Bloodhound: geriatrics here will remember 1962's Ferranti Affair, involving the firm repaying over-charges (£4Mn - then, a lot) on Bloodhound 1 guidance. DS was again the responsible Minister.
I did some research into this for my thesis.
I think that Ferranti was largely innocent of any wrong-doing, but Mr Ferranti's refusal to fully testfiy in front of the PAC was a public-relations disaster and potentially lost him his case.
The Comptroller and Auditor General's report claimed the excess profit had been £5,722,964 on its Bloodhound I components contract, which they estimated was 82% profit on costs. Meanwhile the MoA estimated Ferranti's profit to have been 70%.
But the C&GA report had included all of Ferranti's GW contracts, once the 18 Bloodhound contracts were separated the figure dropped to 72%. Then it was realised the material costs had been overlooked and it dropped to 63%. Ferranti however never released the true figure so all anyone had was estimates.
The same C&GA report had claimed de Havilland Propellers had been overpaid by £1.36M but this proved to be incorrect too, the MoA said the true figure was £300,000.
The fixed price contracts the MoA favoured and forced onto the Bloodhound contracts allowed a 15% profit, they felt this encouraged the firms to limit costs to increase the profit share, though industry tended to see it the other way (even so, by 1961 only 23% of all MoA contracts were fixed price).
The real point was that to work, the MoA and industry both needed accurate cost estimates. It was discovered that the MoA had failed to realise their estimated direct labour costs were based on inflated overhead rates and were five times too high. Worse, figures proving the mistake were then overlooked before the contracts were signed.
The Technical Cost Officers had lacked the experience of the electronics to provide the necessary checks and accepted Ferranti's claims of potential difficulties at face value in the absence of any other evidence. Ferranti later claimed the estimates were not necessarily wrong, they had simply performed better than estimated. Its interesting to note the Blue Streak contracts were not even put out to tender due to limited choice of contractors.
The Admiralty had frequent dealings with Ferranti and they had more accurate overhead forecasts, but these were never shared with the MoA.
The MoA accountants were criticised for their 4% error in the overestimated labour and overhead costs, even though their estimates actually proved more accurate than the C&GA's original estimates! The Technical Cost Officers' 200% error was even greater.
The Director of Contracts actually had the more accurate accountant's estimates (4% error) on his desk a fortnight before the Ferranti contracts were awarded, he should have spotted that the TTO's estimates were widely off the mark yet he did nothing. Who got the official reprimand for the failure? The accountants and TTOs of course!
The Lang Committee recognised the MoA was short of qualified manpower and many had been promoted outside the contracts division so losing vital expertise. Focusing limited staff time on one set of contracts meant that others were rushed through and inaccurate.
Reforms did come; TTO estimates were routinely checked by accountants and the Directorate of Accountancy Services was transferred to the contracts division. The TTO posts were increased from 347 to 435 but even by 1964-65 there were still a hundred vacancies and when TSR.2 began the shortage of TTOs meant they visited the contractors only monthly or quarterly. Sub-contracts were only checked if the TTOs had doubts, so only 10-15% of sub-contracts during this period were ever checked and no records were kept!
Staff shortages also meant contract delays, this affected Lightning production orders twice (affecting the factory), TSR.2 development contracts were over a year late, TSR.2 production contract negotiations began in October 1965 but were never concluded before the cancellation in April 1965.
There was one last twist!
The TTOs obviously visited the factories to study their production plans and financial records and invoices etc. The MoA thereby acquired the real overhead costs from Ferranti's records. Ferranti thought the MoA would use the data to correct the original estimates. But the MoA did not use the data. Why? Because under the 1939 Ministry of Supply Act, they were entitled to the right to 'estimate or ascertain' but the MoA's legal interpretation of the act was so cautious that they took it mean they could either 'estimate' or 'ascertain' but not do both simultaneously! Therefore they dared not to use the Ferranti figures and stuck with their estimates for fear of legal complications.
Ferranti then clamed up in front of the PAC and refused to release the true profits and everyone in the media and politics had a field day at the company's expense despite having done nothing illegal but were penalised for increased efficiency on the contract which was the very purpose why the MoA favoured fixed-price contracts!
Ferranti had spent £1.3M keeping the Bloodhound team together until the production contract was finally issued and lost an estimated £1M annually from lost TV and radio production lines. Fearing Bloodhound Mk.2 would be cancelled, they repeated the inflated bid for the second round of Mk.1 contracts to ensure they made some money - for as Ferranti said a contract was no longer "a reliable indication that they would go into production."
The MoA wrote it off as an isolated example and Ferranti of course didn't lose any MoA business. Then in 1963 it transpired Bristol Siddeley had been sending in inflated quotes since 1959 to boost its profits...
Even so this was small fry - poor estimates had seen the 1955 £15M estimate for Blue Steel to skyrocket to £60M by 1960, the MoA hadn't even questioned Avro's lack of cost or timescale estimates in the feasibility study and did not conduct their own technical cost programme until 1960. At least 100 MoS projects 1950-1958 had cost increases up to five times the initial estimates.
The MoA later wanted to implement equality of information between industry and the Ministry to solve these issues but industry feared the loss of profits and potential loss of commercially sensitive data - but it was an admission the MoA were just guessing in the dark on cost estimates.
Apologies for the long post, but its something that I feel is important - a lot of GW failures and cancellations were not all due to sexy high-tech gizmos, some poor overworked civil servant hunched over an adding machine had just as much an impact on the failures.
It also shows how Britain was feeling around in the dark in GW in all spheres.
en.m.wikipedia.org
