Select Committee on Defence Minutes of Evidence

Examination of Witnesses (Questions 180 - 199)



  Q180  Jim Knight: Your memorandum envisaged those sorts of adaptations, deep strike, ISTAR, (Intelligence, Surveillance, Target-Acquisition & Reconnaissance) roles. Are these the limits of the other roles? Are there others which Nimrod could satisfy?

  Sir Peter Spencer: I could not think of any off the top of my head, but I am not the expert. I am not trying to get out from under. We can provide you with an answer, but that seems to me to be a pretty powerful agenda for advancements.

  Q181  Jim Knight: Would expanding Nimrod's role in such a way have implications for what other ISTAR or deep-strike platforms would be needed?

  Sir Peter Spencer: No. One thing which has come into play very recently is the recognition of the need, in the context of the way warfare is moving and the whole approach to network-centric operations, to integrate each component in the battlespace, to integrate it into the whole, the original systems of systems context. One of the key areas of work which has been really pushed through from the EC community, with support from the DPA and others, is the need to have an integration facility, which we are looking at now, so that we can not only demonstrate with experiments the enhancements which a particular platform will bring to the overall battle group, or try out various ways of using it, but also help to de-risk some of the material aspects. Integration is a big issue and integrating something like the Nimrod into all the other assets would be important. It is a huge scaled up version of what used to be done at the Admiralty Surface Weapons Establishment at Portsdown, the land-based test site. If you had a new bit of kit to fit into the Type 23 frigate, you had to prove that it could work with the rest of that system and obey the protocols. This, on a much grander, bigger scale, is the way this will work in the future.

  Q182  Jim Knight: It sounds as though these additional roles would be quite a priority on the Nimrod. The impression I received from your answers to Syd was that if you did have further problems with Nimrod then you would perhaps have to scale things down.

  Sir Peter Spencer: That was a hypothetical discussion. We both agreed that.

  Q183  Jim Knight: Hypothetically then, if that were to happen, do you currently have a take on where the priorities lie in terms of which roles you would want to hang on to?

  Sir Peter Spencer: They are issue for the defence staff, the equipment capability staff to determine. They are still thinking that process through and we are not paying yet. Clearly we will work with them because partly it will be operationally driven and partly it will be a function of what you can afford and how quickly you can do that.

  Chairman: You are not out of the wood yet, Sir Peter. We are now moving on to another system which is not quite a 100% success as yet, putting it mildly.

  Q184  Mr Crausby: Your organisation has recently been forced to re-negotiate the contract for the Astute submarine to the point where the MoD have had to plough in an additional £430 million and BAE have written off another £250 million of their own money. Is this not a disaster? What exactly has been the problem with BAE Systems? Why have they had so much difficulty using computers to design this submarine? Surely they have enough expertise in computer-aided design?

  Sir Peter Spencer: Is it a disaster? It would be strange if against performance, time and cost I did not recognise that it was a huge disappointment. In terms of putting it into context, even with the amount of money which is being negotiated, we will be purchasing these submarines at a considerably lower price than the Americans say their nuclear submarines cost them. I just put it in that context. The question is: was the ambition we had when the contract was priced misplaced and was the company's ambition in terms of their ability to use computer-aided design, computer-aided manufacture, too great? I think the answer to both questions is yes, with the benefit of hindsight. It is a worked example of a point we have raised several times already. We were in an era of believing that we could negotiate very highly incentivised contracts and transfer risk hugely in one direction and both sides at the time thought it could be done. The particularly disappointing aspect of the Astute programme is the fact that the difficulties had not been recognised at the senior levels in the company. It is a story I am still looking into really, but by way of example, somebody said to me that since the contract has been let there have been seven different managing directors of the company which was created to run Astute. That gives you a feeling of lack of continuity. Certainly the metrics which you look for in terms of design and build of submarines, when you do them the old-fashioned way, are easier to spot than when you are putting together a hugely complicated piece of design in computers where you almost cannot fit it into your head and you only see little bits of it on the screen. As other people have found, the potential benefits are huge.

  Q185  Mr Hancock: What are the benefits?

  Sir Peter Spencer: The benefits are that you reduce the time line.

  Q186  Mr Hancock: You have not done that.

