Examination of Witnesses (Questions 1
- 19)
WEDNESDAY 28 MARCH 2001
MR KEVIN
TEBBIT, CMG, MR
MIKE MARKIN,
OBE, AND SIR
ROBERT WALMSLEY,
KCB, FRENG
Chairman
1. This afternoon the Committee will be taking
evidence on whether the Ministry of Defence is maximising the
benefits of defence equipment co-operation as described in the
NAO report to that effect. The main witness is Mr Kevin Tebbit,
Permanent Under Secretary of the Ministry of Defence, and Sir
Robert Walmsley who is Chief Executive of the Defence Procurement
Agency. Who else have we got?
(Mr Tebbit) We also have Mike Markin
who is our Director General of Research and Technology at the
scientific end, as it were, of the spectrum.
2. Welcome, Mr Markin. Right, I will go straight
in, Mr Tebbit, gentlemen, on the normal basis. I start with figure
17 which is on page 24. That summarises the issues covered by
the Letter of Intent and Declaration of Principles. Reference
is made throughout the report to how important the actions flowing
from these agreements will be in maximising the economic, military,
industrial and political benefits of co-operation. When do you
expect the success of the actions will start to become apparent
and how will you measure that?
(Mr Tebbit) I think in many ways some of these advantages
are already coming through at the moment, Chairman. Let me say,
these are not areas where we have a choice, these are areas where
we simply have to make collaboration work better. The thing about
the Letter of Intent really, and to some extent the Declaration
of Principles, is that although in collaborative programmes as
such we can assure ourselves about these sorts of features within
the context of the contract, when it comes to broader collaboration
and access, for example to technology, if we wish to have something
produced overseas as a sub-component of something we are doing,
we do not at present have that degree, that framework, of assurance.
The key thing about the LOI is that this will give us, with industry,
the assurance that whatever we wish to do, whether inside a full
collaborative programme or outside it, we will be able to get
the security of supply and all the other factors in place. It
is more about, as it were, the capabilities we are looking for
than the individual detailed contracts. Perhaps I could ask Robert
Walmsley on specific benefits, but of course we have only just
started and the LOI is only just going, to a formal treaty stage
and we have not yet got the Declaration of Principles—the
DOP—with the Americans quite there, so it is still very
early days. It is more about the overall potential of the thing
than the immediate results.
3. Have you anything to add, Sir Robert?
(Sir Robert Walmsley) The Letter of Intent framework
document is about to be ratified by Germany. We have already ratified
and the moment Germany deposits theirs in front of us—we
are the depositry nation—then the LOI can become effective.
I would simply emphasise that it is partly designed to make industry
more efficient, not us. It is to ease their work in a trans-national
sense.
4. I am sure they are pleased to hear that.
I will move on a bit and we will come back to this later. Paragraphs
2.13 to 2.15 are the next ones I want to talk about. They highlight
the benefits of co-operating with partners once equipments have
entered service. Yet paragraph 2.16 records the current low level
of in-service support co-operation and the reasons for this. I
have to tell you that I can remember this problem over decades
now. What would you consider an appropriate level of co-operation
to aim for in the future on in-service equipments and how do you
plan to achieve that?
(Mr Tebbit) I am not sure that I have a specific figure
in mind. It is certainly the case that in the past, you are absolutely
right, insufficient attention was paid in the early phases of
programmes to the in-service support arrangements. That is obviously
one of the big changes that we are aiming to make through the
incorporation of Smart Acquisition principles, whole-life approaches
to projects, into these co-operative, collaborative arrangements.
So the new programmes that we are developing and the way in which
we are structuring things like OCCAR to run project managed collaborative
projects in future will, I am sure, increase the in-service support
element. The important thing for us is to make sure that we track
it and have systems in place that give us those measurements.
I do not think there is a figure that one can pluck out of the
air in this area. Indeed, it is quite difficult to establish precisely
what constitutes a collaborative element of in-service support
and one that is not.
5. The next question relates to the next paragraph.
I do not want to be too cruel about this or puritanical but this
seems to be stronger on, how can I say, acronyms and words than
on performance. You talk about Smart Procurement, it used to be
low cost, no cost advantages that arrived at this sort of thing.
Paragraph 2.17 talks of the Eurofighter programme which has been
under way for more than a decade, yet paragraph 2.17 explains
that you are still having problems agreeing common support strategies
with partners. What lessons have you learned from that?
(Mr Tebbit) We have not yet got them but we did share
all of our initial investment appraisal cost effectiveness work
in moving to the so-called main gate decision with partners in
order to promote just that very arrangement, to assist in taking
decisions about common support strategies. I think that the Tornado
lessons, as it were, are very well taken. One cannot guarantee
these things but our objective will certainly be not to reproduce,
as it were, the same mistakes and problems that we had with the
Tornado.
6. Let me sharpen the question up a bit.
(Mr Tebbit) More precisely, if I may, on Eurofighter
we do have common arrangements for support already in place. A
lot of the weapons aspects of Eurofighter will already be done
through the international weapon support system and the industrial
repair activity is going to be done within a common harmonised
contract for industrial exchange and repair services. So with
Eurofighter we have already put in place at this stage systems
and organisations to improve on where we were with Tornado.
