MoD aircraft deal worth £10.5bn failed to deliver

The Ministry of Defence's biggest ever private finance initiative (PFI) is "inappropriate" and not proving value for taxpayers' money, according MPs on the Public Accounts Committee (PAC).

The £10.5bn, 27-year Future Strategic Tanker Aircraft (FSTA) programme – which is to supply air-to-air refuelling and passenger transport planes – is just the latest of a string of PFI deals to attract criticism.

The most serious charge levelled by the PAC, chaired by Labour's Margaret Hodge, is that the MoD should have grasped that a PFI may be suitable for projects with a clear specification – such as building a school or a hospital – but it does not work well with less predictable plans likely to be changed along the way. "Using PFI to procure the FTSA project was inappropriate and has not secured value for money," Ms Hodge said.

Under the deal for 14 modified Airbus A330s, AirTanker Ltd, a consortium of Babcock, Cobham, Rolls-Royce, Thales and EADS, continues to own the aircraft but is contracted to provide to the military when required. The group is also contracted to service and maintain them.

There were signs of trouble with the PFI structure from the beginning. Although the MoD started the procurement in 1999, the deal negotiations took twice as long as anticipated and the contract was not signed until March 2008. Delivery is also running behind schedule – when the first of the planes is delivered next year it will be five and a half years late. Even then they may not be equipped to fly into danger zones such as Afghanistan.

Even before the final FSTA deal was agreed, the contract was proving too inflexible. It is "simply astonishing" that the MoD did not decide until 2006 that the new aircraft should be able to fly into high-threat environments such as Afghanistan, says the PAC. Four years later the decision to fit the necessary protective equipment to the aircraft has still not be taken, because of the cost implication for the MoD of changing the original contract specification. If the decision to armour the 14 planes is taken, it could add hundreds of millions of pounds to the bill, and delay the scheme still further. In the meantime, the military is relying on old Tristars and VC10s, some of them dating back to the 1960s.

In 2004, the MoD project team itself recommended the PFI be scrapped in favour of a more traditional procurement structure, because of the need for greater flexibility in defence equipment programmes. But the department ploughed on regardless, and the final deal is the biggest defence PFI deal ever.

Both the MoD and the Treasury come in for scathing criticism, with Ms Hodge saying the Treasury should have challenged the MoD's failure "to conduct a robust evaluation of alternatives" to PFI. The PAC also sets out "significant shortcomings" in the procurement process, including the MoD's inability to compare the costs put forward by AirTanker with those likely to be incurred under a standard purchase contract. The department is also criticised for the expense of the over-running procurement and a lack of leadership skills.

AirTanker rebutted the criticisms, claiming the programme is running on time and that the scheme will not only provide double the aircraft of the fleet it is replacing but will also cost around 30 per cent less. "AirTanker believes that the FSTA programme offers value for money to the UK MoD and the taxpayer," a spokeswoman for the company said.

Private finance initiatives that have failed the taxpayer

Metronet

The most spectacular private finance initiative failure was the collapse of Metronet in 2007. The deal between Metronet, Tube Lines and Transport for London (TfL) was put together in 2003 to upgrade London's creaking Underground network. Within five years, the Metronet consortium collapsed, costing taxpayers £2bn as its functions were taken over by TfL. Earlier this year Tube Lines was also bought out by TfL.

HM Revenue & Customs estate

The PAC concluded in April that the PFI deal covering ownership and management of 60 per cent of the HMRC's estate is also failing to deliver value for money. The 20-year deal signed by Mapeley Steps Contractor in 2001 has cost the taxpayer 20 per cent more than expected so far, the PAC said.

NHS

Latest estimates suggest that the NHS faces a £65bn bill for 103 new PFI hospitals with an estimated value of £11.3bn at the time they were built. The Government says the schemes provide value for money. But some trusts are now handing over more than 10 per cent of their annual turnover.

Housing

More than four-fifths of local authorities' 25 PFI housing projects are over budget, the National Audit Office said in June. Nearly half are running at more than twice the anticipated cost. And the average delay is two-and-a-half years.

Start your day with The Independent, sign up for daily news emails
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

The 161-page dossier that exposes Fifa's dark heart

How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

Exclusive interview with Tripoli PM Khalifa al-Ghweil

'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

Raymond Chandler's Los Angeles

How the author foretold the Californian water crisis
Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

Art attack

Chinese artist who posted funny image of President Xi Jinping facing five years in prison
Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

Cher is the new face of Marc Jacobs

Alexander Fury explains why designers are turning to august stars to front their lines
Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

'I'm climbing Ben Nevis for my daughter'

Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
10 best wedding gift ideas

It's that time of year again... 10 best wedding gift ideas

Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
Paul Scholes column: With the Premier League over for another year, here are my end of season awards

Paul Scholes column

With the Premier League over for another year, here are my end of season awards
Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

Liverpool have seen too much tragedy to forget Heysel

Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

Khan’s audition for Mayweather may turn into a no-win situation

The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor