5.2 At key decision points, each project or programme must satisfy the Department's senior approving authority, the Investment Approvals Committee (IAC) and its scrutiny teams, that proposed solutions will be 'value for money' (VFM) in terms of cost, time to enter service, and ability to meet capability requirements. The programme team should reaffirm that the programme remains VFM if it has breached the originally approved parameters. Defining clear parameters for VFM on a programme will become more challenging with the wider adoption of 'agile' contracting techniques, where cost, time and performance parameters are always negotiable.
5.3 We found that business cases for the programmes we examined did not always set out a clear definition of VFM against which progress could be measured. In practice, an acceptable solution involves trade-offs between resources available and the desired outcome. As discussed in Part Two, the affordability of the programme within the overall portfolio is often a key constraint, with schedule and capability traded around it. For example, in 2015, the senior responsible owner (SRO) for the Challenger 3 tank upgrade programme put forward a solution which fitted the existing budget but did not meet key user requirements. The IAC approved a solution that did meet key user requirements for each tank in March 2021, but at a cost 80% higher than the original estimate, and for the upgrade of a reduced number of hulls.
5.4 A recent review by HM Treasury of how government approaches business cases requires the Department to take account of wider government strategic priorities, when considering whether bids from suppliers will deliver value for money.31 The competition to build the Fleet Solid Support ship fits with these aspirations. Tender evaluation will include how bidders' proposals will add to UK 'social value', without being prescriptive as to the approach to achieving this.32 At the same time, the government has also directed that a significant proportion of the build and assembly work be carried out in the UK. Quantified claims of job creation need to take into account wider economic effects, such as the fact that in most cases the highly skilled people involved would find employment elsewhere in the economy.
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31 HM Treasury, Green Book Review 2020: Findings and response, CP331, November 2020.
32 'Social value' represents the additional social benefits that can be delivered through government contracts, to achieve policy outcomes aligned with government priorities.