Select Committee on Defence Minutes of Evidence

Examination of Witnesses (Questions 240 - 259)



  Q240  Mr Cran: I did not mean to imply it was not. It is just a difficult document.

  Lord Bach: I am also going on to agree with you that I think it will take some time before we can say with any certainty what the answers to some of the statements made in this policy actually are. I think there is going to have to be case law, if I may use that expression, on Defence Industrial Policy, as a consequence of procurement decisions that are taken over a five-year period. I always tell this story, that once this document came out, everyone who bids now for a competition will write in to me, on whatever side they are, and say, as though it is by rote almost, "And our bid is much more in line with the Defence Industrial Policy than anyone else's". That is a danger for us. There comes a time when we have to interpret what it actually means, but only in relation to individual cases. That is something that I think we will manage to do. I still think it was a very important document. We are delighted to see that Sir Richard Evans and his team the other day in front of you thought so, too. I know the trade unions think so as well, because I spoke to them last night about it. As far as open and fair competition is concerned, really I think what is in the key conclusion on that, which states that we will be the bedrock of our policy but we will not use it ridiculously, we will not make it into a kind of dogma, is just commonsense really; it is just sensible. To have competitions in every procurement would be absolutely ridiculous, in my view, but to throw out the possibility or the probability of competition would be equally absurd and the British taxpayer would pay an enormous price and certainly the Armed Forces, I think, would pay if we did not. I think it means what it says, that particular paragraph, and it is how it is put into practice which I think this Committee will want to look at very carefully over the course of the next few years. It is fantastically early in terms of this policy with less than a year since it was published. A great deal of interest has been shown in it and I think, if I may say so absolutely frankly, it has got to prove itself, but I think it moves the argument along a great deal and I think there are some particularly important sections in it. The one I just bring to your attention or three actually are the first three in the conclusions. The first is that our prime task, our prime effort must be to make sure that we get best value for money for the taxpayer and the best equipment we can. That must be first. Secondly, we have to maximise the economic benefit to the UK and the development of a high-value, high-technology, skilled industrial base. That is very important and I think how that works in practice is going to be interesting to see. Thirdly, I think our definition of what is a British company is crucial too and I think we have applied that in practice already actually.

  Q241  Mr Cran: I am delighted to hear about the case law because that means that I do not have to read the Act and I just wait for the case law to come along, and I understand that. However, just so that we get this absolutely correct, it would be wrong for the Committee to draw the inference from the words that there will be a systematic and deliberate examination of the long-term consequences for a particular market, it would be wrong to put into those words that you feel that there are any weaknesses in any particular market sectors with which you deal?

  Sir Peter Spencer: There are some parts of the industrial base which are fragile. When I appeared before you last time, we touched upon the shipyards. You know about the work which the RAND study did which was aimed to ensure that by running competitively in the short term we did not destroy an industrial base that we needed in the medium to longer term. There are other parts of the industrial base which are equally fragile in the longer term and I was asked a question, I think by Mr Knight, would we consider doing a RAND-type study in those areas, and the answer is yes, and I am actively considering that at the moment because it then gives you the information on which you can make judgments. As we recognised last time, a key difference in this policy if we apply it as written is that we consider these factors up-front instead of what has happened occasionally in the past where we have suddenly woken up to them when we have been proceeding down a different route, which causes quite a lot of dislocation to a programme and understandable disappointment to a company which believes that at the end of the process they would have preferred to have been told the key factors in advance and decided to what extent they wanted to get involved.

  Chairman: Minister, you make the great mistake in citing from that document because at least four members of the Committee want to ask you about that and I will just allow them one, otherwise we are going to be here indefinitely, so Mr Howarth is allowed one question and try and keep the answers fairly brief, if you will.

  Q242  Mr Howarth: Minister, you met the trade unions last night and I am sure that they will have mentioned to you that there is an up-coming contract which may well put your principles to the test and that is the proposed acquisition of the more advanced jet trainer, the 128. It seems to me that that is a project which does meet some of the wider considerations to which you have referred and which are spelled out in detail in the Defence Industrial Policy document. As we understand it, a decision is pretty imminent on this, but can you tell us where it stands and whether these wider issues mentioned in the policy are going to be brought to bear on your decisions?

  Chairman: And have the Treasury read your document?

  Mr Howarth: And approved it?

  Lord Bach: Well, I am not quite sure what document you are referring to.

  Mr Howarth: The one you have in front of you.