7. But after ten years of running it. Has the
RAF had to amend its plans for the introduction and deployment
of Eurofighter because of the delays in reaching agreement on
the co-operative support arrangements?
(Mr Tebbit) I am not aware of radical changes. There
is a delay to some extent. In a way you have to make a choice:
do you want to get efficient collaborative systems and arrangements
in place which take a bit of time, or do you want to steam ahead
without thinking of that?
8. That was not my question. I will let you
think on that question and I may come back to it later.
(Mr Tebbit) Can I just say that on Joint Strike Fighter
as well, for example, Chairman, we have already set up a Logistics
Support Council right at the outset even before, as it were, we
have got to the selection stage, right at the concept definition
stage in order to give guidance on what the joint UK/US support
structure should be.
9. I will come back to that, if I may, Mr Tebbit.
Let me move on for a minute. You mentioned OCCAR but, given the
limited success of defence equipment co-operation in delivering
all of the extended benefits as highlighted throughout this report
really, how confident are you that OCCAR will be able to translate
the ambitious principles set out in figure 27 into practical achievements?
(Mr Tebbit) I am not sure that I do quite accept your
first phrase about "limited success", Chairman. I think
we are doing perhaps rather better than might be apparent from
the statistics in the report. I accept the statistics but I think
they show a very partial and limited picture. I am happy to talk
about that.
10. You signed off the report.
(Mr Tebbit) I am not disputing the actual figures,
I am saying that they were taken at a particular point in the
cycle of equipment procurement and you will find, I am absolutely
sure, that as Eurofighter comes on stream, as the Joint Strike
Fighter comes on stream, as the A400M does and the BVRAAM missile,
even if we did nothing more than we are doing today, which is
not the case, those figures would change very significantly. The
comparison they were using from 1991 in the report, I think, was
at a time when there were a lot of big equipment projects coming
through. 1998 was a period when the large ones were just in the
early phase of development. I am sorry, I was digressing, I apologise.
On OCCAR we have built, as it were, a system which has a proper
structure. It will have a business plan, the first business plan
is just being finalised. It will have measurable targets for performance.
It will have an agreed base line from which to work. I think we
are, as it were, structuring OCCAR in a way which is not just
a loose club but is a real project management system to deliver
projects in the future. We have proposed our own acquisition management
system as the model for that, which is already delivering benefits
here. There will be a Director, there will be a proper Board of
Supervisors, and there will be Programme Managers who will report
to the Director. The structure of OCCAR, driven forward by the
four countries that were core to this process, is a very different
sort of structure from previous international collaborative organisations.
11. You implied in that that you have agreed
performance measures for OCCAR. How do they correspond to the
ones outlined in Appendix D?
(Mr Tebbit) I do not think they are fully agreed yet.
I think we are working on what they should be. I do not know if
Sir Robert Walmsley has more information on the details of where
we are on this.
(Sir Robert Walmsley) When we get the business plan
it will have performance measures in it. It will not be completely
congruent with these but the first three, which are effectively
the familiar major projects report disciplines of time, cost and
performance, will be in there. We have to agree the detail of
these with three other partners, not all of them signed up to
this type of approach. What OCCAR does, of course, is to make
visible all the difficulties that all the multifarious international
project offices have wrestled with over the years, each of them,
so to speak, coming to the problem for the first time. OCCAR provides
the forum in which we can learn from one project to another.
12. You are going to bypass administrative efficiency
and administrative overhead, are you?
(Sir Robert Walmsley) Certainly not. In fact, I cannot
actually remember whether we have got a detailed measure in there
now but right from the word go on OCCAR the question of why is
OCCAR going to actually deliver better results for less cost has
been central to the programme. We have looked at each programme
that we have put into it so that when the United Kingdom placed
the COBRA radar programme into OCCAR it involved a reduction in
the number of people because OCCAR is one man to do a job. The
COBRA international programme office had previously been structured
with each participating nation providing a representative to every
single post, so effectively when we put it into OCCAR we got rid
of nearly two-thirds of the people. That was a major step forward
straight away through putting it into OCCAR and it is right at
the centre of the business.
13. Okay. I am running out of time so I just
want to ask one question which is rather at odds with the ones
I have just asked. The whole approach to international co-operation
can take different forms and, in fact, on page 29, figure 21,
you outline alternative forms of co-operation. I guess the one
we are going for most of the time is maximising commonality of
design, which is approach one on that. Are you comfortable with
that? I am just concerned looking back at Tornado examples and
the compromises made there and other compromises on other equipment
systems in the past which have invariably given us difficulties.
Are you comfortable with that being the right approach?
