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£2.6bn budget blowout

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Skynet 5 and other military equipment projects are running a total of £2.6bn over budget, a report from the official spending watchdog reveals.

Restructuring of Skynet 5, the Ministry of Defence PFI project to develop the next generation of military satellite communication services, will cost an extra £885m, says the National Audit Office's (NAO) latest report.

The original deal for Skynet was signed with contractor Paradigm in 2003 with a forecast cost of £2.77bn. But problems with insurance led the ministry to restructure the deal two years later. The length of the project has been extended and, as a result, costs are now forecast at £3.66bn.

The NAO's Major Projects Report 2006, published on 24 November 2006, reveals that the cost of the 20 biggest military equipment projects is now £2.6bn higher than agreed at the outset. Thirty-three months of delay to these projects occurred in the year 2005-06, but the NAO points out that this is a better performance than in any of its major projects reports since 2002.

Edward Leigh, chair of Parliament's Public Accounts Committee, commented: "When news of an additional 33 month delay in the delivery of big defence projects is called a step in the right direction, that tells us plenty about the MoD's track record in managing those projects."

Although the Ministry of Defence appears to be making progress in controlling costs, the reality is that it has done this largely by juggling costs between budgets, said Leigh.

The ministry has recognised the concerns expressed by the committee and the NAO about the need for better cost control and is making changes to its purchasing procedures, according to NAO head Sir John Bourn. These changes include better management of commercial and contractual arrangements and more cost effective means of delivery.

"To provide more public information to Parliament we are working with the MoD to make sure that the major projects report evolves in parallel to ensure it provides a more complete account of the progress of defence equipment projects," Bourn added.

This article was originally published at Kablenet.

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