Examination of Witnesses (Questions 1-19)
5 MAY 2004
SIR RICHARD
EVANS, MR
NICK PREST,
MR JOHN
HOWE AND
MR SIMON
FROST
Q1 Chairman: Welcome, gentlemen. There
is nothing like a procurement session to draw a large audience!
Thank you very much for coming. Sir Richard, as the doyen of the
defence manufacturers and as this is probably your final appearance
before us, we afford you the privilege of introducing your colleagues
and maybe making a few introductory remarks.
Sir Richard Evans: Simon Frost
has I think been here before; he represents our SME group and
who of course are of huge importance to the supply chain; on my
left is John Howe of Thales and Nick Prest from Alvis. I think
it is fair to say that we have all been engaged in the DIC for
a period of time. I will make one or two opening remarks. First
of all, we are genuinely quite grateful for the opportunity to
put an industry perspective on the development of defence industrial
policy and of course its implication for the defence procurement
system which is so important to all of us. We know that you have
many questions that you want to ask on a number of aspects in
this complex area but, if I may, I would like to draw attention
to one fundamental aspect of the policy before we get too absorbed
with the detail. As the DIC's written evidence described, industry
made a comprehensive input to the original policy that was announced
in October 2002 and it was an input to a debate within Government
started by MoD ministers and it was about a policy of the Government
which affects a range of the departments, not just the MoD. Thus,
the policy was launched jointly by the Secretaries of State for
Defence and Trade and Industry and subsequently of course managed
by a group of departments chaired by the Cabinet Office. Sometimes
it seems in discussions today as though industry asked for a defence
industrial policy when in fact we were engaged in the debate by
government. What I really want to point out at the start of this
hearing is that the Defence Industrial Policy is not a policy
for industry's sake but it is actually, we believe, very much
in the national interest. It is about the sovereignty of the UK
and it is about our economic future. Our impression is that it
arose because ministers themselves felt that the procurement processes
brought wider strategic and industrial issues into the equation
far too late in the procurement cycle and not in a terribly joined-up
way. Industry has always agreed with this viewpoint but it is
something that Government have decided to try and change and we
very much want to help and be part of that change process. We
are very happy to take any questions that you want to put to us
and, if we are not able to give you specific answers, we will
certainly follow questions up and give you answers in due course.
Q2 Chairman: I am sure that we have a
lot of quite contentious questions to ask of you. Gentlemen, the
Defence Industrial Policy was launched some 18 months ago. In
which areas do you think the policy has made some progress? In
which areas do you think the ideas in the policy have not made
much progress?
Sir Richard Evans: In fairness,
I should re-emphasise that this policy was published only 18 months
ago. I think it is a perfectly reasonable question in hindsight
for many of us to ask as to why we did not address these issues
some years earlier but hindsight is a pretty exact science. I
think by definition there is a great deal of expectation that
came about when this paper was published that we quite seriously
could and would not change things in the period of time over which
this had been running. The things that the Defence Industrial
Policy paper have done today is that it has given an opportunity
for the Government and particularly through the MoD to actually
enumerate what are essentially a set of strategic objectives that
need to be brought into account in the process of decision taking
and, indeed prior to decision taking, in the process of making
recommendations for decisions, but I think, in fairness, both
we and the MoD would say that the actual examples today of great
success in this area are pretty patchy. As of today, I would not
want to give you any real examples of where I think we could say
that things have been decided differently because of this policy.
Now, of course, we are all travelling in hope. We very much actually
want this policy to succeed, but it is a big culture change programme
and it is not just a policy, this is about getting people to behave
and think very differently from the way in which they behaved
and thought previously. If this policy is going to be effective,
we really should not be having situations where secretaries of
state are issuing ministerial directives to their departments
in order to turn over recommendations that have been made. Frankly,
if we get to that point—and I am obviously here referring
to the selection of Hawk, the RAF advanced trainer programme or
re-equipment programme—then this policy will have failed.
My personal view of this—and I think it is shared by some
of my colleagues here—is that it is a good start but it
is absolutely not going to make progress until people implement
it through the procurement process and, right now, there is insufficient
evidence to say whether or not that is being done effectively
across the board.
