HC Deb 28 March 1995 vol 257 cc815-6
7. Ms Church

To ask the Secretary of State for Defence what actions his Department has taken to reduce cost overruns in procurement purchases. [14631]

Mr. Freeman

In the financial year 1980–81, 22 per cent. by value of our headquarters contracts were let on a cost-plus basis. Last year, the figure was 1 per cent. Hence, last year, virtually all contracts had fixed prices or arrangements to protect the Ministry against contractors' cost overruns.

Ms Church

I thank the Minister for his answer, but does he not accept that there are considerable cost overruns on a large number of projects, which show that his Department has lost financial control of much of the defence budget? Is that not another sign of the Government's failure in running the country?

Mr. Freeman

It is not the case, as I am sure the whole House will appreciate, that we have lost control of the defence budget. Far from it. Our procedures identify at an early stage where there are cost overruns, which can be due to a whole number of factors. In the development of the Eurofighter, which hon. Members on the Opposition Front Bench support, with new technological development—the leading edge of new technology—that very expensive aircraft has already experienced some justifiable cost increases. The hon. Lady might wish to know that the National Audit Office recently reviewed our procurement policies. It compared the Ministry of Defence with 11 other Defence Ministries in other countries and concluded that, in Britain, the Department performed relatively well and particularly well in terms of pursuit of competition.

Mr. Brazier

Will my right hon. Friend take it from someone who worked with the defence industry before being elected that—[HON. MEMBERS: "Oh!"] I have no financial connection with any company in the defence industry now. Will my right hon. Friend take it from me that the transformation that has taken place in our defence procurement purchasing over the past 10 years has been remarkable? Does he agree that the only way to remove all risk of cost overruns is to give up altogether on taking any commercial or technical risk and accept second-rate, second-hand equipment?

Mr. Freeman

I am grateful to my hon. Friend for pointing out that it has been this Government and this Secretary of State for Defence who have announced an augmentation—[Interruption.] Perhaps the Opposition do not want to hear this but, last July, my right hon. and learned Friend the Secretary of State for Defence announced an increase in the equipment budget to include highly capable aircraft and ships and artillery for the armed forces, which is among the best in the world. There is inevitably some risk in developing new weapons and weapons systems.

Mr. Fatchett

Does the Minister not realise that he sounds remarkably complacent? When the Ministry was asked to give information on projects to the National Audit Office, I remind him that it got the calculations wrong in eight out of its 10 responses. Is it not the case that there is an overrun of 2.7 years on projects, that 80 per cent. of them have failed to reach their targets and that, on many serious and important individual procurement projects, the Government have spent literally billions of pounds of taxpayers' money on overshoots? Is this not a catalogue of unexpected and unanticipated defence cuts, waste and inefficiency on the part of a Ministry that is better known for waste than for any other characteristic?

Mr. Freeman

I understand why the hon. Gentleman, as an Opposition spokesman, has to attack—that is his job—but it would be much more effective if he got his facts right and concentrated on specific projects to explain the reasons why he thinks the Government have got it wrong. Broad-brush comments about a Department of waste cut no ice. The truth is that, as I said, the NAO has given us a clean bill of health. It regards our procedures as competent and efficient, which it would certainly not do under a Labour Government.

Mr. Mans

Bearing in mind the less than satisfactory track record of GEC in the past few years in the production of defence equipment, and especially now that we know of the waste of public money involved in the Phoenix project, will my right hon. Friend consider carrying out an audit of that company's activities in relation to the procurement of military equipment, and pay particular attention to its involvement in the ECR90 programme?

Mr. Freeman

I would not share my hon. Friend's criticisms of GEC. It is a large and efficient defence manufacturer that employs many tens of thousands of people in the defence industrial base. As for the Phoenix programme, I assure my hon. Friend that proposals are shortly to come before Ministers to decide on the future of that project, which I know that the Select Committee on Defence is considering. We need to decide whether to cancel the project and to seek contractual damages from GEC or to continue with it but protect ourselves against any increase in costs and any diminution in our contractual position in relation to the company.

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