Examination of Witnesses (Questions 60-79)
RT HON
DES BROWNE
MP, BRIGADIER STEPHEN
ANDREWS CBE AND
MR DAVID
GOULD CB
11 JULY 2006
Q60 Mr Borrow: That would also assume
that even if you do not feel able to put into the public arena
plan B that there is a plan B of some sort because otherwise we
would have no leverage in this discussion with the US?
Mr Gould: You would expect us
to have thought about that but what we do not want to be is diverted
from what looks like a very encouraging position with the US at
the moment.
Chairman: That is the most interesting
reply we have had on that issue for a very long time.
Q61 Mr Jones: You have just told
the Committee that you do not put a timescale on this but I have
to say that when we were in the United States the then Secretary
of State was quite clear that July was the deadline to meet. When
we met the Senate on Armed Forces Committee they were quite clear,
and in their report they even put July—it is in their reports—so
they put a timescale on these discussions. When are we going to
get to a point where we say that if this drags on for another
six months, for example, we do not buy JSF?
Mr Gould: The next stage, the
early commitment to production investment for the programme, is
scheduled to take place around the end of this year. The first
development aircraft is planned to fly in between now and that
time so that the programme is progressing. So we will have to
know before the end of this year that we actually have the agreement
in place which we need to proceed to the next stage.
Q62 Mr Jones: I accept all that you
are saying, but it was quite clearly July, and they have set this
idea of getting this by July. Lord Drayson, with credit to him,
in terms of the evidence he gave to the Senate Armed Forces Committee,
the hard ball approach he took is starting to work, so are we
just going to let this drift on or are we going to start saying
to them, like Lord Drayson, I think, did, "Come on, you have
to make a decision on this or we are going to take that crucial
decision" because I think that had an effect both in the
Senate in terms of galvanising support for our case but also I
think in terms of understanding the position.
Mr Gould: We are not letting it
drift at all. In terms of highlighting the intention it is quite
clear. Discussions that Lord Drayson had with the Senate have
actually moved this along, but what we need to be absolutely clear
about, before we get to the production stage of this programme,
is that we have in great detail an understanding with the US that
is well understood both at the US DoD and UK government level,
and also at the industrial level between BAE Systems and other
companies and Lockheed Martin, who are the prime contractor.
Q63 Mr Jones: Yes, but are we going
to start rattling their cage, for example, on 1 August to say,
"Why have you not come up with this?" because I can
suggest that if you do not do that it will drift?
Mr Gould: We are working in great
detail with them and we are moving in the right direction and
we are moving at the right pace and it is very encouraging. The
crucial point—and I come back to it—is that we must
have that in place before a production investment decision is
taken, otherwise we cannot proceed with the programme, and that
is a pretty good way of rattling their cage, actually.
Q64 Chairman: Mr Gould, you looked
rather alarmed when I described your reply as "interesting";
I do apologise! Moving on to the Defence Industrial Strategy:
Secretary of State, are you happy that the DIS is being implemented
to the planned timetable?
Des Browne: Yes, I am. I think
that the value of the Defence Industrial Strategy is of course
that it gives clarity to industry and our defence requirements
and sets out the industrial capacity of the framework for the
development and the industrial capacity that the United Kingdom
will need to go forward. But it was not just a policy document,
it was intended to be a framework for action and that action is
going forward. We have responsibilities in the MoD; the industry
has responsibilities and we are working together to meet the challenges
that we both face, which are real and urgent. In the words of
Paul Drayson quoting someone else, you want to take advantage
of the sunshine in order to repair the roof. We are actually facing
these together. I think that the Committee will have noticed that
the MoD specifically has made tangible progress in improving its
acquisition performance over recent years and enabling acquisition
change. The review that was published on 3 July is a significant
step building and a success, making a large number of recommendations
for change. It will not be simple and easy to take forward and
it is challenging and we have set ourselves challenging timescales
for that, but at the heart of it it recommends the merging of
the Defence Procurement Agency and the Defence Logistics Organisation
to create a unified organisation to procure and support our equipment,
and these changes of course will affect people and they are subject
to consultation with trade unions, as we have done at every stage.
The industry is also changing and I think at this stage, since
David Gould specifically has been taking this process forward
with BAE Systems and others across the industrial sector, I will
invite him to update the Committee on what progress has been made
and what progress is being made.
