Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 80-99)



  80. One of the things you have just said is that on the whole the shorter projects have smaller delays and hopefully, even proportionately shorter. Is there a case for going for shorter projects?
  (Sir Robert Walmsley) Yes.

  81. I imagine one of the difficulties for defence procurement is that if you have to replace your entire fleet of aircraft all at once, you have a very big project on your hands. If you could do it by perhaps updating the aircraft a bit more often, some of your projects are after all updates of things . . .
  (Sir Robert Walmsley) Yes, updates are deceptive though. They may be quite quick to bring to the point where you have equipped and modified one equipment. As one of our previous reports in this Committee pointed out, we sometimes take a very long time to fit the updates then across the whole population of candidate equipments. One of the important projects in here, the Seawolf Mid Life Update, which is exactly that, although there is a delay in this report, because it captures the delay to the in-service date which has occurred. It is buried in the appendices and what is not easy to spot in the report is that we have compressed the time to fit all the frigates with Seawolf. So the completion of the update has now come forward three years during the period of this report. We think that is smart. I cannot pretend we have always been as good as that, but with updates you have to recognise that fitting it can take an enormous amount of time because of the opportunities to do that.

  82. One thing I noticed about the Swiftsure and Trafalgar Update was that you had been involved with GEC-Marconi and indeed some of their difficulties seem to have been part of the problem. Is that correct and if so are there other projects affected by the difficulties that particular company has been having recently?
  (Sir Robert Walmsley) It is absolutely disconnected with that. GEC-Marconi, the defence arm, which used to be Marconi, was purchased by BAE SYSTEMS some years ago. This company which does this sonar used to be called Thomson Marconi Sonar Ltd, because Thomson of France had 50.1 per cent and Marconi had 49.9 per cent and that was transferred.

  83. They are disconnected systems. Enough said, thank you. Paragraph 1.3 talks about the strategic goal of getting projects 90 per cent right. May I just check with you? Does that mean 90 per cent of the major projects should be according to your original budget on all three factors, time, cost and performance, or that 90 per cent of your projects will be correct on time, 90 per cent will be correct on cost and 90 per cent will be correct on performance, but it may be different ones?
  (Sir Robert Walmsley) No, 90 per cent are within their own approval, they cannot shelter behind another one. I did give about as full an explanation as I could of this strategic goal right at the beginning of the hearing. If it is unsatisfactory, then please write to me.

  84. In Figure 1 on page 4 it looks as though in the last year of these projects some nine have failed on something. Even in just this one year, and most of these projects will have a chance to fail on one of these things in some other year of their lifetime, nine out of 20, 45 per cent, have gone wrong. You are an awful long way from getting to 90 per cent are you not?
  (Sir Robert Walmsley) I am.

  85. This is just one year of these projects and several of the others may fail somewhere else along their life.
  (Sir Robert Walmsley) That is absolutely true and that is why what seems like a rather unglamorous strategic goal is in fact a really tough one. We can do it because when these projects had their approval set, we were not onto this 10 per cent, 50 per cent, 90 per cent. It was a good judgement, but it did not have this much more analytical approach to it. I have to say, because it has been mentioned both by implication and explicitly, in ASRAAM, right at the top of this list, I am now absolutely confident we have a world beating missile on our hands and that we are no longer as deficient on the KURs as we were when this report was put to bed. We had a fantastic test firing about 10 days ago and it is all coming and I am quite pleased with it.

  86. How convenient that they do their test firing just before the PAC hearing.
  (Sir Robert Walmsley) I cannot remember but this is test firing number 13 or 14 in a long series of firings in a very difficult operational environment and hitting the target.


