UK aircraft carrier contracts not fit for purpose, MPs warn
The multibillion-pound contract signed by the previous Labour government to build two aircraft carriers by the end of this decade is “not fit for purpose”, a committee of MPs
reports on Tuesday, warning that it needs urgent renegotiation if projected costs are not to rise further.
In the latest expression of concern about the fate of the carrier project, the Commons public accounts committee says it is “still not convinced that the Ministry of Defence has this programme under control”. It added that the project to build the carriers “remains subject to huge technical and commercial risks, with the potential for further uncontrolled growth in costs”. When the carrier project got the green light from the UK government in 2007, it was assumed the projected price of building the two carriers – the Queen Elizabeth and the Prince of Wales – was £3.65bn. Since then, costs have been revised up sharply and the assumption now is that the two carriers will cost more than £5bn to build.
Tuesday’s PAC report highlights two growing concerns about the project which could see costs rise further.
First, the PAC says the contracts signed with industry contain very few incentives for contractors to keep costs under control. At present, the MoD and industry will share equally from any gains from finishing the project below the “target cost” of £5.24bn. However, the PAC notes that the target cost would have to be exceeded by £2.5bn before industry were to start losing any profits. “The current carriers contract is not fit for purpose as it fails to provide industry with any real incentive to control costs,” the PAC says. It adds that the MoD has “not been able to transfer delivery risks to contractors and has struggled to manage its relationship with UK industry”.
The second concern highlighted is that the production costs of the Joint Strike Fighter aircraft that are due to fly from the carrier could rise much further.
According to a report this year by the National Audit Office, the cost of developing JSF, which is being procured through a collaborative programme led by the US, has more than doubled since the start of development in 2001. The NAO said there could be further costs increases if, for example, other partner nations reduced the number of aircraft they bought. The PAC says on Tuesday that this is an issue of real concern to MPs. “Carrier Strike remains a high risk programme as the [MoD] has little control over the technical risks and costs involved in acquiring the aircraft,” the committee says. “Despite assurances from the [MoD], we are not convinced that it has the aircraft contract under control.”
In response to the report, Philip Hammond, the defence secretary, said the MoD was negotiating with industry to bring the costs of the carrier project under control. “But we are doing so within the context of a contract that gives us very little negotiating leverage,” he said.
Tuesday’s report also restates concerns expressed by the NAO in May that, according to current plans, the Crowsnest early-warning radar system essential for protecting the carriers will not be available for operation until 2022 – two years after the first carrier and aircraft are delivered and operated. However, the MoD insists the Crowsnest programme will deliver “an initial operating capability by the time the first carrier is in operational service”.
Report PDF version.