August 18, 2023

MOD Major Projects Report - skills and resources hold back progress

In July the UK Infrastructure & Projects Authority released its latest annual report for 2022/23 into major projects across Government. I took a deep-dive into the supporting data (well buried in a spreadsheet) to see how well Defence is performing. Around 80% carry an 'amber' rating - similar to last year, and the defence portfolio reports a net increase in Total Baseline Whole Life Costs of £11.6bn. Ten projects report a delayed programme end date compared to last year.

Overall, 41 projects are rated as 'amber', with 5 rated as 'red' (vs 9 in 21/22) and only 2 rated as 'green' (vs 3 in 21/22). A further 4 are rated as 'exempt' from reporting (usually for National Security reasons).

What are the risk factors driving the ratings?

The risk factors are fairly evenly split, with technical issues being the most common. However it is interesting to note that lack of personnel resources and/or availability of necessary skills are in second place, affecting 16 of the projects.

Which programmes are rated as 'red'?

Brimstone 3 (Brimstone capability sustainment)	There are challenges with resourcing sufficient suitably qualified and experienced people across the programme and delivery teams, and within industry. A series of deep-dives, along with a monthly Programme Board with the new Senior Responsible Owner have been put in place to address these challenges. Programme Governance and the availability Management Information is also being refreshed alongside a plan to improve Programme performance. Opportunities are being identified to bring schedule back within the approved timeline. The programme is also exploring opportunities to spiral capability developments to ensure capability is delivered at the earliest opportunity.
Core Production Capability (Submarine nuclear reactor capability)	Significant and ongoing challenges associated with achieving the required core delivery date for Dreadnought and the importance of that milestone to sustaining the Continuous at Sea Deterrent
Future Combat Air System (Typhoon replacement)	On-going dependencies impacting the programme from other MOD areas and a shortage of resources impacting skills and capabilities. Other programme areas have remained Amber since Q4 2021 with on-going mitigation in progress. Remedial action for a route to Amber is being implemented but it is expected to take several years to achieve due to the size and complexity of the programme.
MODnet Evolve (base information communications and technology infrastructure)	The assessment of the deliverability of the MOD Official, End User Services and Future Secret Projects. However the recovery plan is in place and the programme is making positive progress and the Future Secret project is now being reset. Also linkages are being strengthened between the current MODnet Official network and its replacement End User Services project.
Spearcap 3 (principal F-35 air-to-ground weapon)	There are challenges with resourcing sufficient suitably qualified and experienced people across the programme and delivery teams, and within industry. A series of deep-dives, along with a monthly Programme Board with the new Senior Responsible Owner have been put in place to address these challenges. Programme Governance and the availability Management Information is also being refreshed alongside a plan to improve Programme performance. Opportunities are being identified to bring schedule back within the approved timeline. The programme is also exploring opportunities to spiral capability developments to ensure capability is delivered at the earliest opportunity.

What are the rating changes since last year?

A number of programmes have (for better or worse) had their ratings updated since last year. Those programmes are:

