Examination of Witnesses (Questions 260
- 279)
WEDNESDAY 25 JUNE 2003
LORD BACH,
SIR PETER
SPENCER KCB AND
LIEUTENANT GENERAL
ROB FULTON
Q260 Mr Howarth: Very good.
Lord Bach: That does not mean
to say that I accepted every word, and I know you are anticipating
eagerly the Department's response to it, which, as I understand
it, is well on its way to being completed. One of the things I
know that Sir Peter is doing in his first few months in his new
and important position, at my request and also off his own bat
of course, is looking at where Smart Acquisition is and what improvements
we can make. That is one of the ways we may be able to improve
things with regard to SMEs and the relationship in Smart Acquisition
between the prime contractor and SMEs.
Mr Howarth: Could you say a little more
about that?
Q261 Mr Howarth: Could you say a
little more about that?
Chairman: He was going to!
Lord Bach: No, that is a fair
question. We know, because we have very strong links with the
DMA, for example, that there is some concern by their members
as to whether Smart Acquisition leaves them out in the cold, particularly
in relation to the DPA and the Ministry, in a way that did not
happen so much before because of the obligations that we put on
prime contractors to be responsible for their own sub-contracting.
I have always thought it very important that we keep a close relationship
with SMEs who, after all, sometimes add new skills, innovation,
new technology in niche areas where large companies have not got
the time always to do. I am concerned that we do not lose sight
of SMEs in the procurement Smart Acquisition process, and I am
also concerned, and this is a personal view, that the sub-contractors,
small companies, are dealt with fairly always by prime contractors.
This, I think, is crucial. There can be a tendency for prime contractors,
the big beasts, as it were, to make their sub-contracts go sometimes
not necessarily to the places where they ought to go and then
when small and medium firms write to me and say, "We are
not happy about this. We are not happy that we were not given
a chance in this contract", or, "We didn't win it",
I am not prepared to accept the answer, "Well, actually it
is nothing to do with us. It is a matter between the prime contractor
and yourselves". It is that area where I think we can perhaps
start looking carefully at what we do with SMEs. You know that
there are codes of practice of course, but the codes of practice
of course are toothless and not legally binding and it is essential
that if the codes of practice are breached by prime contractors,
and I am not saying this happens as a regular thing, but if they
are, then I think we should be prepared to take some action against
the prime contractors which will affect them. It is keeping that
confidence between SMEs and the Department that I consider to
be one of my priorities, one of the things I like to do, particularly
when I go abroad to airshows like Paris, to spend time going around
the SMEs. I actually think they are an important part of our economic
structure in this country and they are well worth looking after.
I am not sure that Smart Acquisition in theory does that enough
yet.
Q262 Mr Howarth: I think that is
going to be extremely helpful and I certainly agree with everything
you have just said about SMEs, particularly of course the importance
they have across the country because they are represented in every
constituency in this country. They are spread so widely that it
would be deeply damaging if they were to be—
Lord Bach: That is something that
I have learnt over two years, that in Parliament they have somebody
on their behalf.
Q263 Mr Howarth: It would be deeply
damaging to our industrial base if they were to be pushed out.
Lieutenant General Fulton: Could
I just make a point on SMEs and Smart Acquisition and it is a
point about the experimentation because one of the things we have
done is to place a great emphasis on experimentation as a means
of understanding technical risk early and involving both industry
and the end user in the shaping of a potential solution. Mr Howarth,
you saw the BAE Systems' BMEC facility which they demonstrated
which we are very interested in trying to turn into a network
integration facility to build on that. Part of the premise of
that is not only the involvement of large companies in that experimentation
process, but we have been very specific that also in that process
must be involved SMEs because particularly in the network-enabled
field, a lot of the really innovative ideas are actually in those
SMEs and through the process of the experiments that we will be
running over the three-year pilot programme for NITE works, as
it is called, we will be involving SMEs in that to achieve precisely
what you have just described.
