Select Committee on Defence Minutes of Evidence

Examination of Witness (Questions 40 - 59)



  40. One other point at this stage is to ask if you think the Future Large Aircraft, the A400M, will go into OCCAR management. Is that being considered?
  (Sir Robert Walmsley) If I may say so, that is an extremely dangerous question to answer without making the obvious bureaucratic point. There is no presumption yet that the nations will sign up to that project. If I can just make that point absolutely clear: there is no presumption that we will choose that because we do have our competition. Other countries have competition too. I have to make that point because sometimes people read more into words than they should otherwise do. Having said that, because the A400M is a candidate in a competition, it is absolutely an obligation on people like me to look at arrangements we would use if it were to win the competition. We cannot say we will not contemplate that. There are a great many countries in the Future Large Aircraft, although fewer than there were three years ago, as countries drop away. It is true to say that we entered this procurement with a clear idea that we would use commercial practices to acquire that aircraft. What that meant was that at some stage the half dozen countries ordering the aircraft sit round a table like this with the supplier, Airbus Military Corporation, and we would simultaneously sign our own national contract, just as British Airways and Delta and Air France would sign a contract with Airbus to launch a civil aircraft. That is an excellent idea. However, it has proved trickier to work through in practice, not just from the United Kingdom's point of view but for lots of technical reasons in other countries. Also, something which Michael Colvin touched on earlier: the Airbus Military Company do not much fancy receiving contracts in six different legal systems. They like to have them all in English. I immediately ducked that because if they were all in English, do they want us to be the contracting authority on behalf of all these other countries, which would give us a responsibility that we were not seeking? It would also dilute this commercial relationship. So we said, "We do not want to do that for you, thank you very much," inevitably looked for possible contracting authorities, and OCCAR has been one of them. OCCAR, of course, is going through this very complex ratification process and there is no guarantee that this will be completed—I suppose ever—in time, as the real thing to place a contract for the A400M. So we think that today's best appreciation of the position is that if it was selected, that Germany would be prepared to be the lead nation, with a view to handing the contract over to OCCAR once it received legal status and if all the nations agreed that this was a good thing to do. That immediately raises the problems of Spain and Turkey who are not members of OCCAR, but in OCCAR's Convention there is a paragraph which says that OCCAR may undertake work, with the agreement of the Board of Supervisors, on behalf of procuring things for the nations who are not members of OCCAR. So there are routes through that which seem quite complex, but I hope I have given you assurance that we have been looking at them very seriously. However, I come back to my first statement, that this must be not read presupposing that we are going to choose that aircraft.

  Mr Cohen: I appreciate that answer. Thank you very much indeed.

Mr Colvin

  41. That is a very interesting answer. The fact is that if OCCAR proves its worth, this is going to make it easier to get a European solution to the heavy lift programme. May I pick you up on one thing. The question has come to mind because of the answer you have given. Essentially, OCCAR is de facto in existence and it has programmes within it. However, there has not been ratifications of the Convention by every Member State but de jure they are already operating. Is that the position?
  (Sir Robert Walmsley) That is absolutely the position but with great difficulties in some areas which we have not touched on today. Principally, because the people who work in OCCAR are employees of their own Government, the rules for handling confidential information inside OCCAR are infernally complex. You simply cannot contemplate that a United Kingdom finance administrative specialist should receive all the commercial data associated with the Tiger Helicopter project. That is an unlikely proposition, so we have had to embark on quite complex Chinese walls which inhibit OCCAR's efficiency. Making all the OCCAR staff employees of an international organisation, in the same way as NATO employees are employees of NATO, means that we will break down some of these inefficient barriers which exist in OCCAR. So de facto yes, but de jure, we hope so, once the Treaty has been ratified. The Treaty will also open up new possibilities in that it will get over one of the most difficult issues of handling national information efficiently.

  42. You have answered a lot of questions on the separate legal identity of administration. When you were talking about employees moving from the DPA into OCCAR, presumably there will be a to-and-fro movement because OCCAR have six or seven major programmes, but which may be down to two or four with fewer people, so there will be a ready movement between nations and OCCAR itself.
  (Sir Robert Walmsley) Yes.

