NAO states MoD fails to mitigate £1bn in extra costs; 6 insights to inform your complex project so it is on time & budget

By Allan Watton on

The bedrock of Britain’s nuclear defence programme is Trident’s Continuous At-Sea Deterrence (CASD). The principle is that at all times, there will be at least one nuclear submarine at sea on patrol.

However, a recent National Audit Office (NAO) report suggests that despite its vital importance, three primary infrastructure projects that this deterrence relies upon, have been severely delayed. They have also exceeded more than a billion pounds over their budget due to ‘poor management’ at their early stages.

This article takes a look at the NAO’s findings and the insights we can use to inform any complex project and strategic supplier relationship to maximise its chances of success.

The MoD’s Three Critical Infrastructure Projects

Central to the NAO’s report, were three infrastructure projects which have all taken significantly more time and cost more money than initially budgeted for:

  1. Warhead production. A new facility at the Atomic Weapons Establishment site in Burghfield, Reading, designed to keep the UK at the fore of global defence capability, was delayed by around six years. This resulted in millions of pound’s worth of additional, unplanned, costs to keep the existing infrastructure going and compliant with regulations. The delays took the project approximately 146% over budget.
  2. Nuclear reactor core production. A core production capability (CPC) facility in Derby required upgrading to produce the latest designs. This too was delayed by five years and increased the costs by 45% over budget.
  3. Submarine construction. A primary build facility in Burrow-in-Furness required upgrading. Changes in requirements severely impacted this project, costing the MoD (taxpayer) an additional 116% over budget.

Just under half of the total cost increases of £1.35 billion, was determined by the NAO to have been incurred as a result of construction starting on these projects too early. It was reported that construction started “before requirement or designs were fully developed” – fundamental early stage due diligence exercises that should be the foundation of any complex project and strategic supplier relationship.

The NAO Stated that the MoD has Not Learned from Past Mistakes

The NAO report goes on to state that “The Department has not learned all it could from the early stages of similar projects concluded in the UK and elsewhere”. Apparently, similar issues were experienced in the 1980s and 90s, when nuclear sites were last upgraded. These issues were identified thanks to “extensive reviews” but the NAO identified that it seems the lessons learned on those projects were not implemented this time around.

Six Insights from the NAO Report

The report was published last month and it highlighted six areas of failed project governance and management. In the NAO’s opinion, the MoD could have done more to have positively influenced the outcome and mitigated these cost and time overruns:

1. The Department did not manage the value-for-money risks arising from its lack of a formal regulatory role 

This highlighted a lack of clarity of communication in the relationship. It seems in conversations with the NAO, all sides recognised this issue at the time and that in turn, it could have led to an increased risk of “designs being over-specified and therefore more costly than necessary”.

Whilst it is essential for all parties to fully appreciate the reasoning behind the outcomes the project is expected to achieve, when you are in the line of battle as it were, there are times when you don’t take the ‘strategic thinking time’ necessary to sanity check both yourself and the decisions being made.

In addition, maintaining strong lines of communication throughout the relationship to ensure that any changes in demand, circumstances, technology or capacity are discussed to determine better solutions where they exist are core foundations. Relationships that incorporate truly collaborative structures are the most adaptive, responsive and successful in our experience.

2. The Department did not set up contractual arrangements to share financial risks, meaning it bore the full impact of cost increases itself

Contractual clarity and sensible protection measures incorporated into the agreement could well have resulted in a very different outcome.

As we have not seen the contract, it is impossible to tell what clauses were drafted in that agreement which would have assured success by driving really collaborative behaviours between the MoD and its strategic suppliers on these projects.

Separately, the inclusion of clauses to ‘protect’ the MoD from cost growth, subject to the context and specifics of how they were drafted, may have impacted other areas of the relationship.

The NAO did identify however, a lack of control on costs clauses within the contracts of all three projects. This meant that as supply chain costs increased over the years of the project, so did the overall costs of the project.

We continue to evidence that a five-step process should ideally be followed to create contracts that assure you drive the right collaborative behaviours between everyone, so great outcomes are achieved within agreed timescales and cost restraints. It provides the opportunity to form a roadmap for the relationship in good times and in bad, but the fundamentals of good contract creation are to ensure that as many potential opportunities for ambiguity are minimised as possible, and an inability to clearly identify project costs, is a big one.

