Examination of Witnesses (Questions 60
THURSDAY 25 APRIL 2002
60. Has it added to the cost?
(Sir Robert Walmsley) Yes. If you build them all in
the same place, you have the learning curve, etc. Of course it
adds to the cost but the benefit we get is the service sooner
and that is what we want. We are paying a bit extra to get the
service sooner and that is worth doing.
61. Is that as opposed to the traditional method
in the past of procurement of ships not through PFI but through
the traditional method? Are you confident that this method will
be cheaper than the traditional one?
(Sir Robert Walmsley) I am. It is not in my gift to
preempt the National Audit Office consideration of this project
but everything that I am hearing convinces me that we will get
a good answer on that very important point, which is crucial to
the balance sheet decision on or off the MoD balance sheet.
62. How are the other ships getting on?
(Sir Robert Walmsley) The four in Germany? Fantastic.
If you want to know how they are getting on, it is all information
that is available in public on the internet. You can see how the
ships are built. You can see every block, every date. They launched
the first one on 19 April which was the date they quoted to us
in October 2000. They were half an hour early and they apologised
Chairman: I do not know why ships cause
such heartache in the Ministry of Defence and related organisations,
but they do. We now move on to the warship support and modernisation
initiative. I think everyone in this room is pretty familiar with
the story but if you feel it necessary to add any history, Mr
Coles, please do so.
63. One reason why we are so passionate about
our shipyard is that Portsmouth would not have existed if it was
not for the naval base and everyone feels ownership. Politically,
that is very satisfying at some stages and very difficult for
us at others. The land and the history are tied up completely
and we would not have existed as a city at all if it was not for
shipbuilding. There is some passion there which still carries
on today. Just before Easter, we had the announcement after a
lot of pressure that the warship support modernisation initiative
was going to proceed. It did not come as a shock but it came at
a difficult time. Few of the details have been published at all.
This is one of the first sessions when we can tease out some answers.
There did not appear to be a full consultation process and the
unions have done quite a sterling job in building up a defence
of their case. They have put in a number of documents with information
from the trade unions but they claim not to have had a satisfactory
consultation process. One thing they are asking above all else
is the employees in the MoD have worked loyally for years and
years and they feel they have now been disposed of as surplus
to requirement. There does not appear to be any emotional tie
from the MoD to say, "We are going to look after your terms,
conditions of service, pension rights and hopefully try to avoid
redundancies." It would be nice at some stage if someone
were to say that is the intention. I believe it is but no one
has said it and it would help in some respects. I want to know
how the naval base activities will be subsumed in the new arrangements
and how the management of the work of the bases will be changed
after the initiative has taken over.
(Mr Coles) I was going to make an opening statement,
but I think if everybody is familiar with it I will leave that,
on how we came to this whole process over two and a half years
to end up where we are today. It is an issue about capacity, new
techniques, productivity improvements and the whole range of things
but maybe I will give that a miss if people are familiar with
it unless you want to hear it?
64. If you wish to give us an opening statement
please do so.
(Mr Coles) The whole Warship Modernisation Initiative
started about two and a half years ago. It had its roots in the
Ministry of Defence review and involves the privately owned companies
at Rosyth, Devonport and of course the GOCO at Portsmouth.
65. Sorry, I missed that last one?
(Mr Coles) The GOCO at Portsmouth, FSL. A number of
factors were involved to look critically at how we do warship
support. Incidentally, the formation of the Agency itself was
part of this because you have one organisation which is providing
an end to end view of support for warships. Then techniques such
as reliability centred maintenance and new techniques, underwater
engineering, all helped to reduce the amount of work that needed
to be done on the surface fleet. Of course companies themselves
were more productive and, indeed, we got smarter at contracting.
