Select Committee on Defence Minutes of Evidence


Examination of Witnesses (Questions 400 - 419)

WEDNESDAY 17 NOVEMBER 2004

AIR CHIEF MARSHAL SIR MALCOLM PLEDGER KCB OBE AFC, MAJOR GENERAL A J RAPER CBE AND MAJOR GENERAL M D WOOD CBE

  Q400  Richard Ottaway: Are you using barcode technology?

  Major General Wood: Everything that leaves the depots in this country is barcoded and was barcoded during Telic. It is easier to do in that environment, it is beyond that.

  Q401  Rachel Squire: Just picking up the end-to-end process. Can I place the critical role of industry in all   of this. The End-to-End Review certainly acknowledged that industry has a critical role to play in the delivery of future logistic support. Can you say what role you see industry playing in the delivery of future logistic support? Is "just-in-time" still a solution, given the experience on recent operations?

  Air Chief Marshal Sir Malcolm Pledger: Again, if I could just explore the words there. You say "in future" industry has a role. Currently industry has a major role in the means of providing logistic support to the Armed Forces. About two-thirds of my budget on a day-to-day basis is already spent with industry. This is not an organisation that does all its own provisioning by any stretch of the imagination. We have to have a relationship and a means of managing industry in a way that is equally as agile to our needs as we require it from the Armed Forces. That is why I said in my opening comments that the relationship with industry and the means of getting them to respond was the third of my major objectives. I would say in operational terms that their responsiveness to such examples as UORs and contractors on deployed operations has been excellent. In one respect we already have a relationship that is hugely responsive and effective, but I would then have to move on and say I also have to make this system efficient and, therefore, I have to create different ways of doing business in that acquisition space to prove that we are getting good value for money as well as a responsive provider. That is a core element of the Transformation Programme that we are embarked upon and what I would call the main part of what we are trying to develop in partnering support in the future where those dependencies are clear. We have to create something that is good value for money in the strategic base but also is responsive in the way that we showed with Telic at the same time; we must not break one for the other. I come back to one of my objectives being a strategic goal of significant efficiency, which is why we are trying to create that different relationship. One real advantage from that is we should use many of their management systems, not create our own, which is why in future we will develop IT incrementally; we are not looking to create something that we talked about in the past of DSMS—Defence Stores Management System. We are looking to use industry's systems because their systems have to be efficient to create shareholder value. We do not need to duplicate that. We need to draw on their materiel. Whether that means "just-in-time" is an issue for us to decide upon as far as I am concerned. The real question is: is "just-in-time" from industry an acceptable operational risk, is "just-enough" an acceptable operational risk, or do we have to build in what I would call margins in order to manage those operational risks? That is the very business of the CDL and the Defence Logistics Organisation and the IPTs. You have to make a judgment in those areas with each of these arrangements that we have with industry and it will be different in different circumstances.

  Q402  Rachel Squire: Can I move on to the End-to-End Review which recognises that improvements are needed in the approach to contracting. Can you say what improvements you are introducing to your contracting arrangements and how will these compare with best practice arrangements elsewhere?

  Air Chief Marshal Sir Malcolm Pledger: Yet again, a component of the Transformation Programme, and if you want a little more detail I can turn to General Raper, is in the first instance we have looked at three components of our procurement arrangements. The first is that we are looking for a much more market facing category management. In the past, in essence each of the IPTs has been a law unto itself in terms of empowerment, it has been able to produce the best value for money and acceptable operational risk solution for a particular endeavour. We have not been as successful as we might be perhaps in looking across each of those contributors because they do not stand alone in creating that end effect. Therefore we have tried to combine a whole series of these activities with industry so that we can get the market to respond in the best possible way and we have had considerable success in doing that in terms of supplier based optimisation, in terms of collapsing the huge numbers of contracts we let in the past into a smaller number of larger contracts which give you volume leverage. We are using the information we have accrued from that endeavour to manage our suppliers much more holistically, and I do not mean just the DLO, I mean the DPA and the DLO as the acquisition community. So we are not sending different messages to those suppliers and getting different outcomes. Also, we are introducing common processes with our sister acquisition organisation, the DPA, in order to make sure this works to best effect across that whole community. Indeed, we are rolling that out across Government as best practice to other departments.