Q65 Chairman: I wonder if in doing
so, Mr Gould, you could perhaps say how many jobs are likely to
be lost and what timescale is likely to apply to that merger?
Mr Gould: Are you referring specifically
to the DPA/DLO merger?
Q66 Chairman: Yes.
Mr Gould: To start with, the total
number of jobs in both organisations combined is already previously
planned to drop by—I do not have the precise figure with
me—several thousand, and that was planned before the specific
merger that has just been referred to was actually announced.
Quite a number of those jobs come from enabling services like
personnel and the technical enabling services, which actually
are already joint in the two organisations, but certainly the
merging of some IPTs will also contribute to that. So I cannot
give you precise figures that are planned but it does run to over
10,000 at the moment. The timescale to do the merger, in terms
of the unified management of both organisations, the aim is to
have that up and running by 1 April 2007. That is a pretty aggressive
timescale for the unified management, but because some of these
things have been shared previously we have a bit of a head start
over that. That does not mean that everything stops on 1 April
2007; that will not be a stable organisation. There will be more
work to do to get the full benefit out of the merger as we go
through. The kind of thing that I am talking about is a big emphasis
in the Defence Industrial Strategy on through-life capability
management. So not just managing equipment capability as new programmes
and completed programmes that need to be supported through life,
but actually a continuous cycle of improvement as you go through.
Rather as we were discussing with fighting vehicles earlier on,
it is not just a single project that gives you the answer, it
is the combination of projects that actually leads to the incremental
improvement in capability over a time, and that will require us
to think differently about how programmes are managed and how
programme teams and project teams are put together and what their
objectives are. So, 1 April 2007 for a unified top structure but
a lot of continuing work thereafter to actually get the full benefit
out of this.
Q67 Chairman: What sort of organisation
will it be? Will it be an agency?
Mr Gould: I think the jury is
out on that. Agency status, one can take or leave it. I think
what is really important, what I have learnt from having the Defence
Procurement as an agency, is the importance of setting very good
but very clear targets for people to perform to, because they
are big motivating factors. So whatever happens on agency status
I would not want to lose the impetus of those very clear targets.
But that will be challenging because describing targets for through-life
continuous capability improvement in addition to specific project
targets is quite a hard thing to do, but we are still doing work
on that and we will come up with some answers.
Chairman: Moving on to the Comprehensive
Spending Review, Brian Jenkins.
Q68 Mr Jenkins: Secretary of State,
the MoD's efficiency programme requires you to do additional savings
of £2.8 billion and yet this year we have the official reports
and annual accounts and we managed to trim down the projected
claimed saving from £400 million to £280 million. Even
at that level it is going to take 10 years to get this £2.8
billion, but what concerned me is the fact that in the report
there always seems to be an overstatement of saving and potential
savings. How do you feel about the information you have given
out, as to its accuracy, and do you feel that this will be reflecting
the true savings rather than these potential savings?
Des Browne: Can I just say—and
I come to this job in this area at least with the advantage of
having been, for a year, the Chief Secretary to the Treasury who
had overall responsibility in government for the efficiency programme—that
the MoD's commitment to the level of 2.5% efficiency saving in
each year of the SR04 period, you are right, aggregates to £2.8
billion of efficiencies by the end of 2007/08. I reported to the
Committee that we have already made savings in relation to our
overall efficiency programme of £1.3 billion, so we are on
track to deliver, and we plan to do this, publishing our accounts
and our annual report before recess this year so that the up to
date information will be available to the Committee and to others
in relation to this. You asked, Mr Jenkins, about an aspect of
that efficiency programme, which is our ability to be able to
validate certain savings, and the savings that were reported in
last year's accounts were subject to audit. Consequently, it was
not surprising that when they were audited—and in particular
when the process of the claims were audited by the Director of
Internal Audit and then those conclusions were shared in a cooperative
fashion with the NAO—there was a change in that figure.
