Examination of Witnesses (Questions 127
- 139)
WEDNESDAY 19 JUNE 2002
LORD BACH,
MR ANDY
MCCLELLAND,
MR BRIAN
WILSON MP, MR
NORMAN BRICE,
MRS ANNE
MCGUIRE
MP AND MR
IAN HOOPER
Chairman
127. Can I welcome you to the Scottish Affairs
Select Committee and our inquiry into employment in shipbuilding
on the Clyde. Before embarking on our questions, may I welcome
in particular Mrs McGuire, who is new to her particular remit
at the moment. We are very grateful to her for coming along this
morning. She knows we will not go easy on her and she would not
expect it. We know she does not need us to go easy on her anyway.
We welcome Lord Bach, who I understand has come back overnight
from the States. Mr Wilson is always welcome here at this Committee.
Can we go straight into what we have been doing. Later today the
Shipbuilding and Marine Industries Forum is due to consider an
Implementation Plan produced jointly by the three marine trade
associations. To what extent does the Implementation Plan respond
to the first recommendation from the Clyde Shipyards Task Force
that "UK Government shipbuilding policy should be restated"?
(Mr Wilson) Thank you, Mrs Adams, for
your welcome and for involving us in this inquiry. As you rightly
say, the Shipbuilding and Marine Industries Forum is meeting this
afternoon and it is taking forward really an updated agenda for
the shipbuilding industry in the UK. The Forum has been in operation
for some time now. I have been a member of it in various roles
and latterly the Chairman of it. The Shipbuilding Forum has now
been reshaped to strengthen the industry's role and to give industry
a leadership role within it. Its clear objective is to create
the circumstances, with Government supporting industry, which
will lead to a significant increase in the UK share of the global
market and also promote a positive image of the shipbuilding sectors.
I think everything the Shipbuilding Forum will be doing this afternoon
is very much in line with the recommendations of the Clyde Task
Force.
128. In their memoranda, the DTI and MoD reaffirmed
that "all fighting vessels are built in the UK". Does
it remain Government policy that domestic warships are constructed
in the UK?"
(Lord Bach) Mrs Adams, if I may take this, I think
I know from what event this particular question arises with the
Committee. May I say straight away that, yes, it is Government
policy that all warships will be built in the United Kingdom.
What does that actually mean I think is what the Committee wants
to know. It covers, in our opinion, fabrication and assembly of
new warship hulls. I must make it clear that it does not mean
every last nut and bolt, or for that matter every weapon system
carried on board. What is significant and what began this policy
in the 1980s is that we retain the ability for the United Kingdom
to manufacture warships right up to the largest and the most capable
of vessels. That is the policy and it remains the policy.
Mr Robertson
129. Lord Bach, you are talking about the fabrication
and assembly. We have mentioned areas like the bow, the work for
which has gone to a Dutch yard. Does this mean that in future
anything of that sort of size and magnitude will be built in Britain?
(Lord Bach) Can I try and answer that and come directly
to the issue that I know concerned the Committee at its last meeting?
I have already written to you, Mrs Adams, of course.[6]
I am sure the Committee have seen a copy of my letter. The background
is that the fabrication of the two ALSL bow sections - a very
small part, I should say, of the bow sections - was put out to
competition by the prime contractor, Swan Hunter. Competition
included three UK companies. Swan Hunter chose the Dutch company,
Centraalstaal,[7]
because they made the most cost-effective bid to suit the required
timescale and thus that company will undertake the steel fabrication
of small units. I said it was small; it is under 5 per cent by
weight of the total steel fabrication. However, and I want to
emphasise this, Mrs Adams, final assembly, systems, outfitting
and fabrication into a complete bow section will take place along
with the construction of the rest of the hull at Swan Hunter's
shipyard on Tyneside. Subcontracting sections such as this has
not been uncommon practice when the shipbuilders themselves do
not have the necessary in-house skills or equipment to carry out
such complex work, as was the position here. However, in view
of what has occurred here, and as soon as it came to my attention,
we have had placed in the ALSL contract,[8]
which of course as you know concerns Govan Shipyard very much,
a clause which requires Swan Hunter to obtain MoD's prior approval
before subcontracting any fabrication or assembly of structural
steel work. To answer your question, Mr Robertson, and I am sorry
it has taken some time to get round to it, future shipbuilding
contracts will incorporate a similar clause and will make it clear
that approval to place any such subcontracts outside the UK will
only be granted in exceptional circumstances. I just want to say
a very brief word about these exceptional circumstances. It would
be palpably absurd if there was, for example, the most enormous
price difference or difference as to where the particular item
could be got ready if, because of this, it was not ever possible
to use a non-UK firm. But I will need some persuading that the
circumstances are truly exceptional before we breach this particular
rule; in other words, that warships are built in the United Kingdom.
