Examination of witnesses (Questions 20
- 39)
WEDNESDAY 3 MAY 2000
BARONESS SYMONS
OF VERNHAM
DEAN, SIR
JOHN CHISHOLM
and MR TERENCE
JAGGER
20. They both fell off, I presume?
(Sir John Chisholm) They rode very happily but not
in the right direction.
(Baroness Symons of Vernham Dean) Mr Chairman, to
come back to the main point, we will supply you with what we can.
I genuinely want this to be as open as we can make it; not everything
in defence matters, as you know, I am absolutely sure, is it possible
to put in the public domain, but I am happy to give you additional
information on the options that you yourself raised, and if there
is further information that you and the Committee decide you need
in order to consider this, then I am very happy to do everything
I can to provide that.
Chairman: That is very kind. Thank you
very much.
Dr Lewis
21. Lady Symons, I am new to this Committee
and I am new to this subject—
(Baroness Symons of Vernham Dean) So am I.
22. Forgive me if my question is a little bit
basic. It seems to me that what has been done here is that three-quarters
of this agency is to be privatised and one quarter kept back,
primarily on the grounds of sensitivity. What I want to know is
this: will any of the three-quarters of the agency that is going
to be privatised include what you and the Government would regard
as essential defence research and evaluation? If you will answer
that I will tell you why I am asking you that question.
(Baroness Symons of Vernham Dean) The answer to that
is yes, it will have essential defence evaluation, but I think
you have based your supposition on something of a false premise.
The quarter that we are retaining is not just because of sensitivity.
Clearly, we have had a discussion about Porton Down and there
are a variety of views about Porton Down, and the Government has
now come out with the view that Porton Down should be retained.
However, there is also the retention of people right the way across
DERA's activities in the public sector who will be able to deal
with, for example, industry so that industry will feel that they
are getting an impartial hearing when they come to talk about
science and technology matters; that Government will be able to
have those advising who have no commercial interest at all and
that they will, therefore, be able to give us the advice that,
again, would not give rise to questions of conflict of interest;
that international partners will also be able to do business with,
both when they are looking at their commercial interest internationally
and they will be able to come to those who will give impartial
advice and not advice that they may suspect has got its roots
in commercial advantage, and who will, also, facilitate what I
might call government-to-government business. These people, right
the way across, are an absolutely key element of the change that
we have got here. We have called them "knowledge integrators"
(which is a bit of jargon, I suppose, but is a useful way of being
able to talk about them) both in the retained part of DERA and
in the New DERA. So when you say that the essential defence evaluation
going to the private sector, what we are proposing will mean that
an element of those capabilities should be retained in the public
sector so as to safeguard those particular issues that I have
just enumerated.
23. That is very helpful and I fully understand
that the criteria for what you are retaining go further than just
the question of sensitivity—important though that is. However,
what you did concede at the outset was the key to my question,
which is that of the three-quarters that will be privatised some
of this will be what the Government—and, no doubt, this
Committee—would regard as essential defence evaluation and
research. That concerns me for this reason: is it not the case
that any privatisation can indeed make things more profitable
and can indeed raise more funds than might otherwise be available,
but it also carries with it the risk that the project will become
unprofitable, fail and have to be closed down? So my next question
to you is this: supposing the privatised part was floated off
and then did become unprofitable—or some part of it or some
important or, indeed, essential projects within it became unprofitable.
Would the Government stand back and allow such essential areas
of defence research and evaluation to be shut down, or would they
have to step in to rescue them?
(Baroness Symons of Vernham Dean) You have asked a
very complicated question. When we talk about "essential",
the point I was trying to get over is essential but not exclusive.
So it is not that we are sending something into the private sector
and not retaining any of that knowledge in the public sector about
the issues concerned. Yes, it is essential, the Government will
continue to be, for the foreseeable future, the major customer
for New DERA, and it is essential that we get that work done in
a New DERA which will be an effective, efficient organisation.
