Select Committee on Defence Minutes of Evidence

Examination of Witnesses (Questions 200 - 216)



  Q200  Mr Howarth: May I just take you back to what you were saying a moment ago about the role of the MoD in this? My understanding is that the companies are indeed getting on with it, but the real issue now is the role of the Ministry of Defence. You are taking a 10% risk share in this apparently, but as one of the participants pointed out to me this morning, you are also the customer. I do think there is some difficulty here. You did allude to it a moment ago. At the moment it does seem to be the case that it is the role of the MoD which is holding the thing up, not what we all expected, which was the fratricide between the two companies. They are getting on with it. How do you see yourself having this role of the 10% risk-bearing shareholder in the project and being the customer?

  Sir Peter Spencer: If I take you back to the principle we agreed earlier, which is that you cannot transfer total risk anyway, then the Ministry of Defence does have risk in this programme anyway, however you might choose to try to measure it. In the lead-up to placing the contract, there is a need to have the same visibility of the pricing regime and the project management arrangements and risk management arrangements and all of that as we enjoyed in Phase 2. The continuous assessment model which the project team have been using under Mr Baghaei has been innovative and hugely successful and has safeguarded the interests of the taxpayer in terms of knowing much more about the design maturity of this project than we would ever have done under the old arrangements.

  Q201  Mr Howarth: Yes, we all buy that.

  Sir Peter Spencer: Before we go to contract, we need to continue to have that access and that visibility. I do not know who is briefing you from within the companies, but if they say what they have said through their chief executives, that they are happy with this alliance and that they recognise that the MoD is still bearing a great deal of risk at this stage and therefore needs to protect it and if they are going to be as transparent and as straightforward as I have been assured that they will be, then I simply do not understand why they would have a problem.

  Q202  Mr Howarth: Is your risk bearing participation in this, as opposed to your contractual arrangement as the customer, going to be set out in a document?

  Sir Peter Spencer: We could spend a lot of time writing all this down. Ten per cent is not, as far as I am concerned, something which is supported by a rigorous piece of detailed arithmetic which we could show you that this was 10% of the risk and if I claimed it did, you would be right to be sceptical. It is a sensible rule of thumb estimate at this stage as to how we feel about it and it is useful as a means of making clear the relative weights which will go on the participation of the three components in this alliance.

  Q203  Mr Howarth: I am not going to press it any further, but perhaps we could flag up that we will be monitoring this aspect.

  Sir Peter Spencer: My point was that I would much rather work on the programme and work on the contract than work on an interim piece of documentation which would soon outlive its useful purpose.

  Q204  Mr Howarth: Understood. Part of the reason why the alliance between the two companies has been successful is because there is a clear understanding that BAE Systems are the prime contractor and there is a clear definition of roles. I am not clear that there is a clear definition of role for the MoD, apart from being the customer.

  Sir Peter Spencer: BAE are not the prime contractor, they are the preferred prime contractor. That is an important difference.

  Q205  Mr Howarth: The preferred prime contractor. Can we move on to the SDR new chapter and the emphasis in that on new technology and particularly the importance of Watchkeeper, the UAV programme. Our understanding is that its planned in-service date has been brought forward slightly, but it is still three years off and even then only an initial operating capability is envisaged. Why can this programme not be more aggressively accelerated? What do you think are the limiting factors preventing that happening?

  Sir Peter Spencer: It is a good question, given the intention to use proven air vehicles. They do have to be integrated into the battlespace. We could just fly them around, but we would not get the capability out of them that we need. We need to get the ground stations sorted out, which means command and control, which means software, which means communications, which means integrating with all of the other things which are going to be fielded, including Bowman. In that sense, we could rush at it, bodge it and then spend a lot of money retrospectively trying to fiddle it retrospectively. Or we could actually scope this thing and get a proper understanding of the total capability that the customer wants.

  Q206  Mr Howarth: I have to say that we spent years on Phoenix, which has really been a bit of a disaster and I would have thought that some of the doctrine on how you apply this particular bit of kit would have some relatively sophisticated thinking on how to apply that now, would it not?

  Sir Peter Spencer: The Phoenix analogue is not wholly helpful inasmuch as the capability from Watchkeeper will go far and beyond that which is delivered by Phoenix. It provides a pointer, but only to a limited extent. If your question is whether I am curious as to why it is going to take three years and whether I am going to test it, the answer is yes, to both questions.

  Q207  Mr Howarth: Your memorandum assumes an extensive use of existing available technology and that the Watchkeeper solutions will be non-developmental. Major components will use existing off-the-shelf components. That being so, why are you not buying your UAV off the shelf? There are plenty of them around.

  Sir Peter Spencer: Because we are buying a system of which the UAV is a component.

