Q&A: The MoD's £3bn overspend

The Eurofighter is one of the projects affected by overspend

The Ministry of Defence is facing heavy criticism for an overspend of more than £3bn on major projects.

BBC defence correspondent Paul Adams takes a closer look at the issues surrounding government spending on the armed forces.

Q: Why has there been such a massive overspend by the government when it comes to MoD equipment?

A: It is a complicated story but most of the overspend, and the time slippage, is accounted for by four projects:

• Typhoon - also known as Eurofighter
• the Astute class nuclear powered submarine
• a new version of the Nimrod reconnaissance aircraft
• Brimstone - an anti-armour weapon to replace the RAF's controversial cluster bombs

Taken together, these projects represent 87% of an in-year increase of £3.1bn and 79% of in-year slippage.

Some of the problems are due to technical difficulties, others down to poor project management and unrealistic expectations by the MoD.

They are all known as "legacy projects", and predate the introduction of the MoD's new procurement guidelines - so-called "smart acquisition".

The MoD admits that projects were poorly conceived, with far too little attention given to reducing risk.

The department adopted a naive, hands-off approach towards defence contractors and then expressed surprise when costs soared.

Officials now say they have adopted a much more rigorous attitude, one senior figure saying on Thursday that "you don't continue to employ a plumber who routinely floods your house".

It was a thinly veiled reference to BAE Systems, the company behind fiascos with Astute and Nimrod.

Another MoD official described BAE as "a bit like a used car salesman" and said the department was expecting a "fractious" year with the UK's biggest defence contractor.

Q: On the one hand there are accusations that soldiers in Iraq did not have basic equipment and yet now the government is accused of overspending on big projects. What knock on effect will this have on public perception of government policy?

A: These are essentially separate issues.

The Treasury stumped up extra cash for the war.

Officials say it is simply wrong to link spending on big-ticket items with the sort of kit problems that have dominated headlines in recent days.

"You can't replace the capabilities of an attack submarine by buying more body armour," was how one put it.

But the latest news is clearly not good for public confidence and may well cause soldiers to wonder if their interests are really being looked after.

Q: What can the MoD do to rein in its spending?

A: It is already doing a lot.

"Smart acquisition" was introduced five years ago, with the express purpose of enabling the MoD to buy equipment "cheaper, faster and better".

And for the most part, it seems to be working.

Projects approved since 1998 are doing better than the older "legacy" projects.

Q: Will it happen again?

A: It just might.

The National Audit Office report's authors warn that despite better performances by newer projects, there is already worrying evidence they may go the way of their predecessors.

Some have already used up much of the "risk differential" built into project to make sure they come in on time and on budget.

MoD officials say they are not unduly worried about this - they would prefer to spend money early on in a project's life, in the assessment phase, than find themselves lumbered with even bigger bills later on.

Q: Millions have been spent on projects such as the Eurofighter Typhoon plane, which even the defence minister Lord Bach admits is not up to scratch. Why did the government not pull the plug on such procurements?

A: If only it were that easy. In the words of Macbeth: "I am in blood stepped in so far that, should I wade no more, returning were as tedious as go o'er."

Cancellation of projects like Nimrod and Astute would be as costly as completion.

They are also regarded as strategically vital.

Typhoon is less precious - but this is a complex European venture and cancellation is not an option.

Which is not to say that the government intends to buy its full complement of 232 - it almost certainly does not, and is negotiating quietly with its European partners to reduce the order.

Q: Will this report prompt the government to carry out a major review of the armed forces and their budgets?

A: Probably not.

Officials believe the situation is in hand.

"Lessons will be learned," they say, about kit shortages and major procurement projects - but there is no talk of root and branch reforms.

They believe many of the necessary changes have already been made and that we should not see a repeat of this embarrassment in next year's audit.

They also point out the data in this report covers the 12 months up to last March, and that the situation is already better.

They are probably right.