I have got no reason to think that it will not go on being those
things. You then say, well, supposing, in that case, that a project
undertaken by New DERA were to fail. Now, I put it to you that
I very much doubt that this would come out of the blue, because
having retained some of the key people—
24. You will know what is going on.
(Baroness Symons of Vernham Dean) We will know, and
we will have access to that public sector advice still, which
will be coming to us and saying "Look, ministers, do you
realise that this is not going as well as it might be and we need
to talk again to New DERA about the way in which they are doing
that?" Supposing, at the end of the day, something does come
to grief, as you suggest. I think then we come to the issues about
how we deal with compliance and how we look at, for example, the
retention that the MoD will have. There are a lot of issues that
we touched upon in the document that we sent you, and I am sure
you do not want me to enumerate them all, but we would of course
have a shareholding ourselves and the restrictions that we will
have, at least for the foreseeable future, in the way that the
new company operates. If we want to go into the further issues
about compliance, I am happy to do that. I think we have got safeguards
against the fear that you express; we have safeguards in the advice
that we keep in the public sector and we have got safeguards in
the sort of compliance regime—which, obviously, is open
for consultation. If there are things the Committee want to say
about what we have already put in the public domain about the
compliance regime we are very happy to listen.
Chairman: We are coming back to this
later.
Mr Cann
25. I have just a very brief question. Julian's
question was basic (although it did not sound very basic to me,
it sounded very competent)—
(Baroness Symons of Vernham Dean) To me, too.
Mr Cann: Mine is just naive, as the Committee
would expect. I never thought I would be sat in a Committee where
the Tories were arguing against privatisation and the Labour Government
was arguing for it.
Dr Lewis: Neither did I!
Mr Cann
26. I am not quite sure I understand what is
going on here, to tell you the truth. It seems to me that DERA
has done a good job over the years—I have not heard anybody
say that it has not—it has done well in the public domain
and the argument seems to be that we need to put it in the private
domain to get the capital put into it that we cannot afford as
taxpayers to put in. Yet, at the end of the day, we will be buying
the products of DERA through the taxpayers' revenue. The only
difference, it seems to me is that you have got public finance
on one side and you will have an equal amount of finance on the
other side plus shareholders' profits. I do not really understand
the thinking behind that strategy of getting investment in.
(Baroness Symons of Vernham Dean) It is not for me
to explain the position of the Conservative Party, although I
am bound to say I have not actually heard Conservatives say that
they are against privatisation per se. Maybe they are and maybe
they will tell us that, but what I have heard is that it does
not like the way that we were thinking of doing it under the Reliance
option. Even when we had a debate about this in the House of Lords
on 17 April the Conservative spokesman did not actually say "No
way do we want privatisation". However, that is a discussion,
no doubt, that will be able to be developed. I hope, here, that
I have, at least, explained the Government's thinking, if I have
not been able to convince you, that we cannot keep going back
to the taxpayer to invest in the sort of information technology,
science-based organisation that we believe is absolutely vital
to develop now for DERA. We have discussed various other options
that might have been used. For all sorts of reasons those options
have foundered (and I have said I will provide the Chairman with
better, or any, arguments about why the ones that the Committee
put forward did not find favour in deliberations with the MoD).
I think it is important to say that a lot of these options have
really involved a split personality for DERA; that, for example,
when we looked at the public sector option which is detailed in
the consultation paper—what I called the minority sale argument,
ie, that we sell a minority of DERA—one of the problems
with that was that industry and our international partners felt
that that split personality for DERA combined all the worst characteristics;
that they would not know whether they were dealing with a commercial
organisation or a government organisation which was able to provide
disinterested, impartial advice which did not involve a conflict
of interest. For that reason, we have gone down the path that
we have. If we are going to argue about the principles of privatisation
I think the Government has made clear that there is not a problem
with privatisation per se, the important thing is the way in which
that privatisation is carried out. I hope we have been sensitive
to the criticisms that have been put about the original options.
