Examination of Witnesses (Questions 20
TUESDAY 18 OCTOBER 2005
COLES CB, MR
Q20 Mr Jones: The answer to that
question is BAE systems or Thales on their own could not have
Mr Pryor: I think the last time
that the defence industry in the UK could deliver a prime contract
delivered by its own resources was back in the early 1900s. Certainly
my old company, Vickers, built the Picasa for the Japanese in
that way. Everything was built in its own factories in the early
1990s. Latterly, and certainly nowadays, somebody may have the
prime contract but a very large proportion of the supply of that
prime contract is subcontracted to others.
Q21 Mr Jones: I am aware of that.
Mr Pryor: In the original two
competing bids two years ago now, KBR was supporting Thales and
their rainbow team. At the time I remember commenting that if
Thales had won the contract the first phone call would be to my
boss and my second phone call would be to BAE to go and talk about
how to bring BAE's expertise into our rainbow team. As it happened,
when Thales did not succeed as the prime contractor in forming
the Alliance, the first phone call was to my boss and the second
phone call was to BAE saying, "Can we come and help you".
We need all the skills of industry required to deliver the programme.
Q22 Mr Jones: Stop trying to confuse
the issue. I am quite aware about the procurement process in the
defence industry. Are you saying that in order to procure these
two ships it was not possible for either BAE Systems or Thales
on their own to be the prime contract or of the systems integrator
Mr Pryor: With their own resources?
Q23 Mr Jones: No, obviously using
a system in terms of a working partnership. I do not know enough
about the two bids, the bit about the industry. Why could one
of those not have delivered this on their own?
Mr Coles: Of course, none of us
would say they could not, but we believe this is a better way
of running the project to bring in the costs, performance and
time using all the skill sets including the three companies represented
here and the Ministry and a better way of sharing the risk.
Q24 John Smith: I do not think we
have a problem with the concept of Alliance as long as there are
very clear lines of accountability in terms of contract responsibility
and contractors are held to account. Is that the role of the integrator,
Mr Coles? Will that be your organisation's role to hold contractors
Mr Pryor: Our role as a Physical
Integrator was to bring a set of experiences that were different
from the other two partners, mainly from the offshore oil industry
sectorwe have provided a team of people with that expertiseand
to bring a particular set of tool sets in programme management,
cost control management, interface management and planning to
the process. In addition, we can act to undertake the competitive
procurements which might involve Alliance partners bidding for
fabrication assembly set in to work and we can act in that role
because we have no manufacturing facility here in the UK; we supply
people and tool sets. In that way our expertise is in placing
the contracts, and to the extent that our programme managers and
project managers in the integrated team will be liaising with
the works' contract suppliers, we will be holding them to account.
Their contract is placed with the Ministry of Defence, so it is
the Alliance holding the contractors to account.
Q25 Mr Hancock: If I can take you
back to before the contracts were awarded. No Minister giving
evidence to us or in discussions we had within the MoD suggested
at any stage that there would be anything other than one prime
contractor, and if that was the case the price should have included
the integrated project leader who would have driven that. When
you submitted your bids separately, presumably your bids included
that price. It was only when Ministers decided byusing
Kevan's wordsa political fudge to bring both companies
into the table that they suddenly realised they might have a problem
here and they needed a third player to make sure this was done.
The Alliance was put together and a cost was evaluated to that
which was over and above the original cost which both of you bid.
Advancing Kevan's point: there was an increase in cost before
the contract even started because of the process. If you were
really cynical, and I am, you could suggest that was done because
the Government was slightly uneasy about the ability of these
two companies to work together without someone prepared to knock
heads together. Also, it had some doubts about the procurement
cabinet inside the MoD having the ability to do that themselves.
Is that right or wrong?
Mr Coles: Certainly KBR, in their
role, will bring some additional project management skills into
the project which are essential. All those things we need to do
for the Alliance and for the project. Secondly, they bring the
innovation, perhaps, from the oil and gas process changes which
we will need inside the project. It is a combination of things,
it is not just one particular issue. It is the whole range of
skills they bring in from a sector which has a good track-record
of bearing down on costs, the large multi-site complex projects
which this will be.
Chairman: Thank you for those answers.
Can we move on now to French involvement in the programme or the
possibility of French involvement in the programme.
Q26 Robert Key: Mr Coles, can you
please confirm that French companies have approached the French
and British Governments with a view to building a third carrier
in addition to the two British carriers to serve French interests?
Mr Coles: There is no proposal
from any French company to build any part of this programme at
Q27 Robert Key: Has there been a
proposal from the French Government?