I just say to the Committee that the process of validating and
quantifying efficiency savings is a complex process. Across government
we have accepted the scale of challenge as the NAO actually recorded,
which has not been matched by any government ever in terms of
efficiency savings, and we have been developing in partnership
with the NAO, with others and with the Treasury methods of validating
the savings that have improved significantly over the last 12
to 24 months. As a consequence of our experience in relation to
un-audited figures, but also as a consequence of our desire to
be able to publish the report and our annual accounts within the
timescale that we have set for ourselves, when we publish this
set of accounts we will show a range—rather than a specific
figure—until the auditing process comes down on to a specific
figure. But can I just say to you that we are more confident of
our ability to be able to publish those figures now because of
the learning process that has been taking place, and how to properly
validate them internally.
Q69 Mr Jenkins: Let me move on to
one set of figures that are not in dispute. The top 20 defence
programmes are £2.7 billion above the approved cost at the
end of March. The in-year variation for 2004-05 was a decrease
of some £699 million, and we thought that was a very good
move in the right direction until you realise that it is actually
created by a reduction in the amount of equipment ordered. Why
are we cutting back the amount of equipment ordered? Do we need
it? Is the operation finished, or are we in the business of once
again overrunning costs, costs out of control and our requirements
being cut to the money available rather than the requirements
being met?
Des Browne: I may have to defer
to Mr Gould in relation to the specific figure that you referred
to, but I would just say to you that in the Department we continually
review our procurement and we continually obviously have to review
our ability to procure in the context of our budget—there
is no question about that, we have to continue to do that and
that is a process that any department will have to go through.
Mr Gould might be able to deal with the specific figure that you
have identified.
Mr Gould: I recognise the £670
million which comes from the MPR 2005 report. The reality is that
a lot of these equipment programmes take a long time; there is
a difference in view of priorities. None of these changes take
place without the agreement of the customer. We are enjoined by
several reviews of procurement and the Public Accounts Committee
to trade performance costs and time. Personally, I would much
prefer most of that trading to take place before the major timescales
and costs are actually announced, as I was referring to earlier,
but if they need to take place later in the programme we should
not shy from doing so.
Q70 Mr Jenkins: The length of programme
is a major concern and you have the world's record for actually
starting programmes which, by the time they get to the delivery
point, are probably redundant, and it is the grandchildren who
will drive these machines rather than the people they are intended
for, because some lengths of the projects are an embarrassment.
We brought in this smart procurement; we brought in this gateway
procedure. The gateway procedure at the moment is being used on
the aircraft carriers.
Mr Gould: Yes, it has.
Mr Jenkins: Possibly very, very successfully.
We are going through the detail to the degree and `nth, but it
means that when we actually get past the gateway the project should
be completed on time and on budget. Am I being naive or—as
someone who is not cynical in any way, shape or form, taking everything
on trust—is someone using the gateway to delay the programme
because we have the affordability problem with our major procurements?
Chairman: I will bring Mike Hancock in
on this question as well.
Q71 Mr Hancock: Let the Minister
answer that one first, Chairman.
Des Browne: I think Mr Gould was
gearing himself up to answer this specific question.
Mr Gould: That specific point,
is someone using the gateway as an excuse for delaying the programme?
Absolutely not. I am sure that you know that the gateway process,
the OGC process, actually reports back to the project director,
the project manager; it is a method of assuring the project director
with outside scrutiny that the way the project is progressing
is correct. The objective, absolutely, similar to FRES, is to
make sure that we understand the risks in the construction, do
we have the design that we can construct and do we understand
the costs of that construction programme and do we understand
the schedules in that construction programme so that we can then
monitor the subsequent progress of the programme with assurance?
The process of gateway and the other assurance techniques that
we are using are precisely to make sure that when we make the
proposition to the MoD's investment board and indeed to the Treasury
and others, we actually understand the proposition that we are
making and we are confident that we can manage it within the risk
profile that is set out. Projects are difficult, things do go
wrong inside projects; we need to have understood the consequence
of those things going wrong and therefore set the right parameters
at the start of the project and not do it prematurely, which is
what we have tended to do in the past and jumped to decisions
too early, and then you get something that looks like a cost overrun
or a delay and, quite correctly, we are upbraided for doing that.
Delaying this thing will not make it get any cheaper; you need
to get the time right and not stretch it out—stretching
it out makes it more expensive. So there is no incentive to do
that.
Q72 Mr Hancock: Does that not also
then lead to the probability that pressure on the budget becomes
so great that delaying it is one thing, but delaying it with a
motive for eventually planning to abandon one of these projects
is another? Are there any discussions going on about options for
either downgrading the spec on any of the current major procurement
issues that you are dealing with or to abandon any of them in
particular?
