WEDNESDAY 2 MAY 2001

SIR ROBERT WALMSLEY KCB AND VICE-ADMIRAL SIR JEREMY BLACKHAM KCB

  120. If you had to go through this again, would you recommend PFI for this project again and would you recommend PFI for a similar project in the future?
  (Sir Robert Walmsley) For a ship which has a commercial employment as part of its operational service, it seems to me entirely appropriate to recognise they are merchant ships. Given that the great skill in reducing the cost to the MoD lies in managing the ships in such a way that they are saleable in the commercial market place, in terms of cargo carrying capacity, it seems entirely reasonable to me therefore that we need to give as much freedom as possible to the owner and manager of those ships. What that means is that private finance, from my point of view, is absolutely the right way of doing it, because we do not want to own the risk of securing that employment in the commercial market place for those ships. We only need four for day to day work. We have two spare. The costs are offset to us by those ships earning revenue for their owner in the commercial market place. That is not a risk the MoD wants to have. The answer is yes, although it will be a mighty long time before we need another sealift ship. I do not support PFI for warships or any of that nonsense.

  121. I wish Harland & Wolff well, having been the minister responsible for its privatisation, but I know that it has been bedeviled in the past by technical complications, particularly of the SWAPS vessel in the North Sea and the AOR. It seems clear but can you confirm that the Ro-Ro vessels will not provide any sophisticated or technical difficulties which are likely to cause delays, because there has been a record of unexpected technical problems which have delayed and caused difficulties for Harland & Wolff. Are you fully satisfied that the Ro-Ro contract is fairly straightforward?
  (Sir Robert Walmsley) I am fully satisfied and what is more these North Sea vessels ended up costing a colossal amount more but they were not late. They have done a very good performance on delivering ships. We are quite satisfied that, given that this is a proven design, a design coming from Flensburger, and that there are very good information flows not just promised but actually happening now between Flensburger and Harland & Wolff, and because I have seen what is happening at Harland & Wolff with my own eyes and seen their schedules and their method of managing projects, I am absolutely confident that they can build it.

  Mr Viggers: I must record that a number of vessels have been seriously late, including the SWAPS, but there is no point in pursuing that.

  122. Will insisting on British manning for the Ro-Ros present any employment difficulties, given that this is not a warship?
  (Sir Robert Walmsley) No, because we plan to use sponsored reserves. There is quite a complicated new regime, which is one of the reasons why signing the PFI contract is taking us much longer than I would have expected. It is something called tonnage tax which I have yet to have an absolutely lucid explanation of, even from those who are real experts in this market place. What tonnage tax means is that, in exchange for entering into the regime for a period of ten years, the company will both train and employ British seamen on a British flagged vessel. That gives them certain tax benefits. We expect Andrew Weir Shipping to enter into the tonnage tax regime and that will provide therefore, not just through the sponsored reserve scheme, British seamen employment and training. The crew of a Ro-Ro ferry is about 19 or 20 people. These are not big numbers The current estimate, which we asked for before we came to this hearing, of British seafarers is 28,000.

  123. Even a ship with a British flag and 20 sailors on board is a plus and must not be scuppered. I wish there were more.
  (Sir Robert Walmsley) What people have been concerned about is are there enough British seafarers to man the Ro-Ros.

  124. 28,000 seafarers? What categories of people are you adding up to make that because there are nothing like 28,000 merchant seamen.
  (Sir Robert Walmsley) I have not the slightest idea.

  125. For a former secretary of the Parliamentary Maritime Group, that is a hell of a lot bigger than the Merchant Navy.
  (Sir Robert Walmsley) That is the figure.