  Sir Peter Spencer: I said the potential benefits, if used well. The potential benefits, if used well, are that you reduce the number of man hours hugely on the design process and you actually produce a quality of drawings out of design, which does not then have to go through a separate iteration to produce production drawings in order to be able to build it. So the expectation in the early days was that you were going to virtually transfer from the electronic drawing office to the shopfloor the detail you needed to construct a very complex piece of machinery. I believe people honestly believed that could be done. They under-estimated the skills which were required. They under-estimated the difficulty. In terms of measuring progress, it would appear with hindsight that there was some misunderstanding over the fact that you had done an awful lot of design hours work meant you had actually got that far through the programme. Let us suppose hypothetically you said it was going to be 100,000 man hours to design and you had done 60,000, you might think you were 60% of the way through the design process. With the benefit of hindsight, if it took you 240,000 hours, you were actually only one quarter of the way through the process. It was the ability to understand that which was lacking and the fact that it came out so late. They had already started the construction and they realised that the design work was not keeping pace with the construction, which then really brought this thing home to roost. There had to be a point at which they stopped and took stock to decide how they were going to get through it. The question was then raised: to what extent is this wholly a problem for industry, which needs to be sorted out or to what extent was there some part which the Ministry played in this? This has been declared in the minute which was given to you. It was recognised that to an extent, without any liability being accepted one way or the other, this was an agreement between consenting parties where both parties were working against assumptions which turned out to be incorrect. In that context there was a reasonable argument that the Ministry should make a contribution to this. Importantly, we needed to make sure that, as with Nimrod, confidence was restored in the company that they had actually capped that risk, so they could then get on more positively moving forward to finish off the design of the submarine as opposed to damage limitation, worrying about cost overruns and nobody being sure how it was going to end up. This very damaging period of uncertainty needs to come to an end as soon as it can and that is the process we are managing.

  Q187  Mr Crausby: It is difficult to understand why it will end up so much cheaper than the Americans' when the Americans still appear to be so much further in front of us from the point of view of computer-aided design. For instance, the Americans claim that they can produce between 80 and 90% of the submarine or modules outside the submarine, whereas BAE seemed to be aiming for around 50%. It is difficult to understand how in the end that will be the case that we will end up producing a cheaper submarine than the Americans, especially when BAE are now turning to the Americans for help. If this is the case, why did the MoD not just use the US as a prime contractor who had real experience in this field in the first place? May I just say that I am not advocating that? It is just a question and not something, as a British engineer, I am advocating.

  Sir Peter Spencer: The fact that they have run into this problem does not mean to say that they are uncompetitive and unproductive in everything that they do. Far from it. The productivity gains which have been achieved at Barrow over the years, particularly in terms of production, are admirable. I would not myself be prepared to associate with a view which said that British ship building, or British submarine building, was uncompetitive compared with the United States. What I am giving you is a view which has been given to me from industry having talked to international counterparts. They are genuinely curious as to the sort of sums of money we are talking about. We can look at that very positively, to say that in all of the bits, other than this CAD-CAM, the thing was being done well and efficiently and we are getting very good prices out of it. The fact that General Dynamics are now involved is sensible: there is a company which believes and can demonstrate that it has mastered the art of this very complex and difficult CAD-CAM and it would be very advantageous to us and to BAES to be able to employ that expertise to get this thing moving. What we want to do is get the thing moving and get to the end of the programme.

  Q188  Mr Crausby: The Barrow workforce do not feel too pleased with all that in the sense that they have delivered lots of productivity over the years, yet as a result of this they are now being told that they cannot produce surface ships any more, they have to concentrate completely and absolutely on submarines and that means another 750 redundancies or in that region. The Barrow workforce, quite naturally, not producing surface ships, wonder about the future. Are you satisfied that BAE's decision not to produce surface ships at Barrow will help the Astute programme?

  Sir Peter Spencer: Yes, I am. I know Murray Easton well. He is a hugely capable, well experienced ship builder with a fine track record of success. It is a great relief to me that he is actually in the programme in the position he is in. He is also somebody who passionately looks after his workforce. I first met him when he was working at Cammell Laird at Birkenhead in 1984 and I saw him address the workforce there when they had a similar issue about the future of the yard. There was no doubt about the leadership he brought to bear in terms of winning the confidence of some pretty hard-bitten welders and electricians, people who had heard a lot, been through a lot; he actually related to them in a way which was tangible. They trusted him to drive this thing through. He is not somebody who does not look after his workforce. He does. He also needs to deliver this programme. In terms of moving it around between one site and another, we do have to leave these key strategic decisions within the company if we want them to achieve the success on the programmes and disentangling the knock-on effects is quite important.