  43. On the question of decision making, Annex IV of the Convention sets out the procedure for reinforced qualified majority voting. Now that means that ten votes can veto a decision. That is an adequate safeguard, is it, against other Member States joining and diluting the power of founder members to resist growth and bureaucracy and inefficiency?
  (Sir Robert Walmsley) Well, I hope so. We have put in that mechanism with just that purpose in mind. I can hardly say we have been very brave about whether we allow qualified majority voting to take effect. You will notice that it is only on the disestablishment of committees, which is hardly a revolutionary step. One of the key principles, I would simply add to the veto power though, is that we have also got an agreement that where a nation is not involved in a programme, (it is in the Convention as well), it will not vote on it. It is purely a programme management issue. In other words, if France or Germany are talking about the Tiger Helicopter and admission into OCCAR, of course they have to ask all the member countries whether they agree with it; but the idea that Italy and the United Kingdom should then seek to interfere with the management of the Tiger Helicopter project would be intolerable. So I think there is a commonsense about this and, yes, I do believe that ten votes is a robust mechanism.

  44. What about the situation with major suppliers to a defence contract? There are going to be circumstances in which an OCCAR project is proceeding, and yet a major sub-contractor in a country that is not a member of OCCAR is going to have power over that programme but have no legal status. How do you accommodate them? There may be no other alternative source of supply. In fact, it may even come from America.
  (Sir Robert Walmsley) It might. This Convention will have things missing. It does not have that missing. What it, in essence, says is that we would normally expect to use the industries of those countries, who are members of the Western European Union, for sourcing the equipment.

  45. 28 members, including associates.
  (Sir Robert Walmsley) Not quite.

  46. Including associates.
  (Sir Robert Walmsley) When you do not include the associates. I am talking quite legalistically now. Secondly, it says that we can go outside that group of industries, with the agreement of the countries involved in the programme, and subject to adequate reciprocity. It does not go into defining adequate reciprocity. It says somewhere else in the Convention, in the usual way of things, that where there are discussions necessary to define whether that adequate reciprocity exists or not, they will be undertaken by the Board of Supervisors. You can be absolutely clear that the United Kingdom will not stand in the way of introducing countries from outside the participating nations if that is what is necessary to get a better deal, better equipment, more likely to fulfil the contract on time. The mechanism was open. That was another difficult argument we had in writing the Convention. However, that was the best deal we could get and I think that was good enough.

Mr Hood

  47. You are CDP representative on the Board of Supervisors, which meets twice a year. What mechanisms are in place for more regular contacts between the Ministry of Defence and OCCAR Central Office?
  (Sir Robert Walmsley) I think the Convention does provide for two meetings a year. I have to say that we had three meetings a year. I think it was at my suggestion actually and since I have been Chairman I have followed that through. While establishing something there are an awful lot of changes. Sitting behind me is Mr Grant Morris and he is a member of the so-called One Star Group. The One Star Group is a group of Government officials, who work very closely to their national armament practice, who meet—I do not know how often it is—but it certainly seems nearly all the time to me, although it is probably once a month. That was where a lot of the legwork was to establish the Convention. That is where all these procedures and processes are being improved. So we have this virtually permanent session, (that is what it seems like), and the One Star Group are trying to bring this off. Grant Morris has worked extraordinarily hard on this for a couple of years now. It is going to continue for another year or more. So, yes, we have formal meetings three times a year and not twice a year, and we felt that was necessary to maintain our momentum. Secondly, a lot of the real work is done in the One Star Group. Of course, as I have made clear when I took over as Chairman, I go to visit OCCAR and I do see my Board of Supervisors colleagues in many other fora. We had a meeting of National Armament Directors in NATO last week. All my OCCAR Board of Supervisors colleagues were present. We did indeed take time out at one of those meetings to have a little talk on OCCAR.

  48. How many Ministry of Defence staff are directly involved in the activities related to OCCAR?
  (Sir Robert Walmsley) Actually situated in OCCAR Central Office, at the moment, I think there are five. We also have people in this country who are concerned with it. I have mentioned Grant Morris. Steven Logan, who is behind me, is pretty well full-time on OCCAR. Getting all these procedures in place is hard work. We have to cover every line of them to make sure that we are getting our ideas in place. So we have probably about two people on average working on OCCAR in this country, and it takes a bit of my time, a good bit of Grant Morris's, a good bit of Steven Logan's, and a good bit of other people's.