130. I have two matters to raise with you. The
first one is this. I attended a meeting with the Secretary of
State, along with my colleagues from the other constituencies
on the Clyde. We had the trade union representatives with us.
At that meeting Geoff Hoon[9]
said to us that the ships would be built in Britain. We seem to
be playing about with words here, Lord Bach, as to what is being
built. It has also been brought to my attention that Block 5 of
this ship is now up for tender and I know that BAE SYSTEMS has
tendered for it. I want to know about this Block 5, which is two
large parts - and I can give you a copy of this[10]
- and obviously bigger than the bow part that we were talking
about that went to Holland. Are these sections going to be built
within yards in Britain or is this another case of more and more
parts of our ships being built abroad? I am quite concerned about
this. I only got the information this morning, otherwise I would
have let you know about it earlier. Out of the 15 sections of
this ship, we now have three that are being put out to tender
by a company about which I know my colleagues will be asking you
in future questions.
(Lord Bach) I am afraid it is news to
me and to my officials. What part of the ship is Block 5?
131. Now you are asking! It is the middle bit,
to use a technical term. I will let you see this.
(Lord Bach) I may be none the wiser when I see it.
Chairman
132. While that is being shown to you, Lord
Bach, could I clarify one point? Was the transfer of work due
to shortages of skills at home or because the Dutch bid was more
cost-effective?
(Lord Bach) I am afraid that in this particular instance
the Dutch bid was much more cost-effective. It was much cheaper.
That is not to say that necessarily meant that the contractor
should have made the decision that it did. It was for that reason
that we stepped in and are now going to have put in the contract
the clause that I referred to, and it will be in future contracts
as well, which is what Mr Robertson wanted to know.
Mr Robertson
133. I am concerned that you will have a say
obviously in these two sections of the ship that are going to
be put out to tender. My problem of course is: why the devil should
we give contracts to a company that cannot do the work? Should
we not then pass the contract on to the person who was the runner-up
in the bid?
(Lord Bach) It is fair to say that prime contractors
are not necessarily expected to do everything involved with the
ship, not even with the construction of the ship. I emphasised
that this was a very small part of the bow that needed a particular
method used in order to get it as it was. So there is nothing,
I think, unusual in subcontracting that. What was unusual, as
has been found out, was the fact that, even though this, in my
view, was fabrication or construction, it went to a non-UK company.
As far as Block 5 is concerned, I am absolutely ignorant as to
the answer to your question. What I promise to do, if I may, Mrs
Adams, is to go back to the department, find out what the position
is and let you know, as Chairman, straight away, but I would be
surprised if this is part of the construction or fabrication of
this vessel if we were going to have a repeat of what happened
before.[11]
Mr Sarwar
134. We all know that the shipbuilding industry
in the UK is on the decline because of the level of investment
and we are not able to compete with Europe and other places. I
must thank Brian Wilson and Lord Bach for their support of the
Govan shipyard and the shipbuilding industry on the River Clyde.
We really appreciate that. One thing which is a matter of concern
to all of us is that we were repeatedly assured by Geoff Hoon
that all the warships will be constructed in the UK but the door
has been opened and we are told that in exceptional circumstances
some work will be passed on to other parts of the world. This
is something that worries me. According to a letter to the Chairman
from you, Swan Hunter emphasises that the majority of the subcontract
work will be placed in the UK. What do you mean by "majority
of the work" in percentage terms and what message do we take
from this?
(Lord Bach) Thank you very much for the kind words
you said about Mr Wilson and myself. I want to make it quite clear
that the policy relates to the construction of the hull of the
ship. It always has and continues to do so. I do not want there
to be any doubt about that, please, in the Committee. That stands.
It has never been policy, as I understand it, that every part
of the ship - all the bits that are added on to it - necessarily
will all come from UK suppliers. The position is that MoD will
look carefully to see where the prime contractor is putting out
his subcontracts. Clearly, if too many are being put out or the
wrong ones are being put out, MoD will be asking the supplier
why that is so, but what we are concerned about is competition
in order to get value for money so that the British taxpayer pays
as little as he possibly can for what is needed by our Navy. So
we would be very foolish if we were to say that every part of
every warship has to come from the United Kingdom, and that is
not our policy. As far as construction and fabrication of the
hull is concerned, that has to come, as far as I am concerned,
from the United Kingdom.
