Examination of witnesses (Questions 20
WEDNESDAY 28 FEBRUARY 2001
CLIFFORD and MR
20. On the timing of these proposals, the letter
written to us by the Secretary of State on 24 July clearly envisaged
that there would be a vesting day on or about the 1 April. It
is not specific about that, but it talks about a period of some
three months after the shadow operation and that would imply a
vesting date of 1 April, but in fact the vesting date is now the
1 July. What is the reason for that delay?
(Baroness Symons of Vernham Dean) You are quite right
on both the points that you have made. We were aiming for the
1 April, but you are also right in saying that we never stated
that it was a hard and fast date. It was a date that we had as
a working supposition. As I indicated in my opening statement,
some of the shadowing work has started, about which Sir John may
be able to tell you more, and it has been going on for a couple
of months. The advice that I received from Sir John and others
has been that a lengthier period, until 1 July, would give us
greater confidence. We want to carry this out in a thorough manner
and we want to be able to know that the results that we have are
really robust. We have felt it wise and prudent to extend what
was originally in our minds from 1 April to 1 July as a sensible
working position. I am prepared to take the advice of those who
are undertaking this, that they would like longer in order to
have a higher level of confidence.
21. You have paid tribute to your colleagues
on your right for keeping the programme on schedule, but that
programme has slipped a little.
(Baroness Symons of Vernham Dean) I do not believe
that it will make an overall difference to the ultimate position.
If you like, we can go through the route-map of this year. I do
not believe that it will make any difference to the time that
we are able to take decisions about the way in which it would
be best to market, which I have always seen as something that
would happen towards the end of this year. I believe that it has
given us greater confidence about the way in which the organisations
are working. Would you like Sir John to add something on the shadow
(Sir John Chisholm) We started with a pilot separation
in the autumn of last year. We took one of the small parts of
the Security Division and proved to ourselves that the system
was working. From the 2 January, we separated internally the Security
Division from the rest of DERA and implemented the systemsthe
management information systems, the financial systems, the personnel
systems and the management structuresto make that separation
work completely. The overall executive committee that had run
DERA previously was split into two. Bill runs his part and we
run the New DERA part separately. We carried out that complete
separation as of 2 January. The reason why July looked to be a
safer bet than April was that three months is a very short period.
The figures come up for the first month just about now, so only
now can we tell whether the management information systems are
working well. We took the view that if there had been a problem
there would not be time to put it right and to check that we had
got it right in that first three-month period. So allowing ourselves
six months, rather than three months, gave us greater security
so that we could prove to ourselves that all the systems were
working and working well.
22. Are there other issues that may need to
be resolved that may further delay the programme?
(Baroness Symons of Vernham Dean) I am unaware of
any now. I shall receive further advice in March as to how things
are going. I do not expect there to be any difficulties or surprises
in that advice. I do not want to prejudice the position of the
officials; they will give me as honest a view as they want, but
I shall be in a better position to answer that at the end of next
month than I am now.
23. New DERA becomes a public listed company
on 1 July, vested as a public listed company. I imagine that means
that it will operate as a plc from 1 July?
(Baroness Symons of Vernham Dean) Yes, but it will
still be owned, at that stage, by the MoD. Mr Jagger says he has
something helpful to add.
(Mr Jagger) It is not a plc at the moment. It will
become a plc on 1 July.
24. Are you confident that you have been able
to organise New DERA's work programme before vesting day so as
to ensure that there is no pause in its activities?
(Baroness Symons of Vernham Dean) I turn to the Chief
Executive on that, who is smiling so broadly that I imagine that
he is confident.
(Sir John Chisholm) Not surprisingly, that is an issue
into which we have put tremendous concentration. Clearly, it is
something that could financially significantly disturb the progress
of the organisation. We have discussed with customers in detail
the contracts that we expect to be let on the new organisation
and we have, as a consequence, a high degree of confidence that
our customers understand the urgency of that task. We are likely
to receive a satisfactory launch platform for the new company.
25. I recall asking Dr Gilbert for permission
to see the DERA corporate plan, but he declined. We cannot make
a judgment unless we see that plan. With a package of data from
MORI, would you put in the package your latest corporate plan,
(Baroness Symons of Vernham Dean) Perhaps I may answer
that. The corporate plan is due to come to Ministers in March
and they will want to have a look at it. Perhaps I may consult
with the Secretary of State. I am sure that after the Government
have duly consulted, we shall do our best, as always, Mr Chairman,
to comply with your wishes.
26. As usual, not as always! Certainly we could
view it in the Ministry of Defence with two MoD policemen, fully
armed, and with Sir John standing behind us as we read it and
with no photocopying facilities.
