Examination of Witnesses (Questions 240
WEDNESDAY 25 JUNE 2003
SPENCER KCB AND
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
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
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
Lord Bach: You mean this one?
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
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
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
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
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
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