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Contingent Liabilities

Volume 640: debated on Wednesday 2 May 2018

I am today laying a departmental Minute to advise that the Ministry of Defence (MOD) is retrospectively notifying Parliament about contingent liabilities not previously disclosed, due to procedural errors. Her Majesty’s Treasury has retrospectively approved these contingent liabilities.

The Minute describes the contingent liabilities that the MOD holds against 10 Defence Equipment and Support contracts (DE&S). It is usual to allow a period of 14 sitting days prior to accepting a contingent liability, to provide hon. Members an opportunity to raise any objections. Regrettably, this was not done ahead of contract award in these cases and I sincerely apologise for our failure to do so. The purpose of the Minute is to regularise the position with Parliament. The contracts remain fully enforceable and the associated contingent liabilities will be reported in the 2017-18 Defence Equipment and Support (DE&S) annual report and accounts.

Failure to notify these contingent liabilities prior to the award of the associated contracts has been reported to the Public Accounts Committee. The Department has noted the Committee’s concerns about this situation and fully accepts the need to follow the correct approvals and reporting procedures. DE&S has put in place a series of measures to address this issue including staff briefing; mandated training; improving the clarity of internal guidance and procedures; and additional controls in the approvals process, to ensure compliance.

The following contracts have a very low risk of the contingent liability being incurred. The liability is assessed as unquantifiable due to the nature, scope, range and scale of possible scenarios that might occur, which means that it is not possible to provide a realistic estimate of cost:

Supply of Cased Telescopic Cannon and ammunition—liability against consequential and indirect losses until 9 July 2018.

CTAI Common Cannon and ammunition project—liability against consequential and indirect losses until 3 June 2019.

Design authority support for Cased Telescopic Cannon—liability against consequential and indirect losses until 31 March 2019.

Supply of 40mm Cased Telescopic Cannon—liability against consequential and indirect losses until 15 July 2022.

BAE Systems Dreadnought design contract—liability against submarine design work until 26 April 2023.

Babcock design contract (submarines)—liability against contractor’s personnel at defence establishments until 26 April 2023.

UK/France test facilities (2010) and sub contract—UK liability for dismantling and decommissioning costs until 2065.

The following contract has an agreed amount of contingent liability up to £1.4 million against a breach of intellectual property rights which expired on 31 March 2018 and a further unquantifiable element against a breach of environmental liability until 31 March 2025:

Land equipment service provision and transformation contract.

If the liability is called against any of these contracts, provision for any payment will be sought through the normal supply procedure.

The following contract had an agreed amount of contingent liability up to £7 million against damage to Ministry of Defence property which expired on 28 February 2018. No liability was called against this contract.

Support to combined arms tactical training system.