Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 1 - 19)




  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


  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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