Examination of Witnesses (Questions 60
- 79)
WEDNESDAY 28 MARCH 2001
MR KEVIN
TEBBIT, CMG, MR
MIKE MARKIN,
OBE, AND SIR
ROBERT WALMSLEY,
KCB, FRENG
60. I am sorry?
(Mr Tebbit) I did not feel the need to ask for a political
direction in order to approve the funding and the signing of the
contract for Meteor.
61. A political direction is when an officer
of the Navy gives an order and the seaman says "aye, aye,
Sir", which means "yes, I will do it but I think you
are giving the wrong order"?
(Mr Tebbit) No, when an Accounting Officer says "I
cannot justify it on value for money grounds, therefore you must
decide on political grounds". That was not the case there,
that was fine.
62. Just to go into a bit more detail, the second
bullet at paragraph 4.8 records that only seven of the 17 decisions
examined by the National Audit Office included quantified analysis
of industrial and political factors. The final bullet of paragraph
4.8 says that over half of the 17 decisions were taken collectively
by Ministers. Can you reassure us that in future, given the emphasis
which paragraph 4.6 places on "meeting the overall needs
of the country not just narrow departmental objectives" you
will, in consultation with other Government Departments and industry,
undertake more quantified analysis? Indeed, why are there not
quantified analyses for all these decisions?
(Mr Tebbit) We do basically. The easiest thing I can
do to answer that, if I can find the wretched page, is to show
you the results of our analysis of when those factors are taken
into account. I am sorry, I am having trouble looking it up. Perhaps
Sir Robert Walmsley can put his finger on it.
Chairman
63. There are a series of lists in Appendix
C, page 53 onwards.
(Mr Tebbit) There is a table here showing the difference
between what we expected to be the benefits in terms of wider
factors—page 22—and what transpired to be the case
subsequently. We do follow these things rather carefully. I was
interested that it showed that we were over-performing really,
we were doing much better than had originally been expected in
terms of exceeding expectations, for example, over the political
impact of decisions, etc. This is something that we are very sensitive
to and are by no means negligent of the fact that, for example,
we expected projects to be neutral politically, 24 was the score
and we found that they came out at 70 in reality. In terms of
inter-operability we expected 33 and it came out at 66. Industrial
factors we expected 36 and it came out at 69. I think we are very
sensitive to this point that often these, albeit unquantified,
factors can be quite significant.
Mr Leigh
64. I have difficulty in understanding on page
22 this negative nought, neutral 24, beneficial 76. We are all
politicians around the table and we do not normally give ourselves
numbers minus or plus, the electorate do. I do not know how you
can be so detailed in this.
(Mr Tebbit) It is the NAO that did this and we were
happy to respond.
65. Perhaps the Comptroller and Auditor General
can help on this.
(Mr Tebbit) They do pin us down on these quantifiable
details.
(Mr Banfield) We asked the project managers involved
in projects to assess what benefits they expected to achieve at
the outset and what they had achieved. What this table shows is
percentage numbers, so the 24 per cent in that top box is 24 per
cent of project managers expected the political benefits to be
neutral in co-operation and as it turns out that expectation has
been met or exceeded. That is the project managers' perspective.
(Mr Tebbit) I know that is not quantification exactly
but some of these factors are extraordinarily difficult to quantify,
they are not susceptible to straight forward analysis. For example,
whenever we try to predict employment levels associated with particular
courses of action it has been very difficult after the event to
establish whether that happened because so much else is going
on. It is very, very difficult indeed to do the quantified analysis
in this area. I think that is quite a good indicator of the sensitivity
that we have within the organisation to these factors.
66. Let us just go back to paragraph 4.8, bullet
four. On the three decisions referred to in that bullet there
were wider factors that were central to the decision-making process.
Were the wider benefits quantified and is their achievement being
closely monitored?
(Mr Tebbit) This is TRIGAT?
67. Yes. Were the wider benefits quantified
and is their achievement being closely monitored?
(Mr Tebbit) I think I must ask Sir Robert Walmsley
on that because it is pretty early to know.
(Sir Robert Walmsley) In the case of TRIGAT I can
assure you they are not being achieved. On A400M we have not placed
that on contract yet. Apart from the wider benefits BAE SYSTEMS,
as the shareholder in Airbus, should have wing leadership on the
A400M; it is introducing a new carbon fibre composite technology.
I am absolutely confident that that wider benefit will be secured.
We monitor that absolutely crucially because clearly if the wing
leadership on this project were to move overseas then we would
feel in a sense that we had not achieved one of the most important
industrial benefits from it. We monitor it all the time. On the
last one, Storm Shadow, we saw the formation of Matra BAe Dynamics.