  Q189  Mr Crausby: I suppose when you have to put in £250 million you have to do something. I am sure that Murray will do what he can there. It is not a personal attack on anybody but the workforce is going down and down and down and is obviously very concerned about the long-term future of Barrow shipyards, particularly as far as the surface ship facilities are concerned.

  Sir Peter Spencer: We will be building more submarines.

  Q190  Mr Crausby: Is it absolutely certain that we will produce more submarines?

  Sir Peter Spencer: We have given a statement in that report as to what the current plans are.

  Q191  Rachel Squire: May I pick up your earlier comments about the alliance in respect of the future carrier programme, something which, the Rosyth dockyard being in my constituency, I have taken a keen interest in? May I ask you whether there are any particular aspects of the alliance which has been formed between the MoD, Thales and BAE Systems over the future carrier that you think would be particularly helpful in avoiding the sort of difficulties you have been describing in respect of Nimrod and Astute?

  Sir Peter Spencer: For one thing, we have the combined intellectual energy of two companies. We have more understanding of the risks in this programme than we would have had with any one of them. We also have in the aircraft carrier—and I know that you interviewed Ali Baghaei, the team leader—a very well designed process of identifying the risks of the various components of the carrier and the very clear process of assessing the technology readiness levels in each case to aim to get them to the levels now which we require of level 6, ideally level 7 but perhaps level 6, before we make the main-gate decision and in those areas where that looks to be a difficult call, to have a clear fall-back position. I think he mentioned to you the soft radios. So you go for very modern radio equipment, but if by the time you place the contract you cannot go for it, there is other stuff you can put in instead and you just design it in such a way that you can have those enhancements at some later stage. We already know that at the point at which we place this contract, the design maturity of the carrier will be more advanced that for any other warship we have placed. On top of all of that is the sort of thing I referred to earlier, creating your own luck. Of course things can go wrong and that is why you have development programmes, but there is great conscientiousness in looking at all of those things which could go wrong and at what is in place to do it, so that at the point at which we place a contract we are confident that the level of risk is containable. Part of the discussion will be the value that industry puts on that risk. If they are not persuaded that the level of risk is containable, then the risk contingency will be unaffordable. We will be very careful to ensure that we get the right sort of balance between a manageable amount of risk when we fire the gun at the beginning of the demonstration and manufacture contract and an affordable amount of contingency to cover those risks and much greater transparency and involvement between a real integrated team with the MoD project team being part of it. We can then understand how these risks get dealt with as we go through time and applying the sort of techniques I referred to earlier of how we get a real measure on progress in terms of earned value management and we keep on looking forward to cost of completion, time to completion in a way which flags up the moment something starts to wobble. Then, if it is an issue that senior management needs to be involved with because there is not sufficient design expertise, for example, we pick up that signal as soon as we can and we head the problem off, as opposed to trying to react to it after it has happened. None of that will convince the sceptic that it will be all right this time, because it is what we said the time before and the time before that. All I can say is that we can demonstrate much greater maturity of thinking at this stage and much greater proof of the maturing of the technological solutions to the requirement.

  Q192  Rachel Squire: On the basis that this alliance model does work well, do you think it could then be looked at as a useful model for other equipment programmes?

  Sir Peter Spencer: If it does work well, the answer of course is yes. If I am candid, we are still learning what partnering actually means—because this is a form of partnership—what it actually means in a grouping where you have a public sector component which is a net donor and a private sector component which is a net recipient. It is how we draw up the arrangements to ensure that success rewards each of the components equally. It is terribly easy to do these theoretical models: it is turning it into a working arrangement which is robust enough to cope when things start to go wrong. Everybody is great friends when it is going well. It is when the thing starts to wobble, when people start to worry about a time or a cost overrun, that the test of whether or not you have something different in place will take place. If it is a charade, it will fracture into an old style finger-pointing exercise across a contract "It's your fault, you pick up the extra money". If it is done properly, everybody will say they do not want that to happen, they want to solve this and they will be too busy solving the problem so it does not degenerate into that. That may sound rather idealistic, but you have to find some way of working more like that more often. There are examples of projects where that has happened and it has not all ended in tears and they have just gone straight through it. It is just that because they are over so quickly we do not have time to celebrate and we are too busy chewing over the arguments in the ones which are staggering a bit.

