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Future Aircraft Carrier (CVF) Queen Elizabeth Class Part 22
Costs Affordability and cost-effectiveness are very major factors in the CVF programme.
In November 2001 the National Accounting Office stated in its Major Projects Report 2001 that the CVF Demonstration and Manufacture Phase would most likely cost £3,047 million in outturn prices, with a 90% range of £2,654 m to £3,363 m.
In December 2002 the National Accounting Office repeated in its Major Projects Report 2002 the same Demonstration and Manufacture Phase costs, the reporting period covered is prior to selection of the adaptable carrier design in September 2002, which the MOD admits has added about £150 million to project costs. The NAO's report also states that the CVF Assessment Phase will now cost £129 million, a rise of £11 m in real terms compared with estimates at Initial Gate, this is due to the revision in the procurement strategy for the Assessment Phase. Thus has probably since risen to £153 million because the Assessment Phase 3 contract value was at £50 million more than double expectations. An additional Assessment Phase extension will again increase costs. On 30 January 2003, Lord Bach, Minister for Defence Procurement, said "The cost of the ships, not including the aircraft, is estimated at £2.8 billion, with an additional £6.4 billion in through life costs. " In June 2003 BAE Systems informed the MOD that the D&M Phase would cost £3.8 billion compared with the £2.8 bn budgeted, and taking the total project cost for the two aircraft carriers to £4bn. The cost escalation seems to have come from several areas: (i) additional design refinement and risk reduction had enabled more accurate cost estimates to be made; (ii) BAES, having been selected as Prime Contractor, was setting a commercially profitable price on which it was prepared to do business, (iii) BAES was charging the MOD for the risks associated with it being made responsible for building someone else's (Thales) design; (iv) problems and costs associated with incorporating BAE systems and ideas in to the Thales design. Sources at BAE Systems and Thales Naval both pointed that they had never promised or been required to met the MOD budgeted figure, indeed their own costs estimates when submitting proposals in late 2002 were £3.4-3.5 billion, additional work had now refined this to the £3.8 billion being mentioned. A Ministry of Defence spokesman was reported
as saying that this new figure "may not be correct", he said
the final cost would not be known until spring 2004, when the designs
had been finalised. He also played down a Financial Times claim
that the carriers would have to be simplified and shrunk to meet budget
restrictions. "The various options don't necessarily mean a smaller
aircraft carrier." A BAE spokesman also said it was too early
to speculate on the final cost of the carrier project.
"There's a figure that's been around of £2.9bn, but to what extent
that figure is affected by other issues subsequent to the decision being
made earlier this year - that's another thing." In July 2003, BAE In response to these rumours about CVF cost-overruns, Thales Chairman Denis Ranque told a meeting of business journalists on October 16 2003 that “We are determined to remain within that envelope of £2.8 billion, or €4 billion, for two [Royal Navy] carriers.” In December 2003, BAE and Thales sources told the Observer newspaper that the capabilities being demanded by the CVF IPT in the new carriers would cost at least £3.5bn. One contractor working on the project said the [optimised] design meeting the MoD's latest specifications had been costed at £3.8bn, while the original adaptable design was costed at £4bn. In January 2004, the NAO's "Ministry of Defence : Major Projects Report 2003" still stated that the CVF Demonstration and Manufacture Phase would most likely cost £3,047 million in outturn prices, with a lowest and highest range of £2,654 m to £3,363 m. However it now projected £143m for the Assessment Phase, an increases of 25m compared with a year earlier. Interestingly it forecast Main Gate Approval in February 2004. In February 2004 the Sunday Times newspaper reported that the two new aircraft carriers could cost £5 billion to build — £2 billion more than the Ministry of Defence’s original estimate. This is partly because plans to shrink the ships in order to come closer to the MoD’s £2.9 billion budget have been largely reversed. One source close to the talks “It was always clear that the £2.9 billion figure was just not realistic.” French cost estimates for their second aircraft carrier (PA2) make an interesting comparison for the UK's. In late 2003 DCN proposed to build a "sister-ship" to Charles de Gaulle for €1.83 billion (compared with the €3.03 billion), a figure later recalculated by the Délegation Générale pour l'Armement (DGA) as being €1.995 billion euros. And Thales' Denis Ranque - at the same meeting mentioned above - said in October 2003 that for the next French carrier, "a cooperative solution with the British, for which we are fervent defenders, would cost less than two billion euros, ... Since two [carriers] are already being built for four billion euros, three can be built for less than six billion euros." When questioned about this statement, Ranque acknowledged that the British design would have to be adapted for French use but emphasized the ship could still be built for less than two billion euros, "A catapult must be installed but even counting the cost of this modification, our project would come in under two billion euros," he said. Soon after this, a French Parliamentary Report said that a study by the DGA had estimated that a conventionally powered variant of CdeG (not CVF) would cost around €2.3 billion euros - apparently including €500 million design and development. Despite the greater initial build cost, the French Ministry of Defense estimates that adopting a conventional mode of propulsion "releases a total economy of more than 10%" compared to the nuclear power, "because of reduced maintenance costs and the effects of a reduction in manpower". The prospect of France joining the CVF Project is now regarded the key to keeping costs down for the UK. France would be expected to make a substantial contributions towards the design work and also up to one third of the British carriers might then be built in low cost French shipyards. In late February 2004 The Times reported that the On 12 July 2004, BAE Systems Chief Executive Mike Turner told reporters that while the two carriers were originally envisaged to be built for £2.9 billion, £4 billion may be a more realistic price to build the carriers with the correct type of equipment.
In November 2004, the NAO's "Ministry
of Defence : Major Projects Report 2004" indicated that
the Assessment Phase would now cost 169 million with Main Gate Approval
expected in December 2004. The latest costs for the Demonstration
and Manufacture were censored out on the basis that they were
commercially sensitive.
In early 2005, RAND Corporation developed a method for understanding the cost of each day of CVF carrier operations, and calculated a daily cost of about £570,000. In February 2005, a memorandum by the MOD stated that the current estimate of most likely (50%) cost for the carriers was around £3 billion (including combat system but excluding the aircraft), cost of capital charges added around a further £450 million to the estimate. The MOD emphasised that this was only an estimate, and that an agreed target cost would not be set until Main Gate - expected to be sought in the latter half of 2005. In December 2005, the Defence Minister - Mr Reid - said that the MoD was to spend some £300 million to develop the CVF design to the point at which manufacturing could begin. In November 2006 the NAO's "Ministry of Defence : Major Projects Report 2006" revealed that the Assessment Phase had completed at the end of January 2006 at a total cost of £302m. They also stated that following direction from the Investment Approvals Board, the project had adopted an incremental approach to Main Gate approval with the Demonstration and Manufacture (D&M) phases being divided into two sequential Main Gate approval points. The first phase (demonstration), which included expanding the alliance to include Babcock Engineering Services and VT Shipbuilding, was approved by the IAB and Treasury in December 2005. The total cost of the demonstration phase has been capped at £297m (not to exceed figure). A second and final submission seeking approval for the manufacturing phase was expected to be submitted in late 2006 - this did not occur because the the business case exceeded budget. By 31 December 2006, the MOD had spent £411 million on the CVF Project, and the first long lead orders had been placed, e.g. with Converteam for its Advanced Induction Motor/VDM25000 converter, part of the baseline propulsion solution. In early 2007, estimates for the Manufacture Phase ranged from £3.6 billion to £3.9 billion. This is presumably in addition to the £599 million already approved for the Assessment and Demonstration Phases. In July 2007 it was stated the Manufacture Phase would cost an estimated £3.8 billion
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© 2004-8 Richard Beedall unless otherwise indicated. |
In an attempt to reduce costs the CVF design will
utilise the economic mix of commercial and military construction
standards defined under new Lloyds Register Naval Ship Rules, an
approach first used with 