(Baroness Symons of Vernham Dean) That is a novel
idea. We have talked about how things are progressing with New
DERA. I do not know whether you feel that this is a suitable juncture
at which to ask Mr Clifford to give you an update on what is happening
27. We shall come on to that. I thought that
DSTL was a delivery service.
(Baroness Symons of Vernham Dean) I hesitate to use
initials. I still find them extremely confusing, but none the
less I am falling into the bad ways of the MoD.
Chairman: No doubt it is sufficiently
exciting to be a bureaucratic decision. We shall move on to the
trading fund status.
28. What do you mean by a trading fund?
(Sir John Chisholm) A trading fund is set up under
legislation and there is legislation to support it. Essentially
it means a separate bank account and the organisation operates
from a separate bank account to that of the Department at large.
All our transactions with respect to the Department at large are
through what looks like ordinary contracts with the passing of
monies in response to tasks put upon the organisation. So the
organisation acts as though it is a private company. With respect
to the Department, it acts as though it were a private company,
but it is owned by the Department.
29. Is it inside or outside PSBR?
(Sir John Chisholm) It is inside PSBR.
30. If it is inside PSBR, what is its function?
(Sir John Chisholm) Its function is to allow the management
of the trading fund to manage its resources in a coherent way,
operating on an arm's length basis with respect to its customers
and managing its resources so that they match the demands of the
31. So it is no different from an agency?
(Sir John Chisholm) It is an agency, of course.
32. Why do we not call it an agency?
(Sir John Chisholm) Because there is a difference
between a trading fund that is on the Vote, whereby the money
gets passed down through the chief executive, in a hierarchical
way, to a trading fund where the money comes from customers. No
money comes to me by way of the Department. No money comes through
the line structure of the organisation to fund the trading fund.
If we cannot find customers to support our costs, we have to reduce
our costs. There is no Vote that we can call upon to support our
33. That is the old Thatcherite concept, that
if a hospital cannot pay for itself it should be closed down.
(Sir John Chisholm) I am not able to comment on that.
34. Will it provide services other than to the
(Sir John Chisholm) At the moment DERA certainly does.
35. No, DSTL.
(Mr Clifford) The vast majority of the work will be
for the MoD, but there will be other customers, principally in
Government, but outside the department.
36. That is interesting. You have to make a
profit; you have to keep going, but on the one hand you are Government,
but on the other hand you are commercial. Is that viable?
(Mr Clifford) DERA has operated in that way for the
best part of a decade and has achieved major efficiency advances
from which our customers in the MoD and in other parts of British
industry have benefited. Our modelling suggests that DSTL will
be able to continue with that.
37. Will the MoD open it to competition in relation
to the sort of work that DSTL may be expected to do?
(Mr Clifford) The work that DSTL will carry out will
fall into two categories: that work which can only be done by
DSTL because of its sensitivity and its role in international
collaboration as Baroness Symons identified, but DSTL will include
the Chemical and Biological Defence sector of DERA which has other
customers, and will continue to have other customers, outside
the MoD and outside Government.
38. In splitting DERA it seems to me that you
are splitting up the scientific base of the MoD. You are commercialising
some of it and making the rest of it, the rump of it, into DSTL.
Do you consider that the scientific and research base of the defence
establishment of this country will be as well run as it was previously.
(Baroness Symons of Vernham Dean) Perhaps I can answer
that. We would not be doing this if we did not think that it would
be as well run, if not better. One of the problems, which I know
has been in the mind of the Committee in talking to us, is that
this has been seen as an asset-stripping exercise on the part
of the Government. That genuinely is not how we see it. We genuinely
take a quite different view. Part of what we are doing is trying
to open up the interesting work that DERA undertakes in a variety
of different ways through commercial exploitation. That is an
absolutely fundamental motivator. One of the others is that through
DERA the Government can get more alongside some of the leading-edge
technologies, like communications and information technology.
We want to ensure that the two-way street operates better than
it does at the moment. Yes, of course, there are questions about
investment. I have said to the Committee before when we have discussed
this that the need for investment is very great. We need to attract
private-sector money into DERA in order to sustain the scientific
effort. That is an absolutely genuine motivation on our part.
I understand that you find that view one that you genuinely do
not agree with, but it is one that we think is enormously important.
You use the term "rump" about DSTL. I hope that you
will accept that, as far as the Government are concerned, this
is absolutely not a rump organisation. It is enormously important
as an organisation because of the great deal of sensitivity of
the work that it carries out, which is absolutely vital. In doing
what we have done, in getting the Core Competence across a whole
range of scientific activity has been absolutely crucial. Emphatically,
we do not see it as a rump organisation. We believe that it will
be an important, vibrant part of the science establishment.
39. Even though it is only a quarter of what
(Baroness Symons of Vernham Dean) There are such organisations,
for example, in Australia, where I have just been, which are smaller
for the whole of the scientific effort. The quality of the people
involved is a really important matter.