  Q193  Rachel Squire: Sounds familiar. To what extent do you consider that this alliance approach represents a shift away from the sort of prime contracting which put risk management in industry's hands and seemed to keep the MoD at arm's length? How would you respond to the comments that this is the MoD putting itself more in the position of having to share some of that assessed risk?

  Sir Peter Spencer: I would say that is what we are trying to achieve, but we are still negotiating the precise way in which it will be achieved. It is encouraging to see the progress which has been made. We have taken two putative prime contractors who were competing tooth and nail for a big prize and suddenly said, "By the way, we're now all friends, we're on the same team". To have come together so rapidly has been a huge leadership achievement by the chief executives of both companies, by Alex Dorrian and Mike Turner. That is reflected in the working arrangements in the companies. Where we are all feeling our way a little bit is how to involve the Ministry team in that alliance in a way that everybody knows where the sensible boundaries of responsibility are and where the liabilities are. It is easy to have a feel in your mind as to how it should play, but it is going to be very important to document in a way that is unambiguous, so it does not end in tears later. I am not trying to over-bureaucratise it, but you can see the point I am making.

  Q194  Chairman: What is immensely frustrating for us, and this Committee has been evaluating the progress made by your predecessors now since 1979, is that screw-up follows screw-up. We have been told endlessly that lessons are being learned, we are now moving into Smart Acquisition, but some of the foul-ups have a familiarity to them. Now you have been in your job for three weeks, are you going to undertake some major re-appraisal of each of the major contracts? All you have to do is look at the National Audit Office reports and see where the slippage is. Will you, in the next six, 12 months, however long before any review you might make is published or at least is a working document in the DPA, then when you come before us next year be able to give us some assurance that we are not going to go through what appears to be the inevitable cycle? A contract is let, things start slipping, slipping again, you put it right, it is not right, then the Armed Forces, and especially in your case, because you have been on the receiving end of poor decisions historically, get the stuff in, it does not work, it does not work as well as it should, it is three years, five years, eight years late. Do you think you will be able to have a real impact on the process? It is in desperate need of reform.

  Sir Peter Spencer: I agree that it is in desperate need of further reform. Realistically with projects which have contracts which were let a long time ago there is a sensible limit as to the extent to which you can change. You cannot retrospectively engineer reliability into a system very successfully. You can do it up to a point. You cannot retrospectively suddenly wave a magic wand over something which has been going since the late 1980s and turn it into what you think a Smart Procurement project would have out-turned. Unfortunately, we are still going to be saddled with the painful consequences of these things as they keep on registering slippage against the original agreed in-service date and escalation over the original agreed cost. What I do want to make sure is that we recognise two things. One is that the people who are dealing with it today were not the people who committed the original act. They are the people who are mitigating the consequences and in many cases we have put some of our very best people in there because it was so important to get control of something which has turned into a monster. From their point of view it is very easy for their efforts not to get the recognition they deserve. They are actually rescuing all of us from something which if it had not been tackled robustly would have turned out far worse. In that respect, I am keen to make sure that there is recognition of what they do and realism about how long it is going to take to turn round the overall results all the while they are being affected by programmes which continue to come in late. All of the measures we have at the moment point to the fact that the programmes which are being set up in a more enlightened way are making measurably better progress. I go back to my earlier point: is that measurably better good enough? That is an important question to determine and to see how far we are going to continue to put the bar up. If you looked at something like Tomahawk, and I know that my predecessor has made this point in front of this Committee before, it actually went through very smoothly, very quickly, it delivered absolutely on time and in budget. It was so successful it only ever scored once in any of the big major project reviews and then it was in service. We know we can do it. It is a question of finding out how we can do it more often in the future.

