Examination of Witnesses (Questions 300-319)
Sir Peter Spencer KCB,
and Lieutenant General Rob Fulton, examined.
Q300 Mr Bacon: It got to Initial
Gate in August 2001.
Sir Peter Spencer: Yes.[6]
Q301 Mr Bacon: So it is two and a
half years so far. How long does it take to get to Initial Gate,
or how long did it take in this case?
Sir Peter Spencer: It depends
on how you define the starting point because Initial Gate is when
you form the project team; so before that it is in the conceptual
stage; it is in the nursery with all the other potential baby
projects, and eventually the military say, "we have now defined
the capability; this is what we want to do". That period
was preceded by a certain amount of technology demonstration,
particularly on the aircraft.
Q302 Chairman: I have one last question
myself. If you look at figure 5 on page 8, there is a long list
of cost overruns but two-thirds of the way down, you see "Airborne
Stand-Off Radar", which is ASTOR, a project that appears
to have done very well.
Sir Peter Spencer: Yes.
Q303 Chairman: What have you done
differently on this project?
Sir Peter Spencer: If you look
at the way we have done it, we have made certain that we spent
time ensuring that we understood what was available. We have gone
for an existing aircraft and we have got ourselves in with a contractor
who is able to deliver. All of those aircraft have been delivered
and they are being fitted out. We are putting together—
Q304 Chairman: What have you done
differently though on this project compared to the others?
Sir Peter Spencer: We set it up
better. We analysed the risks better and understood them better.
I could equally say the same about the 2087 Sonar; we did a lot
of testing and trialling of the technology and we refrained from
making a decision until we had a better understanding.
Q305 Mr Jenkins: Sir Peter, until
now you realise that we have been talking as the taxpayers' guardian,
but also, as Members of Parliament, we have another role. As servicing
officers you appreciate that when there is a delay—and some
of the ranks will be reading this with great interest with regard
to these programmes—sometimes those men and women have got
to make do with equipment that should have been scrapped and that
is past its sell-by date. Not only do they have to make extra
effort; they have to work in worse conditions, and at best it
is harder on them; but at worst it could cost people's lives.
When these things are running late, it is not just a matter of
someone trying to do; they have to do.
Sir Peter Spencer: That message
is not lost on either of us. As I served both in the frontline
and in what is now part of the DLO, and I used to work in what
is now part of General Fulton's organisation, I look at this from
a variety of perspectives. That is why I feel passionate about
driving the time—
Q306 Mr Jenkins: Because when they
have a new whiz-bang coming in next year, it does not help them
if they have to keep the old whiz-bang going this year. That is
the difficulty. I am not sure that that is fed back into the system
sufficiently, especially when they have the luxury of a culture
that does not make them get off their backside and make sure that
the thing is done on time, on cost.
Sir Peter Spencer: I think that
is slightly harsh because the people on projects do have close
contact with the frontline and they are aware of the consequences
when it goes wrong. Although they may be civilians, they very
much identify with the frontline service to which they are providing
this equipment. There is a great deal of loyalty and frustration
at the failures. If you are the person who is trying to drive
it through, and the person from whom you inherited it several
times before was either unwise enough, unwilling or unable to
invest in de-risking, you are faced then with a much bigger chunk
of uncertainty than you know you can cope with.
Q307 Mr Bacon: I would like to ask
you some questions about the support vehicle, Sir Peter. You said
that people were so convinced of the need that there was such
a clear-cut case against the commercial sector that you could
by-pass the normal procedures. Is not the whole purpose of procedures
to test whether people's clear-cut convictions are right or turn
out to be completely misplaced, because commonsense is often quite
wrong in things that are counter-intuitive and do not turn out
to be correct? Is not the whole purpose of having a system like
this that you use it? What happens if you do not use it?
Sir Peter Spencer: There was a
recognition that if you were going for something simple, and that
was an error but that was the assumption, then you did not have
to go through the bureaucratic procedures that surround approval
and going through an assessment phase and spending money perhaps
to no good effect because you did not really need to spend money
on something that was already there in the marketplace.
Q308 Mr Bacon: A truck is fairly
simple, is it not?
Sir Peter Spencer: That is why
we have not spent an awful lot of money in the marketplace; but
we have spent time and effort making sure that the potential suppliers
actually understand the operational context and that our own people
understand the extent to which it is possible to get the sort
of deal they had in mind. They thought they were going to get
a PFI which was going to be not only best value for money but
affordable; and it failed to satisfy a number of key tests which
would make it a legitimate proposition to be a PFI.