  Lord Bach: You mean this one?[3] You had me worried for a moment! I am sure the Treasury have read this with great care. Where are we? A decision will be reached shortly. I think that is the most diplomatic way I can put it. Of course considerations that arise in the Defence Industrial Policy will be looked at in relation to that decision, but that does not, I think, give a clue either way as to what that decision will be and frankly I would be foolish to say any more about that issue at the present time.

  Q243  Chairman: So "shortly" could mean this side of the summer recess perhaps?

  Lord Bach: Goodness, yes. As sure as one can be about anything, this side of the summer recess.

  Q244  Mr Cran: Minister, you will have seen from the reactions that you have had from this side of the table that I think there is an onus upon you and the MoD to try as best you can to clarify what you mean in bits of this document because it is a very significant document indeed and there is a confusion until the case law arrives as to what it actually means.

  Lord Bach: I absolutely take your point on this, but I am not sure that we will really clarify it to the extent that you require until we have had some examples or a number of examples and there will be times when we will be accused of not following the Defence Industrial Policy by those who have lost and of following it by those who have won.

  Q245  Mr Roy: Minister, could I ask you to focus on the Watchkeeper programme which we know has an in-service date of 2006 even though the designs will be ready in 2004. Earlier we heard from Sir Peter on another date, that he has curious as to why it was going to take up to three years to get this programme up and running. Why can this programme not be accelerated?

  Lord Bach: Well, it has been accelerated to this extent, that the Secretary of State announced last year that it would be accelerated by two years, so the ISD, and remember that this was a programme where the procurement was in the programme before the New Chapter, so from 2007 it came down to 2005. Since that time it has gone to 2006.

  Lieutenant General Fulton: 2006 is the in-service date.

  Lord Bach: Let me be frank with you, that when we came to down-select the two bidders for this very important project, this decision took us some time to reach. We did reach it, but there was a delay in reaching it. I do not apologise for it because it was necessary to get, we thought, the correct two bidders into the next round so that we could make the right decision as soon as possible. I know, and General Fulton may be able to say something about this in more detail, that we are hoping that some elements of Watchkeeper will be in operation by 2005, that is, late 2005. Can I pass to the General on your question.

  Lieutenant General Fulton: We have got a competition at the moment between the two companies or between the two consortia, as you know, and we have the main-gate decision next year which will allow us—

  Q246  Mr Roy: When next year?

  Lieutenant General Fulton: It is set for 2004, but I would not want to be drawn on exactly when, though we would certainly hope—

  Q247  Mr Roy: Our understanding was that it was going to be early because there is another eleven month's difference if we get it in January as opposed to November.

  Lieutenant General Fulton: Certainly it will be earlier in the year than that, but the objective is then to go forward with that single consortium. The issue of why can we not bring it forward any faster is one that I have made to this Committee before which is that it is the system that is the difficult bit, not the platform. If what we sought to do was to buy an existing air platform which provided us with a one-to-one link, a single air platform down to a single ground station, then there are plenty of people in the market who would wish to do that. What, however, we seek to do is actually what other people are now doing, the Americans and the French, which is to regard UAVs not as a simple, single link, but as part of the overall ISTAR system. Our view is that, firstly, we will be wasting our money if we do not get the product of this system directly into the hands of the right people, which is both down to the ground station and the ability to get that into a headquarters or into more than one headquarters. Secondly, the issue is also that of bringing together the other lines of development, of bringing in the training, the infrastructure and also the concepts being worked up. Now, that is all going on in parallel at the moment. For example, BATUS, who are doing quite a lot of work on the introduction of UAVs into a brigade and formation level—

  Q248  Mr Roy: So there is no need to wait for 2004 before any of that work because, as you say, it will be done in parallel?

  Lieutenant General Fulton: The concept work is going on now, and the exercises that go on in BATUS in Canada today have simulated UAVs, specimen UAVs, which simulate what we would get from either system played into the headquarters so that we can understand where we want this imagery because, equally, we will be wasting our money if we deliver it to the wrong place, to the wrong level of command.

  Q249  Mr Roy: We accept that, but surely we could also be seen to be wasting our money if we let this roll to 2006 and then by the time it does come out, it has actually already passed its sell-by date. What do we do in 2006 if we are sitting here and you say, "We've now got Watchkeeper, we've now got UAVs. However, the Americans have already brought theirs out and theirs are armed, therefore, that is the next generation and ours is not, so why didn't we look at this two years ago?", and that is why I am saying this to you now. What would be the point in taking our time, waiting until 2006 and by the time it comes out, the concept has already moved on and the Americans, lo and behold, have an armed UAV which we have not got? Would that not be a waste of money?