Mr Prest: I would like to echo
Dick Evans' point that this is a work in progress. We do not see
the Defence Industry Policy as a single blueprint which is then
stuck on the wall and followed. I think it comprises a clear recognition
by Government that the defence industry is important and a clear
understanding in Government of the linkages between its decisions
and what happens in the defence industry, that is a clear understanding
in Government of the data, the shape of the industry and the direct
impact of particular decisions. Then I think it comprises a series
of policies or of behaviours to be followed in a number of different
areas, which might be in the area of acquisition, which might
be in the area of research and technology or which might be in
the area of how future capability requirements are articulated
but, in all those areas, pursuing the set of policies which have
defence industry effects in mind in order that, consistent with
meeting the military's requirements on a value-for-money basis,
then the money is spent in ways which produce the results for
the Defence Industry Policy or where there is any conflict between
value-for-money and meeting the objectives and the consequent
effects on industry, that that trade-off is clearly and explicitly
recognised and Government can make informed decisions about it.
As Dick said, it is a process, it is a series of behaviours and
it will take a while to unfold.
Mr Howe: I think there is one
positive thing which is that I am sure there is actually more
dialogue between industry and Government on these sorts of issues
than there was a few years ago, but I guess there is still some
way to go in one particular area which is clarity about what kinds
of industrial capabilities and indeed what kinds of technologies
are judged to be of crucial strategic importance in the long term.
What kind of industry does the UK think it is important to have
in the future? What kind of capabilities is it important to retain
for strategic reasons? That is an area where I think we need to
go on working to achieve more clarity in order that we understand
clearly what the rules are in that respect when competitions are
judged.
Mr Frost: The view I would have
from slightly lower down the supply chain is really very similar.
It is a long-term industry. We need to plan strategy for our businesses.
No little pressure around in our industrial environment, as you
might imagine, and sector. We see customers, the Armed Services
of the UK and other countries, with a very rapidly changing threat
which they have to assess and working together in a joint industrial
policy would be extremely helpful to our own strategic planning.
We do not need support for products that people do not want to
buy. We want to be able to develop the right products. That can
only come out of a joint policy, a joint strategy and common understanding
of the requirements both for our Government and the international
defence industry.
The Committee suspended from 4.00 p.m.
to 4.23 p.m. for a division in the House
Q3 Chairman: Sir Richard, in an article
you wrote in December, you said, "There is much work still
to be done to ensure it" ie the Defence Industrial Policy
"becomes a cohesive, effective and systematic strategy for
the sustainment and development of key industrial capabilities
in the UK." Perhaps you and others could comment on whether
there is sufficient momentum in Government and industry that this
work is undertaken.
Sir Richard Evans: Perhaps I could
go back to the previous point about what are the benefits coming
of the policy paper as written. In the paper we have circulated,
you will find in the annexure to the paper basically a list of
actions that are running that are designed to address some of
these issues and these issues that are fundamental are about having
a joint view on what the priorities are in the context of investment
and spending, how these establish some form of matrix to assess
the value of what those are and indeed what they should be, and
of course how we deal with the consequences of that because I
think it is very clear to all of us on the industrial side at
the moment that the budget allocations that are made today are
not sufficient to sustain the existing levels of capability that
we have and already it is becoming increasingly apparent to us
that the gap in technology levels between the UK and the Americans
is growing very, very rapidly. That clearly says to us that we
have to address the issue and prioritise the requirement and we
cannot do that until there is a completely integrated dialogue
starting with the user, which is the military themselves, but
working through the whole of the scientific community and with
the industrial community. I think that all of us on the industrial
side recognise that the results of that are going to be pretty
damn painful. It is, by definition, going to require us to actually
downsize substantially UK capabilities to meet affordability and,
if you look at the work streams that are beginning to emerge out
of the Defence Industrial Policy paper, these work streams are
very much designed to address some of these particular issues.
It is then clearly a matter for industry to decide where it is
going to invest its future money, but we need to have some clear
indications as to what the long-term requirements are particularly
in terms of where we are going to invest R&T for the future
and we need that a lot more quickly identifying than appears to
be the case at the moment.
Q4 Mr Hancock: We were told last year
that the defence industry would be going through a process of
ongoing restructure and then re-organisation. Presumably that
is still the case and, if so, where do you envisage this going
over the foreseeable future?