Lord Bach: I wonder if we could
ask Sir Peter to respond because the question was about Smart
Acquisition and I think it would be best to ask the man responsible
for it.
Sir Peter Spencer: I would say
that there are some programmes which have run very rapidly and
very well since Smart Acquisition. The roll-on/roll-off ferry
programme actually achieved its in-service date 20 months before
the target date which was set at the beginning and those ships
were used very successfully in Operation TELIC, and it actually
proved, amongst other things, to be a success for using sponsored
reserves as part of that programme. So there are one or two areas
which are non-trivial, complicated procurements, which got put
into practice in the sort of manner which was envisaged when Smart
Acquisition came about. Although it is a dangerous project to
pick, Bowman, because of its back history, since Bowman was reconstructed
under its new team arrangements now, that has actually been running
through very rapidly to meet the in-service date of next year,
with very, very agile, flexible and responsive working relationships
between the MoD project team and the industry. The question which
I am asking of each of the other programmes where I do not detect
that there is the same level of performance is, "What is
different about your project that it does not stand up to this?"
and then, as I mentioned last time, we then need to look outside
of the Ministry of Defence to benchmark the other people who do
complex procurement programmes. I think the point which has emerged
about bringing programmes forward reflects a general frustration
which I share which is: how do we get faster and more agile in
our procurement and just get on with it so that we do not run
the risk of producing something which is out of date by the time
we field it?
Q264 Mr Howarth: You have mentioned
some very successful programmes there and I think we all on this
Committee would be very interested if you would share with us
the results of your subjecting these other programmes to the same
inquisitions as to why they could not operate them in the manner
which you have alluded to about those other two programmes. General,
could we just move on to the sort of financial aspects of this
because your memorandum to us suggests that the 2002 Spending
Review settlement was reached before you had ever put together
a shopping list of equipment for the SDR New Chapter. Have you
now been able to produce such a shopping list of equipment requirements?
I think, General Fulton, that you have had more to do with this
than most. How much do you think it is going to cost and is the
Spending Review settlement going to be enough?
Lord Bach: Well, the Spending
Review is a great help to the Ministry of Defence and a great
improvement in sustained terms on what went before, a bigger increase
in sustained terms, that is over the three-year period, than for
many, many years. Whether it is enough, that is a matter which
I am sure your Committee will have a view on and I suppose any
departmental minister will always say that they could do with
more.
Q265 Mr Howarth: But the point of
the question is that clearly you have put together a shopping
list of what you think is needed to meet the specific requirements
of the New Chapter, so have you got a sort of price on it and
has the Treasury agreed to sign off on it?
Lord Bach: Well, of course we
have procurements that are affected by the New Chapter, but I
think one of the things that has not perhaps got across enough
is that a wide range of existing equipment projects already contribute
to the delivery of the New Chapter. The New Chapter is not something
that sort of stands on its own. It is not the new Strategic Defence
Review. A lot of, we think, the Strategic Defence Review covered
very carefully and very well a whole number of matters that have
come to pass during the course of the last few years, so a lot
of our existing equipment projects already contribute to the New
Chapter, and I pray in aid ASTOR and Bowman too. However, of course
there is new equipment that we require and want as a consequence
of the New Chapter. We have mentioned Watchkeeper and bringing
it forward, improvements to communications and datalinks, such
as enhancements to E3-D aircraft, and the experimentation in support
of network-enabled capability, and the General has already spoken
about NITE works. We are also taking forward a number of measures
to improve force protection, particularly for aircraft, and to
improve the deployment mobility and the fire power of forces in
this area on a rapid deployment. I am particularly pleased that
we have got A400M on contract which will be an important addition
to our inventory, but we are also considering the retention in
service of a small fleet of C-17s too.
Q266 Mr Howarth: When you say "small",
do you mean the existing four or increasing it?