  126. Before we leave ship building, I would like to declare a constituency interest, like other south coast MPs, in the type 45 destroyer. Now that we are some way into the programme, do you still hold to the view that you expressed when you came before the Committee two years ago that competition for the follow-on production order is necessary to give ship yards the incentive to improve their performance? Are you satisfied that the collaboration between Vosper Thornycroft and BAE Systems on the design is effective and progressing well?
  (Sir Robert Walmsley) The answer to the first question, is competition necessary, is that it remains my preferred method. It is not the only method. If I cannot have competition, I would rather have the ships and get them by some other way. In terms of cooperation between BAE Systems and Vosper Thornycroft, in the design office which is undertaking the top level design of the ship, the staff of the two ship yards are working together hand in glove. I think you would find it quite difficult to tell who came from where. At that level it is working well. What I had not envisaged—and it is just as well to own up, I think, sometimes when you fail to predict something strategic—is the huge tensions which would develop between the more senior components of the two companies as each of them, for all the perfectly respectable and understandable commercial reasons, tug the tablecloth as hard as they can to themselves and are terrified to let go. They are trying to tug it with one hand towards themselves and trying to shake hands with the other. I had not quite understood how enormously difficult that would be. It has worked elsewhere, it is not working as well as it should do here. Does that mean it can never work? No. Does that mean we should not have tried? I do not think so. I still think it is a good idea not to put all one's eggs in one basket, if I can put it as crudely as that. What we have obviously been subject to, and I think it is as well to get this out in front of the Committee, is quite a deal of alternative procurement strategies being put forward by various people, all of whom have got a good axe to grind and why should they not. I think these alternative ideas deserve a great deal of careful consideration. The truth is that people like me get, I think, quite committed, you know, I thought of the original idea and it is quite difficult sometimes to step back from it and be absolutely clear in your own mind that you are being as objective as you want to be. I want to do the right thing, not just what I first thought of. So, with my Minister's very strong support we have, yesterday, informed the companies involved in this that we are going to seek an objective third party view of the advantages and disadvantages of various procurement strategies. I commissioned the work using RAND Europe. The reason is that they did some remarkably constructive work on the Joint Strike Fighter Procurement Strategy head on competition: is this the right strategy or should we be spreading the work out between people. They have done similar work on US carrier programmes, they have done similar work on US submarine construction programmes, all of which are potential head to head competitions. Is that a good idea? Is it not? They will not determine the answer. They will provide us with objective advice on the advantages of various strategies, including some new ideas that we have had and put to them. We want to bring that work to a conclusion—let us just put it like this—in the coming weeks.

  127. Covering which projects?
  (Sir Robert Walmsley) I have some careful words for this. Certainly covering the Type 45 but in the context of our total warship building and indeed warship repair because of the connection between the Type 45 programme and Portsmouth Naval Base and the operation of that. So, looking at the Type 45 in the context, taking into account the current programme, it is no good if we have not got somewhere to build all the modules for the carriers and then bring them together somewhere, it is no good if we do not preserve enough capability to construct attack submarines. So Type 45 we want a very detailed piece of work on, and we want it done in the wider context over our programmes for the next ten years.

  128. You talked about this tension, but surely this tension has arisen because of the lack of symmetry in the positions taken by the two firms in that BAE Systems has put in an unsolicited bid for all the destroyer orders whereas Vosper Thorneycroft has, at best, only been hoping for a share to enable the competition to proceed.
  (Sir Robert Walmsley) It is indeed asymmetric but that unsolicited bid was, of course, BAE Systems' choice. There was nothing I could do about that. Martin Jay from Vospers, who is a very close collaborator with me on a huge range of defence programmes, has already had it made clear to him, and he has always understood that he too could make an unsolicited bid. I simply think that if you look at the capacity of the two facilities it would be very, very unlikely that any shipyard that Vospers were imagining wanting to open would be capable of pushing through 12 ships but if they want to make such a proposal that is up to them. I think it would be a great pity but they have taken so long to do it. All I can say is that our communications with both companies at the shipyard level and with the prime contractor—I am separating very carefully BAE Marine from BAE Systems prime contract—our communications remain open and what seems sometimes like pretty near continuous.

  129. Thank you. It seems to me that if the Ministry of Defence and your own organisation can collaborate with the French on the production of an aircraft carrier that two British companies co-operating on the building of British warships ought to be a doddle. I really find it rather intriguing the senior management of two British companies—
  (Sir Robert Walmsley) I do not think we have proved we can collaborate with the French on an aircraft carrier, Chairman, but I absolutely accept the thrust of your remarks.

  130. Any idea just of the timescale for the decision?
  (Sir Robert Walmsley) I did say in the next few weeks, by which I mean not next year, sometime this summer.

  Chairman: If this Committee, a strange bunch of people, can collaborate, I hope Vosper Thorneycroft and BAe will be able to.

