Draft Abro Trading Fund Order 2002

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Mr. Ingram: We have had a good debate. I congratulate the hon. Member for New Forest, West. I do not know why the hon. Member for North Wiltshire did not want to say where his hon. Friend had been promoted to—it was to the Whips Office. I know that we are not allowed to mention the Whips Office, but if the hon. Member for New Forest, West sees it as a promotion, may he rest happy.

The Chairman: Order. I do not know of anything in the Standing Orders to prevent mention of the Whips Office.

Mr. Ingram: Now that I have done so, Mr. Butterfill, I shall not rest happy on account of how my words might be interpreted. Perhaps I should say that my first promotion was to the Whips Office, so who knows where the hon. Member for New Forest, West might end up?

Mr. Gray: Not in the Labour party.

Mr. Ingram: I am not going to take that on—but perhaps I will. Some of the hon. Gentlemen's friends have, in a past life, ended up different parties and they are always welcome. If the hon. Member for New Forest, West, having experienced the Whips Office, wants to find a new party, he should come and talk to me about it.

The hon. Member for North Wiltshire made a number of interesting points. The overall flavour of his criticism of ABRO is that it is an unwieldy, unprofessional, inefficient, muddled organisation—I am adding a lot of words to those he expressed. ABRO is not a new entity; it has existed for a considerable time. We sought, through the strategic defence review, to identify the way in which support for all the armed forces could be put on a better footing, looking at it increasingly as matters progressed. Part of the solution for the RAF was the early establishment of the trading fund for the Defence Aviation Repair Agency. At the same time, we examined what should happen to ABRO. That is how we have alighted on the trading fund. I shall come to the justification for that if the hon. Member for North Wiltshire will give me time to do so.

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Mr. Gray: I merely want to correct the misapprehension that I attacked the efficiency or the excellency of ABRO. I was its beneficiary on a number of occasions in my past life in the Territorial Army. It is a first-class organisation and the people who work in it do a first-class job. The thrust of my remarks was that it is not given proper direction at ministerial level. In no sense was I casting aspersions on the excellence or efficiency of the organisation itself.

Mr. Ingram: I am sure that the record will show that I heard the word ''muddled'' in the hon. Gentleman's speech. Perhaps he referred to ''muddled thinking'' on the part of Ministers. I do not know how far back his criticism goes. Does it go back only to 1997 or does it go further? It might be helpful if he expanded on that.

Mr. Gray: I am grateful to the Minister for asking me the question. He is right that, a long way before we invented agency status for ABRO or gave it the competing for quality award, what it was doing was unclear. It seems that the action that we took in 1993 in giving it agency status was a first-class step in the right direction. The trading fund move is a further step in the right direction, although I wonder whether it is far enough.

Mr. Ingram: We shall come to whether ABRO should continue trading—which I understood was part of the thrust of the hon. Gentleman's remarks—or whether all current work should go into the private sector. I agree that there was a need for change, and that a change occurred in 1993 with the establishment of the agency approach. However, that was not of itself a solution to the problem. We had to face that problem in 1997, which we did, and we have been examining it since then. That is why we are now trying to draw up a better overall strategy—sometimes called the ABRO vision. That is a grand approach, but I think that people understand why organisations like to work within the concept of a vision. It is not accurate to say that there was no strategy, as the hon. Gentleman did. A strategy was clearly laid down. The DLO increasingly places contracts with industry for whole-life solutions. That is part of the change to the smart acquisition approach. ABRO is part of that overall strategy as the repair sub-contractor to the original equipment manufacturer's prime contractor.

Trading fund status provides not only a competitive alternative to industry—industry may use it as a benchmark—but an efficient partner to industry. ABRO can then be part of the important supply chain, and work in partnership with industry to provide a better, sharper and more efficient delivery of key services to the DLO and therefore to the MOD. The establishment of the trading fund is a first step, and we hope that the interface with industry will develop for the better. There is no certainty in any business, but the way in which we have conceived the trading fund and the direction that we have given it will allow ABRO to move progressively. I believe that it has clear benefits, but that will be continually tested. It will not be a case of setting up the status and walking away. There will be a review in 2005, after three years.

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The hon. Member for North Wiltshire also asked about the NAO report and why we had gone ahead with the establishment of the trading fund in advance of it. The NAO report does not cover ABRO alone, but the whole of the Ministry's approach to land equipment repair. It is a draft report, and was in the main extremely positive towards trading fund status. It did not openly question the change in operation. The Treasury has had sight of the draft report, and it was content.