All this meant that there was less demand for the resources that
the companies had, i.e. over capacity. Of course our room for
manoeuvre was hampered, to some extent, by the sale agreement
which sold forward along the programme of work. Finally, of course,
with the wish to put new capabilities in sooner, this division
between the big refit times and the fleet times to get new capabilities
in was a factor also. Of course looking at the 20 per cent reduction
in costs for the setting up of the new DLO we had to make our
contribution to it. So they were all the factors which conspired
to look at this whole business. Our initial discussions were with
the companies to explore the permanent work they had and to drive
towards an early introduction of competition by partnering at
the naval bases provided this was shown to be beneficial. In summary,
therefore, it is a whole range of initiatives which comes out
to bring forward to a more efficient way of providing support
to the fleet. The last piece in the jigsaw is to conclude the
agreements which the Secretary of State announced earlier this
month on the way to do it. That is by way of a background to this
whole initiative. To answer the questions that you asked me,
Mr Rapson. The first one about consultation.
I believe there has been a huge amount of consultation over this
whole period of time about the process with the trade unions and
with the companies and their proposals. Of course nothing can
hide the disappointment of their proposal not being accepted and
I understand that. We will give them a full debrief, I think later
this month, on how their proposals stacked up in the round against
the companies' proposals, and I think that is already scheduled.
I think that is reasonably clear, that they will have that. It
will not be all the commercial information, of course, but where
it fits into the picture. The consultation has been extensive,
I would say that. Does that answer all your questions?
66. I was really pressing the emotional side.
(Mr Coles) Right.
67. The dockyard workers have been extremely
loyal working for the MoD. A lot of them choose to work for the
MoD because they are working for the Government not-for-profit
and now they are being disposed of in a rather straight forward
way. I know that is the way they see it. I did quote the MoD Manual
9 which looks after industrial employees. The Disposal of Surplus
Capacity, a really bad title. They feel they have been disposed
of. A lot of pressure has been put on by us, many MPs and the
unions to ask for the MoD to say "Well, we are still concerned
about our ex-employees." I want someone to say they are concerned
about their ex- employees' future terms and conditions of service,
their pensions and are hopefully going to try and ensure that
there is the absolute minimum of job losses. Now I believe it
is the intention of the ministers to do that but nobody has actually
said it. It would be nice if somebody at your level was to say
that, to bring the morale issue into play.
(Mr Coles) Let me try and answer that question. I
guess I have three responsibilities: to provide a service of support
to the ships of the Royal Navy; to do that economically and of
course to look after the employees that are in our care. If they
are transferred to the private sectors, as the option we are talking
about, to ensure that is done according to our codes of practice
which take care of their existing terms and conditions and their
pensions and to do that fairly and in accordance with those conditions.
When we talk about job losses, it is about 750 jobs or thereabouts
over five years, so it is a long time to sort this out under those
existing terms and conditions. That is being done and hopefully
next week there will be something in the public domain which will
have a much clearer intent because it is an ongoing discussion
with the TUs at the moment, to make sure we have a joined up approach
to this. We do have some formal agreements with them and they
are being worked on at the moment so the aims of ourselves and
the companies to do it are clear.
68. The protection is there and there is no
real enthusiasm to ensure they get extra protection?
(Mr Coles) It is not extra protection. It is the protection
they have under law and the TUPE code of practice.
69. The basic minimum is all they get, they
do not expect any favours. That is what I am asking you. I know
what you are saying. I did not expect any more but hopefully it
would have eased it if there was a bit more sympathy. Can you
tell me then what naval base activities will be subsumed in this
arrangement and how the management of the work in the bases will
(Mr Coles) Essentially the naval base commanders will
remain in control as what I would call the decider function. The
actual execution of the workand I will come to that in
a momentwill be delivered by the partner, i.e. the deliverer
or the provider. So you have decider/provider within the naval
base and the provider function is delivered by the partner. The
range of activities will be engineering support, estates management
in its widest sense and logistics support, in other words exactly
what the naval base commanders do today but the provider will
be the partner and the naval base commander will be the decider.
That is the difference.
70. What are the benefits?
(Mr Coles) The benefits are because you are working
on a common site you can have these functions spread over, instead
of having two organisations you have one. Secondly, the companies
can bring in additional work on the site. They have a different
management structure, as you know, in Vosper, they stopped using
the site. They can exploit the site's benefits. All those come
to bear at the same time. Finally, of course, because this is
open to competition more, though an allocated programme, we in
the end get a benefit of lower costs as well.
