Examination of witnesses (Questions 120
- 138)
WEDNESDAY 10 FEBRUARY 1999
MR KEVIN
TEBBIT, MR
COLIN BALMER,
AIR MARSHAL
SIR JOHN
DAY and MR
JOHN HOWE
120. Yes.
(Mr Tebbit) Of course there is great variation.
121. I would like an average so that we
can compare that average with the slippage.
(Mr Howe) I cannot quote an average I am afraid,
no. Some of these contracts go over ten years or more.
122. Okay.
(Mr Howe) Substantially more in the case of the
very large projects.
123. That would be useful for the future
to have that comparison so that we can have the average period
of the contract and the average slippage can be checked.
(Mr Howe) Yes. Bear in mind that the slippage
here is a slippage that occurred in the year——
124. 1997-98, I understand.
(Mr Howe) So you get some idea of proportionality
from that.
125. You have compared it to previous years,
I understand that.
(Mr Howe) Yes.
126. Then I would like to ask whether there
are any calculations as to how much these delays have cost the
MoD. Do you have anything like that?
(Mr Howe) We cannot quote a reliable overall figure
for the cost of delays, no, because some of the costs are pretty
indirect although they must certainly exist: the cost of the older
equipment running on, the high cost of maintaining it, the cost
of changing plans because when equipment runs late you have to
change your plans to receive it and to put it into service, and
the new equipment is often cheaper to run of course. I do not
think we can produce a reliable figure for the overall impact
of what the delay is, no.
(Mr Tebbit) We know that something at the moment
is costing us slightly less in crude terms because as the chart
there shows there is a 0.2 per cent change in project costs, but
of course the opportunity cost of not getting the stuff on time
is a different matter.
(Mr Howe) That is just the equipment related costs
you are looking at.
127. On page thirty it mentions one programme
for the year that slipped further while its timetable was reassessed,
right at the bottom of page 30. Can you say something about that
and, indeed, the two projects that failed to meet their 1997-98
in-service date although they did in the subsequent year? Are
you able to say anything about those three projects?
(Mr Howe) I am not sure what that remaining programme
at the bottom line is I am afraid, I would need to let you know
that.
128. Okay. Perhaps you could do that in
writing.
(Mr Howe) Yes, I will sweep that up.
129. That chart also says what was achieved
in terms of unsatisfactory technical performance was nought per
cent, everything worked, which got me a little bit alarmed and
thinking has the actual checking standard been reduced. Did everything
work that came on?
(Mr Howe) The response to technical problems when
they occur in a project is often to take more time to solve them
rather than to accept equipment which is sub-standard. I think
that technical problems, would tend to be reflected in a missed
timetable target rather than in equipment which comes into service
sub-standard. One of the features of Smart procurement, as I think
I mentioned earlier, is that with a new procurement process, a
more integrated procurement process, we feel that we are better
able to make judgments of trade-off between time, cost and performance.
130. Have you any slippage targets for this
financial year and perhaps for next year?
(Mr Howe) For the present year our target is 1.1
months in a year, so a very slightly tighter target than the one
we reported against in this report.
131. Have you any indication of how close
you are getting to that or not, or is it too early to tell?
(Mr Howe) We are analysing it at the moment. We
will have to wait and see I think. For the future we will be held
to the targets in the agreement with the Treasury on our performance
and we are going to be held in the post-Smart Procurement era
to much tighter targets of just under a month for existing projects
and 0.3 of a month for new projects' slippage.
(Mr Balmer) We have expressed it in days in the
Public Service Agreement. It is measured as ten days for major
new projects and less than four weeks for existing major projects.
(Mr Tebbit) But there will be a long period, I
have to say, or a significant period while older projects come
through and continue to show slipped timescales.
132. So on to Smart procurement then, clearly
that will have a significant impact on that slippage performance
indicator, but where will we actually see the results? Where will
you publish your assessments of the achievements of Smart procurement?
Will it be in the SDE, the performance reports in future years,
or where?
