Source · Select Committees · Public Accounts Committee
Recommendation 2
2
The Department appears complacent about the affordability of its Plan and still does not yet...
Recommendation
The Department appears complacent about the affordability of its Plan and still does not yet have robust arrangements in place to control the cost of its largest programmes. The Department believes that its Spending Review settlement and the decisions it has taken mean its Equipment Plan is now affordable, and that it is striking a better balance between financial and capability risk. We are not convinced that the Plan is as stable as the Department believes, or that it will be able to avoid short-term budget-driven changes to the Plan. The Department clearly finds it difficult to control the costs of the largest programmes and we are concerned that the Department sees the Dreadnought programme ‘contingency’ held by HM Treasury as a blank cheque, freeing it from the need to control costs. This is the Department’s largest programme and it is imperative that cost control is tight. The Department would like to use similar contingency arrangements for the programme to replace the UK’s nuclear warhead. This programme and the Future Combat Air System are at a much earlier stage of development, meaning that costs could be much higher than the current forecast. This uncertainty makes robust cost control still more important. Rising inflation means the cost of delivering projects is likely to rise, particularly if they experience delays. Recommendation: The Department should write to the Committee within the next three months to detail the current cost of the Dreadnought, Replacement Warhead and FCAS programmes and set out how it intends to control the costs of these programmes in future. We recommend that there should be a clearly defined purpose for the Dreadnought contingency and any proposals for a warhead contingency, and that Government 6 Ministry of Defence Equipment Plan 2021–31 should have a robust arrangement in place, including conditions which would have to be met, before HM Treasury would consider providing any additional funds from the contingency. The Departme
Government Response
Acknowledged
HM Government
Acknowledged
2023. This will reflect the revised costs for defueling/deconstruction and uncontracted liabilities. 2.3 As noted to the Committee, Électricité de France’s (EDF) strategies, plans and the estimated costs are scrutinised, challenged, and approved by the Non-NDA liabilities assurance team (NLA) under the terms of the revised funding agreement. EDF’s estimated costs of decommissioning is now to be presented as a range of costed scenarios reflecting risk and uncertainty and this is contractually updated on an annual basis. 2.4 EDF’s liabilities from 2020 onwards have utilised a new methodology based upon “top down” scenario evaluation specifically designed to improve understanding, make external scrutiny easier, and counter optimism bias. This has created a much wider range of costs (recognised in the liabilities numbers). HM Government’s Government Actuary Department (GAD) was involved in assessing this methodology.