More than £2 billion is being wasted by the Ministry of Defence every year on equipment programmes, an independent report disclosed yesterday.

Bernard Gray, former special adviser at the MoD and author of the scathing review of equipment-procurement methods, also accused the Armed Services of trying to outbid each other with increasingly sophisticated equipment projects that were unaffordable.

He called for private sector management to be drafted in to get to grips with the MoD’s cost overruns and programme delays.

Mr Gray’s report will anger frontline servicemen and their families, who complain that the Afghanistan campaign is being hampered by a shortage of equipment and cutbacks in the defence budget.

However, within hours of the publication of his report, which was commissioned by the MoD, his main recommendation was rejected.

Bob Ainsworth, the Defence Secretary, acknowledged that the report by Mr Gray highlighted “shortcomings”. But he dismissed the idea of bringing in private management experts to form a special partnership with the MoD.

In his report, Mr Gray said the problems and the sums of money involved “have almost lost their power to shock”. He and his team of experts concluded that between £1 billion and £2.2 billion was being lost each year “as a result of the failure to control this overheated equipment programme”. He said the three Services were guilty of deliberately underestimating the long-term costs of their pet projects. “Simply put, many participants in the procurement system have a vested interest in optimistically mis-estimating the outcome,” Mr Gray said.

“If the Government fails to tackle this challenge . . . the delivery of equipment will get later and later, it will become more and more costly, and the UK will ultimately be unable to field the defences it needs,” he said.

Mr Gray called for the creation of a “government-owned, contractor-operated” body to replace the MoD’s equipment and support department.

Mr Ainsworth said in a Commons written statement: “The Government has thought about this carefully, but we are not convinced that such a change would ultimately lead to better outcomes for the Armed Forces or defence generally.”

The report was due to have been published originally in July. The Government was accused of suppressing it because of its highly critical content.

Mr Gray said: “Too many types of equipment [are] being ordered for too large a range of tasks at too high a specification. This programme is unaffordable on any likely projection of future budgets.”

Across a large range of programmes, Mr Gray found the average project overran by 80 per cent or five years. Cost overruns amounted to about £35 billion. “The acquisition of military equipment is a subject both deeply abstruse and wearily familiar. It is filled with technical detail and jargon, impenetrable to the outsider, yet it is also the stuff of screaming headlines: ‘how can it be that it takes 20 years to buy a ship, or aircraft, or tank?’. Or, as one wag, an expert in defence acquisition, recently observed, ‘The system is failing to produce the equipment we don’t need’,” Mr Gray’s report said.

“It seems as though military equipment acquisition is vying in a technological race with the delivery of civilian software systems for the title of ‘world’s most delayed technical solution’. Even British trains cannot compete,” Mr Gray said.

Highlighting one equipment project, the construction of Type 45 destroyers, the report said: “HMS Daring [the first of the new class of warship] and her sisters will cost £1 billion each, a price so high the UK can only afford six ships.”

The chief executive of one of Britain’s largest defence companies, who does billions of pounds of business a year with the MoD, outlined some changes that could improve the procurement process. He spoke on condition of anonymity so as not to anger his largest customer.

He said the agility and speed of the decision-making process needed to be improved; there were too many external advisers — such as lawyers and accountants — gumming up the procurement process; the Armed Forces were not getting equipment because the budget was not in place to finance the wars in Iraq and Afghanistan.

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