That directly flowed—no question about that—from the
United Kingdom purchasing Storm Shadow, which is to all intents
and purposes an identical missile to Apache, a French missile
developed by Matra. As a result of us ordering the same missile
the two companies came together and have slowly accrued to themselves
virtually the totality of the European missile capability and
they are now only just not the first and biggest missile company
in the world. That is a direct benefit and we monitored it.
68. Paragraph 4.15, page 45 refers to the Joint
Requirements Oversight Council in the US. Does this work well
and is this something that we should replicate? This Council is
increasingly supported by Congress, it says.
(Sir Robert Walmsley) All our requirements are formulated
jointly. We went away from having a Naval Requirements Committee,
an Air Force Requirements Committee and an Army Requirements Committee
long before I ever darkened the doors of the Ministry of Defence.
It is such an accustomed way of working inside our Ministry of
Defence. If you have seen Admiral Blackham come here and talk
about Eurofighter, talk about land equipment, that is the way
we work. It is essential to ensure inter-service interoperability.
We could not contemplate doing it any other way.
69. So they are learning from us rather than
the other way round?
(Sir Robert Walmsley) I do not think they are. They
are learning it for themselves.
Mr Campbell
70. Mr Tebbit, I am looking at the Executive
Summary, page 1, paragraph 4, and it is a point that Mr Steinberg
picked up initially about what the report refers to as post-Cold
War changes in the global security environment, and then goes
into detail about the way in which trans-national companies are
having to change and the fact of life that there will be broader
co-operation in the future. It is a rather simple question but
who is leading this process? Is it trans-national companies or
is it governments?
(Mr Tebbit) We encourage the companies, obviously,
to follow their own commercial judgments because we still find
that that is the best way of establishing what is the most competitive
and value for money way of operating, but of course governments
have a role in this and the extent to which companies merge and
demerge and forge collaborative programmes is very much something
that we are engaged in fostering and encouraging or, if we felt
that competition would be as it were eroded and damaged, preventing
if necessary. That has not come to that but clearly in some areas
one has to take care, for example, when BAE SYSTEMS took over
Marconi it was necessary for us to put in place some arrangements
to ensure that competition was preserved in the way in which those
two bits operated after the merger. It is a combination of the
two. We expect industry to make its own judgments. They have shareholders
to satisfy.
71. That is not a concern as to who is setting
the context in which these decisions are made and who is establishing
the framework. I could not find the exact reference but there
is a reference in the report to the view that formal bodies which
have been set up to promote co-operation, for example, NATO conferences,
national armaments directorates, have been less successful in
identifying fully fledged co-operative programmes rather than
working level contacts which I interpreted as a lot of the work
is going on within companies and between companies and to some
extent the national governments are looking on.
(Mr Tebbit) I see what you mean. This is how individuals'
specific collaborative ideas came forward. In terms of the bigger
picture it is governments that very much do set the context. We
are the ones that put in place the regulatory framework within
which companies can merge and demerge and all that. We are the
ones who are the customers. Customers are king and we are the
ones who call the shots there. The role of government remains
absolutely critical. There is still, for example, a golden share
in BAe SYSTEMS but that does not mean to say that within that
framework you cannot have collaborative ideas coming up from project
co-operation rather than simply from top-down instruction. The
top-down instruction that was referred to there was more about
these major groups like the Conference of National Armaments Directors
and those sorts of things than anything else.
72. I am glad to hear that. It is about the
co-operation between governments that I want to move on to next.
You used an interesting phrase earlier to the effect that whenever
it is co-operation between us and the US we are the junior partner.
Appendix A lists many of the projects of collaboration with our
European partners but nevertheless some very significant ones
have been with the United States. A company in my constituency,
albeit as a supplier to the United States rather than perhaps
involved in co-operation and collaboration, complained to me that
the boot always seems to be on the foot of the United States,
that it is very clear who holds the power in this and it is much
easier in his view for the United States to have access to what
is happening over here than it is for our companies to have access
over there.
(Mr Tebbit) To an extent that is right. It is a statement
of fact, just a reality, when I said that we are the junior partner,
because of size. The US budget is $300 billion a year and they
say it is not enough and Congress and their parliamentarians will
probably vote them a lot more, and ours is not quite that large,
which is why I said we are the junior partner.
73. I understand that, but I am also concerned
about the legislative framework in which these decisions are made.
(Mr Tebbit) That is right. It is for that reason that
the Declaration of Principles between us is so very important.
The Declaration of Principles says very clearly that we would
expect our companies operating in the United States to be no more
disadvantaged than would American companies in the United Kingdom,
in other words a genuine level playing field. That statement is
absolutely critical and I have to say that Sir Robert Walmsley
played a major part in getting that forward and the last US administration
was very helpful, so it is vital that we should get that so that
our companies on both sides of the Atlantic are treated broadly
equally. There are regulatory problems, there are difficulties.