Sir Richard Evans: I think we
can only say to you that, although there has been a huge amount
of consolidation that has taken place already, it is not going
to stop where it is. Even in America, I suspect that there is
another round of consolidation to take place. I think that here
in the UK, from a UK Limited point of view, our interest is to
ensure that, where consolidation takes place and particularly
where consolidation entails downsizing, giving up skill sets and
people having to move out of the industry, particularly in those
areas, we clearly do it in a planned way understanding that actually
what we are doing in terms of maintaining a skilled capability
is directed to what it is the military of this country actually
want for the future. With the best will in the world, we cannot
ourselves look into a crystal ball and do that uniquely on our
own. We can only do that in conjunction with the end customer.
That is why, not just in the context of the Defence Industrial
Policy but also in some of the principles of Smart Acquisition,
it is so important that the military and industry come together
much, much earlier than they have ever done historically to actually
try and identify what those key requirements are. If we do not
do that, what will actually happen is that, by default, industry
will simply downsize, it will consolidate, and we are going to
wake up one morning and we will literally find key skills missing.
A great example of this is the sad history of the Astute Submarines
where, at the time no doubt for very understandable reasons, the
Ministry of Defence, having elected to close down the Royal Naval
Architects Office—it was done in a very orderly fashion—then
we let a contract for a new requirement by way of a nuclear submarine
and, lo and behold, the only people who had ever designed and
actually passed into production a nuclear submarine were not there
any more. I am really saying that, in the context of the work
that we need to do, we really have to prevent that happening again
and, recognising that budgets are not infinite and we have to
concentrate those budgets on things that are really important,
there is no point in either side doing that independently, we
have to do it together, we have to share the objectives and we
then have to jointly find how we resource those objectives.
Q5 Mr Hancock: Does that then lead you
to believe that the real predator in this would be the United
States defence industries who will look to develop British businesses
as opportunities for them to take over and to take you out of
the market and so depriving us of the very asset you were talking
about?
Sir Richard Evans: It is and I
do not think we should have any illusions. The great threat to
the technological base here in foreign terms is coming from the
Americans because they are investing such huge amounts of money
into R&T and it is why a lot of our companies are actually
investing shareholders' funds today, not here in the UK but actually
in America buying American assets. If this process continues without
the actions that we have described or outlined or provided for
in this industrial policy paper, if we actually do not do that,
the UK is simply going to become the American metal basher. There
will be no intellectual capability here in the UK in terms of
the very high value-added content of programmes that this country
has built up over so many years and that is why the JSF decision
was such a massive disappointment for us. That decision—and
we should have no illusions—took us out in the UK from the
manned military business and we will live to regret it, I can
assure you.
Q6 Mr Hancock: So, BAE Systems will resist
selling part of their operation to the Americans and the marine
division will stay in British hands?
Sir Richard Evans: No, we certainly
will not. If in fact we are not able to deploy shareholders' funds
in this country in support of the current investments that we
have here and they are not producing a satisfactory return, the
existing management of BAE Systems will have to take that money
to somewhere else where it can get that return and, if the management
does not do it, the shareholders will put a new bunch of managers
in who will do it.
Q7 Mr Hancock: So, BAE Systems are not
too interested in the national interest then.
Sir Richard Evans: Of course we
are interested in the national interest. We are interested in
the national interest for two reasons. One is that we have a huge
number of highly skilled people whom we want to protect and we
believe that they are an important national asset and actually
it requires two to make it work. I do not want to start running
some of these assets down if we are going to find ourselves having
a requirement for them in due course. We have to have a sensibly
planned load in our businesses. Businesses cannot work on feast
and famine. We have to have a steady forward-projected workload
that makes sense.
Q8 Mr Hancock: Effectively, what you
are saying is that the future of BAE Systems marine division is
dependent on the MoD buying from them rather than them trying
to get other work from elsewhere.
Sir Richard Evans: No, absolutely
not at all. It is primarily dependent upon the MoD in the context
of the R&T investments that are required in order to sustain
future developments in that part of the business. This is a business
that, for 70 years, has been completely neglected in the context
of investment. When we were buying GEC Marconi, some of you may
recall that there was a huge problem with a company called Kvaerner
who owned one of the yards in the Clyde and I was called in to
Number 10 to give a view on how we may manage the consequences
of this because there was a serious danger of this yard being
closed and I made the position perfectly clear then. There was
at that time and there still is too much naval shipbuilding capacity
in this country. We had not invested a single damn penny in any
of these facilities for 70 years and the reason for that was perfectly
simple. It was for political reasons. The way in which shipbuilding
was handed out was that a ship went to this yard or it went to
that yard or to another yard in order to deal with political expediencies.
