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Mon January 20 2020

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MoD blows £1.3bn on infrastructure mismanagement

10 Jan An investigation by the National Audit Office (NAO) has found that the Ministry of Defence wasted more than £1bn on mistakes managing nuclear infrastructure projects.

The NAO report, Managing infrastructure projects on nuclear-regulated sites*, says that the Ministry of Defence’s (MoD) poor management of three projects on its nuclear-regulated sites had contributed to a combined cost increase of £1.35bn and delays of between 1.7 and 6.3 years.

After problems in the early stages of the projects, the MoD has made progress and some of the construction is now complete. However, it still needs to manage the remaining commercial risks and learn the lessons for future projects, the government spending watchdog says.

The UK’s nuclear deterrent is continually at sea, sailing around, but it relies on a network of equipment, people and infrastructure, often referred to as the Defence Nuclear Enterprise.

To maintain this network, the MoD needs to complete three complex construction projects, together valued at £2.5bn.

The three projects are:

  • MENSA: a £1.8bn nuclear warhead assembly and disassembly facility at the Atomic Weapons Establishment (AWE) near Reading
  • Core production capability (CPC) facilities: upgraded facilities, costing at least £474m, at the Rolls Royce-operated site Derby to produce the latest nuclear reactor core designs
  • Primary build facility: new facilities at BAE Systems dockyard in Barrow-in-Furness, costing £240m to upgrade facilities and support improved submarine construction techniques.

The NAO says that the challenges unique to these projects include: the need to comply with nuclear-related regulations: the limited pool of suppliers: and the complexity of the designs. Problems in the earlier and riskier stages of the projects caused delays and cost increases.

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Some of the designs may have been more costly than necessary, mainly as a result of construction starting before the requirements or designs were fully developed, and changes to the project management or commercial approach. The way that the MoD set up the contracts also means that it, and not its contractors, must foot the bill for these cost increases as it did not share out the financial risks.

The delays to the projects have broader implications for nuclear work, which the MoD must manage, the NAO says. For example, following delays to MENSA, the MoD and AWE had to continue using existing infrastructure. The MoD expects it will have spent £21m between 2016/17 and 2019/20 on site upgrades to continue to comply with regulations and be able to use the Burghfield site.

The MoD could have learnt more from the early stages of other nuclear infrastructure projects concluded in the UK and elsewhere, the report says. Similar challenges arose for the MoD in the 1980s and 1990s, as well as in American defence projects and UK civil nuclear projects, such as at Sellafield.

All the projects have now progressed and most of the facilities are taking shape. The MENSA facility was completed in October 2019, and the first of the CPC facilities is expected to be completed in early 2020. Construction of one of the Primary build facility buildings is also largely complete. The MoD has made changes to improve its oversight of infrastructure projects and its relationships with contractors and regulators. Some contracts have also been renegotiated or improved for later phases with the aim of reducing costs going forward.

Gareth Davies, the head of the NAO, said: “While these infrastructure projects are complex, the MoD has encountered similar challenges before in its nuclear work. Although it has recently introduced changes to enhance its oversight of the projects and improve its contracts with suppliers, it should have learnt earlier from past mistakes and the experience of others in the nuclear sector. Instead, the MoD’s failure to mitigate commercial and delivery risks early on has led to project delays and cost increases, as well as impacting its wider work.”

* Managing infrastructure projects on nuclear-regulated sites is available on the NAO website

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