Lord Bach: A small fleet, I think,
is how I would phrase it at the moment. No decisions have been
made of course. I would say, and I think I can say this, that
the Spending Review settlement included about £1Ö billion
across the three-year period for what was required by the New
Chapter.
Q267 Mr Howarth: But that is not
just on equipment. That is on the whole defence requirement and,
given our level of operations, that was to be expected.
Lord Bach: Well, it was not allocated
to specific projects, but I think a large part of that it is hoped
may be designated to what would be loosely called `equipment'.
General, am I right about that?
Lieutenant General Fulton: Yes,
it was allocated for the modernisation of our forces both in terms
of the New Chapter which set the context and also our proposal,
the NEC idea, if I can call it that, of a way of delivering it
because what the New Chapter showed us was that in the specific
target at which it was aimed, namely countering terrorism, for
example, the targets could be even more difficult, even more fleeting
and there would be even less distinction between them and their
background, so precision, for example, was important and deployability,
as the Minister has referred to, was important. Clearly what we
have had to do is to set that in the context of our total defence
capability for other roles, for regional conflict, for peacekeeping
and so on and so forth, so the process since the publication of
the New Chapter within my area has been to establish where we
perceive and make recommendations on the relative priorities of
those against other calls on it within the defence budget. That
is what I would expect to be doing anyway and what it has done
is set the context within which I make my bids.
Q268 Mr Howarth: I have just one
final, short question, Minister, for you and that is that you
have got quite a lot of equipment programmes under way, the Carrier
programme, Eurofighter, Joint Strike Fighter, FRES, Watchkeeper
and all the rest of it. Are you satisfied and can you assure this
Committee that you will have the funds necessary to see these
programmes through, some of which are absolutely essential not
just to the New Chapter, but to Britain's whole defence posture,
particularly the aircraft carriers?
Lord Bach: I can say from where
I sit at the present time that we intend to see these programmes
through. I am not saying that there will not be changes to them
over the course of the next number of years, there may be, there
may be not, but all the ones you mentioned are very important
programmes indeed and we believe we do have the funding in the
years ahead to be able to deal with them. I am not saying that
it is going to be easy.
Q269 Mr Cran: Could I just ask for
a bit of clarification about your point about SMEs and large firms
before I come to my next question. It is simply this: that it
seems to me perfectly proper that you should be thinking along
these lines because of the treatment to the one or the other,
the large company and the smaller SMEs, so this is like the weather,
it comes and goes, but it has been witnessed for ever, this problem.
Therefore, I am not asking you now to tell us what you had in
your mind when you said "some action against prime contractors",
you referred to that, but I am just interested in what sort of
time-frame have you got in your mind to get some ideas together
to help SMEs?
Lord Bach: Well, I hope we are
doing that already. The codes of practice themselves have now,
I think, been in operation for some time, 12 to 18 months.
Q270 Mr Cran: But, as you yourself
say, the codes of practice have no legal binding and so on. I
thought I heard you say that although this was their business,
the big contractor and the SMEs, you were, nonetheless prepared
to get involved and—well, I could use an American expression
but I will not—use a bit of influence. Did I understand
that correctly?
Lord Bach: You did, but I think
you should also assume that some of that has been done already.
Q271 Mr Cran: Indeed.
Lord Bach: The prime contractors
know that the codes of practice are not just words and that if
they are breached blatantly and flagrantly, and, I repeat what
I said earlier, there is no reason to believe that that is happening
on a large scale, then we will take what action we can in order
to make sure that they are observed.
Q272 Mr Cran: I see.
Lord Bach: That is not necessarily
in the future, but that can be now.
Q273 Mr Cran: Okay, I thought that
there was a little bit more to this than there is, but what you
are doing is perfectly acceptable, so I am happy to leave it at
that. We have spoken about specific projects, but Mr Howarth,
when he was asking you questions, spoke about a shopping list
of new equipment and the like as a result of the New Chapter,
but can we look at the other side. Does the New Chapter and all
that stands around the New Chapter to make it meaningful lead
you to conclude that there are capabilities and equipment programmes
which could be curtailed, cancelled, no longer needed, just in
the broadest sense?