There was no long-term planning and therefore no investment committee
of any board in the country was likely to be willing to invest
in the facilities, which is exactly what happened. I made my position
perfectly clear at the time and it was that, if the Government
wished us to be, might I use the word, the champion of the naval
shipbuilding business in this country, to do that we need to have
a partnership with HMG and that partnership requires HMG to prepare
to commit long term to us for its requirements and, on that basis,
I then have a case to take to my board for investment in that
business. We are now piling investment into that business. Frankly,
if you had gone to any of these yards when we acquired them, you
would have been appalled and I personally felt completely disgraced
by setting foot in these facilities. How on earth people could
have been expected to work and produce high quality workmanship
out of them was just unimaginable. If you go round some of these
facilities today—and we have not finished it by any means—you
will see a very different picture. I want there to be a long-term
position in naval shipbuilding for us in the UK and, if we get
this business right—and I am talking naval shipbuilding
and not commercial shipbuilding—there is no reason at all
why we cannot go back out and rebuild an export business that
this country once had and then lost. There is no reason why we
cannot do that but to do it requires stability, it needs long-term
commitment of investment and it requires a partnership to do it
and, without that, actually, the business will not survive. At
the same time, we have to face up to taking more capacity out
of the market here in the UK.
Q9 Mr Hancock: Are you fairly pessimistic
about the future of the UK defence industries?
Sir Richard Evans: Yes, I am because,
at the present time, the R&T tap has virtually dried up. Decisions
were taken 15/20 years ago in the expediency of meeting budget
requirements under which the traditional sources of R&T funding
in defence became very, very much depleted. It was at a time when
the Americans were very much increasing their levels of R&T.
I am not suggesting that the UK should be attempting to compete
with the Americans in terms of expenditure and defence, but what
I am saying is that we should together, as UK Limited, identify
those areas that are strategically important for us in the long
term and together concentrate our joint resources into making
sure that we stay in the premier league in those areas. It is
like a pregnancy test; there is no half-pregnancy; we are either
there and successful or we are dying.
Q10 Mr Hancock: I think that you need
to give your colleagues a chance to defend their position rather
than just BAE Systems.
Sir Richard Evans: You asked me
about the shipyards.
Q11 Mr Hancock: I will come back to your
point of view in a minute as I would like to hear from the others.
Mr Howe: I think an important
point about the defence industry is that it is now increasingly
international and if companies like the one I work for are going
to invest in the UK, as my company has very substantially in the
last ten years, then we need to be sure that there are conditions
for doing good business here and a joined-up view of what the
national priorities are for industrial capability and what the
national priorities are for research and technology investment.
These are conditions that are important and should be met as a
result of this Defence Industrial Policy.
Q12 Mr Hancock: Are you getting a clear
message?
Mr Howe: We are working on it.
It is a very important part of the dialogue that we have under
the Defence Industrial Policy that we shall get that clarity.
Mr Frost: Can I come back to the
general consolidation subject. There are two effects lower down
the supply chain. The first one is your traditional customers
cease to be in the same company because, as companies get more
globally orientated and larger, you often end up supplying to
a subdivision of those companies or indeed to a third party who
is doing the integration on a national scale. That is a huge change
for very, very many UK defence companies. So, they have to learn
how to handle and how to liaise with new customers and learn what
drives them and those new customers are not always UK businesses,
they can often be foreign-based businesses. That is one factor.
The other factor is that, at the supply chain level, we all need
to be bigger and healthier to satisfy that need. So, there is
a lot of consolidation needed lower down the industry. In the
case of one of the companies that I am involved with, we sold
to United Technologies, the Americans, and that turned out to
be a interesting process where a lot of new culture had to be
learned and in fact it did turn out to be a two-way street: they
bought us because we had flight control technology which in fact
they did not, particularly relating to helicopters, and at the
same time it gave us some access—and this is a company with
400 people in the south west of England—to programmes that
we did not realistically have a chance of bidding on before that.
However, that technology came out of the base that had been developed
over the years working primarily on UK programmes. So, there is
not a difference of opinion here, it just has slightly different
consequences running down the supply chain.