Mr Gould: Are you talking generally,
right across the board?
Q73 Mr Hancock: Yes, generally. On
major projects. Tell us the biggest projects you are dealing with,
everything from the aircraft carriers through to a strategic tanker
and beyond. Are there serious discussions going on, which would
possibly lead someone to believe that there was a chance that
they will not happen?
Mr Gould: There are no serious
discussions going on in any of the ones that you have mentioned.
Q74 Mr Hancock: I have only mentioned
two.
Mr Gould: That is not very many.
There is a bi-annual process now of going through the equipment
plan and judging the programme against affordability and we are
coming up to a Comprehensive Spending Review, and of course people
have to look at options, but that is not an answer to the point
on the carrier.
Q75 Mr Hancock: No, it is a very
specific issue here, is it not? We are being told that the capability
of our Armed Forces depends very much on the way in which they
are able to be supported in various ways.
Mr Gould: Yes.
Q76 Mr Hancock: This is a serious
point about the issue of whether the Treasury themselves recognise
the very difficult points of stress that the Ministry of Defence
are under. Are you, as Secretary of State, as somebody who comes
from that background, confident that the Treasury itself is appreciative
of the very real difficulties that you face and that you are not
going to be placed under unnecessary pressure because of Treasury
activity to either downgrade the requirements of our Armed Forces
or, indeed, to cut some of the major programmes that have been
up for consideration?
Des Browne: That question is directed
to me. Some of the detailed questions I have had to defer to Mr
Gould, and I am sure that Committee members will understand that.
Q77 Mr Hancock: Yes, I understand.
Des Browne: Can I just say fundamentally,
in the time that I was in the Treasury the relationship between
the Treasury and the MoD, in terms of mutual understanding and
building the skills within the Treasury team to be able to understand
the very issues that you identify, moved significantly. It is
candidly very easy, and I think sometimes lazy politics, to caricature
the Treasury's relationship with departments in the way in which
people do. I know this from my own experience as a Minister that
the way in which the Treasury operates is to seek to understand,
to make joint and informed decisions in the way in which you described
that they ought to be done. So I am confident that that resource,
which was there when I was a Treasury minister, is there and improving,
and I have had meetings with colleagues in the Treasury at which
those officials who have that resource have been there displaying
those very skills, and I am sure that independently the appropriate
officials from the MoD would say that that relationship is developing
and improving, and it is that relationship that will be at the
heart of the decisions that will need to be made in the context
of the Comprehensive Spending Review, and we are only in the foothills
of that process at the moment. I have not yet in the Department,
as Secretary of State, in the 10 weeks I have been there had the
opportunity to review the equipment plan and the way in which
Mr Gould identifies that periodically it needs to be done. I am
open to coming back to the Committee to answer these questions
myself when I have had the opportunity to do that work, if that
is of assistance to the Committee. I recognise that there are
restrictions on my ability to be able to answer detailed questions
but that is not my job in any event. We will not cover all of
the waterfront that members want to cover in this meeting and
I am open to coming back, perhaps after the recess, when I have
had an opportunity to do these additional things in relation to
my job.
Q78 Mr Hancock: Can I take you back
one quick minute to the waterfront area in Portsmouth, who will
welcome the arrival of the new aircraft carriers, and I am specifically
asking the question, maybe to Mr Gould: you are not aware of anything
that is now going to further delay the already identified milestones
that have been presented to this Committee on the provision of
those two carriers?
Mr Gould: No, I am not.
Des Browne: Could I just say to
Mr Hancock that I am looking forward to chairing my first Admiralty
Board there this afternoon and that, I have no doubt, will significantly
improve my ability at some time in the not too distant future
to be able to engage with the Committee in relation to these detailed
issues!
Chairman: Can we move on to the issue
of women in the Armed Forces? Adam Holloway.
Q79 Mr Holloway: Brigadier, we notice
that there are no female officers above one star. What are the
factors that influence this?
Brigadier Andrews: The factors
that influence selection for promotion are ability, which is measured
in an annual appraisal, and employability based across a wide
career profile. Of course, for the most senior officers we look
for those who have demonstrated their ability and their potential
in a wide range of appointments, both in command and on the staff.
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