Q309 Mr Bacon: To finish the previous
question, it is correct, is it not, that the support vehicle is
not particularly technologically innovative? It is a truck, a
lorry.
Sir Peter Spencer: It is the contractual
arrangements which are the interesting bit.
Q310 Mr Bacon: I thought the interesting
bit is that the Department spent three years in a concept phase
(paragraph 3.39) working out the lorry market was mature. Why
does it take three years to work that out?
Sir Peter Spencer: I cannot answer
that.
Q311 Mr Bacon: The only other question
I have about the support vehicles is that you said it was not
a financial resource but extra time and intellectual effort; and
you said earlier to Mr Cruddas that the whole point of resource
accounting budgets is to make you recognise that time was money.
Surely it was money as well as time, was it not?
Sir Peter Spencer: It is money
in the sense that we had it in place for longer, but in the context
of—the point I was trying to make was that by delaying taking
the decision we were not at that point consuming financial resources
but consuming time resources.
Q312 Mr Bacon: I read in the Birmingham
Post—and of course it is a newspaper so I am not certain
it was true—that it was a £1.4 billion contract for
8,000-8,500 trucks. Is that more or less the benchmark?
Sir Peter Spencer: It is about
the benchmark.
Q313 Mr Bacon: That works out at
about 175,000 per track—which is about the same cost as
a Bentley.
Sir Peter Spencer: We are not
buying these. This includes a period of contractor logistic support,
which is a cost of ownership over time.
Q314 Mr Bacon: The maintenance. That
£1.4 billion reflects the whole-life cost.
Sir Peter Spencer: The length
of the contract.
Q315 Mr Steinberg: Last Monday, Mr
Turner said in relation to paying for contracts that nothing had
been decided upon on the new aircraft carrier. Have you decided
how you are going to pay for it and which method of payment you
will use, because he seemed quite adamant he was not going to
get involved in a contract that was not—was cost plus profit—
Sir Peter Spencer: The point was
also made he is the preferred prime contractor. We will do business
on our terms, not on his—or preferably on terms that we
have agreed together.
Q316 Mr Steinberg: So what happens
if he then refuses his company to build it? There is nobody else,
is there?
Sir Peter Spencer: As you appreciate,
there are other options.
Q317 Mr Steinberg: What are they?
Sir Peter Spencer: One of the
conditions of the sale of the shipyards to GEC and now BAE Systems
is that they are available if necessary to be used under fair
and reasonable terms by other contractors. We would enforce the
agreement in extremis. I would not expect it to come to
that.
Q318 Mr Field: I apologise for being
late. You made a most interesting statement on PFI. You said you
did a study and rejected it. Can we look at that study, because
we have been concerned about other PFIs and the assumptions that
have been built into them, which almost prove that they are going
to be a success.
Sir Peter Spencer: I will take
a look and see what is there and see to what extent it is available,
but we can certainly give you a summary of the key points which
caused it not to be acceptable.
Mr Field: A summary is what we would
really like.
Mr Bacon: I am interested in the way
the public sector comparisons are done.
Sir Peter Spencer: It was not
that; the principal question was the mobility requirements and
the operational notices of readiness meant that there was virtually
no possibility of these vehicles being able to be used to generate
third-party income, nor was there scope for the company to bear
risk demand, so we would have kept this thing on our balance sheet,
even if we had gone through a PFI. That made it unaffordable and
not very attractive.
Q319 Mr Field: If we could look at
it, we could come back to you for further questions.
Chairman: Thank you very much. That concludes
our hearing. We are very grateful to you, gentlemen, for appearing
twice this weeks, which is an innovation but a useful innovation
because it allows us to go through these matters in greater depth.
It seems to me, in summing up, that there will always be more
projects that we can afford, but the difficulty in the past is
that the project managers have therefore had to become advocates
of their particular projects, and have perhaps been over-optimistic
about their projects. Mr Turner referred to it in graphic terms
with regard to the Nimrod project on Monday. We will have to see
how Smart progresses and how we can ensure that the Ministry of
Defence has more watertight procedures at an earlier stage. Thank
you very much.
6 Note by witness: CVF received Initial Gate
approval in December 1998. The first stage of Assessment concluded
in summer 2001. Back
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