Armoured Cavalry 2025 (Ajax) Red to Amber	The impact of noise and vibration upon the overall programme schedule to Full Operating Capability has been significant. Significant effort has been made between the Army, Defence Equipment and Support and General Dynamics Land Systems UK to produce a jointly agreed, risk adjusted schedule. This is being used to reset programme approvals against increased confidence in deliverability, compliance, and value for money.
Brimstone 3 Amber to Red	There are challenges with resourcing sufficient suitably qualified and experienced people across the programme and delivery teams, and within industry. A series of deep-dives, along with a monthly Programme Board with the new Senior Responsible Owner have been put in place to address these challenges. Programme Governance and the availability Management Information is also being refreshed alongside a plan to improve Programme performance. Opportunities are being identified to bring schedule back within the approved timeline. The programme is also exploring opportunities to spiral capability developments to ensure capability is delivered at the earliest opportunity.
Chinook Capability Sustainment Programme Green to Amber	Inflationary pressures and supply chain delays will increase affordability risk and programme success relies heavily on the release of capability information from the US to the UK. The Programme is currently working through rescheduling activities with the US Department of Defence which will culminate in a revised schedule and financial profile. The lack of key skills and experience, though mitigated by the arrival of a new Programme Director, Programme Manager and five Programme Control contractors, remains a risk given the high degree of churn.
Crowsnest Programme Red to Amber	The programme has maintained it's schedule over the last 12 months with increased confidence in deliverability. Technical challenges have been overcome with two software capability upgrades being successfully deployed.
Fleet Solid Support Amber to Green	The Programme has concluded the manufacture contract competition, submitted and gained approval of the Full Business Case and subsequently awarded the prime contract.
Future Combat Air System Amber to Red	On-going dependencies impacting the programme from other MOD areas and a shortage of resources impacting skills and capabilities. Other programme areas have remained Amber since Q4 2021 with on-going mitigation in progress. Remedial action for a route to Amber is being implemented but it is expected to take several years to achieve due to the size and complexity of the programme.
Future Cruise Anti Ship Weapon Red to Amber	The Programme is half-way through a 3-year Assessment Phase; the Assessment Phase remains on track with a range of concepts and options being matured to support choice and inform future decisions. The programme is assessed as Amber whilst the long-term deliverability of these choices is fully explored.
Future Defence Infrastructure Services Green to Amber	The challenging nature of the schedule and associated dependencies of the Defence Soft FM Programme. A pause to the schedule to address affordability issues has put the programme's current schedule at risk.
Lightning Programme Red to Amber	Approval of an Outline Business Case has enabled ANVIL Phase 2 (the infrastructure for the 2nd Squadron at RAF Marham) to begin. This is a key enabling Project within the Programme. However Slow Force growth is preventing the Lightning Programme from delivering a 2nd Front-Line Squadron, now planned for 1 December 2023
Martlett Amber to Green	The Future Anti-Surface Guided Weapon Light (Martlet) has achieved Initial Operating Capability with the next capability uplift on track for October 2023. The Full Operating Capabilty for Martlet is expected to deliver in 2025. Role Equipment delivery is continuing to improve and sustainability challenges are being addressed.
Mechanised Infantry Vehicle (Boxer) Green to Amber	Global supply chain issues following Covid and the current war in Ukraine impacting at a key point of vehicle manufacture. The programme still forecasts to meet its approved Initial Operating Capability in October 2025 but increased risks require strong management action. The lead contractors have not yet stabilised or fully resolved their ongoing supply chain delays to vehicle production, which is also impacting other areas including training. Further remedial work is also required on Technical Documentation currently being drafted to enable acceptance and safety case work. Similar supply chain issues are also impacting the supply of communications equipment for Boxer also compounded by obsolescence and global supply chain impacts.
New Style of Information Technology (Base) Red to Amber	Since the 2022 Q4 report the Programme has faced challenges with delivery in both the Land and Maritime environments, due to multiple factors and revised planning is in place and approval is being sought.
Sea Venom Red to Amber	A Defence Science Expert Committee review resulted in an action plan which included integration and assurance activity and appropriate risk mitigations. Further assurance activity is planned to support the continued improvement of the Programme
Spearcap 3 Amber to Red	There are challenges with resourcing sufficient suitably qualified and experienced people across the programme and delivery teams, and within industry. A series of deep-dives, along with a monthly Programme Board with the new Senior Responsible Owner have been put in place to address these challenges. Programme Governance and the availability Management Information is also being refreshed alongside a plan to improve Programme performance. Opportunities are being identified to bring schedule back within the approved timeline. The programme is also exploring opportunities to spiral capability developments to ensure capability is delivered at the earliest opportunity.

What about costs?

Disappointingly, 22 out of 52 projects (42%) did not report costs, claiming exemption for either commercial or national security reasons, leaving a large transparency black hole when assessing the commercial performance of MOD projects. Of the projects where Whole Life Costs were reported, there was a net increase of £11.6 billion since the previously reported figures. Only 4 reported reductions in cost - take a bow the Astute, Crowsnest, Wedgetail and Protector programmes. Large cost increases were reported by Nuclear and Combat Air related projects.

The increase in the Future Combat Air System costs appears to reflect the extension of the budget for this long-term programme. However the £500m increase in the Ajax programme costs is interesting, bearing in mind that General Dynamics is working to a firm price contract.

The most significant Total Whole Life Cost changes were reported by the following programmes:

Programme	Cost Change	Commentary
Armoured Cavalry 2025 (Ajax)	+ £500m	Re-profiling from earlier years and inflation, inclusion of contract change proposal assessments, potential requirement changes and an increase in raw materials and consumables.
Core Production Capability	+ £1,946m	This represents the full costs including budget estimates for scope that has not yet been approved.
Dreadnought	+ £2,478m	The Dreadnought programme remains on track to deliver to schedule and within the original 31 billion plus 10 billion contingency budget made in the Strategic Defence and Security Review 2015.
European Common Radar System Mk 2	+ £2,175m	The P4E/ECRS Mk2 Programme Full Business Case was approved in March 2022, securing an Approved Budgetary Level funding envelope from its design and manufacture through to the equipment's Full Operating Capability. There has been no change to the programmes requirements and the funding levels remain extant.
Future Combat Air System	+ £1,869m	The inclusion of a budget for FY32/33.
Ground Based Air Defence (GBAD)	+ £516m	The programme is still in its Concept Phase and ahead of Outline Business Case and Full Business Case approvals. The scope of the programme, associated costings and budget provision is not yet fully defined and continues to mature. The Whole Life Cost is based at this stage on the budget for the next 10 years only (plus previous year expenditure) and, as such, the reported Whole Life Cost this year includes a budget for FY2032/33.
Protector	- £172m	Removal of the costs for the Enhance Maritime element which is now accounted for separately.The Review Note for Protector that will re-baseline the Programme will capture, and fairly attribute cost growth as appropriate, to programmatic and macro-economic factors that have affected the delivery and affordability of the programme.

