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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