  131. It is quite clear from Sir Robert's remarks that he is not just looking at the Type 45 procurement but also at the wider range of competition within the warship building. Nothing less than a review of the old system whereby there were preferred warship builders at a time when there were a large number of yards and some were preferred for the construction. Would Sir Robert be prepared to send a copy to this Committee of the terms of reference of RAND?
  (Sir Robert Walmsley) I would just have to look through them. I will send them to the Committee and when I have looked through them I will have to decide under what terms I have sent them to the Committee. There is no difficulty at all. I cannot remember what is in them, detailed enough, to say whether we would be happy to have them published.[1]

  132. If you wait ten days, Sir Robert, we will not be able to read it.
  (Sir Robert Walmsley) I will do it.

  Chairman: I am sure you have thought of that. Right, the last group of question will be on the lessons of Kosovo.

  133. One of the lessons of Kosovo was the need for precision guided bombs that utilise GPS capabilities when weather prevents laser designation. Could I ask what progress you are making with the procurement of Enhanced Paveway missiles? In particular, whether the software and other difficulties in upgrading the Tornados to GR4 standard are likely to hinder the acceptance of Enhanced Paveway?
  (Sir Robert Walmsley) I think you have listened to me quite enough actually over the last hour, I will ask Vice-Admiral Blackham if he would like to respond.
  (Vice-Admiral Sir Jeremy Blackham) As far as the Paveway laser guided bomb is concerned, we have started the process and we expect to have the weapons in service later this year.

  134. You are still expecting to have it in service during the course of this year?
  (Vice-Admiral Sir Jeremy Blackham) Yes. That is an interim solution, that is the Paveway decision. Of course, we have a programme for a full precision guided bomb capability that we had intended and still intend to bring to service by 2006.

  135. Yes. I was just going to come to that. You are only going to buy a fairly small stock level because you are only five years away from Staff Target (Air)1248?
  (Vice-Admiral Sir Jeremy Blackham) Yes. Though of course the source of that stock may very well still be available to us if we use them.

  136. Indeed. Just a wider question, which is very much for you, Admiral. The Enhanced Paveway is one of a growing number. I am thinking of Maverick, Brimstone, Storm Shadow and of course you have the big Tomahawk missile. There seems to be a growing inventory of precision guided weapons, some of which were gapstoppers while we were waiting for others and so on. Do you think there is a need to reassess whether we have rather a large inventory for a small country with all the costs involved in having that? It is beginning to look like our helicopter, if you forgive my going back to a sensitive subject, Sir Robert.
  (Vice-Admiral Sir Jeremy Blackham) I am very aware of that last point. There is a cost in all of these and, naturally, I am not interested in having greater costs than we have to have. That said, there is a range of very different circumstances in which these weapons are employed. The circumstances of a conflict in, let us say, a desert environment against armoured vehicles are rather different from those of the sort of operation that was conducted in Kosovo. The targeting will be different, the targets themselves will be different, and the rules of engagement will be different. It is that really that leads us to have a range of different weapons so we can be sure that we can attack the right target with the right weapon in the right circumstances. That is a rather bland statement, I can give you more specific details if you like. At the moment I am satisfied the weapons we have got each have some unique capability which we need.

  137. I hear what you say but it is extraordinary that we seem to have such a range of relatively small numbers that we are buying of all these different precision guided anti-ground missiles, while at the same time I think we are the only serious military power that does not have a medium range anti-air missile. That is the case, is it not, there is no other major military power that has no weapons at all other than that short range group?
  (Vice-Admiral Sir Jeremy Blackham) A ground based—

  138. A ground based anti-air missile.
  (Vice-Admiral Sir Jeremy Blackham) We do have ground based air defence missiles.

  139. Only short range ones.
  (Vice-Admiral Sir Jeremy Blackham) We have one of the most effective ones that there is. There are other longer range weapons. I could not say with any certainty that we are the only nation that has not got medium to long range weapons but certainly we do not have any. As I have said twice, and I apologise for boring you again on this subject, we are always addressing what it is we are trying to achieve and what the overall capability outcome we want is and there are various ways of cracking these different nuts. In our case offensive air is one of the ways in which we intend to deal with this, so is our overall air defence capability, both ground based and airborne.