Select Committee on Defence Minutes of Evidence

Examination of Witness (Questions 20 - 39)



  20. I believe that you have clearly demonstrated the technological advantages of procurement in this way. Are there going to be real savings for the MoD as of now or in the future?
  (Sir Robert Walmsley) The answer is unequivocally yes. I say that because that is what the Board of Supervisors has laid on the Executive Director of OCCAR to achieve. So we said to him "This is how we are going to measure your performance. We do not just want the rhetoric, we want the money back." We have said that when a project moves from its current arrangements into OCCAR we would expect to see a 15 per cent reduction in the administrative costs of running that project. Take COBRA. It is not a huge project but very important. The arrangement when it was outside OCCAR—and you may find this hard to believe—was that there were three leaders sharing it; three national directors, one from Germany, one from France and one from the United Kingdom. That made absolutely sure that every decision was taken with the consent of every nation, and is, of course, a recipe for hugely bureaucratic decision making. It went into OCCAR, and there was a single leader, a single Executive Director. Second point: it had 19 staff before it went into OCCAR, and I am pretty confident that that will reduce to 16. As a mirror image of that, the United Kingdom project office, so to speak perched on the shoulder of the former international project office, will no longer feel quite such an obligation to have intrusive checking on how this international programme is going on because it is confident it will be mounted and structured by OCCAR. So our United Kingdom project office has already reduced from eight to four people, and I expect that to reduce further. So those are results not promises. I come back to the point that the Executive Director of OCCAR is in no doubt that his performance in delivering efficiency is one of the key, critical success factors.

  Laura Moffatt: Thank you, Chairman.

Mr Brazier

  21. Sir Robert, in earlier questions from my colleagues you have given ample answers to almost all the questions I was going to ask. I have only actually got two. Just to take you back to the re-balancing, for a moment, which is inevitable, as there is bound to be some element of it if we have got rid of juste retour, does this not actually provide a sort of perverse incentive, or disincentive, to countries, looking at a programme which they think they can fairly effectively source domestically, not to put that programme into the picture, if they think the balance is rather in their favour at that point?
  (Sir Robert Walmsley) If they do that they will forego all the advantages of collaboration. They will then have decided to bear all the non-recurring costs themselves. They will have decided to forego the economies of scale they get by sharing production with other countries, and they will have decided to forego the interoperability and greater cohesion to military operations which, I would say, is a much stronger driving factor in international equipment co-operation this year than it would have been five years ago. Interoperability. They will have decided to pay the extra money and to forego these extra advantages I have mentioned, just in order to make sure that all the work goes to their own industry. In my view, most countries in Europe have come to the realisation, as we have come, that that is the road to ruin and that is cheating their own taxpayers as well as their own armed forces. I think there is a big disincentive on them not to do that.

  22. I hope there is somebody like you to say that in the other countries. My second question is—and let us put research to one side because one can have great arguments about universities and what they do—in terms of product development, there are, to be realistic, two big players, and the rest. There are ourselves and France who still spend serious money on product development, and then there is the rest, who spend much smaller sums. Even Germany now. In all of this set-up and the way in which the balancing is done, and the thoughts about value for money and so on, is it—never mind fair—really stable, in the long run, to expect, realistically, large amounts of work to go off to other countries when most of the money on product development is being spent by two countries?
  (Sir Robert Walmsley) I think that is a real concern and that is why I said that putting juste retour behind us is a really key step, but we cannot imagine that people are not interested in the actual outcome, in terms of where the work goes. The fact is, though, that if it were right that most of the development work was being placed by France and the United Kingdom then France and the United Kingdom would not have that much of an incentive to take on other partners.

  23. Absolutely.
  (Sir Robert Walmsley) So as long as we stick to bilateral programmes with France the difficulty would not, in the sense you have set it out, exist. Again, I know it sounds a bit as though I am trying to disagree, but I would just say that Germany is the largest Eurofighter partner out of the three partners, we have just signed a deal with Germany on the Multi Role Armoured Vehicle and Germany is with us in COBRA. I do not mean to say that France is not important but we did have the difficulty of Horizon, which has been referred to. We have had the success of PAAMS, but PAAMS brought in Italy and Italy have been with us on EH101 and have been an absolutely rock solid partner on Eurofighter, and are being very helpful on a number of other programmes we are looking to in the future. So I do not quite see it is quite so bi-polar, as you have suggested, although I do agree that France and the United Kingdom share many defence interests which are not shared by our other European partners.

