Letter to the Chairman from the Secretary
of State for Defence
I thought you would wish to be aware that I
am today announcing the selection of Kellog Brown and Root Ltd
as the preferred Physical Integrator for the Future Aircraft Carrier
(CVF) project. Discussions with Alliance members only concluded
over the weekend and we have not therefore been able to arrange
a Written Ministerial Statement. Given the House's interest, however,
I wanted to inform Parliament at the earliest opportunity.
Before going into detail, I would like to set
the decision into the appropriate context. The CVF Alliance is
based on best practice for the delivery of complex and major programmes
in the commercial sector, including construction, oil and gas.
Construction of the two biggest warships ever built in the UK
is a massively complex project and a formidable challenge for
British industry in both technical and managerial terms. Previous
investigations have shown that no single company or shipbuilding
facility in the UK has the skills or capacity to build the two
ships on its own. The carriers will therefore need to be constructed
at a number of different sites before transportation to a final
integration facility; building and integrating them represents
a major challenge which requires special project management skills.
In discussion with our current Alliance participants, BAE SYSTEMS
and Thales UK, it was agreed that there was a need to appoint
a company—as a risk bearing member of the alliance—to
strengthen our approach and introduce innovation to the manufacturing
phase. This role has been termed the Physical Integrator (PI).
We will develop the precise role and responsibility
of the PI in consultation with all Alliance participants over
the coming months—an approach that is consistent with alliancing
best practice where each participant's work scope is agreed by
the Alliance to ensure that work is allocated to the company best
able to deliver it in the most cost effective manner. In broad
terms, however, we anticipate that the preferred PI will be involved
in developing the build strategy for the carriers.
I would like to re-assure you that we put in
place a robust competitive exercise to select the preferred PI.
A shortlist was produced of candidate companies likely to have
the necessary skills and experience to undertake the PI role—Alstom
Marine, AMEC, BAE SYSTEMS Naval Ships, Bechtel (UK), Kellog Brown
and Root Ltd and Vosper Thornycroft. The requests for proposals
issued to the companies in September 2004 set out our general
requirements, the submission process and the evaluation criteria.
A robust process was used to evaluate the proposals submitted.
Each company was required to demonstrate their competence in a
wide variety of areas including: successful delivery of projects
that had demanding time, cost and performance targets; an ability
to innovate to ensure that all opportunities for greater value
for money could be addressed; and to demonstrate a breadth and
depth of capability and capacity to manage complex programmes.
The result of the evaluation determined that
Kellog Brown and Root Ltd was the strongest candidate. Kellog
Brown and Root is an established UK-based company which has demonstrated
a proven track record of delivering bespoke, geographically spread
and logistically complex construction projects; it also has experience
of delivering UK MoD projects such as CONLOG, the Heavy Equipment
Transporters and Temporarily Deployable Accommodation that were
successfully used during Operation Telic. Kellog Brown and Root
Ltd will also bring extensive experience of alliances from other
sectors including oil and gas and infrastructure.
CVF represents a vast programme of work and
overall should create or sustain up to 10,000 jobs in the UK.
Kellog Brown and Root Ltd are likely to build up to a 50-60 strong
team during the Assessment Phase, largely comprising existing
members of that company who have off-shore experience. No final
decision has been taken on build strategy but we still anticipate
that, subject to value for money, the carriers will potentially
be built by a combination of the four shipyards named in January
2003—BAE SYSTEMS Naval Ships at Govan, VT at Portsmouth,
Swan Hunter on Tyneside and Babcock BES at Rosyth. We would stress
that decisions relating to the build strategy will be taken by
the PI and the Alliance as a whole—Including BAE & Thales
UK—with the customer ie the Ministry of Defence retaining
a final veto.
Bringing the preferred PI into the CVF Alliance
before the main investment decision is a sensible de-risking measure
that will facilitate the formulation of the optimum approach to
the ship build of the carriers. Kellog Brown and Root Ltd will
liaise with other Alliance participants and work with all potential
shipyards and other manufacturing facilities to propose a cost-effective
approach to the manufacture of the vessels. This strategy will
need to be agreed by all Alliance participants including, ultimately,
the Ministry of Defence. The MoD, as client, will retain the right
to have the final say on all work allocation and selection decisions.
Like all other Alliance participants, Kellog Brown and Root Ltd
will need to demonstrate satisfactory performance and appropriate
alliancing behaviour throughout their appointment. We will now
discuss the scope and value with the company before awarding an
initial contact to KBR for Assessment Phase work, which is expected
to be of a value of around £5m. This represents a firm commitment
to the alliance approach for delivering the carriers and is an
important step forward both for the programme and the CVF Alliance.
We will continue to engage with our industrial
participants over the coming months as we meld the PI role into
the Alliance, and the detailed role and responsibilities of all
parties are agreed. We are confident that this is the correct
decision and remain committed to the alliance approach, which
represents the best route for providing our Armed Forces with
the equipment promised to them by our target in-service dates
of 2012 and 2015. We also remain fully committed to an approach
which delivers maximum benefits for UK Industry.
Rt Hon Geoff Hoon
February 2005
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