Mr Prest: Picking up on the point
of consolidation, I think you need to look at it from a couple
of different points of view. Consolidation from one dimension
means changes of ownership that are going on within the international
defence industry and I echo John Howe's point that this is now
an international industry. As Alvis, we bought businesses in Sweden
and in South Africa as extensions of our base business here in
the UK. We have been welcomed as investors in those countries
and we have been able to operate the businesses in those markets
in ways which have satisfied local customers. There is now a further
development in that General Dynamics has made an offer for Alvis
and, if that goes through, it would result in Alvis becoming a
subsidiary of General Dynamics. The reason that these developments
are taking place is because companies believe that a bigger international
spread in their business will give them access to the wider range
of market and will enable them to draw on a wider range of sources
of research and technology both in terms of the expertise of their
employees and sources of government funding coming internationally
into the defence business and, as a general process, I think we
have to regard that as (a) inevitable and (b) healthy and, in
the longer run, this is better for both customers and employees
of companies to be organised on an efficient basis. The other
aspect of consolidation that has been referred to has been reductions
in capacity and that has been another driver of consolidation
in the industry. In my particular sector, which is the production
of armoured vehicles, ten years ago there were four armoured vehicle
factories in the UK and there is now one and a bit, and that has
been a direct result of major reductions in the market, both nationally
and internationally. I make that point simply to say that, in
the end, the sustainment of these businesses depends on there
being a viable market and, in the context of UK businesses, the
domestic market is extremely important, not just for its own volumes
but also as a source of R&D and as an anchor customer and
a reference point around which exports can be built and that remains
the fundamental point and is as true in my industry as it is in
the marine industry.
Q13 Mr Hancock: Having heard all that
you say, I think one question to you, Sir Richard, is, do you
think that your organisation has become too dependent on the MoD
and the MoD has become too dependent on you and, because of that,
the rest of the defence industry in the UK which had survived
that consolidation are having a pretty tough time?
Sir Richard Evans: Certainly the
facts do not fit the argument. It is not very long ago since we
were virtually 90 per cent dependent upon the UK Government and
MoD business. Today, the MoD business accounts for something of
the order of 20 per cent of our sales. So, the actual dependency
in the UK has changed quite dramatically and that has changed
for many of the reasons that have been outlined here, that we
have to obviously go where the markets are and where we can grow
our sort of business. My concern about this issue is that I think
that if we just leave this completely to market forces without
actually giving any thought to future potential requirements which
are national interest issues, what we will see is continuing decline
in mine and other companies' interests in the UK markets and I
think that would be a sad day for the UK.
Q14 Mr Hancock: Do you think that the
MoD are actually equipping themselves for the change that is going
to be needed to take account of consolidations you have talked
about in the way that your reliance on the MoD is diminishing
but their reliance on you, sadly, is still as great? So, what
do you think they need to do to reflect the changes in the restructuring
that takes place?
Mr Prest: MoD has many, many talented
people in it. But I think it has, in recent years in the area
of procurement and defence research, been driven to a considerable
extent by events, by budgetary constraints and, in some cases,
by shorter-term considerations. I think it has found it harder
to take a strategic and holistic view and perhaps a longer-term
view, in some cases, of how its interests might best be served
and I think we should be clear about that. I do not think anyone
here around this table is sitting here saying that defence is
an industry which should be subsidised. That is absolutely not
the question. The question is that the nation as a whole needs
to have a clear understanding of actually what it wants the defence
industry for and then to follow policies to that effect. Nobody
here is advancing a policy of inventing defence equipment programmes
in order to maintain jobs that would otherwise disappear. Certainly
speaking for myself, I am not. So, it is a question of coming
to the issues that we have discussed. The MoD has to have a clear
understanding of international trends that are taking place and
a very clear understanding of what it can afford. That may seem
a statement of the obvious but I do not think it is as obvious
as all that. Some of the problems in the equipment programme come
from there being insufficient realisation of risks and costs involved
in some of these programmes, a realistic view of what is affordable,
a long-term capability plan that is transparent and reasonably
consistent that industry, as well as the MoD, can then plan around
and a clear view, particularly where a research and development
investment is being made or where procurement decisions are being
made, as to whether it is a matter of importance that the industrial
capability with relevance in respect to those areas needs to be
maintained in the UK. There has not been much of that mindset;
I would not say it has been absent but I do not think there has
been sufficient of that mindset in the MoD in recent years.