  49. Will this number grow as more programmes come on-stream?
  (Sir Robert Walmsley) No. I have been talking about the OCCAR central administration. There is a separate body for managing each programme, which Michael Colvin talked about, the ebb and flow. A programme brings its programme staff with it like COBRA. I mentioned that it started with three heads and 19 staff. It is now down to one head and it will reduce to 16 staff. That is extra and depends on the programmes appearing. They disappear when the programmes disappear.

Mr Cohen

  50. May I ask you about the monitoring of OCCAR projects and indeed an assessment of progress, on whether that has been made or not. Clearly it is not just a matter of staying within the budget. It is whether the project would actually successfully deliver. You have done a good job with your agency in those areas in ensuring that there is proper monitoring and assessment in the course of projects and project programmes. Is that in place in the OCCAR system?
  (Sir Robert Walmsley) There are two separate parts to the answer. First of all, as a contract is negotiated in place it will include demonstrating that the thing we are buying does what it is supposed to. That is a fundamental part of the commercial relationship with industry. We used not to see the obvious importance of that but we do now. So the Multi Role Armoured Vehicle contract is about demonstration. I cannot remember how many thousands of kilometres driving it to be done to prove that it is reliable, which we used not to think was part of the deal. We are now absolutely clear on that. That is self-contained within the contract. Then there are the processes inside OCCAR by which we disburse monies against contracts. That is a part of it too. How do you know that it is sensible to make a progress payment at all? I mentioned the work we are doing with industry now to draw up contract placement procedures. This will address just that point. How much money should we hold back? We do not pay all the money that the firm has incurred, so that we have spent 95 per cent of the money before the thing arrives in-service, otherwise there is not much incentive to finish it, so we like to hold some of it back so that there is a real incentive to finish it. We used not to do it. So those are parts of the processes which are being drawn up by those people sitting behind me, as well as my contracts experts in OCCAR headquarters.

  51. The people abroad in the OCCAR structure, are they willing to go along with these sorts of processes?
  (Sir Robert Walmsley) They love it.

  52. For assessment and monitoring?
  (Sir Robert Walmsley) When I go to a Board of Supervisors meeting, which is in Bonn, they appear in my hotel at 7 o'clock in the morning to tell me what a good job they are doing, etcetera. They are very enthusiastic people.

  53. They may be enthusiastic but the systems have to be in place.
  (Sir Robert Walmsley) They are responsible for putting the systems in place. They would not be enthusiastic if their systems did not meet their aspirations, which is what procurement is all about. They are keen.

Mr Colvin

  54. On the subject of audit, the National Auditors will have access to all the necessary information for them to ensure that the programmes have been conducted properly. Have you actually spoken to the National Audit Office about those arrangements, and are you happy that all the other Member States have got equally adequate arrangements in place? Do you see the National Audit Office's role as being the only one for reporting to Parliament? Presumably there will also be a role for select committees in this respect.
  (Sir Robert Walmsley) I am clear that there will be a role for select committees, Mr Colvin. I have to say that you are absolutely right. The Convention does provide for total access of the National Audit Office and its equivalents in the other countries. Whether these equivalents are as rigorous as our own National Audit Office is not for me to answer. I can only say that from the scale of my colleagues' offices in other countries, I guess they have the same ultimate effect but I cannot speak for their auditing processes.

  55. Will we have access to programmes, on which we are not actually involved ourselves, but the other Member States of OCCAR are?
  (Sir Robert Walmsley) The answer is no. That is actually partly what ratification is about. I should just make the point that the Convention was laid in front of the House of Commons earlier this summer for the requisite period of time. The next step is for the Foreign Office to draft the protocol, which provides for some of the immunities on access to documents, staffs ability to travel, etcetera, etcetera. It is only when that has been laid in front of Parliament and they have had a little debate or maybe not—that is not for me to say—and that is signed off, that really the ratification process would be completed in the United Kingdom; so it is partly to provide that immunity from improper interference in a document, with other people's documents that we need to go through the development of this protocol. We will access, through the National Audit Office, everything to which we currently have access on a United Kingdom programme. You will not be allowed to go through the minutia of the French Tiger Helicopter programme. There are two other levels of audit. First of all, the organisation has to produce annual accounts. We will get them audited by someone outside the organisation. That is for the Executive Director to arrange, in just the same way as a company will arrange to have itself audited. Then there will be internal audit. It always sounds a bit incestuous but actually internal audits are sometimes as demanding as anybody else. I will expect my Board of Supervisors colleagues and the Executive Director of OCCAR to have a robust system of internal audit, because these international organisations must not develop untidy habits about the custodianship of relatively small sums of money associated with day-to-day running.