Lord Bach: Well, I can only answer
you broadly and the answer is that we would be foolish if we did
not constantly keep under review procurement decisions that were
taken some time ago in different environments. We would not be
doing our job if we did not do that, so we do look carefully to
see what is required now, whether it slips down the order a bit
and how important it is when you are trading off capability requirements
so that we get a balanced programme that actually corresponds
to what we need today than to perhaps what we needed five years
ago or ten years ago, so the answer is that we do look, we do
keep programmes under review constantly and we are prepared to
take decisions about them, which may be painful, if we need to.
Q274 Mr Cran: That is the general
answer. Can we have any specifics about anything which is falling
down, you used the words, not me, falling down the list and so
on and so forth, or indeed may be cancelled?
Lord Bach: I cannot, I do not
think, honestly go further than what I have said at the present
time because there is a way of doing these things and if there
any, they would of course be announced. I am always of course
prepared to talk in closed session to the Committee if I can be
more helpful in that regard, but I do not think I can be here.
Q275 Mr Cran: Minister, you nearly
tantalise me because it was you who said you would give the general
answer and then we will look at the specific answer, so you said
it, not me.
Lord Bach: As I said it, I realised
I might have been in error!
Q276 Mr Cran: It was worth a try!
Moving on, could you give the Committee a sense as to what extent
your New Chapter plans will be put on hold so that the lessons
of the Iraq war are digested? Talk us through this whole issue
or will it have no effect at all, which I find inconceivable?
Lord Bach: Well, we do not want
to delay, for the reasons which have been stated, the New Chapter
proposals, but you know that the White Paper is to be produced
in the autumn and that White Paper is bound to, must take into
account the lessons learned from the inquiries that we are doing
at the present time, the first of which is to be published before
the recess and the second later on this year, so obviously we
are looking very hard to see what the lessons learned tell us
about New Chapter equipment proposals and how the New Chapter
should be implemented generally, so the two are connected of course.
Q277 Mr Cran: And they are really
going hand in hand?
Lord Bach: Yes.
Q278 Mr Cran: Mr Howarth asked you
a number of questions about being faster and more agile, which
are wonderful words, so I think it is a question of putting them
all into practice. If I took you to Eurofighter, which seems to
have been with us forever, since I was almost a boy it was around,
what, with the benefit of hindsight, could we have done to be
more agile, more flexible, faster and all the rest of it given
the enormous constraints with this huge programme and all the
countries taking part in it?
Lord Bach: Here I will call on
my colleagues, but I will just say this: that I think Eurofighter
does show, and I have learnt this with pain over the last two
years, that one has to think very carefully with collaborative
projects how it is that one organises them. I think the future
looks brighter in terms of co-operative projects because of the
important existence of institutions like OCCAR, and I have high
hopes of OCCAR in the future, but that is not how, as you know,
Eurofighter Typhoon was originally thought, and I think there
have been all sorts of difficulties which have arisen frankly
out of the fact that decisions have to be made in governments
and in companies, and the various combinations are almost endless,
so I think that is the lesson I have learnt. I am sure there are
more sophisticated lessons that can be told, but I want, if I
may take this opportunity, to say that we are on the verge of
the most significant milestone so far on the Typhoon programme.
Everything is now in place, Chairman, for the formal handover
to the air forces, which we expect to take place next Monday,
Monday 30 June, and it will be marked by a formation ceremony
in Germany and a national event here at BAE Systems' Wharton plant.
I am delighted, and I hope you will forgive me for taking the
opportunity, to, as it were, tell this Committee, a Committee
of Parliament, before it is widely known.
Q279 Mr Howarth: We approve of Parliament
being told first, so you score a brownie point there!
Lord Bach: But I would like Mr
Cran's question to be answered perhaps a little more fully.
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