  87. It has been said to me that sometimes the problem with the MOD has been the culture that a particular officer feels he owns a programme and he pushes it very hard and perhaps his career is tied up with pushing it and he overcomes doubts and then he moves on. Do you think you have overcome this culture in the MOD?
  (Sir Robert Walmsley) I should like Admiral Blackham to answer that. I might make a comment after he has.
  (Vice Admiral Sir Jeremy Blackham) I think we have. One of the key principles of the new customer organisation was to produce a single person who was responsible for the entire equipment programme and that is the DCDS(EC), the post I fill. The organisation itself is now entirely a joint organisation. Every single one of my teams has every uniform in it, including grey suits and eggheads, scientists. It is an organisation which is wholly committed now to producing capability, not to producing platforms. I might say that this quite often puts us in some interesting debates with the individual services because naval officers tend to want ships and naval officers in particular find it very difficult to understand why I do not understand that. Air Force officers tend to want aeroplanes. That is not what we do. We look very hard at the capability requirements, we have developed quite sophisticated methodologies and measurement systems to do that, and then we go along to Sir Robert's organisation and say what we want to do, what the strategic requirements are and ask how they think we might do that. Of course in many of the cases it is pretty self-evident that it should be a ship or an aeroplane or a tank, but by no means in all. We do not make that assumption. Whilst we have a considerable ownership of the actual resultant project within my organisation, we do not start with any expectation about what it ought to be. Indeed within my organisation, although I draw heavily on the domain expertise, the experience people have in their particular environments, I have been at some pains to prevent them seeing themselves as advocates of their services. I actually see them as advocates of my organisation to their services. It is a very uncomfortable position for them sometimes, I might say. Both structurally and increasingly in terms of our mind set we have moved away from that, but of course once a project has been set up, I want the sponsor of that project to feel that he owns it and will want to see it delivered.

  88. His career in no way depends on its successful conclusion.
  (Vice Admiral Sir Jeremy Blackham) We have only been running two years so it is probably a bit early to be absolutely certain. His report out of me depends absolutely on his delivering the task I have set him, which is to produce a balanced approach to the capability need.
  (Sir Robert Walmsley) I do think that people's careers should to a certain extent depend on whether they achieve the outcomes they have set themselves and which have been agreed for them. That is quite a change in the way we approach things in the Civil Service and perhaps even in some parts of the Armed Forces. Outcomes in a sense are what we set most store by. I would make one other point. Right at the beginning you asked me what we had done in terms of Smart Procurement to make things different. One of the things we did was to say that every project would be scrutinised in my organisation by two executive directors, that is Rear Admiral equivalent, not just one. One of them would be the owner of the project if you like, who would be expected naturally to be an advocate for it because he knew about it, he had staffed it, he had lived with it. The other one, who is there to check that fair play is done, is absolutely not an advocate of it. I do think that formal non-advocate reviews of projects are fundamental to trying to get an objective assessment of where you stand.

  89. We are going to go into closed session in just a moment and we are going to be talking about ASRAAM, but I want to ask a general question which I think we can ask and it follows from what Mr Osborne was talking about. Here we have an Advanced Short Range Air-to-Air Missile based presumably very much on potential conflict with the Warsaw Pact. Then we are continually learning new lessons, for instance from what is going on in Afghanistan at the moment. How confident are you that the new process will ensure that as these very long procurements go through a life spanning many, many years you can take account of changing circumstances and lessons from conflicts such as Afghanistan where you would not expect a weapon like ASRAAM to be used at all?
  (Sir Robert Walmsley) There is a general point there which is not particular to ASRAAM. There is an issue there. The issue is about these fixed price contracts for development programmes. What that relies on is a very tight specification of what you want the contractor to achieve, bolted down to a price and if they achieve it they get paid. That is not a structure within which it is very easy to introduce flexibility because magically you will find that if you want to add a little element of performance to one of the many characteristics the article has, you will pay through the roof. If you want to say you would like to trade that off by coming back on another one, you magically do not get much money. Flexibility is very difficult. We have been struggling with industry to find ways of gain-sharing on contracts, because it is just a fact that all our contracts are encumbered with lots of little changes to improve them during execution. There is nothing surprising in that and we keep a very tight rein on the percentage value. It is low single figure percent. We are far less prone and far less able to delete elements of the requirement as we go on and we do need to get better at this flexibility during contract execution. It does not sit well with fixed price contracting, which is why I said we have to do a little bit more work on that to find a more flexible framework within which to deliver value for money.

  Chairman: Thank you very much for those general comments. We shall now move into closed session. Would the press and public now leave and all officials who are not concerned with this particular inquiry.

  The Committee continued to take evidence, in private.