Chairman
27. How about the criticism in your anonymous
(as far as we are concerned) member of the Partnering Team who
said that it is possible that a privatised DERA in this model
will be significantly less profitable than in other models since
it will lose the higher margin system and knowledge integration
tasks; that it could grow into a lower value contract research
organisation, investment interest may be less intense, and achieving
value could, in any event, depend on the involvement of the defence
manufacturing industry and may lead pre- or post-transaction to
further break-up of DERA, and that neither of this would be welcome
to MoD? There is somebody inside your own organisation who is
coming up with a devastating critique (and I will tell you the
rest later if you have not seen this document) and saying "This
model you are now moving towards is fatally flawed". The
last one was fatally flawed. That does not make the one that follows
on from that necessarily not fatally flawed.
(Baroness Symons of Vernham Dean) Mr Chairman, I do
not know the date of that document that you are reading from,
so I do not know which Core Competence model we are talking about.
28. 23 February 1999.
(Baroness Symons of Vernham Dean) That was last year
when they were arguing, presumably, at the time, for the Reliance
Model. All I say, Chairman, is that as I understand it the Core
Competence model being looked at at that stage was rather different
from the Core Competence model that you are being asked to consider
today. I do not know who wrote that, and I am sure it was somebody
who had the best interests of the department at heart, of course,
but what I am saying is that I do not know the circumstances in
which it was written, and I do not know what the Core Competence
model was that was being looked at. Mr Chairman, I make no bones
about it, it would be foolish of me to try and disguise the fact
that the department's original best option was the Reliance model.
Things have changed. If we are going to say we are genuinely engaged
in consultation, that means one must be prepared to make changes.
29. Absolutely. I agree entirely.
(Baroness Symons of Vernham Dean) I find myself being
taken to task for listening as carefully as I have, and for making
the changes I have, which I hope have met the criticisms.
30. In the spirit of openness that you have
espoused, perhaps you will identify who this person is and let
him or her come along and tell us why he or she has changed their
mind. Will you do that?
(Baroness Symons of Vernham Dean) Well, Mr Chairman,
I have a feeling—
31. You are not answering.
(Baroness Symons of Vernham Dean)—I am being
lured down a very treacherous path. If the individual concerned
still has a—
32. Job?
(Baroness Symons of Vernham Dean)—competence
in this issue and is still available and has not been sent off
as a military attache to the darkest parts of the earth in some
sort of exile, of course, Mr Chairman, I am very happy. Perhaps
if we can look at the document together, I can ask my colleagues
if anybody recognises the handwriting—possibly even their
own—
33. If you think I am going to give a document
with incriminatory information on it, I am not going to.
(Baroness Symons of Vernham Dean) Seriously, Mr Chairman,
if you are worried about this and we can shed some light on why
that was written at the time, and by whom, then I am very happy
to do so. I have got nothing to hide over this. My concern has
been to put forward an option which meets what we believed was
the essential need for further investment in DERA. That meant,
as far as we were concerned, opening up investment possibilities
to the private sector and, at the same time, met the criticisms
which I believe—I believe—were sensible, well-based
criticisms that came forward during the last consultation exercise.
As a result of that we have come up with this Core Competence
model. As I have said, we are listening. It may be that the Committee,
and others, will want us to consider further variations within
this. I am perfectly willing to do that. Then, I imagine, Mr Chairman,
I shall be back in front of your Committee who will say: "Now
you have changed your mind over this. Does this not show that
your judgment was abysmal in the first place?" You cannot
have it all ways; you are either listening and prepared to make
adjustments or you are not listening.
34. What I would like to know is why the concept
of Core Competence was considered in February and earlier of last
year, then perhaps rejected, another model was put forward, butchered,
and then we are going back to a model that, perhaps, was fatally
flawed in the first place? Whoever you do send to us in one piece,
we would really like to find out what has happened to convince
this person that the old Core Competence model which was fatally
flawed is not fatally flawed now.
