Supplementary memorandum from the Ministry
of Defence (7 July 2003)
Nimrod/Astute
The Committee's first two questions dealt with
the basis for the calculation of MoD's additional contribution
to the two programmes, and on the cost of buying-in help from
General Dynamics on CAD for Astute. It should be noted that the
exact details of the agreements required to establish formally
the new financial structures and the revised in-service dates
for both programmes have yet to be agreed. The Department is not,
therefore, in a position to give further cost details to the Committee
at this stage, beyond those set out in the memoranda. We would,
of course, be happy to provide these in due course.
Turning to Nimrod MRA4, it was evident by summer
2002 that there would be further delay and cost increase on the
programme. Delays in the development programme had increased significantly
the overlap with production, and introduced further risks. The
Agreement introduced a break in production until development work
had sufficiently de-risked the programme. At the same time, and
as a result of operational experience, the MoD identified a need
for improved surveillance and reconnaissance and land attack capability.
Accordingly, we are investigating the potential for converting
Nimrod into an adaptable aircraft, and it was against this background
that we arrived at the Agreement. Our intention was that the company
should bear responsibility for the additional costs arising from
their conduct of the programme (while recognising some MoD responsibility
for the cost overrrun) together with the cost of an Assessment
Phase study to examine the potential of Nimrod MRA4 to meet the
adaptable aircraft requirement. In line with this, BAE Systems
agreed to make the larger provision—£500 million in
2002—in addition to a provision of £300 million in
2000, with MoD increasing funding by around £270 million.
The Agreement has also introduced an incentive on the company
to minimise costs for the development phase and has set a cost
aim for the production of aircraft 4-18.
In respect of Astute, the contract included
the full use of computer aided design (CAD) for the first time
in UK submarine building. It was assumed by both parties that
there would be significant efficiencies, and lower costs were
agreed for design, development, First of Class and the following
two submarines (AO2 and AO3). In the event, the introduction of
CAD was considerably more troublesome than had been expected by
both parties; in particular, the confined space in a submarine
presented difficulties not experienced with surface vessels. The
Department now knows, but could not have known at the time, that
the US Navy was having similar difficulties with the design of
their Sea Wolf Class submarines.
The Agreement with BAE Systems therefore focuses
on design and production of the First of Class, and takes account
of the experience of US submarine builder Electric Boat in introducing
and using CAD systems. It incentivises the company to drive down
costs, and links profit on the design work to the production timetable
and costs for AO2 and AO3. It has also reduced the overlap between
development and production. The sharing of the cost overrun—the
Government agreed to increase its funding by around £430
million, against an increased contribution by the company of around
£250 million—reflected the relative responsibilities
of the two parties. The costs associated with the involvement
of General Dynamic's Electric Boat Division, *** are subsumed
within the revised pricing arrangements.
US ITAR
The Committee's third question dealt with the
procedure and likely timescales for Parliament to consider the
US ITAR Agreement.
The ITAR Waiver Agreement will be laid before
Parliament in a similar manner to a treaty. This will occur post-signature,
but at least 21 sitting days before any actions, such as mutual
notification of completion of procedures or ratification, can
be effected. The Committee will wish to note that this process
will not include the Memoranda of Understanding associated with
the Agreement, copies of which have been passed to the Committee
on an informal basis.
The laying before Parliament will be effected
by means of a Command Paper, and accompanied by an Explanatory
Memorandum drawing attention to the main features of the Agreement.
We would expect this to happen either towards the end of 2003,
or early in 2004.
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