Mr Howe: I would make a very similar
list of points. I think three points stand out and I have made
two of them already. Firstly, as Nick Prest has just said, clarity
about what MoD want really at two levels, both by way of strategic
industrial capability in the UK but also in terms of what they
want by way of particular programmes. Secondly, clarity about
research and technology priorities, as I said earlier, so that
both the MoD and companies put their money in the right areas
and complement each other. Thirdly, very much to emphasise the
point about realism. I think if one looks at the way Smart Procurement
has been working and what it has to contribute—I suspect
that we might get on to the subject more later in the afternoon—a
considerable inventory of improvements to the procurement process
is there, but if there is one error, if you like, which has led
consistently to setbacks, disappointment and difficulties in procurement,
it is because the whole community—industry, the MoD and,
if I may say, at the political level and the press—has conspired
to be optimistic about the cost of military capability and has
conspired to neglect the degree of risk that is involved in major
defence projects where one is actually buying equipment that does
not yet exist and it is what McKinsey's I think called a conspiracy
of optimism in their work on Smart Procurement. I think we still
suffer from it. The figures still show that there is insufficient
investment by the customer in risk reduction in the early stages
of projects before they reach their main stage of approval and
that fact, I think, has led us into a lot of the difficulties
that individual projects have run into. So, those are three points:
clarity about what the MoD want industrially, clarity about research
and technology priorities and realism about risks and costs combined
with a willingness to invest sufficiently upfront in the technology.
Mr Frost: I would like to add
just a couple of points to that. The first one really relates
to a fear culture that I think perhaps media attention and other
top level issues that we see engenders at the working level, quite
understandably—these are intelligent people—in projects
where often a solution to a problem is on the table but is perhaps
slightly unconventional, needs a change of plan and the inevitable
result is that nobody wishes to perhaps stick their neck out quite
far enough to say, "Here is a way out of this particular
mess that we are in." One thing is to perhaps at the working
level in MoD encourage slightly more proactive thinking with industry.
The other point that I would like to make comes back almost to
consolidation and that is, in a rapidly changing industry, to
ensure that the players in the MoD understand the current capabilities,
access to technology and resources of the whole of the industry,
not just concentrating on two or three major companies but 100-or-so
key companies with great capabilities both to actually offer technological
solutions but also to solve the current problems on existing programmes.
So, a broader understanding of the structure of the UK industry
to date.
Q15 Mike Gapes: The Government's Defence
Industrial Policy says that open and fair competition remains
the bedrock of our procurement policy. However, BAE Systems commissioned
a report that was published in January which highlighted concerns
that foreign competitors often enjoy a competitive advantage over
BAE Systems since they are not required to face international
competition for their market and indeed can often be heavily subsidised
by their domestic taxpayers. I would be interested in your comments
on that and is this concern that BAE Systems have had shared more
widely across the UK defence industry?
Sir Richard Evans: The comment
that I would give you is that I think that is largely true. It
is an issue that is contained in the Defence Industrial Policy
paper and clearly one of the objectives that has been identified
in this paper is to concentrate a lot of effort into trying to
open markets up. Everybody accepts that, in defence terms, the
UK is the only genuine open market in the world today but, regrettably,
in virtually all other markets, there is nothing like the same
sort of reciprocal arrangement. For UK contractors to compete
in America or to compete in many multi-European countries is exceedingly
difficult and I think the object of the exercise—as I say,
it is spelt out pretty clearly in this paper—is that it
is in everybody's interest that all the markets are as open as
possible and that is how we generate real competition and get
the benefits from it.
Q16 Mike Gapes: Are you fighting with
one hand tied behind your back?
Sir Richard Evans: There are obvious
difficulties in this area. Clearly, in the context of competitions
that are being run here in the UK on an open basis—and it
is right that they should be—clearly, if the whole of the
non-recurring and investment cost has already been borne by another
party, maybe the American Government, the French Government, the
Italian Government or whoever else, and indeed the UK contractor
is required to provide for that element in the cost, the UK contractor
is at a serious disadvantage. I do not think that is a problem
for any of us. That is really, for me, an issue of the UK deciding
what it wants. There are always going to be areas where—and
I suspect increasingly so—the right thing for the UK to
do is to buy off the shelf. I just want to make sure that in other
areas we would—and certainly in my company I would think
that is the wrong thing to do—have a proper debate about
it and, if we ultimately do decide to do it, we do it for the
right reasons and then, if we do do that, we actually get the
maximum amount of gain out of the decision for the UK. I am sorry
to keep coming back to it, but I think JSF is a classic example.