  Q403  Rachel Squire: That leads on to ensuring that contracting arrangements do ensure that risk is sensibly transferred and required performance levels are delivered.

  Air Chief Marshal Sir Malcolm Pledger: Again, I think we need to understand what we mean by "risk". The operational risk associated with this relationship will always remain with the Armed Forces. What we are recognising is that industry and other potential providers can contribute to a more effective arrangement that mitigates that risk and we can transfer some of the financial risk with what we have been doing in the past to get a more efficient solution from some of those providers—know the marketplace; know what their strengths are—and then deliberately using those areas that are better at managing the component parts of this but with us continuing to integrate them in order to manage that operational risk.

  Major General Raper: Perhaps I could differentiate between the two aspects. One thing we are trying to look at with our major partners in industry in relation to some of the major platforms is how might we contract for availability in the future with the appropriate performance regime within that. I would suggest that not only gets at efficiency but crucially that gets at effectiveness, because if you contract for availability with a partner then you are starting to put the onus on to them to drive reliability and ease of maintainability; that is where their future costs lie and that is what they would be clearly wishing to take costs out, by comparison with a contracting regime whereby industry repairs when something breaks down or provides spares. In other words, there is not the incentive to drive reliability and, therefore, effectiveness in the way that we would wish. One aspect is the contracting for availability with partners and the other aspect which the CDL was referring to in terms of what we are doing with procurement reform is very much attacking pure efficiency: how can we be a much, much better buyer in the marketplace and use our economic power to much, much better effect? I am sure you will be familiar with the sorts of ratios that the commercial sector looks at when it is actually looking at buying commodities and the sorts of prices that they are taking out. In terms of procurement reform, which has now been running for about eight months, we are looking at that delivering in the first three or four years something in the order of £400 million of efficiency across and then from 2009 onwards about £410 million year in year out. That has broken up our spend into a set of categories and the first £2 billion of the £5.6 billion that we spend has been analysed and out of that will come another £136 million. That is looking at things like how we spend on travel money, how we spend on transport, how we do some of our IS applications and so on and so forth. One aspect of procurement reform is really trying to get to grips with efficiency and us becoming a much, much better buyer in the marketplace and the other is trying to get industry to deliver under an availability regime where you do start to get the effectiveness that you want to see out of a number of these major platforms.

  Q404  Mr Roy: Could I turn to the Defence Aviation Repair Agency and stick on the subject of efficiency and effectiveness. It is my understanding that during the past year £18 million has been spent at St Athan building the new superstructure which I understand is the size of six football pitches. That structure allows for 47 fast jets to be repaired at any one time. With that in mind and the money that has been spent, and also bearing in mind that at the moment 1,450 civilians do the work that it previously took 4,500 RAF personnel to do, what is the military case for the proposed re-nationalisation, because that is what it is, of the modern up-to-date super facility at St Athan?

  Air Chief Marshal Sir Malcolm Pledger: I cannot necessarily address the figures that you have used; I would need to understand the origin. I would simply say that the Red Dragon project that you describe was, of course, a business case that delivered a particular outcome in a certain timescale and that will be delivered. That business case stands in its own right and will deliver the benefits associated with it but, because of the End-to-End Review, what we are looking at here is a concept that identifies our future needs in terms of forward and depth. This is not what I would call the original arrangements, this is doing things differently in the future better to manage the operational risks that we face and the dependencies that we face.

  Q405  Mr Roy: Is that based on the business case or the military case? Certainly I will expand on the business case but I would like you to tell me about the military case of moving and making all those people unemployed, building an £18 million superstructure and then moving it somewhere that has not got the same track record as where you have just left. What is the military case, first of all?

  Air Chief Marshal Sir Malcolm Pledger: I am not sure I understand your question because this is not just a military case, it is a management decision on efficiency and on effectiveness.

  Q406  Mr Roy: Tell me, first of all, about the part that is just a military case.