Before we move forward in establishing the trading fund status, we have to have some satisfaction at all levels that doing so will prove a positive step. If the report had said that the measure could not succeed for a variety of reasons, or if the Treasury or we had not been happy, we would not be at such a stage. We have to make a judgment at some point in order to establish a new approach for ABRO, as the hon. Gentleman will accept. Part of the thrust of his argument was that we needed a new direction. The trading fund was seen as important in that. If we had not decided to proceed following positive examinations, we would have delayed the establishment of the trading fund. That may have led to an accurate charge of muddle in the MOD and we may not have clarified what needed clarifying.

Mr. Gray: I want to clarify a point that the Minister made. He said that the draft NAO report was in favour of the proposal, and that the Treasury had seen a draft copy of it. Is it not strange that the Treasury should have seen that report? Is it normal procedure for the NAO to let the Treasury see draft reports before it allows them to be seen by hon. Members? Is it not odd that the Minister should quote in aid a report that he has apparently seen—he knows that it is in favour of today's statutory instrument—but that the Opposition have not seen? If he wants to use that report, we should suspend the sitting until we have all seen it and know whether it is a good report.

Mr. Ingram: The hon. Gentleman has got this wrong. At the end of the day, the Government have to make decisions. I set out a flavour of the report, which conditioned and helped ministerial thinking. I also said that if it had been highly critical, that would have conditioned our thinking too. We would then have delayed and addressed the issues that it raised. On that basis, we made a decision to seek the vesting day of 1 April. If we had delayed the vesting day, more uncertainty would have been built into the current operation of ABRO.

The report—it is about wider matters than ABRO alone—will be published in the summer, and the hon. Gentleman will then have an opportunity to examine it. How does his saying that we should suspend the sitting and not set up ABRO as a trading fund sit comfortably with his argument, ''Get your act together, guys''? Let us move forward, let us have clarity of vision and let us proceed.

I have set out the arguments that justify our approach to ABRO, through which we are trying to clarify several issues that need to be clarified relating to the commercial sector and ABRO's important role in

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supplying the DLO and the MOD. Our approach is also designed to give confidence to the work force, reassuring them that there is a future for them and that the dreaded fate that the hon. Gentleman would impose on them by scrapping their jobs and handing their work over to the commercial sector is not lurking over the horizon.

Mr. Gray: I was not at all suggesting that we should delay the measures. The Opposition are wholeheartedly in favour of the trading fund status beginning on 1 April. I was merely raising a constitutional point, which I nearly raised as a point of order.

The Minister prayed in aid a draft document produced by another Department—the NAO. I had thought until now that NAO reports were entirely secret from Ministers and the Treasury until such time as they were published. It is interesting to hear that they are not. Apparently, the Treasury has been consulted and has seen a draft copy of the NAO report—the Minister said that and it is on the record. I was merely questioning whether, given that the Opposition and the Minister's own Back Benchers have not seen that draft report, he could pray it in aid in arguing that the order is a good draft statutory instrument. How can we rely on the Minister's word that the report is in favour of the measures? It may well be in favour—I hope that it is—but surely, in that case, we should all see it.

Mr. Ingram: I did not pray that in aid; I did not say that the report was part of our justification for the measures. In response to a particular question and because of a willingness to be open about our approach, I referred to the draft report. That helped the hon. Gentleman's inner-thought processes. If there is a constitutional position to be taken on the matter, I am not going to start debating it at this point. If the hon. Gentleman thinks that the Committee should be suspended, he has it within his power to try to raise the matter as a point of order. It is not for me to judge the merit or demerit of his argument. However, I see that he is staying in his seat.

The hon. Gentleman also raised the question of privatisation. It is right to examine all the alternatives. The Department did examine the question of privatisation, and it was examined in detail by KPMG in 1997. It was discounted because of preconditions laid down by industry. It wanted a guaranteed work load and no in-house bid. As I said earlier, we are not prepared to guarantee a work load—we needed a different solution. However, that was what the private sector wanted, so we have placed a much more robust commercial imperative on the new organisation than that which the commercial sector sought. That demand is just one of the reasons why we did not proceed with privatisation.