(Mr Tebbit) It will be coming out in the annual
output analysis. This is now part of, as I say, our Public Service
Agreement; we are obliged formally to publish performance against
these targets that are now, as I say, published in December, so
you will be seeing them on an annual basis. Meanwhile, let me
say that we now have 20[3]
pilot projects up and running, the first 20[4]
integrated project teams up and running, where we are putting
together the operational requirements people with industry to
define projects in a more collegiate and a more informed way on
both sides, so we know what industry can deliver and it knows
exactly what we need. We are also forming 150 of these teams in
all over the next year, by the end of the year and good progress
has been made so far. Examples of the targets which we have identified
so far are cost savings of between 5 and 10 per cent in the through-life
cost of one of our projects, Brimstone, some of which goes to
industry again and some of which we take, as it were, as a saving.
A reduction of up to five years in the time from main investment
to in-service of the future offensive air system. And s reduction
of up to 20 per cent in the logistic support cost for VC10 with
an 18 per cent improvement in aircraft serviceability. Now, those
sorts of improvements we are pretty confident we can get across
the board, as I say, as a result of talking much more specifically
to industry that is coming to us on these projects and putting
to them time, cost and quality trade-offs rather than finding
at a late stage in the project that things are too locked in to
be moved around after the initial point.
133. That is very welcome. Then in the light
of those, and you are in the early stages, I know, of these pilot
projects, but have you got a latest assessment of the savings
that you think that Smart procurement will bring about?
(Mr Tebbit) Well, we have pledged ourselves to
£2 billion over a ten-year period and that is still the target,
and I would take an opportunity to demonstrate openness in that
if you would care to access the MoD website, you will find the
Smart procurement section there which has documentation on it
which is basically trying to put across what we are seeking to
achieve and inviting comment on it and we are trying to engage
industry really seriously in this, so it is not just for the general
public, but it is also for companies to actually latch on to.
Chairman: Well, I
am sure that we have located it.
Mr Colvin
134. I think that is very important because
maintaining a defence budget for the next three years at the level
which is 4 per cent less than last year, and we have had to accept
a cut, can only be maintained if we achieve the targets set out
in SDR on Smart procurement, on asset disposals and on greater
efficiency, so I am glad that those three items are addressed
in the performance report, but could they be very specifically
costed so that when the performance reports come out, we can see
whether we are on track, otherwise in real terms we are going
to face another 4 per cent cut in the defence budget over three
years and that is something we would be very concerned about?
(Mr Tebbit) They will be and, as I say, going
right back to the beginning, I am still a little lost to understand
the problem about asset sales and revenue realised from selling
off property because, as far as I am concerned, that is very much
part of the transparency picture.
Mr Blunt
135. And where you are achieving efficiency
savings, that is part of the transparency and that will be made
clear?
(Mr Tebbit) Indeed. The 3 per cent challenge on
efficiency. At the moment this year we will do rather better than
that, we think.
136. You will tell us not that you have
done it, but how?
(Mr Tebbit) And where, in which budget area and
that sort of thing.
Mr Blunt: Thank you,
that would be helpful.
Chairman
137. Thank you very much for coming, you
have emerged less bruised than your former boss in the Foreign
Office.
(Mr Tebbit) I have not received such a nice letter
from my Secretary of State, Mr Chairman.
138. We have only achieved 65 per cent of
our target of 22 questions. We would like to write to you as well
as expecting you to write to us, perhaps with the additional questions,
unless you would like to come back and answer them verbally. I
suspect that you would prefer to write your answers. I might give
you some encouragement: we are producing a performance report
and it occurred to me that maybe you could get a team together
in the MoD, including Richard Mottram and Lord Gilbert and maybe
you could reverse roles. With the television cameras in that could
be quite an interesting session.
(Mr Tebbit) Three hundred and sixty degree reporting
by the sound of it.
Chairman: Thank you
very much to you all for coming.
3 Note by witness: figure should read 10. Back
4 Note by witness: figure should read 10. Back
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