  24. I was not just trying to make a bipartisan point, and people do not very often hear me make points in favour of the French, but the realistic fact is that if you look at the size of the development budget and, to a lesser extent, the procurement budget too, we have a situation where Germany has large armed forces but is spending very little on product development. If you are looking at off-take for anything, but particularly bearing in mind Eurofighter—whose development stage is almost behind us now—it is going to take a very, very large part of their relatively small procurement budget for the future. Is there not an instability in having two large spenders but everybody else part of the decision making process in it?
  (Sir Robert Walmsley) I am not disputing the point entirely, but I would just say that the structure of OCCAR is such as I have mentioned before; that each of the four founding nations has a veto. I cannot remember—although there may have been an occasion—a Board of Supervisors where we have thought something was really right and where somebody was stopping it. Sometimes, of course, it takes a bit longer to get there than one would if one was absolutely autonomous in making the decision, but that is life. I very much enjoy my meetings with the Board of Supervisors, I have been at every one and I am the current Chairman. I think we have made progress on OCCAR on things in, literally, hours, whereas I have been conscious that in other fora, particularly the Western European Armaments Group (which has great strengths but does involve more countries than I could enumerate) we cannot even begin to get off the ground—with 17 countries sat round the table. So if there are two strong partners in the four that think alike I would say they have a chance of persuading their colleagues. So far there has been no sense, in my mind, that there has been a holding back by Italy or Germany. None at all.


  25. I would like to ask you a couple of questions on Smart procurement, if I may. How will the reforms of MoD's Smart procurement initiative be reflected in OCCAR's working practices?
  (Sir Robert Walmsley) I think, Chairman, you would understand my point of view when I say that we are absolutely determined that they should be, but, at the same time, we have to do that not by telling our partners how brilliant Smart procurement is and, so to speak, force-feeding people with our ideas, but through persuading them that these ideas are effective. I did, I think, mention that some of the principles surrounding OCCAR are very much in line with Smart procurement. Benchmarking against best international practice is embedded in the Convention. Who would think that the Treaty would have that in it, but it does. That is Smart procurement. Then there are Integrated Project Teams—which are not called that, which, actually, I think, is extremely sensible, otherwise it would sound like us telling other people how to do it. However, the fact that it specifies there will be no dual manning of posts in project teams and that project teams should be autonomous in their day-to-day managing, is empowering Integrated Project Teams, but there is a difficulty which is more than a technical point, and that is that the arrangements in some countries do not encourage the co-management—if I can put it like that—of military and civilian staff, which we have found a very powerful feature of our Integrated Project Teams. I cannot deny there are not some obstacles along the way, but just to mention empowerment, integrated teams, no duplicated posts, international benchmarking—all those things are Smart procurement, as is, of course, competition, and as is the abandonment of juste retour. So I think we are well on the way. We just have to be determined. If they are good ideas then I think good ideas have a habit of surviving, and if we find political impediments to them then I am quite clear that we can up the grade for the Board of Supervisors from the National Armament Director to Ministers of Defence, if we need to do that. So far there has been no sign of that.

