38. CDP considered that much of the sum so far expended on the Horizon programme would not be wasted, but readily conceded the significance of the delays—

If we secure our objective of transferring the results of Horizon Phase I into the national programme, the money will not have been wasted. What I do accept is that we have caused a great difficulty for the Royal Navy by being late in the procurement of the Type 42 replacement. I have to say that is what I feel most guilty about, that is what is most unsatisfactory. We have spent ... about £100 million[113] on [Horizon] ... and I plan to use most of that... [But] it is difficult for me at this stage, when we have not yet secured the national programme, to know how much of the investment in Horizon will translate into a national programme.[114]

39. The unit production costs of the national ship could be about 8% cheaper than those likely under the Horizon collaboration.[115] On the other hand the UK had been destined to contribute only a share (12/22) of the £900 million (ie about £500 million) expected to have been needed to develop the Horizon warship, and the UK will clearly have to bear all of the subsequent development cost of the less expensive Type 45.[116] Whether the national warship programme will end up costing the UK more overall than its Horizon predecessor remains to be seen. This is a matter which we intend to monitor over the next few years as the development (and costings) of the Type-45 take shape.

40. As with any major procurement programme, in delivering the new warship time and cost will be inextricably linked. At one level, costs and delays go together. For example, any delay in the procurement of the warship delays the cost savings from its cheaper running costs—around £10 million a year per ship.[117] At another level, costs and time can often be traded-off. It might be possible, for example, to save time by—as some have suggested—letting more than one yard build first-of-class vessels, but whether this increases or reduces costs for the entire 12 ships is not yet clear. More fundamentally, we remain concerned that there will be pressures to delay the project for financial expediency. The National Audit Office's annual report on the MoD's Major Projects Report analyses the delays in the 25 largest equipment programmes. The latest Report shows that of the 43 months average delay, 9 months was attributed to the constraints on available MoD funds in any year.[118] If the national ship is to cost more overall than the Horizon frigate, there will be pressure within the MoD to delay the programme deliberately—if not for delivering the first-of-class then for subsequent orders. As one of our MoD witnesses said, "the incremental delivery of the [national warship] programme will be one way of containing ourselves within existing provision".[119]

41. As a result of its operational analysis for the CNGF, the UK's planning assumption had been that it would replace the current fleet of Type-42s on a one-for-one basis.[120] The Strategic Defence Review had made no change to the operational case for the programme and confirmed a requirement for 12 anti-air warfare ships.[121] The numbers are not yet finally fixed, with a further assessment to be made before the end of 2000. That work will look at the balance required between the Type-45s and the more distant Future Surface Combatant programme.[122] Any minor changes to the number of ships in the Type-45 fleet, however, will not disguise a looming gap in our anti-air warship capability. Apart from the delay in securing the enhanced capabilities of the new PAAMS warships, there will be a significant gap in capability because of the mismatch of the Type 42's departure and the Type 45's arrival. HMS Birmingham (a Type-42) will leave service later this year, so for the next eight years the Royal Navy will have to make do with one less anti-air platform. The rest of the Type-42 fleet will be decommissioned at six-monthly intervals beginning in late 2006.[123] With the Type-45s to be built in batches—as is usually the case—they are unlikely to be able to be commissioned at the same rate as the Type-42s will depart.

42. If the Type-45 programme is delayed, the MoD argued that 'there could be potential implications for the coherency of the destroyer/frigate programme in terms both of affordability and industrial loading further downstream',[124] with knock-on delays for the Future Surface Combatant and the Type-23 that it will replace perhaps being kept longer in-service.[125] We do not accept that affordability should be sufficient grounds for delaying other programmes if the Type-45 is delayed, and we will be taking further evidence if this arises. While it is sensible not to run on old ships with expensive running costs and increasingly obsolescent systems, it makes less sense to decommission them before their capability is replicated. We recommend that the MoD re-examine the Type-42s' decomissioning schedule, to avoid reducing the overall number of hulls available at any one time for UK anti-air operations.

43. The MoD is already working on the assumption that capability enhancements will be needed early in the new ship's life, though not on current plans before 2010.[126] The MoD's hope is that such upgrades to PAAMS and other systems need not unduly disrupt the operational readiness of the ships because new software insertions and some other upgrades could be prepared ashore and either plugged-in during refits or while the ship is at sea.[127] We welcome the emphasis on such a technology insertion approach—a component of the MoD's smart procurement initiative. By aiming at a more readily achievable capability for the ship's systems when it is introduced into service, earlier in-service dates and lower acquisition costs should be possible. This places a premium, however, on the MoD ensuring that delays are avoided (because the ship's systems might then be already obsolescent when delivered) and that the funds needed to maintain operational effectiveness from early in the ship's life are protected within the Department's budgets.

114  QQ 59, 60 Back

115  Q 62 Back

116  Q 62 Back

117  Q 68 Back

118  HC 519, paras 2.15 and 2.19 Back

119  Q 62 Back

120  Ev p 20 Back

121  Ev p 21 Back

122  Ev p 58 Back

123  Ev p 21 Back

124  Ev p 56 Back

125  Ev p 56 Back

126  Q 72 Back

127  Q 73 Back