71. It is taking away the constraints of MoD
management to enable them to get out into the private sector and
pull in extra work?
(Mr Coles) There are enormous advantages that we have
found with privatisation where once the companies are actually
free or we are free of the constraints, they can bring in additional
work. If you look at the work of FSL in your own constituency,
the amount of work brought in from the private sector is quite
considerable. It frees it up and reduces our overhead, as Sir
Robert said. It is a competitive element bringing in new ideas,
new ways of managing and it reduces our costs by sharing the overhead
burden. They have been quite successful at that at the three yards.
72. I believe the decision has been taken, I
do not think there is any sense in trying to tell the workforce
they have still got a chance of changing it. If the initiative
did not go ahead, what would happen?
(Mr Coles) If we could not finally conclude the arrangements
we actually have in principle with the companies, and as you said
announced by ministers and endorsed by ministers, then we would
revert to the benchmark which was put forward by the naval base
commanders which is essentially the in-house organisation management
arrangements which of course generates some saving itself.
73. So just go back to the status quo.
(Mr Coles) It would go back to the way it was.
74. You mentioned 750 job losses which I believe
is the worst case scenario over five years. That has been misinterpreted
by many people and you have used it this morning. What have the
companies told you of the potential job losses? Are they your
figures or are they what the companies are saying?
(Mr Coles) In the end the precise figures will only
come out when the companies have finally signed up the agreements
and made the contracts and the numbers will come out over time.
Our best judgment at this point in time, based on the proposals
that they have put forward is we will lose about 1,000 posts but
because some of those posts are vacant because of the activities
coming out we will lose about 750 jobs over five years. That is
our best judgment at this point in time.
75. That is over and above natural wastage?
(Mr Coles) No, that includes natural wastage.
76. So what would natural wastage be in normal
circumstances over five years?
(Mr Coles) Without looking at the profile in detail
I cannot give you that answer. With an ageing workforce there
would be typicallyI would say typicallyten or 15
per cent turnover naturally anyway within this sort of organisation.
I cannot give you the answer to that today.
77. How can you be specific about 750 if you
do not know how many we are going to be less?
(Mr Coles) No, it is the number of jobs that actually
go, whether they go by natural wastage or by people resigning
or turning over or whatever other reason, I cannot give you the
figure today but I do know the number of posts approximately.
78. Can I come in on a point that you raised
earlier. Mr Coles, you said extensive consultation had taken place
and presumably that consultation process is two way. I noticed
in your opening remarks that you did not mention the workforce.
I ought to probably declare an interest, Chairman, in so far as
I am very interested when I see a workforce not normally shown
to be militant, especially in Scotland for example, where we have
had workforces recently on strike, we have had picket lines and
we have had street demonstrations about this particular project.
I can tell you, Mr Coles, I should not need to tell you, the workers
feel very, very bitter, especially about the process used to come
to where we are today. I would just like, if it is okay through
the Chair, to ask you to expand on that area of bitterness and
why it is so tangible, especially in Coulport and Faslane. I am
very interested in the partnering process where this bitterness
first came from. I am very interested in partnering process costs,
Mr Coles. Can you clarify the extent of the costs to the Department
through this process? I am thinking specifically about the company
bid and the in-house bid. How much was spent supporting the companies'
proposals including direct or indirect payments to the companies
and how much in support of the in-house option? The in-house option
was to include the cost of producing the management benchmark.
It is very, very important because the workers feel they were
steamrolled, everything was stacked towards the company and basically
your consultation process was a sham.
(Mr Coles) Let me try and answer the question as best
I can. There was no direct cost to the companies to put their
proposals together, none whatsoever. They would of course be covered
for the overheads in time but there was no direct contract to
do it. Likewise the activities within the naval bases or with
the TUs would have been their own to consume within the year.
We did provide a team of people to support the trade union's proposals
which we funded, of course. We did have a team of consultants
and experts in-house to support not only the whole process but
the subsequent financial analysis and I thinkI would have
to look to my noteswe did have a premium for that, about
£8 million in total, or it will be when the process is finished.
79. That was just about the process?
(Mr Coles) The process, to manage the whole process.