  Q208  Mr Howarth: Is there not a risk that without a greater sense of urgency, and notwithstanding the very sensible point you made about making sure we get it right and do not rush at it, given the development of technology and the application by the United States of UAVs, when you do introduce Watchkeeper into service it risks being a generation behind those now in operation.

  Sir Peter Spencer: So far as the capability is concerned, with the joint UAV experimental work which we shall be doing, all of that will be aimed to ensure we do prove that we can integrate this thing in a way which does reflect current military doctrine and current military thinking, drawing on the mature technology of the air vehicles, which are the easy bit now because they are already there. In the context of whether it can only be done in 2006, the simple answer is that I do not know today. What I do know is that it is remarkable how often, when there is an actual fighting operation, stuff can be brought forward quite quickly, because we shortcut all the testing. Whereas we are going to test the thing properly to ensure that in through-life cost terms it is what we need and is affordable and meets all of the requirements, it takes a bit of time but if push comes to shove sometimes things do come forward early. Where we will be on that I do not yet know until I see some of the output from the experimental work we shall be doing.

  Q209  Mr Howarth: That implies that another war would be extremely helpful in getting this bit of kit advanced just as Storm Shadow has been advanced by Iraq.

  Sir Peter Spencer: That was not my point.

  Q210  Mr Howarth: No, I did not think it was actually, but it was worth mentioning nevertheless. It was a cheap shot. I have been very helpfully advised that we were told by Sir Jock Stirrup that it was the network which was more readily and easily produced that the UAV itself.

  Sir Peter Spencer: That is probably a reflection of my relative lack of familiarity with the detail. I would be surprised, given the statements which have been made about going for existing UAVs. Certainly it does not entirely chime with the work which is taking place with the joint experimental facility.

  Q211  Mr Jones: May I ask something around trying to speed up acquisitions in terms of the FRES programme? When will the initial-gate decision be taken? Are we getting into a position here where we have one major armoured vehicle manufacturer in the UK, Alvis-Vickers? Are we going to have a situation where we will have a competition with a foreign tank or vehicle manufacturer or will we abandon that and just go with Alvis-Vickers in this case in order to protect a British company and British capability in this field?

  Sir Peter Spencer: I do not yet know the answer to that.[4] I can assure you that we will apply this approach in this area as we have elsewhere. At the moment we have contractual commitments on other programmes which we have to look out for. In the light of the New Chapter and operational experience in Iraq, clearly the Army is taking a close look at what it needs to have in terms of the right sort of protected mobility in a rapidly deployable expeditionary force. So this is a particularly sensitive issue in terms of how we handle our way through. All of the people who are involved in this have been told that the military customer is taking stock of what his requirements will be. We will then position ourselves accordingly when we have a better understanding of how they want to go ahead.

  Q212  Mr Jones: So the initial-gate decision for FRES has not been taken yet.

  Sir Peter Spencer: No. I have answered off the top of my head and this precedes my arrival in post. >From memory, and I will correct it in a note if I am wrong, this proposal has not yet got to the IAB, but it is very close to going to the IAB. If I am wrong, I will send you a correction.

  Q213  Mr Jones: Part of that decision is going to take some lessons from Iraq and other places. Will that push it back? If you want to send the Committee a note on this, that is fine.

  Sir Peter Spencer: It is really a question more for when you look at the MPP in more depth with DCDS(EC). This is very much him saying what his views are on the requirement. I am not aware that that is going to delay the initial gate. What it will do is inform the work we do in the assessment of FRES. It will certainly influence the concept of analysis so that we identify the criteria which are going to distinguish the various options which come forward for meeting the overall capability.

  Q214  Mr Jones: And the question about having a competition for this? Is that what will ensue?

  Sir Peter Spencer: I cannot speculate on a competitive or non-competitive strategy for a requirement I have not yet seen. I will answer as soon as I have the information.

  Q215  Mr Jones: Yes, but there is really only one British company who could produce this.

  Sir Peter Spencer: Therefore we will be in the process of taking a look at what the requirements are from industry; the presumption would be competition unless there was a reason not to compete. It is exactly the same process as we have described in other contexts.

  Q216  Mr Jones: I know, for example in Telford and also on Tyneside, a lot of people's jobs are related to this work. Keeping that workforce and the ability of that workforce together would be important in terms of this contract.

  Sir Peter Spencer: I was asked whether or not the RAND shipbuilding study had lessons for other areas and clearly this is something where one would look in terms of long-term value for money. It is an important point which I am very sensitised to. May I give you that assurance?

  Chairman: Thank you so much. We shall look very carefully at what you have said when the transcript is published. Lord Bach is coming on 18 June. In due course there will be a debate on procurement and it is normally our intention to produce a report to help inform that debate. We will tend to meet you at least once per year formally here and we very often like to come down to Bristol and see you in your new working environment. We will be back. Thank you so much. Good-bye.

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