MPs attack MoD over £10.5bn deal failings

The Public Accounts Committee said the department signed up to a huge Public Finance Initiative (PFI) contract even though it had no idea whether the deal was good value.

The taxpayer also faces paying out hundreds of millions of pounds more because the aircraft do not have sufficient protection to fly over Afghanistan.

The criticism came in the PAC's report into the Future Strategic Tanker Aircraft (FSTA) project.

The MPs condemned the fact that it took nine years of negotiation before the complex 27-year contract with AirTanker Ltd was sealed in 2008, and pointed out that no other country used PFI for defence equipment.

The refuelling and transport aircraft, which are meant to replace the RAF's ageing Tristar and VC10 fleet, are now due to start coming into service next October – five-and-a-half years behind schedule.

They also questioned why the MoD had rejected advice from its own project team in 2004 that the deal should be abandoned because of "significant concerns" over the company's bid.

Committee chairwoman Margaret Hodge said using PFI for had been "inappropriate" and it was "no excuse" that such arrangements were favoured across government at the time.

"PFI may be suited to projects like building schools or hospitals where there is a clear specification," the Labour MP for Barking said. "Defence programmes are by their nature different: activities and demands are far less predictable and much more susceptible to change.

"It is simply astonishing that it took until 2006 for the Department to recognise that the new aircraft should be able to fly into high threat environments like Afghanistan.

"Four years later, it has still not decided whether to fit the necessary protective equipment to the aircraft which is essential if they are to be used in Afghanistan.

"The Ministry of Defence is inhibited from changing the specification because of the implications this would have for the cost of the PFI."

Taking nine years to negotiate a PFI contract had led to considerable cost increases and illustrated a fundamental problem which affected the MoD's ability to deliver value for money.