  Lieutenant General Fulton: Can I deal with the armed question second. Will we be left behind is the question, and there is always a fine dividing line between buying existing technology to get it into service more quickly, ie, buying it off the shelf, and buying it as the next generation. What we very much are doing is buying, in the case of both contractors, or what we are being offered in terms of the air vehicles is a generation on from Predator, for example, which is in service at the moment. If I could use it as an example, for example, Predator has to be flown by a pilot, it actually has to be piloted. As modern UAVs are now, we want it to be flown by a trained UAV operator. We do not want to have to use a highly skilled, highly trained pilot to be doing this, so that is an example of why we want to go to the next generation of air vehicles. All four of those which the companies are going to be offering fall into that category. If I could turn to the armed one, what we are buying is a capability, an ISTAR capability, and Watchkeeper was focused on the ISTAR requirement. The lesson which we learned from both is that in a field in which technology is moving fast, whatever you do, do not keep changing your requirement every six months to keep up with the latest thing.

  Q250  Mr Roy: Whatever you do, do not put your head in the sand.

  Lieutenant General Fulton: Whatever you do, do not put your head in the sand, so we have a contract, we have a Watchkeeper programme which is an ISTAR programme which was originally conceived to fulfil the land component commander's information requirements. Clearly it will be used much more widely than that, but that is what it was focused on and, just as we have seen with Phoenix, which was bought originally as an artillery—

  Q251  Chairman: Don't talk about Phoenix because I get very ill whenever anyone mentions Phoenix!

  Lieutenant General Fulton: Well, Mr Chairman, I will not mention the name—

  Q252  Chairman: Just the once!

  Lieutenant General Fulton: It was bought as an artillery-spotting drone and has been used for many other purposes, so clearly Watchkeeper was focused on the land component commander's information requirements, but when in service it will be used much more widely than that. So that is what Watchkeeper is designed to do, but, recognising exactly the point which you have made, we have set up the joint UAV experimentation programme to look at the whole subject of arming UAVs, working very closely with the Americans, so Watchkeeper is designed to produce exactly what we want in 2006 and because the technology is being derisked and is well known, we confidently expect that we will be able to meet that. The joint programme is designed to move on and explore in an experimental way those sorts of technologies, not only arming, but also micro-UAVs and the employment of UAVs in a maritime environment, for example, a whole range of other issues associated with UAVs which we and other people want to explore. The Americans and the French in particular are two countries who are doing a lot on UAVs and the experimental programme is what is doing the understanding of that. Clearly if we then decided downstream that what we needed to do was to retrofit arming to the Watchkeeper UAVs, then that could be done.

  Q253  Mr Roy: That could be done?

  Lieutenant General Fulton: That could be done.

  Chairman: When you mentioned Phoenix, that was probably the worst procurement decision that I can ever, ever recall and having learnt some lessons from that, like Mr Roy, I am slightly surprised that we are not as far advanced in the process as we should have been because we should have spotted much earlier the significance and the evolution of UAVs beyond, as you mentioned, the target spotting. There is an urgency about this in the same way that the Army was waiting for Phoenix from the Falklands onwards and had to wait until Kosovo before finally they had something which, frankly, was not as good as people were hoping for, an exceedingly protracted process in procuring, so this is another project we will be watching with great care, as I am sure all three of you will be doing, because the military requires it and requires it to be done pretty damned quickly.

  Q254  Jim Knight: In a similar vein, can you not speed up the acquisition of FRES, the Future Rapid Effect System? An in-service date of 2009 seems a pretty long way off for a very important, key New Chapter capability.

  Lord Bach: Well, as to the question of whether it is a long way off or not, this is a new generation of capability that we hope to bring in. We are well equipped, we think, at the heavy end and at the light end too, but it is the medium-weight area where FRES fits in and we are moving as fast as we feel we can to initial gate approval and we hope to be able to tell you pretty soon and I will be able to make an announcement soon as to when we will. There will be some pretty cutting-edge technology with FRES when we decide exactly what it is we want out of this process and with that cutting-edge technology it is absolutely crucial that the design, the technology reaches a certain stage of maturity before we try and apply it to what will be a very expensive and a very important programme which will last for many, many years. I think it is more important that we get it right than that we rush it in, but we hope there will not be any capability gap. The General will be able to tell you whether there is a risk of a capability gap or not, but we think we have got this about right. General?

  Lieutenant General Fulton: I do not know about the risk.

  Q255  Jim Knight: There is concern about 2009 and about slippage already. Your memorandum to us said that the initial gate decision would be spring. Wimbledon is upon us and I think that is a signal that it is now summer, so will we get that decision before the recess or is it another one you have got up your sleeve ready to spring on us just before we pack up for the summer?