3. In two of the three cases the NAO looked at, the Department had limited contractual levers and insufficient oversight to reduce its risk exposure

Without the right governance oversight, the MoD was very slow to respond to poor performance. It was also skilled-capacity constrained and without the right manpower to identify when the projects were not going according to plan, issues were likely to escalate for some time before they were identified and dealt with.

We often talk about having an Intelligent Client Function (ICF) team on complex projects and strategic supplier relationships, a select group of individuals chosen for their project and stakeholder-centric talents whose role it is to help the organisation sustainably innovate, monitor performance and maintain close relationships with both supplier and client-side peers to (a) identify the ‘art of the possible’, (b) identify issues and (c) recognise triggers and reasoning for them when they occur.

It seems that the NAO is suggesting the skills capacity and lack of resourcing within the MoD was a specific set of constraints preventing better performance on these projects.

It is also instructive that the NAO believed “The overarching contract does not include performance measures and has limited termination opportunities should performance deteriorate”. So, as issues were identified, what process of contractual governance would the suppliers been held accountable through?

More importantly, how would they govern, measure and evidence whether they were getting ‘good behaviours’ to assure collaborative working and bringing in these projects on time and to budget?

4. By progressing projects too quickly early on, the Department increased its risk exposure

The NAO reported that it believes that a significant proportion of the cost overruns (48%) were due to a lack of clarity of purpose.

Construction started “before both the requirements and design were mature”, which indicates that the NAO perceived not enough had been done to ascertain precisely what was required before work began – in turn, resulting in aspects of scope creep.

The first step in dealing with strategic supplier relationships and the complex project solutions they deliver, is to articulate, clearly, the outcomes you and your other stakeholders want to achieve and why.

The second step, is to make sure you have internal agreement of these outcomes and how you intend to achieve them, across all of your ‘key’ direct and indirect stakeholders.

In terms of getting to that articulation/clarification, you’ll need to identify what objectives will lead to the outcome, including where weak points and assumptions are being made, where technologies, capacities or skills are going to be constrained and where new processes and means will need to be developed to handle unique challenges.

Only when you know what you need and the risks involved in delivering, it can you determine what risk mitigating measures that need to be established to reduce the possibility of cost rises and schedule slips.

5. The Department did not always manage interdependencies across Enterprise projects, contributing to projects starting too early

A lack of coordination of interdependent projects, meant that while the work that could have saved the project millions was being carried out, the schedule disrupted the possibility of it doing so.

One example of this was that an analysis was conducted to estimate what the new nuclear rector core in development might require from the facility that was to be constructed to build it. However, because the project to build that facility got underway before the analysis was completed, once it was it was discovered that the facility was just not going to be big enough, it was too late. This resulted in changes that cost an additional £146 million.

Clarity of purpose is once again a vital insight that is evidenced time and time again in strategic supplier relationships. Do you feel you have identified all of the key information you require to make value-for-money decisions? This usually means re-sanity checking with all of your key stakeholders that the interdependent projects are considered in the wider schedule.

6. The Department and its contractors struggled to secure the knowledge needed to design and build cost-efficient infrastructure

This appears to be another example of a lack of clarity of communication. Detailed documentation was required by regulators to assess the suitability of elements of the projects. It was reported that due to the specialist skills required and a lack of talent available to complete the task, the appropriate detail in the documentation was not completed early enough to have avoided some of the later issues.

The NAO suggested that due to the oligopoly that the few suppliers that had these skills maintained, it was the same individuals working on this documentation for all three projects. This increased both the strain on this limited resources and the potential for delays, which impacted the risk of issues going unnoticed until it became more costly to deal with them.


The NAO report stated “The challenges with these projects were not unique. It is therefore disappointing to see that in their early days the Department made the same mistakes, also experienced by others, as were made more than 30 years ago.

To secure value for money, the Department should have managed the inherent challenges of these projects, such as not starting construction too soon and allowing some flexibility, as well as addressing the risk of not having a statutory role to agree cost-effective designs”.

In fairness, the NAO report does go on to say that the MoD did make changes to their processes in managing and monitoring these relationships, with the purpose of countering some of these missteps.

The NAO stated “More recently, the Department has started to get to grips with the challenges through revised commercial, regulatory and governance arrangements, although it is too early to tell whether these will be effective”.

The vital importance of early stage due diligence to include clarity of purpose, clarity of communication across all key direct and non-direct stakeholders and commercial sustainability of your complex project and its supporting contract material, should never be underestimated.

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