Now problems with T31 Frigate costs

[Asturias56]

Business section of this mornings "Times" has an article saying Babcock's are instructing lawyers in a dispute with the MOD.

"the demanding production schedule is being affected by certain material macroeconomic factors that were not foreseen at contract inception (2019). These have led to an increase in actual and projected costs to deliver the programme" they said.

"unable to reach agreement with our customer as to who meets the increased costs.. . dispute resolution process has been commenced" :(

[Not_a_boffin]

To the surprise of absolutely no-one.

Force majeure will be discussed at length here. Material shortage and price inflation provision in the contract in 2019 could not possibly have foreseen the effects of Covid and the Ukraine war on actual prices and material availability.

That's before we get to the bit where the idea that a company that has never built an entire warship before would be able to do so for an average £250M was somehow deemed credible. I'd expect that Babcock may be discovering that a shiny new shed does not a shipyard make. They'll get there, but this dispute resolution is just trying constrain the losses they're looking at. I suspect there may be some contract / cashflow stage payments as well that are at risk given the most recent pics of HMS Venturer.

This is not a disaster by any means. Just a reality reset.

[Asturias56]

No but it means they MOD will have to go back to the Treasury and it will be entered into the (very large) ledger of "you can't trust the military to budget".

I'm just surprised there wasn't an inflation clause in the contract

[Not_a_boffin]

No but it means they MOD will have to go back to the Treasury and it will be entered into the (very large) ledger of "you can't trust the military to budget".

I'm just surprised there wasn't an inflation clause in the contract

There will have been. It just won't have reflected the scale - because it couldn't have been predicted. Ditto supply chain disruption.

[falcon900]

Why not transfer the job to Ferguson on the Clyde? They have recent experience of complex designs and fixed price contracts. They are also government ( Scottish) owned, so it would save the taxpayers a fortune……

[Saintsman]

Aren't all MOD contracts bid low and then once awarded, inflated during the build?

Fixed price doesn't mean it will remain that way in the end.

However, it appears that someone got their sums wrong.

[Easy Street]

Not only are MOD contracts bid low, the programmes they're delivering are costed low as well, usually by deliberate failure to account for personnel, training, C4I and support costs. An old trick called "entryism" which gets the programme over the affordability hurdle, onto the Equipment Plan and rushed onto contract, at which point it becomes almost uncancellable: a most convenient state of affairs for the Service guarding its share of the pie, and for the industry supplier which now has the MOD over a barrel (see Ajax). Such programmes eventually enter service due to Whitehall's attachment to the sunk cost fallacy and its fear of embarrassing cancellations, but only after several rounds of reprogramming in which other programmes get delayed to free up cash for the previously overlooked aspects and most of the original requirements get punted to a future 'spiral upgrade' plan which will be part-funded years later than needed, if ever. Throw in some over-optimistic export projections to pique ministerial interest and perhaps a co-development arrangement with one or two other countries (adding diplomatic embarrassment to the list of reasons not to cancel), and voila - business as usual.

[tucumseh]

Throw in some over-optimistic export projections......

And overseas sales is one of the main criteria for PFI.

On one of my programmes the Prime, who had been foisted on me by a political overrule, never having even bid for the job, confidently predicted over 100 overseas sales. As we owned much of the IPR, we (UK plc) would get substantial Commercial Exploitation income. Their MP, the Minister for Defence Procurement, must have been excited.

Told to PFI the Full Mission Trainer, which would have delayed the ISD for about 3 years, I said 'No' in the overseas sales box on the PFI form. Delivered to time, cost and performance.

The same day, Apache said Yes. It's unclear how many UK standard Apache simulators were sold abroad. I can't recall how late it was, but some years.


Saintsman - Correct. Firm is Fixed, Fixed is Variable. I recall when AMSO went from Fixed to Firm repair contracts. Costs tripled overnight, as did Turn Round Times. Their 'solution' was to declare repairable LRUs consumable, scrap them to save repair costs, and transfer management to the Consumables managers (SM51). Who of course had no money.