  90. ASRAAM. May I start by referring you to paragraph 3? This says, "The project began to run into technical difficulties with the first three guided weapon firing trials conducted between May 1996 and May 1997 when the missiles failed to guide onto the remotely piloted full-scale target aircraft". Why did the Department not foresee the future problems which are outlined in paragraph 3 with the missile's performance and take action to allay them?
  (Sir Robert Walmsley) Some people in the Department did and I give absolute credit here to the leader of the Integrated Project Team who said we should judge whether anything is going to come true by whether the simple commitments which are made month by month by the company are actually delivered or whether we are being so confused by the excellent explanations as to why they have not been delivered that we start thinking that is a reasonable position. So the leader of the Integrated Project Team had a very simple criterion and that was "When will the next missile test firing take place? Did it take place on that date?", which implies the project is under control, "If it did take place on the planned date, did it work?". A trend began to be established over this period when you could see that it was not going to go well. Endless meetings were held with the contractor who was a little bit more confident at the time than he now wishes he had been. We did predict it, we argued with the contractor, but they are on a fixed price contract and they were promising. They were also going through a period of reorganisation consequent on the formation of a Franco-UK joint venture company called Matra BAe Dynamics. Having let the contract on BAe Dynamics, the company then went into this Matra BAe Dynamics structure. It took a while for that to settle down. It is also true to say that the company were buying the seeker from Hughes, now Raytheon who were one of their major competitors. I do not think relationships in that purchase were always quite as comfortable as they should have been. So we had an industrial structure which was changing, we had a key component being purchased from a competitor, but we in the MOD saw the track record of this and it was my Integrated Project Team leader who stuck out for that, said we would not let them off these milestones and they were not delivering them.

  91. Paragraph 5, "Matra BAe Dynamics voiced their opinion that the contract specification contained a number of ambiguities which if not resolved would cause yet further delays to the programme". Why did you not discuss these ambiguities with Matra BAe Dynamics rather than ignoring them?
  (Sir Robert Walmsley) I do not think we did ignore them. The contract provided for a resolution mechanism in the event there were ambiguities. ****** Those who drew the contract up foresaw that and there was a kind of internal disputes resolution procedure which I am afraid did not produce a resolution of the dispute, simply because we could not agree. Most of this is now behind us. It is behind us in my mind so I now have to persuade—and I think I am going to be successful—my colleagues in the Department that we have a good position. The missile is through its blackest days. I am very comfortable now with ASRAAM. I am not comfortable that it is late.

  92. Paragraph 10, "In Matra BAe Dynamic's view, the Department has been unclear as to the level of performance now required from ASRAAM, but it believes that in some cases this is several orders of magnitude greater than the performance originally specified". Is that a fair comment?
  (Sir Robert Walmsley) No, I do not think it is. The idea that something should be several orders of magnitude means in my book at least 100 times greater than specified. What I do think is that there is a genuine perception in the company that we are being more demanding. ******.

  93. So you have not been over ambitious then in terms of performance.
  (Sir Robert Walmsley) I do not think we have; absolutely not.

  94. How close are we to the resolution of this dispute?
  (Sir Robert Walmsley) Weeks. The way it works is that this excellent Integrated Project Team leader, who is quite a tough cookie, goes into bat with the company and has produced a proposition which I said was a good negotiating basis. He has delivered that in negotiation. I now have to put that to my colleagues, including Sir Jeremy, to make sure that the Department is content and I sense I am sailing slightly close to the wind here but I then have to put that to Ministers to make sure they are content and I cannot pre-judge that. I am very much hoping that we will deliver the first 60 missiles to the Air Force within a month or so or a little bit more.

  95. So they are entering service within the next month or two.
  (Sir Robert Walmsley) Well I hope so. That is subject to everybody agreeing I am right. If they do not then we are going to be . . .

  96. How far below the performance you wanted will it actually be when it enters service next month?
  (Sir Robert Walmsley) Difficult to put a number on this. ******. Having spoken to the pilot who has been flying it since 1999 on a Tornado F3, I am absolutely clear that the Royal Air Force at the junior operational pilot level want it and want it now in preference to what they have got because they know it is key. Admiral Blackham will give you the formal customer view.

  97. How much more is it going to cost than originally forecast?
  (Sir Robert Walmsley) I do not think it is going to cost any more than originally; this is a fixed price contract. ******.

  98. You are happy with what your current forecasts are and it is not going to cost us any more.
  (Sir Robert Walmsley) I am just checking to make sure I am not making that up. It is a fixed price contract.

  99. If you are making it up we probably shall not know you are.
  (Sir Robert Walmsley) The variation from the approved cost is that it is £9 million cheaper than it was at the point of contract.

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