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Select Committee on Work and Pensions Minutes of Evidence

Letter to the Chairman, Scottish Affairs Committee, from Lord Bach, Minister for Defence Procurement, Ministry of Defence (SHP 8A)

  I would like to thank you for providing me with a transcript of the evidence provided to the Scottish Affairs Select Committee on Shipbuilding on the Clyde, which sat on 20 May 2002. I am well aware that ministers from the Department of Trade and Industry, the Scotland Office, and the Ministry of Defence have been invited to give evidence to the Committee on 19 June. However, because of the sensitivity of the issues raised and the desirability of providing a speedy answer, I would like to respond in writing to a number of points raised on 20 May concerning the Alternative Landing Ships Logistic (ALSL) build strategy.

  During the session with representatives from Clyde Trade Unions, a concern was raised that Swan Hunter (Tyneside) Limited had decided to sub-contract to a Dutch company for the build of two bow sections for the two ALSL vessels being assembled at Swan Hunter's yard in the North East. The TU representatives expressed a deep concern that this decision was in contravention of the Government's policy that all warships are to be built in the UK.

  First, I would like to assure both you and the trade union representatives that it remains the policy of this Government that all warship construction will continue to be carried out in this country. In the case of the bow sections for the ALSL vessel, after conducting a competition which included three UK companies, Swan Hunter chose the Dutch Company Centraalstaal as the most cost effective bid. The work to be undertaken by Centraalstaal covers the basic steel fabrication of small units with the final assembly, systems outfitting and fabrication into a complete bow section being undertaken at Swan Hunter's shipyard. This is not an uncommon practice where shipbuilders themselves do not have the necessary in-house skills or equipment to carry out such complex work.

  While the Department has no intention to contravene Government policy on UK warship building, it accepts that this commercial decision to fabricate the bow section overseas, amounting to some 4.5 per cent (by weight) of each ship's steelwork, does raise questions about compliance with our policy. Consequently, by agreement with Swan Hunter, we have placed a clause in the ALSL contract that requires the company to obtain MOD's prior approval before subcontracting any fabrication or assembly of structural steelwork. Future shipbuilding contracts will incorporate a similar clause and we will make it clear that approval to place any such subcontracts outside UK would only be granted in exceptional circumstances.

  I also noted from the evidence given that a comment was made which stated that Swan Hunter has placed in excess of 40 per cent of its sub-contract work with overseas companies. This is incorrect. Information supplied by Swan Hunter indicates that only 17 per cent of the value of equipment procurement and materials for our ALSLs has been placed abroad. The Department has recently reviewed a number of competitions held by Swan Hunter for sub-contract work and has fully satisfied itself that the Company has chosen suppliers that meet technical and quality requirements and achieve best value for money. Swan Hunter continues to emphasise that the majority of sub-contract work will be placed in the UK.

  Finally, I would dispel the view that Swan Hunter sub-contracted the design of the ALSLs overseas to the detriment of an UK design skill base. Swan Hunter entered into an alliance agreement with the Dutch Company Royal Schelde during the initial bidding process. This offered Swan Hunter a commercially attractive solution, which met many of the MOD's smart acquisition principles. The alliance arrangement with Royal Schelde allows for the initial technical design work to be carried out in Holland with a gradual transfer of design activity to Swan Hunter's shipyard thereby building up a design capability that hitherto did not exist at Swan Hunter.

  I hope that you and other members of the Select Committee find these comments useful and that they allay many of the fears raised in evidence.

31 May 2002

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