  26. Before we can convince our partners on the virtues of Smart procurement, can you convince us? Are you happy that Smart procurement is as smart as its inspirers hoped it to be?
  (Sir Robert Walmsley) I am quite clear in my own mind that this is right. Every day I see examples of where things have been done a little bit quicker and a bit better. We introduced the new ammunition to Challenger 2 tanks four months sooner than we would have done under the old plans. It has an Integrated Project Team—one of the most successful ones we have had, actually. There have been a lot of problems with Challenger 2, as this Committee knows better than any group. It met its in-service date of June 1998 under the old regime, but, of course, a tank without new ammunition is not as good as a tank with new ammunition, so we were very pleased indeed when the—what is called—CHARM 3 ammunition came through four months early. A lot of Smart procurement is promises for the future, but in terms of day-to-day working, the fact that on a programme which is proving immensely difficult to manage—like the replacement Maritime Patrol Aircraft—my Integrated Project Team leader now attends the prime contractor's progress meetings is a revolution in the way we deal with industry. That means we both know where the difficulties lie and we can help them without compromising the commercial relationship. That is going on day-to-day now, but two years ago it was unthinkable. We held a conference with some of the most senior people from the defence industry about two weeks ago, at which I was, once again, reminded that this is not just a matter of dealing with prime contractors, it is a matter of getting the message through and listening to small and medium sized enterprises where so much of the innovation actually takes place. Smart procurement has allowed us to engage with the whole supply chain in a way that we did not contemplate before. We used to have this idea—or I had this idea, let us be frank—that you place the contract with the prime contractor, (and before Smart procurement we were already into working together to execute the contract) but we were very cautious, extremely cautious, about in any way interposing ourselves between the prime contractor and his subcontractors. That was right, to the extent that if you do start running the subcontractors it is not clear who is responsible for anything, but the subcontractors have to understand the purpose of the project. So we are very open to putting subcontractors, from time to time, for as long as they think it is worthwhile, into the Integrated Project Team. That stops them, in the classic phrase, delivering their bit while the project does nothing, taking their money and running and thinking that the fact that the ship is still tied up or the aeroplane has not entered service is nothing to do with the subcontractors. The subcontractors, who constitute, in other words, 80 per cent of the recipients of the value of the contract, on average, have to be made to feel they have a stake in the outcome of the whole project. That is Smart procurement, and we are seeing that now. I think it is a change, actually. My people—which is, perhaps, more important than what I think—think it is great. They do feel empowered. We know who is responsible now.

Ms Taylor

  27. It is really entertaining, and pleasing, to hear you say with such gusto that you have got this tied up. Have you got the MoD tied up in equal terms, so that it does not change the specifications again and again for private industry?
  (Sir Robert Walmsley) The MoD ties me up. It is quite right that they should, because—and this is a digression but it is, I hope, not an irrelevant point—I have 4,400 people in the Defence Procurement Agency, and when they started their careers most of them are in it for their life. We still do a lot of interchange with industry—more now than we did before—but for most of them it is what they want to do. When we decided to form an agency one of their first questions was "Will we still be part of the Ministry of Defence?" I was able to assure them that not only were they part of the Ministry of Defence but that if the Defence Procurement Agency became, so to speak, an island separated off from the Ministry of Defence, in terms of interchange of our people, then we would wither just like a lack of pollination on apple blossom does not produce apples.


  28. Is that a criticism of DERA separating itself from the Ministry of Defence? Can I induce you into saying something—
  (Sir Robert Walmsley) Chairman, do you think there is the slightest chance that I would criticise one of my colleagues? I simply make the point that I wanted to retain my people's confidence in their future in the Ministry of Defence. Therefore, I am quite happy to be seen as an embedded part of the Ministry of Defence. We have to do that, actually. However, that does not mean to say there are not great changes going on in the Ministry of Defence. Our customers, instead of giving us, so to speak, a recipe of what they want, now says what it wants to do, and that has required a big reorganisation of the customer. People who used to say what they wanted to do but do not bear the financial consequences are, actually, not quite as interesting as people who do bear the financial consequences. Our customers—the operational requirements branch—have now been granted the resource allocation responsibilities which were not present in our previous organisation, which means that the idea that they want the aeroplane to go twice as fast or twice as high means they have to give up something, because they have to pay for it. So the Ministry of Defence is reorganising.

Mr Colvin

  29. Sir Robert, you have talked about the confidence of the people in your employ, but what about those employed in the Defence Procurement Agency? Are they not going to see their jobs being done by this OCCAR, or is there going to be a duplication?
  (Sir Robert Walmsley) Actually, that is a real point for me, because there is a sense in which some of the most exciting projects are the ones where you are trying to break technical ground and where you are, generally, entering on huge development work, which is what a lot of people like doing—managing these very, very demanding programmes. So there is a sense in which the individuals in the DPA can say "Hang on, are all these programmes going to go off to OCCAR?" What I said to them is "I hope so, and I hope you will go to OCCAR, because it must be part of your career to have worked in an international, collaborative programme." I think they do now see that opportunity. Creating OCCAR as a genuinely independent international body will give it a status which will encourage people to go there. We have to put good people into OCCAR. So I think "Yes and no" is the answer, but the people from the DPA who do go to OCCAR will want to come back to the DPA in the future, and the door will be open for them to do that.


