MoD equipment plan omits cost of buying five Type 31e frigates amid accusations of ‘understating costs’

The NAO report found that the MoD had not included £9.6 billion of forecast costs in the equipment plan.

“The NAO report found that the Department has not included £9.6 billion of forecast costs in the Plan. This variance arose as a result of the Department’s 2017 budget setting process not being able to match costs to available budgets. In addition, the NAO’s review found that the Department has understated forecast costs by at least a further £1.3 billion as the planned cost of buying five Type 31e frigates are not included in the Plan, while the cost of nuclear-related projects continues to grow.

There are also significant risks to the cost of the Equipment Plan: over-optimism in forecast costs of £3.2 billion as calculated by the Department’s independent Cost Assurance and Analysis Service; and the risk of increased costs of £4.6 billion due to the Department not using foreign currency exchange rates that reflect market rates at the date of the Plan.

The Department is also relying on ambitious savings to help fund the Plan. The Department reports that it has achieved savings of approximately £7.9 billion against an increased savings target of £16 billion, with approximately £8.1 billion still to be achieved by 2027. However, there is a lack of transparency on the full amount of savings included in the Plan and the Department does not have evidence to support all the savings it has claimed to date.”

The build plan for the Type 31 Frigates is expected to follow a similar pattern to that of the Queen Elizabeth carriers and early Type 45 Destroyers in that blocks will be built in yards around the UK and assembled at one main location.

Modern shipbuilding makes considerable use of prefabricated sections. Entire multi-deck segments of the hull may be built elsewhere around the UK, transported to the building dock or slipway, then lifted into place and assembled into one ship. This is known as block construction and is far more cost effective. Yards pre-install equipment, pipes, electrical cables and any other components within the blocks, to minimise the effort needed to assemble or install components deep within the hull once it is welded together.

Where is the Type 31e Programme today?

Recently Babcock announced that it would lead a team of industry partners in a bid for the new £1.25 billion Type 31e Frigate with work to be undertaken in Scotland, England and Northern Ireland.

Babcock say work would be shared across the UK its facilities in Fife and Devon being among the prime locations for building. Ferguson Marine on the Clyde will also be in line for the work. Babcock will act as the overall programme lead, whilst Thales will have overall responsibility for the development of the Mission System solution. The make-up of the team, the company say, will ensure that the economic benefits of the programme are shared across the UK. Ferguson Marine on the Clyde, Harland & Wolff in Belfast and the Babcock facilities in Fife and Devon will all have ‘key roles to play’, while much of the equipment provided by Thales and others will support jobs across the UK.

Babcock CEO Archie Bethel said:

“Team 31 will allow Babcock and Thales to take forward the key lessons from the Aircraft Carrier Alliance and apply them in a new and highly capable team with Harland & Wolff, BMT and Ferguson Marine. We firmly believe that our combined skills can deliver an affordable and effective Type31e Frigate programme for the Royal Navy and offer something new and exciting in the export market. With a high degree of UK content and the use of innovative technologies, we believe that our approach will deliver real benefits to UK plc.”

Victor Chavez, CEO of Thales UK said:

“Thales UK is delighted to be working with Babcock and our partners as part of Team 31. We recognise the diversity of roles anticipated for Type31e and, together, we will create and exciting, innovative and flexible capability for the Royal Navy based on the best of UK and international technologies in an open-system architecture that will ensure long term value for money.” 

Sarah Kenny, BMT CEO said: 

“BMT has supported the UK and global maritime sector for decades. As a proud member of Team 31, we are delighted to be shaping the Type 31e programme, and we welcome the opportunity to bring our substantial global engineering experience to bear on this vital UK defence programme. We are confident that the combined Team 31 offering will meet the exacting requirements of the UK MOD whilst creating UK shipbuilding industry momentum and a competitive offering for wider export opportunities.”

Babcock were originally offering the ‘Arrowhead 120 while BMT were offering the Venator 110, the companies now say that they will be exploring both available designs to determine the best possible option. The companies say that new arrangement draws on combined strengths and will deliver ‘innovative, capable, affordable and flexible customer solutions, within a fast changing and increasingly demanding environment’.

As we reported last year, BAE Systems announced a partnership with Cammell Laird, who would ‘Prime, build and assemble’ the vessels at their Merseyside facility while the Clyde will focus on the Type 26 Frigates. If the bid is successful, Cammell Laird would be main contractor with BAE providing design and combat systems.

BAE themselves say that shipbuilding capacity on the Clyde will be full until the mid 2030s while the Ministry of Defence want the first of the new Type 31 Frigates in service by 2023.

The MoD is hoping to reduce its reliance on BAE and cut the costs of procurement by spreading shipbuilding across civil and naval yards. To this end, the government are implementing the results of an independent report into the National Shipbuilding Strategy by Sir John Parker which recommended that the Type 31 Frigate build be spread across the UK, with blocks and components being constructed in yards in both Scotland and England.

The National Shipbuilding Strategy is intended to be a “radical, fundamental re-appraisal of how we undertake the shipbuilding enterprise in the UK, intending to place UK naval shipbuilding on a sustainable long term footing.”

BAE themselves signalled their own reluctance to bid for the Type 31 Frigate as prime contractor due to concerns of a “race to the bottom” on price. Speaking to The Herald here, BAE managing director Iain Stevenson said:

“We do want to be involved in Type 31. But we have questions. Does it have a budget? What are the timescales. We have not got solid facts. Type 31 could be a race to the bottom. If it is a front price contract people might bid for it to win and it and it might put them out of business. We would not, because we are BAE Systems.”

In a press release signalling a their intention not to bid to build the vessels BAE say:

“BAE Systems is focused on the manufacture and delivery of the two QE Class carriers, the five River Class Offshore Patrol Vessels (OPV) and the first three City class Type 26 warships, as well as continuing to develop and upgrade combat management systems on all Royal Navy ships. Taking account our current and future workload, including Type 26, our shipbuilding capacity on the Clyde will be full until the mid 2030s.”