Risk Sharing in Defence Contracts


With the defence budget secured for the next 5 years Ministry of Defence has to guard against suppliers sitting back and padding out their contracts, or so says the Telegraph.

Arms companies are to be warned that the Government’s Budget commitment to boost military spending is not a licence to rip off the Ministry of Defence, which will “not tolerate inefficiency or poor performance”. Defence Secretary Michael Fallon will use a keynote speech on Friday evening at the world’s largest military airshow to fire the warning shot across the bows of some of the UK’s biggest companies. “While the defence budget is now protected, that doesn’t mean going back to padding profit margins through fat government contracts,” Mr Fallon is due to say.

Battle of Britain one minute and telling the defence industry off another, Michael Fallon is certainly having an interesting week.

It goes on to describe how the MoD will expect greater risk sharing;

The Government will expect industry to take on more of the risk involved in future projects, the minister will also warn. This could come in the form of sharing cost over-runs

What makes this interesting is that it is quite obviously a hit piece by the media relations chaps at the MoD in order to shift the blame for any future bad news on major projects on to industry. Looking back at the major projects I posted last week, where there was a distinct lack of green in the traffic light reporting.

And how about this gem from the article;

Building the Navy’s new aircraft carriers was originally budgeted at £3.65bn, though the final figure is now £6.2bn after specification changes by the MoD

Of course, specification changes by the MoD were responsible for some cost increases but the majority were caused by MoD and governmental indecision.


Industry is not entirely without guilt but I think the customer has much more influence on cost overruns, as any casual analysis of recent major projects would demonstrate.

The MoD might like to dwell on that.


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