Programme Costs

One the Open Thread there was some discussion about the Type 26 and recent revelations of its estimated Programme Cost of £11.5 billion. There was some speculation about total numbers of vessels and what would be included.

Type 26 Global Combat Ship DSEI 2013

Programmes also include the Assessment Phase, the Assessment Phase matures the design options and lowers risk. Some infrastructure and long lead items are sometimes included in the Assessment Phase. The Demonstration and Manufacture Phase is included and in some cases, Support and Service. It is also important to understand that cost estimates will include technical, financial and exchange rate risk values. If those risks are not realised, the overall programme cost will decrease. Some programmes will have greater risk provision, those with significant foreign content will have greater provision for exchange rate risk and those bringing new advanced systems into service, greater technical risk provision.

The definition of what constitutes a programme does not seem to be universal but some examples might be interesting to examine;

Typhoon did not include the costs of ASRAAM, Meteor, Paveway IV, Storm Shadow or Brimstone for example. The QE Class carrier programme does not include the cost of its aircraft, and those aircraft programme costs do not include the cost of the weapons they carry either.

The Type 45 Destroyer programme included the UK’s share of the Principal Anti Air Missile System (PAAMS), SAMPSON radar, associated software and ASTER missiles. Assessment phase was £232m, Demonstration and Manufacture, £5,556 million and £761m for support. That is £6,549 million for the six ships, with support rolled in and a portion of the costs of a cutting edge air defence system.

For the Type 26, the Sea Ceptor air defence missile system is covered within another programme, Complex Weapons. Complex Weapons includes Fire Shadow, Brimstone 2, Sea Ceptor, SPEAR Capability 2 Spiral Development, SPEAR Capability 3, Future Local Area Air Defence System (Land), Future Anti Surface Guided Weapon (Heavy) and Future Anti Surface Guided Weapon (Light).

Merlin and Wildcat helicopters are outside the Type 26 programme, as are the Stingray lightweight torpedo. Mature systems like Sonar 2093, command and control software, Artisan radar and various countermeasures are excluded but unit costs for new builds will be. So, if the Type 26 needs x number of Sonar 2093s sets then only those components used on Type 26 will be charged against the programme, no development costs for example.

Because so many systems destined for Type 26 will have been de-risked and installed on Type 23 there are opportunities to actually transfer physical equipment from one type to the other. This probably is not as simple as it seems because of build sequence and physical integration issues but the potential is there.

The Maritime Indirect Fires System (MIFS) is included within the programme umbrella, the 5” gun at the pointy end!

The Type 26 programme has incurred an initial Assessment Phase cost of £127 million, plus the £859 million demonstration contract awarded last year that includes approximately £600m of long lead items and some shore facilities that will reduce the overall manufacture phase costs.

The £11.5 Billion was apparently an unscripted comment so no doubt more details will emerge in due course but I think the point is;

Programme cost estimate divided by proposed quantities does not equal unit cost .

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