(Baroness Symons of Vernham Dean) Let us have a look
at the Core Competence model which was under discussion at that
time, the difference between the Core Competence model and the
one that we are looking at now. If I could find the poor individual
concerned without making their life a complete and utter misery
I am sure that he or she would be willing to explain why their
view has changed, if indeed it has changed. It may be that this
is somebody whose view has not changed and is no longer part of
the team, I honestly do not know.
35. Or maybe he is moving to the other profitable
DERA in which case his arguments might have dissolved.
(Baroness Symons of Vernham Dean) It is very difficult
to know. As we have acknowledged, this is an anonymous comment
and I need to know who it is. I am perfectly happy to look at
that and to try to provide you with whatever explanation we have
available.
36. Thank you.
(Baroness Symons of Vernham Dean) We come back to
the point about this model, which I do not claim is perfect, nothing
is, but it is as good as we have been able to evolve in the light
of the consultation that we have undertaken. If you, your Committee,
anybody else, can improve upon it I would find no difficulty in
genuine improvements in saying "that is something which somebody
else has thought of which is better than something we thought
of". I see no problem with that.
37. At this point I think the best model is
the one that Sir John Chisholm has been running very successfully
since he took up his post.
(Baroness Symons of Vernham Dean) I am not sure that
Sir John actually agrees with that but he can speak for himself.
Mr Hancock
38. I listened with great interest to your opening
statement, so much so that you caught me on a couple of things
that I would like to ask you to develop. You talked about the
treasure trove of knowledge that DERA had and before that you
said "We are doing this, not because we do not value DERA
products but largely because our procurement processes are geared
to buying whole systems from industry". You have talked repeatedly
about "we cannot go back to the taxpayer for more money"
but the Ministry of Defence goes back to the taxpayer year after
year after year for billions of extra pounds to pay for the overruns
and the overspends on these whole systems products that you still
have not got up and running. I want to know why it is not possible
for you to use some of those billions of pounds that are going
to pay overspends to actually go to DERA to make sure that the
product that you are buying in the first place is (1) the one
you want and (2) that British industry and elsewhere are up to
delivering it because it appears to me that without DERA and without
exploiting their trove of knowledge that you accept we get nowhere,
except we spend more money and the taxpayer pays more? Secondly,
you talked at least on three occasions about stakeholders' concerns
without telling us who the stakeholders were and what their concerns
were. You also did not tell us whether the stakeholders now feel
satisfied and have no concerns over what you have been telling
us this morning. I would be interested to hear you develop those
things.
(Baroness Symons of Vernham Dean) Okay. There is a
lot there to talk about. I agree with a lot of your criticisms
about what happens over procurement. I think that it has been
a very difficult story. This has been a position that has pertained
in MoD for many years, under the previous administration, under
this administration. The procurement issues have got to be better
dealt with. I genuinely think that the introduction of smart procurement
will make a difference. I think we are starting to see that already
and I hope to be able to publish something later this year that
will indicate that we are starting to see some genuine improvement
in the procurement process as a result of the reforms we have
introduced in smart procurement. The fact is you are absolutely
right, the British taxpayer has had the position of paying for
projects that were very often delivered very late, over budget
and often with technology which by the time it reached the hands
of those for whom it was intended it was out of date. That is
the position. We all know that is true. The issue is now to address
that as best we can. I do not know whether you have had the opportunity
in the Committee to discuss smart procurement and if you have
not I hope you will, it is one of my favourite topics and I would
be very happy to come and talk to the Committee.
39. Where is DERA's role in all of this?
(Baroness Symons of Vernham Dean) You asked about
the taxpayers and what I am saying is the fundamental point that
you make is you keep on having to go back to the taxpayer for
extra money, and I would say I agree, I think that is a deplorable
situation and it is something that we are addressing and that
we are trying our best to put right. You said why can we not go
back and just get more money for DERA, and the answer to that
is because I just do not believe that the sort of money that we
need to sustain what I have described as the exponential rise
in demand that we see in our funding for research is something
that we can just go back to the taxpayer over. Sir John knows
more about this and maybe it would be appropriate for him to add
his remarks. I think this is something we do have to open up to
the private sector for real investment into the future.
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