020 report Defence capabilities - delivering what was promised,5 we reported on the challenges the Ministry of Defence (the Department) faces when setting the requirements for equipment, through to the capability being ready for full deployment. This report examines the underlying causes of problems in contracting for defence equipment programmes. This part describes the policy and administrative context.

1.2 The Department requires technically complex military equipment to meet the government's strategic requirements for modern warfare. Equipment must also be integrated with existing infrastructure and personnel. As a result, there is inherent risk at all stages of the acquisition process. Given the long lead times for its major acquisition programmes, the Department faces a major challenge in dealing with an external environment where the capability of potential adversaries is constantly evolving and presenting new threats.

1.3 The Department has the largest number of programmes in the Government Major Projects Portfolio, with a total budgeted whole-life cost of £162.6 billion in 2019-20. Some 44% of its £26.6 billion annual procurement expenditure goes to its 10 largest suppliers. Due to the Department's complex requirements for its major equipment programmes, it relies on a limited specialist supplier base to meet its needs.

1.4 Contracts deliver military capability. Capability needs are identified through the strategic planning process, most recently outlined in the 2021 Integrated Review of Security, Defence, Development and Foreign Policy (the Integrated Review).6 Figure 1 on pages 16 and 17 shows that responsibility for delivering the required defence equipment programmes and managing contracts with suppliers is shared between the Commands (Army, Navy, Air and Strategic Command) and the Department's delivery organisations, while Head Office provides strategic direction and approves and monitors major programmes.

1.5 We examined 20 of the Department's largest, most complex equipment programmes in depth (see Appendix Two). They are at different stages of their programme lifecycle, from concept design through to being in service, and some have been under development since the 1990s. For this reason, at various points in this report, our analysis focuses as appropriate on sub-sets of the 20 projects and programmes.

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5 Comptroller and Auditor General, Defence capabilities - delivering what was promised, Session 2019-2021, HC 106, National Audit Office, March 2020.

6 HM Government, Global Britain in a competitive age: The Integrated Review of Security, Defence, Development and Foreign Policy, CP 403, March 2021.