It is no good when you have signed up and paid your cheque over
then trying to go back to negotiate the release of technology.
It is absolutely not the way to do it and I absolutely subscribe
to the fact that there are cases where it is absolutely proper
to buy off the shelf, but I would also like other governments
to share that view.
Q17 Mike Gapes: Can I go back to my question.
Do you think that the MoD recognise the concerns that you have
expressed and as the report that you commissioned expressed sufficiently
when it evaluates the tenders from different manufacturers?
Sir Richard Evans: It is patchy.
There are some areas in the procurement process that are better
than others. In the main, these questions are not specifically
MoD questions, they are the procurement organisations' questions.
We are all in one hell of a big learning period. This is a big
culture change for all of us, both the guys at the MoD and the
DPA and the guys in the industry as well, but I would just like
to be sure. We have to go through this process of shifting our
ground and changing the way in which people behave and attitudes,
but the problem with it is that it takes a lot of time to do it
and, in the meantime, the world does not actually stop. Decisions
have to be taken, selections have to be made and contracts have
to be placed and I just want to make sure that, when we do that,
the UK gets the best deal out of it.
Q18 Mike Gapes: Mr Prest, in an earlier
answer, said that defence is not an industry which should be subsidised.
Yet, on the other hand, we are in a situation where you are saying
in your own report that other countries often have heavily subsidised
industries and they are your competitors. If we are in this situation,
I presume that there are two ways forward. One is that other countries
cease to be subsidised in any way and the other is that we move
away from the approach we have taken up to now and it seems to
me and I put it to you that we do not have either of those. We
are in, as you yourself said, a transition. How long do you think
that transition will be and are we doing enough and is this country
collectively doing enough to get open markets in other countries
and, if we are not, what should we be doing to make that possible?
Sir Richard Evans: The transition
period, I regret to say, is a lot longer than most people think.
Making change on this scale is a huge challenge. Inherently, all
of us actually hate change and would like to continue doing things
in the way we have done in the past. So, it requires a lot of
time, a lot of leadership and therefore a lot of example to be
given in order to bring about a change throughout the whole of
the organisation on both sides of the table. In the meantime,
we certainly should be doing a lot of the things that we are doing
at the moment and in some areas may be doing more often. We definitely
should not be looking to close our markets up. We should be trying
to get a level playing field as widely as we possibly can in order
that we are broadly pretty much in the same situation. The fact
of the matter is that the guys who have really deep pockets, that
is the Americans, are always going to have a substantial advantage
on the technology front. It is the case that there are even today
areas where we can still beat the Americans, where we are better
than the Americans at certain things that we do. Those are things
that we need to build on.
Q19 Mike Gapes: I accept that the Americans
might be a problem because of technological reasons but we are
talking here about open markets. We have European partners and
in fact some of the companies here have European associations
which are very deep. I would be interested to know what we should
be doing to open up the markets in those other countries.
Sir Richard Evans: I think John
needs to come in on this since we are referring specifically to
John's ownership. There are a catalogue of issues that are being
undertaken at the moment, not least some of the things that are
going on in Brussels in the context of the European procurement
process.
Mr Howe: Just the Thales view
on this. First of all, as far as the French market is concerned,
I would not argue that it is as open as the British market is,
though it has been opening and the French part of Thales would
argue that now they do have to win their business in competition
which is much stiffer than it would have been a few years ago.
Secondly, I do not think that, in the case of Thales, we enjoy
any advantage in the United Kingdom derived from market conditions
in France. The work that is done on major UK projects by my company
and the bids we put forward for new projects are almost wholly
based on work done in the UK and UK facilities and costs reflecting
these conditions. So, we think of ourselves as a UK company competing
in the UK market in that sense. Certainly as far as the French
market is concerned, I am sure that the top men in the company
would have no hesitation in saying that anything that can be done
to encourage all European markets, French or other, to open up
would be wholly in the interests of our company.
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