MPs criticise MoD air tanker deal
The Ministry of Defence (MoD) was guilty of "astonishing" failures in its purchase of a £10.5bn fleet of tanker aircraft, a committee of MPs has said.
The Public Accounts Committee (PAC) said the MoD had no idea if its deal to buy the 14 Future Strategic Tanker Aircraft was good value for money.
The planes are not due to start entering service until October 2011.
Peter Luff, Minister for Defence Support and Technology, said mistakes had been made in procurement.
"This government is committed to ensuring that future contracts are better managed, delivering both value for money and the equipment our forces need, when they need it.
"We need to ensure that, whilst PFI (Private Finance Initiative) contracts can deliver long-term efficiencies and savings, they do not stifle flexibility," he said.
The planes, which will be based at RAF Brize Norton in Oxfordshire, are nearly six years behind schedule.
The PAC's report said the taxpayer would probably also have to pay hundreds of millions of pounds more for the aircraft - a modified Airbus A330-200 that will also be able to carry troops - because they did not have sufficient protection to fly on operations in Afghanistan and other combat zones.
Until this additional modification is carried out, the RAF will have to continue using its ageing fleet of Tristar and VC10 planes.
The MoD signed a 27-year contract to buy the 14 planes in 2008, under the government's largest PFI contract.
PFI is a way for the public sector to avoid paying up-front costs for major projects, typically such as the building of new hospitals and schools.
Under the initiative, private firms fund the project in question, with the public sector organisation then making repayments over a number of years.
The private company that the MoD signed a deal with to buy the new tanker aircraft was Air Tanker Ltd.
The PAC report questioned why the MoD had rejected advice from within its own project team in 2004 that the planned contract should be called off because of "significant concerns" over the Air Tanker Ltd bid.
Air Tanker Ltd is a consortium comprising Rolls-Royce, EADS, Cobham, Thales and Babcock.
PAC chairwoman Margaret Hodge said using PFI to procure the tanker planes had been "inappropriate".
"PFI may be suited to projects like building schools or hospitals where there is a clear specification," said the Labour MP.
"Defence programmes are by their nature different: activities and demands are far less predictable and much more susceptible to change."
She added that the MoD could not have asked for the planes to have extra protection fitted so they could fly in Afghanistan because of the implications this would have had for the cost of the PFI.
Ms Hodge also said the committee had "great concern" that it took the MoD nine years to negotiate the PFI deal with Air Tanker before it was finally signed in 2008.
She added: "Throughout the project the MoD has lacked the robust financial and performance data needed to make sensible decisions."
The PAC report said the MoD did not understand the costs of the deal it was negotiating, as it did not obtain access to detailed industry cost data.
Air Tanker Ltd said in a statement that it believed its tanker programme "offers value for money to the UK MoD and the taxpayer".