Select Committee on Defence Minutes of Evidence

Examination of Witnesses (Questions 220 - 239)



Mr Hood

  220. If you walk away from Archer, and you are saying you do not want to do that, you will be in the position of who do you walk to. You will be in exactly the same position if you do that.
  (Sir Robert Walmsley) No. We will have two companies then. The problem with Archer is that they are a single tender. We are working extremely hard, that is why I have got all these people at the Archer headquarters doing the pricing. If we decide that we cannot place the contract with Archer, and I keep on trying to emphasise that is our preferred course of action, then I do not want to spend a long time working out what to do next. These study contracts, which we have paid good money for, are to, so to speak, qualify the intellectual content of what CDC and Thomson might offer. We will put that in the freezer while we pursue the business with Archer but if Archer does not work for some reason, those things will be out of the cupboard faster than that and we will have a competition between those two companies.

Mr Cohen

  221. If you push ahead still with Archer, how is the problem solved on this matter of the sub-contractors? It may well be that they choose their chosen sub-contractor for their own reasons, not necessarily best value for money, and then the bill ends up back with us. How do you solve that problem?
  (Sir Robert Walmsley) I think I will get the numbers right. On the VHF radio competition, which was actually the nutcracker, there were four people from Archer and three people from the Minister of Defence on the Tender Assessment Panel. Therefore, we had total visibility of what was going on. I have tried to explain that the Ministry of Defence insisted on a different management structure being adopted in Archer, put British Aerospace in charge and make them—make them—deliver decisions which are genuinely not being conditioned by their shareholders' interests. Putting really good people into Archer from the shareholding companies has electrified the position in Archer because no longer are they looking over their shoulders. In Archer they are thinking "this is really something, we see these good people from our company enjoying it. We are no longer interested in our shareholders, we want Archer to do well on Bowman". So there are two things: total visibility of what is going on in these sub-contract competitions and getting the right people into Archer under the right management structure. Finally, I should say that results matter. They have selected a VHF radio, they have now selected another radio and all I can say is that the process is satisfactorily under way. These prices with these sub-contracts are what we are using to synthesise the total contract with Archer.

  222. I think you said it but I missed it. Can you say when you expect you will make a decision either to go ahead with Archer or to go with one of the others?
  (Sir Robert Walmsley) I did say that we would get a bid from Archer next month. I think by the time we get that bid we will have decided whether to carry on with them for the next few months. We then get that bid confirmed in the autumn, 30 September actually. Provided that is satisfactory we will then be able to put a proposition to ministers before the end of the year. All through that process Archer's fingers will be in the mangle just as much as our's. We will be sharing the costs during this period.


  223. This takes an awful lot of your time then obviously.
  (Sir Robert Walmsley) It does.

  224. And you want to go through this again on a project like this?
  (Sir Robert Walmsley) I do not, Chairman, but as I think I have said before, and I hope it does not sound too grandiose, this is worth doing. This is really important, it is not some administrative puzzle that is quite good fun to solve. I am under a lot of pressure from Admiral Blackham, a former colleague and an old friend.

  225. He does not look as though he is putting you under pressure.
  (Sir Robert Walmsley) He does. He comes into my office and gives me a very hard time and not always in private.
  (Vice Admiral Sir Jeremy Blackham) And writes to him when I cannot get in.
  (Sir Robert Walmsley) I just want the Committee to know that this is something I am spending far more time on than I am on most things. I will continue to do that until we get the thing on contract and then it will be down to the Integrated Project Team.

Mr Cohen

  226. If we do not go with Archer, is there anything out of that that can be salvaged?
  (Sir Robert Walmsley) That is obviously a big worry to me. Because Thomson would own Racal, the Racal components may well have some relevance to a Thomson bid. Because I do not want Thomson to be caught up in a conflict of interest at the moment that is shelved. We have learned a lot of course.

  Mr Gapes: I have got three questions. The one is you have accepted that this has been a long and protracted process and it has obviously caused a lot of uncertainty, to quote the excellent manufacturing facilities in my constituency, enormous concern for the hundreds of people who thought they might be working and this has been going on for eight or nine years. I think for all the companies involved, leaving aside individual sites, and the workers who work in those places, this has caused enormous anguish, worry and speculation. Do you accept that this has not been the right way to run a railway?

Mr Cohen

  227. Or a radio.
  (Sir Robert Walmsley) I do accept that the results have been wholly unsatisfactory and I take responsibility for that, of course I must. But I have to say three years ago those workers were in one of two consortia and they did not know at that stage whether or not they were going to get the contract, and if any of their management led them up the garden path by telling them that they were bound to get it then that is the management's responsibility. That is what has caused that uncertainty. With the formation of Archer we, the Ministry of Defence, made it quite clear that we would expect competing bids for these components. How else are we going to keep a company which is getting a non-competitive contract under control? The management of those factories should have told them about it. Of course, if I have got the factory right, I think that might have been owned by Siemens at one stage.

