Examination of Witnesses (Questions 200
- 216)
WEDNESDAY 21 MAY 2003
21 MAY 2003 SIR
PETER SPENCER
KCB
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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