Select Committee on Defence Minutes of Evidence

Examination of Witnesses (Questions 60-79)


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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