Mr Gapes

  228. It was.
  (Sir Robert Walmsley) The question was whether Siemens were going to put manufacturing technology into that factory. We all know what happened to the other big Siemens investment which dwarfs that in this country. I do not think the Ministry of Defence should be held to account for the uncertainty, not—I just underline this point—not that we are not aware of the hugely disturbing effect that has on some of our best people.

  229. I will leave that point there and carry on but I think the point is made. You referred earlier to the question of competition and pushing down the price. How much do you think the price premium was on the Archer proposals before you brought in effective competition?
  (Sir Robert Walmsley) My working rule is that you always get ten% off the price for competition. That is just on average. In this case we have brought the Archer initial price down by something like 30% but, and I am nervous in front of Mr Hancock, partly by sensible, coherent adjustments in the requirements. I do not want to say all that 30% is Archer's fault.

  230. So what you are saying in effect is your specification originally was gold plated?
  (Sir Robert Walmsley) I am trying not to say that because I think that is a bit unfair as well. We did not know what the various bits cost and it is only when you start to understand what the various bits cost that you say "am I really prepared to pay that much for this component and capability?" You say "it is just not value for money".

  231. So you would not accept any responsibility within your own Department, this is all the fault of the manufacturers?
  (Sir Robert Walmsley) Of course I would accept responsibility, there is no question about that. I am trying not to characterise it as gold plating. I am trying to get across this quite important message that when you know what things cost you start to place them in a different priority order. Our previous system did not require Admiral Blackham's people to pay any attention to what the various components and capability cost, they just wrote them down.

  232. Finally, you have referred to the way in which the Archer consortium is being well led now by British Aerospace but is it being properly resourced and staffed by the three constituent components?
  (Sir Robert Walmsley) Obviously there are always individual slots that need to be filled. The truth is I would be looking more at the beam in my own eye rather than the mote in their's. They have made enormous strides and they have come to me, being absolutely frank, and said we need more commercial officers on our side for this engagement we have got with them and I accept that.

Mr Hancock

  233. In your reply to Harry Cohen you said you were expecting to have the final bid from Archer in a month. If that does not materialise how much longer are you prepared to dilly-dally with them?
  (Sir Robert Walmsley) A week or two.

  234. Is that all?
  (Sir Robert Walmsley) Yes.

  235. And then you would do what?
  (Sir Robert Walmsley) Twenty-one days is what I have agreed with them.

  236. So if they do not deliver by the end of the month, this month, they have 21 days grace, but if they do not deliver then what is your scenario?
  (Sir Robert Walmsley) At the end of next month. I did say their bid and I did say interim and I said the final bid is in September. I did say if they fail on any of these milestones they have got 21 days to sort themselves out.

  237. And if they do not, what is your scenario then?
  (Sir Robert Walmsley) Get these two studies out of the cupboard, speak to the people who I have got preparing a potentially competitive invitation to tender and get permission, because I have to persuade my colleagues at my level and then ministers, to launch a competition.

  238. Have your staff said to you that these two other possibilities are as good or better than what you are trying to get from Archer?
  (Sir Robert Walmsley) No.

  Chairman: We will have to move on. All I am saying is I hope that if there is anyone from Archer here, if they want to be reminded they should send for a copy of the transcript. I think you have made it pretty clear what the consequences will be. Now our second echelon forces are coming into action and Ms Moffatt has a constituency interest in Racal. To celebrate their new status she is going to ask this question in French.

Laura Moffatt

  239. Merci, Monsieur. I am certainly not. Chaps, you could not write this, could you? If you were to set out to write a book or a mini-series you could not do it with this, it would be impossible. In fact, Sir Robert, if you want to do it I will be your manager, okay, because I think we could make some bucks on this with a mini-series, a bit of love interest, you cannot go wrong. Maybe there was and that is what I have missed, but I do not know. The fact is this is a pickle. There is enormous frustration, and the Chairman has already said I have got a constituency interest, and I have felt their pain and anguish. I have gone into the field and felt even more the pain and anguish of those who are trying to use equipment that is not up to the job. Let us talk about where we are and how we can move it forward. You very honestly laid out the future but what I want to know is is the in-service date of late 2003/early 2004 realistic?
  (Sir Robert Walmsley) Yes, it is. Please understand that the in-service date is equipping a defined number of units in the army, it is not equipping the whole of the army.

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