Schedule changes since last year?

Since the 2021-22 review, 10 projects are reporting delayed programme end dates and 31 are rated as being on schedule or have improved their end dates, with a further 10 claiming exemption from reporting. In some cases the changes to programme end dates are a result of changes to the scope or definition of the project, however there are some noteworthy changes (some of which are expected). For instance, reality has finally bitten the Armoured Cavalry (Ajax) programme with a 5 year slip to the project end date from 2025 to 2030. The New Medium Helicopter programme appears to be the designated victim of the MOD's "over-programming" of its budget with a 3 year delay from 2028 to 2031 to help balance the budgetary books. The Fleet Solid Support Ship programme sees a 3 year delay reflecting the aborted and re-started procurement process.

Armour MBT 2025 (Challenger 3)	Compared to financial year 21/22-Q4, the project's end-date at 22/23-Q4 increased from 2026-06-01 to 2031-05-22. This is primarily due to the following factors. The end-date of June 2026 reflected the obsolesce scope of the original Challenger 2 Life Extension Project when it was established in 2015. This should have been adjusted in 2019 when the scope of the programme was increased to deliver a genuine capability uplift to Challenger 2. This effectively reset the Performance, Cost and Time envelope of the programme, and was further refined through the revised assessment phase and Full Business Case submission in November 2020. The end-date of May 2031 reflects Full Operating Capability being delivered by November 2030 at P50 confidence.
Armoured Cavalry 2025 (Ajax)	Compared to financial year 21/22-Q4, the project's end-date at 22/23-Q4 increased from 2025-04-30 to 2030-03-31. This is primarily due to the following factors. The time required to quantify, understand, and address the issues of Noise and Vibration has had a significant impact upon all areas of the programme, but most particularly upon the already delayed Ajax production schedule. A jointly agreed, risk adjusted reset schedule is in place out to Full Operating Capability.
Fleet Solid Support	Compared to financial year 21/22-Q4, the project's end-date at 22/23-Q4 increased from 2030-04-30 to 2033-03-31. This is primarily due to the following factors. The approval of the Full Business Case has enabled the schedule to be re-baselined and the Programme end date to align to the end of final budgetary approved year.
Lightning Programme	Compared to financial year 21/22-Q4, the project's end-date at 22/23-Q4 increased from 2048-03-30 to 2069-03-31. This is primarily due to the following factors. Future procurement of an additional 26 aircraft delivering a fleet of 74 which would allow the Out of Service Date of the aircraft to be extended to 2069 andalign with the QUEEN ELIZABETH class aircraft carrier Out of Service Date. Tranche 1, the initial phase of the Lightning Programme, is expected to achieve Full Operating Capability in late 2025, at which point the Lightning programme graduates to become Business as Usual.
New Medium Helicopter	Compared to financial year 21/22-Q4, the project's end-date at 22/23-Q4 increased from 2028-07-07 to 2031-09-30. This is primarily due to the following factors. Since the initial report, further analysis on the programme schedule has been conducted and the financial profile was amended as part of the Ministry of Defence's Annual Budget Cycle 2022. This has led to a revision in the programme's projected end-date.

Conclusions

With a significant number of programmes claiming reporting exemptions, it's difficult to construct a full picture of how well major defence projects are performing. A reduction in 'red' rated programmes from 9 to 5 is welcome, although partly offset by a reduction in 'green' rated projects from 3 to 2.

Pandemic-related supply chain issues continue to wash through some programmes, but issues caused by resource and skills shortages are a greater ongoing concern, and it's not clear how the Government intends to fully address them. For serving Armed Forces personnel, the skills issue is partly addressed within the Haythornthwaite review, but against a background of continued cuts in service personnel numbers. However the civilian MOD continues to suffer from high staff turnover, problems competing with industry for staff with specialist skills, and even a recent recruitment freeze to save money.

If we are to see a genuine step-change improvement in the performance of defence programmes, we need comprehensive Industrial Strategies for all sectors to incentivise industry, and long-term investment in personnel and skills including recruitment, training and retention.