  Air Chief Marshal Sir Malcolm Pledger: The part that is a military case is better to be able to support tomorrow's operations by doing things differently.

  Q407  Mr Roy: You could not do that at St Athan based on the £18 million you have just spent?

  Air Chief Marshal Sir Malcolm Pledger: No, I am not saying that at all. I am simply saying that when we applied that principle of better support and we looked at different ways of achieving it, the investment appraisal showed us that one particular area rolled forward to a single centre of excellence for depth was the right answer and in other areas rolled back into industry or DARA was the right answer. You cannot have one to stand without the other.

  Q408  Mr Roy: A military case can still be made for keeping the operations at St Athan.

  Air Chief Marshal Sir Malcolm Pledger: I can make what I would call a compelling case to remain at St Athan, but—

  Q409  Mr Roy: Do you have a military case?

  Air Chief Marshal Sir Malcolm Pledger: I can make a more compelling case to roll forward elements of this into other locations.

  Q410  Mr Roy: Presumably that more compelling case will be based on a military case and a business case?

  Air Chief Marshal Sir Malcolm Pledger: As we have said from the beginning, this is both effectiveness in the new challenges we face which has determined we do things from depth and forward, not the four lines that we had in the past, and applying that principle leaves you one centre of excellence in the strategic base. That is what is being created at Marham, for example.

  Q411  Mr Roy: On that same theme, still sticking with the business case, I hope you would agree that business has a social responsibility as well. I presume that you do. You have agreed that you do. I live in an area that was devastated at one point by the steel industry and the case was not made. We tried to make an economic case for the work and a social case as well. I think the business case should take care of the social aspects of any of its plans. If that is the case, what thought has been given to the devastating effect that job losses for 1,450 workers will have at St Athan, plus the businesses and families who depend on servicing that sector? Presumably you have thought about that.

  Air Chief Marshal Sir Malcolm Pledger: Yes, we have. For example, the trades unions have been involved throughout.

  Q412  Mr Roy: And disagreed throughout.

  Air Chief Marshal Sir Malcolm Pledger: I am not quite sure that they disagreed with the outcome. They have commented in the consultation period.

  Q413  Mr Roy: Surely you are not going to tell me that you perceive the trades unions to be in agreement with the closure of St Athan. Let us get this very clear: are you telling me that the trades unions have not disagreed with the proposed closure of St Athan?

  Air Chief Marshal Sir Malcolm Pledger: I am saying they have had the opportunity and made their observations on the business case which deals with the particular element of DARA that lies at St Athan.

  Q414  Mr Roy: But they have disagreed.

  Air Chief Marshal Sir Malcolm Pledger: They have made observations.

  Q415  Mr Roy: They have disagreed. That is sitting on the fence. They have disagreed with the proposed closure. Please do not pigeonhole trades unions by saying that they have agreed to 1,450 redundancies.

  Air Chief Marshal Sir Malcolm Pledger: I am not pigeonholing anyone. I am saying that they have been consulted, they were involved throughout, and they have made their observations on what we propose to do. We have taken due note of those and we are actively trying to engage other potential employers to mitigate some of the risks for that workforce.

  Q416  Mr Roy: What is the opportunity cost to the MoD of closing St Athan? How much will it cost? How much will they need to reinvest in that area because presumably as a good employer they are not just going to turn their back on their former employees and walk away? There must be an opportunity cost; there must be some money that will have to be spent in that area. How much will that be and does that come into consideration?

  Air Chief Marshal Sir Malcolm Pledger: Again, that is part of the investment appraisal. To answer that in any kind of detail, we would have to make available that investment appraisal.

  Q417  Mr Roy: Has the appraisal not been done yet?

  Air Chief Marshal Sir Malcolm Pledger: Yes, it has been done.

  Q418  Mr Roy: So how much is it? If you have done the appraisal, how much will it cost?

  Air Chief Marshal Sir Malcolm Pledger: I can only offer to give you a particular number in answer to that question. I do not know it immediately.

  Q419  Mr Roy: You will be able to write to the Committee with it?

  Air Chief Marshal Sir Malcolm Pledger: Yes.[1]


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