The Ministry of Defence’s Equipment Plan — a ten-year forward commitment to purchase and maintain defence equipment — has been in deficit for most of the past decade. The NAO’s 2024/25 review found a funding gap of approximately £17 billion over the ten-year plan, meaning the MOD has committed to buying more equipment than it has budget to pay for. This is not a new finding; the NAO has identified an Equipment Plan funding gap in seven of the last ten years.
The Five Programmes
The largest individual contributions to the funding gap are concentrated in five programmes: the Type 26 City-class frigates; the Ajax armoured vehicle programme; the next-generation combat air programme (GCAP, the successor to the Tempest project); the nuclear enterprise, including Dreadnought submarine construction; and the defence information infrastructure programme.
Ajax — an armoured reconnaissance vehicle — has become a byword for defence procurement failure. Initially contracted in 2014 with delivery expected from 2017, the programme has experienced persistent technical problems including vibration and noise issues affecting crew safety. By 2025, full operational capability remained outstanding, and the programme had cost approximately £5.5 billion against an initial contracted value of £5.5 billion for a much larger fleet — meaning cost per unit had approximately doubled as the contracted fleet size was reduced.
Why Overruns Persist
The structural causes of MOD procurement overruns are documented in successive NAO reports, Public Accounts Committee hearings, and independent reviews. They include: optimism bias in initial cost estimates, where programmes are priced at best-case rather than expected outcomes; complexity underestimation, particularly for software-intensive systems; contract structures that incentivise contractors to underbid and manage cost growth through variation orders; and insufficient in-house technical expertise to challenge contractor claims.
A further structural driver is the Equipment Plan itself. Once a programme is in the plan, removing it creates political and institutional resistance — from the military chain of command, from the relevant industrial supply chain, and from the constituencies where production facilities are located. The result is that programmes continue even when cost overruns make them poor value, because cancellation is politically costly.
The Contracting Model
UK defence procurement shifted significantly toward a small number of large prime contractors following the post-Cold War defence industry consolidation of the 1990s. In several major capability areas, the MOD has a single potential contractor — BAE Systems for surface warships and fast jets, for example. In a monopoly supply situation, the MOD’s negotiating leverage is limited; it cannot credibly threaten to award the contract elsewhere.
The Single Source Contract Regulations, introduced in 2014, created a framework for determining “allowable costs” in single-source defence contracts and provided the Single Source Regulations Office with oversight powers. The SSRO publishes annual statistics on the contracts it regulates. Its 2024 report found that a significant minority of regulated contracts had cost overruns exceeding 15% above the initial agreed price — the threshold at which the SSRO can require explanation and, in some cases, cost recovery from the contractor.
What Reform Looks Like
The government’s 2024 Strategic Defence Review identified defence acquisition reform as a priority. Specific commitments include: increased in-house capability in the Defence Equipment and Support organisation; greater use of competitive procurement in areas where multiple suppliers exist; and a more rigorous Equipment Plan process with independent cost assurance. These are similar to commitments made in previous defence reviews; whether implementation follows is the question.
External analysts have proposed more structural remedies: removing the Equipment Plan from the ten-year rolling format and replacing it with a five-year plan with genuine contingency built in; requiring all major programmes to pass independent cost assurance before contract award; and strengthening SSRO powers to require cost recovery from contractors with significant overruns.