However, there is no presumption that any in-house facility should retain such status in perpetuity. Nothing is guaranteed for the future. When ABRO has matured as a trading fund and has implemented its important planned efficiency measures, it may be

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appropriate to reconsider its position. Such re-examination is healthy—we must test, at all times, whether the agency is still delivering what we want. The status of ABRO will be kept under review, as part of normal agency scrutiny, along with any emerging changes to the MOD's acquisition strategies that may affect the agency. Over time, those strategies may change as well. The Department's quinquennial review process will be used for that purpose, so after five years the arrangements will be put under scrutiny.

It is important to stress, in response to some of the points made by Opposition Members, that ABRO will remain part of the MOD and that the MOD will continue to be its main customer. That raises the issue of surge capability, which is safeguarded both by the diversity of the MOD work placed with ABRO and ABRO's working regime. However, as I said earlier, in the event of a crisis, however that is defined, where other surge requirements arise, Director General Equipment Support (Land) and ABRO will jointly agree to rebalance the priorities in ABRO's overall MOD programme. Discussions would then have to take place.

I have been asked whether ABRO would have spare capacity, but I am unsure what the hon. Member for North Wiltshire was arguing. Was he arguing that there should be spare capacity, sitting idle, and waiting for a crisis? If so, I do not think that that would help the confidence of the work force or their sharpness and capability to deliver when called on to do so. In the rare event that priorities could not be rebalanced, ABRO would use shift working and overtime as necessary. It would simply turn its mind and effort to solving the problem.

Only 60 per cent. of land contracts go to ABRO. Some 40 per cent. go to the commercial sector. Therefore, at any point, we may have to tell the commercial sector that we need a surge capacity outlet. If the hon. Gentleman's argument is that there should be spare capacity in the in-house capability, it would be logical to argue that that capacity should also be built into any contract in the private sector. That would require an extensive uplift in prices because the private sector would demand a certain price threshold to pay for that spare capacity. The hon. Gentleman must be sure exactly what he means.

I could spend a considerable amount of time setting out all the capabilities of ABRO, although I do not intend to do so. ABRO has a uniqueness that does not apply to the private sector. ABRO can deal with flexibility in surge because it is in-house. That does not necessarily apply to the private sector, although the private sector has shown that it is capable of turning its mind to urgent and crisis needs. We have incorporated in ABRO the ethos of competition, setting it against the commercial sector, and retained intellectual property rights that assist in negotiations with original equipment manufacturers and design authorities.

Very important, although in many ways a forgotten part of all this, is ABRO's capability to carry out necessary repair work on obsolescent equipment—

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equipment that has been phased out and replaced but which is still in mainstream use and needs to be maintained. I am advised that about 15 per cent. of the current work load is obsolescent equipment. The private sector is not capable of carrying out that work. I am not saying that it could not do so if it turned its mind to it, but it is most unlikely to want to take on such work.

My response is becoming much longer than my opening comments and I am trying to cover many key issues. The hon. Member for Kingston and Surbiton asked whether ABRO would become involved in overseas work. The answer must be hopefully, if it can achieve that. He also referred to the sensitivity of the issue and asked whether work would be undertaken on the basis of ethical contracts and whether it would be considered in the case of potentially hostile regimes. Work for other Governments is determined on the basis of Treasury guidance on selling into wider markets. Those clear guidelines would apply to ABRO, so it could not stray beyond Government rules. I do not want to debate whether the work is considered ethical. I do not know whether the hon. Gentleman wants to push me further on the question of an ethical approach—I see that he does not. That might mean that he thinks that I have a higher standard of ethics than him, but I shall not provoke him.

The hon. Member for Lichfield (Michael Fabricant) raised important questions about staffing. At the moment, 2,700 people are employed. The work force and the trade unions have been advised of an assumed reduction to 2,000 if no new non-DLO work is brought in-house. It is calculated that 400 of those posts will go through natural wastage, so we are dealing with a smaller number. All the staff have been briefed. They know what is expected of them. If the operation becomes more efficient and the management—I have every confidence that that will happen—is able to focus clearly on what is expected of it by the MOD through the DLO, and makes a success of the opportunities in the commercial marketplace, that figure could change. The corollary is also the case; if there is no success or the marketplace changes, we will have to face other realities. The management is very clear and open in dealing with the work force, as well as positive and bullish about the way forward. There is no certainty in business, as the hon. Gentleman knows only too well.

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