Mr Hood

  56. Is there a risk of a two-tier Europe developing with OCCAR as a first option for the big nations keen to embrace balanced workshare, because they have the most efficient industries which would be more likely to win contracts, and a rump of smaller countries left operating through WEAG because they need juste retour to protect their inefficient industries?
  (Sir Robert Walmsley) That is a very real risk as perceived by the smaller countries. I do, of course, attend the Western European Armaments Group as a United Kingdom representative, and I think it is fair to say that my colleagues—not just from countries with relatively unsophisticated industries, but the Developing Defence Industry Nations, and Portugal and Greece are two examples of those—but from smaller countries, extremely sophisticated smaller countries, with an extremely sophisticated defence industry, Netherlands as an example, are concerned that (so to speak) the four members of OCCAR should not take all the good projects to OCCAR, and leave all of the Western European Armaments Group nations struggling on the crumbs falling off the table. We did see that very clearly from the moment we started OCCAR. What we decided to do, therefore, once we had understood about having to get a legal personality, is that if you go to all the trouble of having a Convention, our first approach was to seek legal status from the Western European Union in the same way that the Western European Armaments Organisation—a small body maybe in terms of money but it handles research contracts—we sought OCCAR's legal status from the Western European Union. We thought that it provided, if it had come off, a very good way of reassuring the Western European Armaments Group nations that OCCAR was not living on some separate planet, operating in a hidden way; and also providing, in quite a good way, the emerging of the potential European Armaments Agency idea, which is coming out of the Western European Armaments Group, if OCCAR belonged to that legal framework. It is with great regret that having put in a heck of a lot of effort in trying to persuade the Western European Armaments Group nations to accept OCCAR under the same legal umbrella, they said no. We went round and round all the countries and in the end we said, "Look, our Convention cannot wait." There is a real perception now, in some areas at least, that an opportunity was missed about making OCCAR more welcome in the Western European Armaments Group. Of course, OCCAR looks more attractive now that it has its own Treaty and has succeeded with some existing projects, than it did when decisions were being taken.

Mr Colvin

  57. Is the European Armaments Agency a pipe dream?
  (Sir Robert Walmsley) I do not want to go that far. It is an important vision. I do not mean that in a trivial sense. I think if you are going to have a European security and defence identity, that naturally carries connotations for industrial competence. Once you have industrial competence, as part of it clearly you are looking to establish something more efficient on the demand side, on the customers' side, in terms of project management, harmonisation of requirements. The Western European Armaments Group is a vision for delivering that. It is going to take a long time to be effective.

  58. Collectively driven?
  (Sir Robert Walmsley) Politically driven, yes, but necessity driven in terms of better programme management. It was because it was taking so long that OCCAR came. We then tried to put OCCAR under the same umbrella but they did not want it.

Mr Hood

  59. Do you think the United Kingdom should take the initiative in winding up WEAG?
  (Sir Robert Walmsley) I do not think I would like to do that. In fact, I have spent quite a bit of time talking with my colleagues, to very valuable colleagues. The obvious example, Norway and Greece: two countries now contemplating becoming partners in Eurofighter. They set great store by this. Greece is the President of the Western European Armaments Group and they lead the way; in seeing this organisation, so to speak, become history would be intolerable to them. It would also not be very constructive from the point of view of our involvement with them on a number of other projects as well as the ones I have mentioned. So I think our job is to make sure that Western European Armaments Group has a place in the future. That it is as efficient as possible. We are then left with this thing which I said was not very important, the Western European Armaments Organisation, which does R&D and has a legal personality from the Western European Union. It is quite a difficult little nut to crack if the Western European Union Treaty was, so to speak, to be cancelled. As long as it stays on ice, then the Western European Armaments Organisation, which is used to place contracts for R&D, still has a legal personality derived from the Treaty. We have to find a solution to what is going to happen to the Western European Armaments Organisation. It is one of the important and knotty little problems associated with the public changes to the Western European Union.

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