(Sir Robert Walmsley) First of all, I cannot be comfortable
because of the difficult cul-de-sacs that we have got ourselves
into as a result of following that approach. There is no question
that on the NATO frigate for the 1990s and subsequently on a tri-national
Horizon, we drove ourselves firmly into a brick wall because we
insisted on total commonality. It is quite striking, I think,
that the tri-national programme—German, Dutch, Spanish—has
effectively had a much looser approach, although they have had
some benefits from co-operation, sharing non-recurring costs on
weapons systems between two of them, but only two because when
it got too difficult to do at three they were happy to do it at
two. I think there are lessons to be learned there. Doctrinaire
adherence to absolute commonality may not be the right thing.
To revert to a previous question, Chairman, when you asked about
Eurofighter support, we must have centralised configuration management
of those aircraft. Otherwise, over the years their configuration
will drift apart so that common support becomes an impossibility.
There are times when it is absolutely right to insist on it but
I think we were wrong in the tri-national frigate to do something
that was virtually impossible, largely because of perfectly commonsense
things like securing inter-operability with your own navy. Why
should you have a combat management system on an international
frigate that cannot speak to your own aircraft carriers? That
was very hard for France and I could sort of work out why.
Chairman: Okay. Let us widen it out. Let us
go to Gerry Steinberg.
Mr Steinberg: Thank you, Chairman. When I read
this report, or when I started to read this report, because you
have got to remember I can hardly understand the report let alone
ask questions on it, it is very
complicated—
Chairman: We are not going to have some more
drawings of ships, are we?
Mr Steinberg
14. One of the layman's concerns that came to
me was that it is all well and good having this co-operation but
what would happen if there was a fall-out amongst the partners
on a particular project or if one of the partners had a change
of mind? That came to my mind when I started reading the report
and then I actually got to page 17, paragraph 2.10, and what I
innocently thought could happen seems to have happened. In this
paragraph we have got a situation which was what I thought might
happen at some time. This particular project was the COBRA with
Germany. The unit costs increased by 25 per cent which made it
too expensive for those left in the project and the scheme then
became 42 months late. This is one example but how often does
this happen?
(Mr Tebbit) It does happen obviously from time to
time and it is clearly a risk. A lot of what Sir Robert Walmsley
does is designed to try to minimise the impact of any one particular
partner withdrawing or radically reducing its requirement without
undermining the project as a whole or imposing costs on the remainder
of the participants that are unacceptable. These things do work
in both directions, of course, because the tighter you try to
draw these arrangements, the more awkward it is if the UK says
"well, actually I would quite like to leave that" and
finds that is absolutely impossible. These things do cut in both
directions and it is not as straight forward as it might seem.
The starting point in this issue these days is co-operation, international
collaboration, is not an option, it is an essential way of moving
forward for the future for all sorts of reasons in terms of cost,
in terms of technology, in terms of the way we operate together,
in terms of the political environment. So you start with the assumption
that you will collaborate and co-operate and you then ask yourself
why can you not, are there particular reasons why you have to
go national? Some may be that nobody else wants it. There is just
the odd occasion when nobody else does want to have something
like Trident submarine, for example, or timescales are so out
of joint, although a lot of what we are doing with the scientific
community makes that less likely. There may be occasions when
we cannot do it but basically we make it work. One of the ways
we make it work is devising tighter projects so as to minimise
the impact if a member withdraws. Sir Robert Walmsley knows the
technical details of how he does that better than I, but it is
a major factor of our activity.
(Sir Robert Walmsley) That is absolutely right. Each
partner, of course, is committed to the stage that is currently
then approved. The project is staged in order to manage risk in
accordance with the principles that we have talked about: feasibility
studies, project definition, full development and production.
Once that is contracted for there is an agreement in the Inter-governmental
Memorandum of Understanding that sets out the consequences of
a nation withdrawing. It is nearly always to put their partners
back in the financial position they would have been in if that
nation had not withdrawn. Not always but nearly always.
15. Could I ask you what might appear to be
a rather silly question. Most of my questions are reasonably silly
but this one may be more silly. What is the actual aim of producing
a project? Is it for defence purposes or is it for sale purposes?
(Mr Tebbit) It is for defence purposes.
16. So the sale purpose is peripheral?
(Mr Tebbit) The sale purpose—
17. When you produce a missile do you produce
it to defend this country basically, or are you actually producing
it to sell to somebody else?
(Mr Tebbit) The Government as a customer is only buying
stuff it requires for its own defence requirements. There may
well be companies who see the opportunity for sales possibly spun
off from an earlier Government requirement which could lead them
to do particular things but essentially we order the things that
we need for our own defence requirements.
18. So when you go into a project that project
is purely for defence purposes, any sell off is a side issue?
(Mr Tebbit) It is a consideration but it is not a
driving consideration. The key thing is meeting our own needs
in a cost effective, value for money way.
19. Purely as a layman and purely as somebody
who has never really been particularly interested in the defence
of this country, no more than anybody else, my interests have
been elsewhere, if that is the case how does this not weaken our
system? If we are dependent on partners agreeing to come in with
us to produce a defence project when we could go it alone and
do it ourselves and produce what we want, how is our defence not
weakened by the fact that we have to wait for co-operation, wait
for them to make decisions on whether they can afford it, logistical
purposes or whatever? How does this not weaken our position rather
than strengthen it?
(Mr Tebbit) If I may say so—
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