  30. How are you going to reprogramme people who have gone through the scarring experience of Horizon to see the benefits of international and European collaboration?
  (Sir Robert Walmsley) With great difficulty, Chairman. I think, also, by bringing their experiences to bear. I am very conscious that in about six months' time there is a likelihood that you will want to come back to Horizon and I hope we would then be able to tell you the story of how we have learned some lessons and how we are using that experience. I think a key point is that the alignment of the objectives of the Government is absolutely fundamental if these programmes are going to succeed. We cannot be allowed to paper over cracks at the beginning over perceptions of what the ship should cost. I think OCCAR will help with that, because an international body, where people are loyal to the international body rather than back to their host governments, is a far better environment in which to share and exchange real views on what is sensible and practical.

Mr Blunt

  31. Shall I thank my Chairman for teeing up the issue I want to come on to, which is the staff who are actually going to man OCCAR? You have talked about people being sent from your organisation to OCCAR, but who are the OCCAR administration staff going to be?
  (Sir Robert Walmsley) At the moment we have 30 people in OCCAR, which is not very many, of whom, I think, about five—it might be a few more—are from the United Kingdom. It goes up and down. At the moment we have contract specialists and administration specialists, and they are working on the procedures. That is what they are doing now, drawing up these contractual procedures and holding meetings with the OCCAR Industry Contracts Panel. In future I hope we will be able to bring in more and more of our experienced project managers, give them a tour in OCCAR—perhaps four years—and then they will come back to the United Kingdom armed with experience of international projects. They will be some of our best people and they will, I very much hope, be fluent—far more fluent than I am—in doing business in other languages. If these projects are to work we cannot just presume that everybody is happy to speak English all the time.

  32. Can I come on to that? Is that not going to be part of the problem? The official languages are English, French, German and Italian. Is Dutch going to be an official language?
  (Sir Robert Walmsley) The technical answer is yes, because if the Netherlands joins, the Convention will be written in the Netherlands for the Netherlands Parliament to approve it. If they join—because I understand the Netherlands Parliament wants to look at it again in the next few weeks. However, it will not be a working language. We are not going to sit with—and I cannot do the sums; I am having trouble with statistics this morning—however many interpreters you would need if there were five languages. We already, really, work in English and French, and although we have interpretation into German and Italian it is done by what I think is called "relay interpretation" which means we have four boxes instead of six. So we are already on to the efficiency of languages but I am not talking about formal meetings. I am talking about day-to-day working projects where if British people are to convince our European partners that we really want to engage with them, we do want to spend more effort on language training and we are doing that in the DPA now.

  33. The concern that was put to us by the Defence Manufacturers Association is that one of the concerns of industry is that the same personnel who ran inefficient collaborative programmes have been transferred to the OCCAR organisation. Any new recruits have broadly come from the international civil servants who speak French, German and English and who have also been linked to the collaborative programmes for some time and may, therefore, have the old culture of non-accountability. They are unlikely to be well versed in the United Kingdom or have the confidence of the United Kingdom defence business community.
  (Sir Robert Walmsley) I feel a bit sorry to have that written about my people. They are selected with great care.

  34. I expect they say it about the French and German as well.
  (Sir Robert Walmsley) Of course, you do get people with whom you do not agree, but that does not mean they are inexperienced and hopeless at their job. Our people are selected with great care. None of the people who went to OCCAR went there without our knowing who they were. I am very happy indeed to say that we appointed some quite young people, who have really forward thinking ideas, who were thoroughly versed in the best new ideas that we have. I do take the trouble to go to OCCAR in Bonn and go to every office, meet the people, talk to them about what is what, and I am impressed with the commitment of the individuals. That is a bit unkind actually.

  35. These are not people who have international project experience.
  (Sir Robert Walmsley) They do have some. All I said was that they are not deeply recidivist in terms of wanting to turn the clock back. Can the masters of the old be the masters of the new? That is a very good question.