  Lord Bach: I understand that we hope to be able to make a statement by this summer. I take that to mean before the recess.

  Lieutenant General Fulton: We would certainly hope to. There are aspects of the initial gate case on which we have been asked to provide more detail because this is actually in direct contrast to Watchkeeper in that FRES does not exist. You cannot go out into the world anywhere and buy FRES. The requirement for FRES is very demanding. What we are seeking to do is to put a medium-weight capability into the field which means getting many of the vehicles down to a C-130 load. We are talking of the order of 17 tonnes. This is not going to be a main battle tank in 17 tonnes because the laws of physics do not allow that. This is a medium-weight force, but the technology to which the Minister has referred is very demanding and, frankly, I do not know whether it will work because in order to get down there we are dependent, for example, on electric drive, so will that work? We are dependent on some pretty interesting technologies for protection and survivability where in order to get a level of survivability that is acceptable on the battlefield, there will be some interesting questions on situation awareness, manned and unmanned turrets, for example. Therefore, there is a case which says that actually 2009 is actually almost too soon for some of those technologies because we will need to understand the technologies rather than rush blindly into them because it may well be that actually they cannot be delivered in that timescale. What gives me confidence that we are not dragging our feet is the very, very close link that we have with the American FCS programme which is asking precisely the same questions at precisely the same time, and there are other countries doing the same, for example, Sweden's CEP programme is also looking at that, so we, in conjunction with the American and the Swedes, clearly have an interest in producing something that is very, very similar.

  Q256  Jim Knight: Is that co-operation or is it collaboration?

  Lieutenant General Fulton: It is neither at the moment because we are still at the concept phase of the programme, so it is the sharing of information. The FCS programme is a very close one and the American team are in the country at the moment and I have a session with them this afternoon.

  Q257  Jim Knight: Is it such an ambitious project that we are capable of handling it simply as a national programme? Do you think that ultimately if we are going to achieve its potential we are going to have to go for a more international collaboration, as FRES's predecessor was going to be?

  Lieutenant General Fulton: That is why we have the assessment phase and that is what we want the assessment phase to tell us. The issue, therefore, of moving through initial gate actually centres precisely on the issue of how specific can you and do you want to be at this stage. There are 16 roles that we hope FRES will fulfil. It clearly, when it is delivered, will look like a vehicle and you will be able to walk up to it and touch it, but the translation from one to t'other is actually quite difficult because what we are seeking to do is to open up all the opportunities for technology and not actually close them down. For example, we do not want to decide whether it is going to have wheels or tracks at this stage, it may have a mix or whatever, therefore, we want to make it as unspecific at this stage as we can without describing something that is so loose and woolly that it could be fulfilled by almost anything. It is achieving the right degree of specificity to go through initial gate so that we can let the proper assessment phase contract so that we can understand exactly the question that you have asked as to whether we can do this on our own, whether we need partners and what pace are other people moving at which will give us that confidence.

  Q258  Jim Knight: I suspect, therefore, that you cannot answer the final question which is that we have got one major armoured vehicle manufacturer in this country, Alvis-Vickers, and, to go back to James Cran's earlier question about Defence Industrial Policy, that begs the question as to whether in this area you are inclined towards competition with other foreign manufacturers, whether it is a national programme, or whether you would be inclined towards an earlier decision of partnering with Alvis-Vickers to develop it more in a collaborative way.

  Lord Bach: These are among some other very interesting questions that we are also considering at the present time, you will not be surprised to hear. I did say before the recess, though I do not guarantee that, and just as spring can last a long time, so can summer.

  Chairman: Thank you. We have a couple of questions, Minister, on Smart Acquisition and the future New Chapter agility.

  Q259  Mr Howarth: Mention has already been made of Watchkeeper and, if I can just remind you, in our Report on the SDR New Chapter, we concluded that, "the Committee has seen little evidence of the urgency that the MoD has claimed to be devoting to acquiring new capabilities . . ." One of our industry witnesses on 13 May, John Howe of Thales, noted that, "responsiveness in terms of compressing the timescale of projects has been slower to respond" to Smart Acquisition than cost or performance aspects. Can you tell us what changes you would like to see to make Smart Acquisition more responsive and agile to the changing needs, particularly bearing in mind the new emphasis which the Ministry is placing upon network-enabled capabilities?

  Lord Bach: Well, I read your Report of course with the same care and consideration with which I always read your reports.

3   The Defence Industrial Policy Back

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