The US is not the least protectionist country, or has been, but
the Government there have been making a lot of progress in easing
these restrictions and progressively we expect them to be extended
to European companies as well. That is one aspect. The other aspect
is what is happening at the industrial company level. BAE SYSTEMS
in this environment has taken over big chunks of American industry.
Rolls-Royce has also done a similar thing. BAE SYSTEMS sell more
in the United States than they do in the United Kingdom these
days. The industry is therefore getting it together as well. Things
are changing a lot but the Declaration of Principles is a very
important element in this process of ensuring that we do have
equal trading terms.
74. Can I take you to another area that Mr Leigh
has been picking on and, not surprisingly, I am not sure that
you did not answer the question entirely.
(Mr Tebbit) What do you mean, "not surprisingly"?
75. I am sorry. I am not here to offend you
but I was not surprised, given the direction that the answer took
us into. When the Secretary of State was George Robertson he talked
about co-operation meeting the overall needs of the country, not
just narrow departmental objectives. I want to take you back to
whether or not we are moving towards that or whether it is achievable
and ask you a two-part question. To what extent has the Accounting
Officer's memorandum in April 2000 changed the way that the MoD
goes about this matter? The second part is, to what extent are
the wider needs, including of other areas of government, built
in at the beginning of a possible co-operative or collaborative
project?
(Mr Tebbit) The answer to your first question is,
I hope, very little, if not, not at all. I hope that even before
that came out as, as it were, an Accounting Officer amendment,
we were already operating in a way which took into account the
wider interests of government. I explained how we ensured that
we consulted all other interests as we develop our equipment programmes
within government and that really is the case. The only caveat
I would say is that at the end of the day each government department
has to be responsible for its own area; otherwise you have complete
chaos. At the end of the day I still have to make recommendations
based on what seems to be right for defence, but it is in the
context of taking wider considerations into account. I am sorry:
what was the second part of your question?
76. It was, to what extent are the concerns
of other areas of government taken into account? For example,
I think you mentioned the employment side of some of these projects.
To what extent is that built in as an important consideration
at the beginning?
(Mr Tebbit) At the beginning we are looking at capabilities,
very broad capabilities, often scientific research. At that stage
it will obviously be premature to do that, but once we are moving
to the identification of a programme, then we do build in these
wider considerations, building up to a decision, what we call
main gate, when we have got all the arguments and all the elements
properly established.
77. The point I am getting at is to what extent—and
I suppose I am going to answer it by saying to the largest possible
extent—is it driven by the requirements of defence, which
is the first requirement?
(Mr Tebbit) Exactly.
78. To what extent are other factors taken into
account.
(Mr Tebbit) What I am trying to avoid saying is that
there is no point in just doing something for the sake of creating
jobs. They have to meet the defence specification and the defence
requirement. The best way of doing so is through proper competitions
and, although all factors are taken into account, at the end of
the day value for money for the defence task is what decides the
matter, but that is interpreted quite broadly in terms of the
longer term interests of defence, including capacity and capability
for Britain, not just in terms of the immediate issue. Sometimes
there are wider considerations like a broad family of weapons
or interests where one might do one thing in one area in return
for some other pattern of collaboration in another. There are
balancing factors, but basically we have to come down to value
for money for defence.
79. Can I go back to my final question and back
to the Executive Summary, paragraph 14, which talks about private
finance initiatives and public/private partnerships and other
matters. I am just wondering to what extent, even where projects
are clearly defensive in their nature and in the purpose of the
project, the rules are changing here. I do not want to open up
a debate on the rights or wrongs of the decision but I have in
mind the PFI project to buy or lease six roll-on/roll-off ferries
for the Navy, and because we went down the route of the PFI it
meant that European procurement rules meant that it was not just
a matter of putting the work into British yards the way it would
have been if it had been a warship, but actually out to wider
procurement. I understand that and I am not trying to open that
up again. The point that I am making is, are those decisions changing
the way in which projects are awarded and the way in which British
companies are able to operate?
(Mr Tebbit) The short answer is, we have not yet managed
to find a PFI or a PPP possibility within the context of the core
defence programme. We have looked at bits of the Eurofighter programme
to see whether that could have PFI or PPP potential, which need
not necessarily be within the European rules but whether we could
do a PFI arrangement for that. We have also looked at the Submarine
Rescue Service, and in neither case have we actually managed to
find a PFI result. We will keep looking. PFI is a bit more common
in Britain than it is with our partners and therefore it is particularly
hard to promote that as a way of collaboration at present, but
we are continuing to look at those options.
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