  36. How will the United Kingdom assess that?
  (Sir Robert Walmsley) We assess that by giving the Executive Director the right people from each of our own countries, in our view, and we are the best placed to assess that. Then by giving him target performance goals. He will have to publish a report every year, which will be available, showing whether he has met the targets set to him by the Board of Supervisors. There will be the specific target of 15 per cent extra efficiency on transferring into OCCAR. We will measure that. If the Executive Director is achieving his objectives and we are appointing good staff, then there may be a connection between the two, but if he is not achieving the objectives we will have to review where the fault lies.

Mr Cohen

  37. You have mentioned, of course, that Counter Battery radar is going into OCCAR and PAAMS, and you have mentioned TRIGAT as well as the anti-tank guided weapon system. Those are all existing programmes. The first point I want to ask you is: by their entry, does that mean that their specification is going to be rewritten, or could be adjusted and rewritten in line with what the other countries suggest in OCCAR? Also, I wonder if you can be a bit more specific about whether you think that by them going into OCCAR, the programmes will be stricter or longer or cheaper or more expensive?
  (Sir Robert Walmsley) COBRA, the Multi Role Armoured Vehicle and PAAMS, all have the terms of their contract negotiated outside OCCAR. The contracts were all signed outside OCCAR so the projects arrive in OCCAR with a signed contract. They are no less or more amenable to contract changes than they were before. I have to say that I do not agree with contract changes as a free and easy discipline, but I think to set one's mind absolutely against contemplating even the possibility of it would be rather old-fashioned. Some of these projects take a very long time to deliver and one has to be aware of the commonsense possibility that something might change. Some opportunity might arise. There might be a possibility of delivering the contract cheaper through reducing its scope. I am very keen on gain sharing possibilities by re-opening contracts: opening them up to Smart Procurement principles. I do not want to give the impression that I don't care about changes but if you set your mind absolutely against them, do not even listen to the case, you bolt yourself into a dangerous corner. Now, will they be delivered better, cheaper, faster? They do, of course, all have those agreed timetables to them but we are very much hoping to bring forward the Multi Role Armoured Vehicle to a Smart Procurement in-service date of probably two or three years ahead of where it would be otherwise. We talked a little bit about history and people being burdened with previous attitudes, etcetera—we all are a bit, I am—but putting up a project, taking it out of its old environment of some crumbling Government building (I had better not name a place) but some crumbling building somewhere—

  38. Mr Blunt: Bath!
  (Sir Robert Walmsley) I was thinking of overseas.—and saying that you are now part of a new organisation, gives people a chance to put their prejudices behind them, to wipe the slate clean. It gives you a chance to attack things in a new way. On the specifics—and I have mentioned the 15 per cent—that is important; but I also mentioned and hinted, perhaps darkly, at the need for co-ordination between the two missile programmes, FSAF and PAAMS. These currently exist in different sets of buildings in Paris. One of the most difficult things in bringing the United Kingdom PAAMS contract to a conclusion was to persuade the two countries, properly engaged in their own bilateral missile programmes, to tell us enough about the missiles so that we knew it was a good idea to buy it before we were committed to buying it. That is a very difficult nut to crack. It is fair to say that those teams have been circling each other—and probably are still circling each other—with a bit of suspicion. We needed the detailed mathematical models, governing the aerodynamic performance of the performance of the missiles, to test it on our computers, to be able to say, "Yes, this will work with our radar." Getting that information took about a year of negotiation. Now we have to get over the difficult relationships which have inevitably arisen—just day-to-day business about projects where somebody has been asking for information and the other team have been used to saying, "No, you can't have it."—putting that into the same organisation in OCCAR, co-located even, which is going to be a great source of improvement and management of the PAAMS programme. That does not mean that it will be delivered faster than we planned but it means that the change of it not being delivered through the disjunction with the FSAF programme, upon which it is absolutely dependent, is much reduced. I am positive about that. I think it is important.

  39. Just to take that PAAMS/FSAF example you gave, do you envisage that passing that information will go up in this country through the Ministry of Defence and the equivalent in France, or do you see a manager in OCCAR dealing with that in the future?
  (Sir Robert Walmsley) Absolutely the manager in OCCAR. I have tried to make clear that this part of the project team is a fundamental part of the whole deal. It is only the OCCAR Convention that gives the maximum degree of autonomy. The two project offices, which are responsive to their National Armaments Directors, will be encouraged by us to work to deliver to their masters and they will be told to exchange information. We do not need that information. They need each other's help.

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