Mr Carmichael
135. If I understand what you are saying, Lord
Bach, you are telling us that this situation has arisen because
a clause was not in the contract that ought to have been in the
contract and will in the future be in the contract. It is not
your fault and you are here talking to us today. In fact, I was
in practice as a solicitor before I came into the House. If I
had ever put a client in a position where something as fundamental
as that was missing from a contract, I could only speculate what
would happen to me. It might well involve the clearing of my desk.
What are you doing?
(Lord Bach) Mr Carmichael, I was a barrister before
I came here. I do not know which of us is in the worse position.
I think your comment is really very exaggerated here, if I may
say so. We are feeling our way to some extent with the large number
of warship builds that there are going to be in the United Kingdom
over the next number of years. We know what the policy is in terms
of the building of these ships. They must be British, they must
be UK as far as the construction is concerned. Companies know
that as well, whether they are companies on the Clyde or companies
elsewhere in the United Kingdom. On this occasion, and we regret
that it has happened and I want to be absolutely frank with the
Committee about that, we are not hiding or covering up here; we
regret that it has happened. Our letter and what I have answered
makes that quite clear. We believe that this should not have happened,
whether there was a particular clause in the contract or not.
It did not need the clause in the contract for this not to have
happened, but it has happened. Now, in order that there should
be clarity in the future, we have inserted this clause into this
contract[12]
and will do so in all other shipbuilding contracts. I really do
not think it is an issue in the event where you would have had
to clear your desk.
Chairman: You did make it clear in your letter
and we are grateful for the fact that you responded so quickly
.
Mr Weir
136. I appreciate what Lord Bach is saying.
Maybe I am naive about how a contract is tendered for. I would
have thought that in working out the tender price, the company
must have taken into account where they were getting the various
sections of the ship built. Would they not have known from the
outset that they were going to tender some of it to Holland? What
detail would you department have got on how the ship was being
built at the tender process stage?
(Lord Bach) I think you are a solicitor too, Mr Weir.
Am I right?
Mr Weir: Yes.
(Lord Bach) As I understand it, the department or
the DPA[13]
knew that a contract was to be put out for this work, but did
not know that there was going to be any chance of a non-UK company
tendering for it, and then learnt of course that a non-UK company
had not only tendered for it but had won it as well. As far as
this piece of work was concerned, it was always the intention,
as I understand it, of the prime contractor to put it out for
contract, and we would have known about that at the time the contract
was signed.
137. You would not have not known it was going
to go to a non-UK yard at that time?
(Lord Bach) No, we did not.
Mr Robertson
138. Could I go back to the question I thought
I was asking specifically about the Swan Hunter bit for the ALSL.
As we now know, the fact is that they bid for ships for which
they could not do the work. They might be able to do some of the
work but not all of it. Firstly, could you comment on that? Secondly,
could you take that away and make sure it does not happen again?
Could you make sure that when companies actually put tenders in
for MoD work, they can do the work and they can do it in Britain?
Then we will know up-front if they are going to subcontract and
were they are going to subcontract to.
(Lord Bach) I will certainly take that away with me,
but I have to say that on this contract when it was decided, Swan
Hunter I think won it fairly clearly. I have to emphasise again
that what we are talking about here is a very small part indeed
of —
139. There were reservations at the time that
Swan Hunter could not fulfil their part of the bid. I know that
from the unions who made representations. I was there at the time
when Geoff Hoon was told that this company could not do the work.
Geoff Hoon turned round and said that the company had informed
him they could do the work. Subsequently, we find out that the
unions were right.
(Lord Bach) Companies can do the work, mainly by doing
it themselves, but they are also entitled to subcontract in order
to get the work done. That is what Swan Hunter did. I want to
say that, as far as Swan Hunter are concerned, we are, on balance,
pleased with what they have done with this particular contract.
6 See Ev 67. Back
7
Note by witness: Swan Hunter originally advised the MoD
that the subcontract for the fabrication of the ALSL bow sections
was won by Centraalstaal. Swan Hunter have since corrected this
advice. The sub-contract was in fact won by another Dutch company,
Niestern and Sander. Back
8
Note by witness: Swan Hunter have accepted that such a
clause should be placed in the contract, which will be amended
accordingly, as soon as suitable, unambiguous wording has been
agreed. Back
9
Rt Hon Geoffrey Hoon MP, Secretary of State for Defence. Back
10
Not published. Back
11
See Ev 67. Back
12
Note by witness: Swan Hunter have accepted that such a
clause should be placed in the contract, which will be amended
accordingly, as soon as suitable, unambiguous wording has been
agreed. Back
13
Defence Procurement Agency. Back
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