  Q195  Chairman: We managed to produce Trident under cost. If we are capable of producing Trident, then we ought to be able to produce Astute. This Committee decided during the SDR that we would monitor the carrier programme on an annual basis. We have had some excitement up to this point in time, we still have nine years to go for the first and 12 years to go for the second carrier before it enters service. What can you do to ensure that this Committee, ten years down the road, 15 years down the road, is not going to be lamenting the fact that the slippage date of 2012 is growing to 2015 and 2019 and that 2015 will not be slipping to 2021? The Royal Navy, the Armed Forces, want these carriers pretty quickly. I know you are taking a rather novel approach to producing this aircraft carrier. I know it would be futile for me to ask for assurances, but it would be really helpful if you could just tell us the next time you appear before us, that things are moving in the direction of successfully producing these carriers to the quality required and to the timescale and cost demanded. Do you think you will be in a position to give us a good progress report next year that things are moving successfully, no slippage and everything is hunky-dory?

  Sir Peter Spencer: That is certainly my intention.

  Chairman: We will have you here every year, every single year, because this is too important to see old mistakes being re-made. I know it is a difficult problem for you. I am sorry we are giving you a hard time; we could be giving you a far harder time. We will be watching.

  Q196  Mr Jones: May I ask about the Thales/BAE alliance. Some perhaps would describe it as a shot-gun marriage. Certainly in the press over the last few weeks, there have been various unattributable sources from both sides, though one side in particular, arguing that the process is not working. We heard when we had Ali Baghaei before us that he is quite happy with the way things are going on. What do you see as your role? Is it as a marriage guidance counsellor to ensure that it works? Is it as somebody who is going to step in and ensure that the couple do get on? This goes on for many years, so what do you see your role as being? Is it going to have to be, as we are led to believe, that some of the relatives on both sides are not happy with the process still, that you are going to have to take an aggressive stance to force them to live together?

  Sir Peter Spencer: If we get to aggressive stances, it is because plan A did not work out.

  Q197  Mr Jones: Plan A being . . .?

  Sir Peter Spencer: Plan A being that the alliance works in such a way that both companies are highly motivated to succeed. In that context, the arrangements which the companies are forming between themselves and have already formed are pretty familiar to me. They are not a million miles away from forming a joint venture company, from doing a contract that they would do for any one of their customers. They know how to do this. The only thing which slightly caused a pause for breath is whether or not they will be able to do it so soon after being so hard in contention in competition. I believe that, all things considered, they have made remarkable progress. The real test is yet to come. The real test is when we actually enact this in the form of an agreed contract.

  Q198  Mr Jones: Is it not very hard, when, for example BAE Systems, and certainly people like Mike Turner, have made some very vociferous comments against the French, suddenly then to find out that they have to go into partnership, in this case marry a French partner, to ensure that the partnership works? Is there not a possibility that BAE Systems are still hankering after the fact and that if they make the relationship so difficult somehow you will draw a line and say it has not worked and therefore BAE Systems will become the prime contractor?

  Sir Peter Spencer: I cannot speculate as to what may or may not be in BAE's senior managers' minds. I have seen no sign of that and I have talked to Mike Turner. I did not detect any overt, anti-French feelings, in fact his company deals with the French in all sorts of arrangements. They have perfectly successful everyday co-operative arrangements with French industry in a whole range of areas in that company, as they do with other European nations, as they do with the Americans. The key to this is to recognise that the in-service date is very important, as the Chairman has just emphasised. We are not going to have the time to achieve success against that in-service date if this thing does not settle down into an harmonious relationship. Will I be the marriage guidance counsellor? Yes, in a sense I will, because, in the same way that if marriages fall apart there is more cost to the taxpayer in supporting the wreckage that results from it, if this falls apart there would potentially be more cost to the taxpayer. Of course I will be engaged in that, as I would expect Dorrian and Turner to be engaged, but then in fact the three of us already are and that is within 21 days of joining. That in itself is demonstrable proof of where I see this in my order of priorities.

  Q199  Mr Jones: At what stage will you come to the conclusion that it has not worked or that there are problems in the relationship?

  Sir Peter Spencer: I have no cause to think that would be the case. I could not speculate on that. I am expecting, on the basis of the assurances that have been given by those two companies and on the basis of evidence that they are perfectly capable of forming harmonious and constructive and successful partnering arrangements in other contracts, there to be no reason they should not do this on the carrier; in fact there is every reason why they should want to do it. They recognise that this is such a huge slice of business for both of the companies.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2003
Prepared 23 July 2003