Mr Coles: That is a different
Q28 Robert Key: That is why I am
Mr Coles: The French navy, the
French Government, the French administration have a requirement
for a second carrier in the public domain, which they recently
funded which has a very similar shape, size and role to the current
UK version. They have been studying that to see whether the UK
ship, as defined today, could be adaptedI use the phrase
adaptedto meet their particular requirement. They have
concluded with industry's support, French industry in particular,
that is a possibility. Therefore, that is where the project stands
at the moment. The French administration will have to decide whether
they wish to pursue that with HMG or not, and those conversations
are obviously going on but are not yet concluded nor decisions
Q29 Robert Key: Can I explore who
the "they" are in France? Are we talking about the Director-General
Mr Coles: I would say the French
administration in general.
Q30 Robert Key: I am sorry, it cannot
be the "administration in general". Are we talking about
the DGA or not?
Mr Coles: We are.
Q31 Robert Key: It is the DGA, good.
It is said that the French are going to have to make a decision
on whether or not to proceed with this by mid October; that is
now. Do you believe that is the timescale by which the French
are going to decide this?
Mr Coles: I believe it will be
a little bit later than that by a couple of months.
Q32 Robert Key: That is quite soon.
Do you think it would be possible for French companies, like DCN,
Thales possibly, to join the Alliance or would there be a separate
Mr Coles: It would be possible
but I doubt very much whether they would join the Alliance. They
might be subcontracted to the Alliance, but that is speculation.
Q33 Robert Key: If the French accepted
the design of the carriers so far, would they pay for the intellectual
property rights so far agreed by the British or would they just
start paying for any amendments that they have made because after
all the chief executive of DCN said, "Clearly the British
design is compatible with the operational means of the French
Navy and if the French Government chooses a design we will use
it and just do some small changes". It rather assumes that
the French think they can pick up all the intellectual property
rights that you have worked on so far for free.
Mr Coles: I am sure you would
wish me to say that if we have developed something in the UK over
a long period of time, we would expect some contribution towards
that if we had entered into any programme, and I suspect that
would be the case.
Q34 Robert Key: Who will decide that?
Will it be the Alliance who decides the shape of the relationship
or will it be led by the Ministry of Defence at a political level?
Mr Coles: I am sure we will give
Ministers the advice, but they would take back what that will
Q35 Robert Key: Can I ask Mr Pryor
whether you or the company have had discussions with any other
French companies in this respect about this particular project?
Mr Pryor: Nothing substantial.
I have had two visits to France on the project about six months
Q36 Robert Key: Can I ask Mr Cameron
too, because obviously this is absolutely crucial to you, that
the French Thales, who are your owners, if you like, are very
keen to progress this, are they not?
Mr Cameron: Yes, they are. To
date, we have conducted studies with the entity which is a combination
of DCN and Thales France with our Alliance partners on CVF, namely
Thales, in a lead role supported by BAE today. Those studies were
requested in order to prove the feasibility of design commonality
in the main hull relating to both projects. Those feasibility
studies did nothing more that prove that a high degree of commonality
Q37 Robert Key: Finally, back in
the Sixth Report of Session 2003-04, the Defence Procurement Report
of this Committee, Sir Dick Evans, who at that time was the chairman
of BAE Systems, told the Committee that he did not expect BAE
Systems would participate to any significant extent. Has that
changed, Mr Geoghegan? Would BAE Systems now be interested in
this sort of scheme with the French?
Mr Geoghegan: It will clearly
depend on the nature of the proposal which emerges from those
discussions. Clearly there are some key issues. There is the one
of the IPR, as John said, and I am sure, that can be sorted out.
There is also the issue of bringing any French involvement into
the programme not affecting the underlying project that we are
running here in the UK. Therefore, the depth of involvement that
the French industry would have clearly has bearing on that. We
have been party to the discussions with the French industry and
have evaluated a number of thoughts of how they might include
themselves, and they are wide ranging. Certainly at one end of
the spectrum where we are sharing common design and we are co-operating,
but short of jointly building ships, then we can see value to
both the French and to the UK and on that basis system BAE Systems
would be part of it.
Q38 Robert Key: Mr Coles, have any
other governments within the EU or beyond it expressed any interest
in joining in the Carrier Programme?
Mr Coles: Not to my knowledge.
Robert Key: Thank you.
Q39 Mr Crausby: I can understand
why the French would be interested in co-operating on this project.
It makes obvious sense if they want to build carrier and we want
to build two carriers. It stands out a mile they would be interested.
Can you tell us something about why that would be in the best
interests of the British Government? Would there be cost savings
and where would those cost savings be from? Perhaps you could
tell us something about the added complications that would bring
in and where. I was interested in what you said that there would
be sub-contractors to the Alliance. Clearly the French Government
would not be sub-contractors to the Alliance so can you tell us
something about that relationship and how the French Government
would fit into the Alliance and what cost savings it would deliver?
Mr Coles: Assuming that they would
wish to do so, there would be some separate issues that would
need to be resolved. The first thing is that any relationship
on any sort of programme would have to ensure that the UK programme
was not disturbed. So that is first of all. The second issue would
be there would have to be genuine savings, ie that it did not
cost us any more but it did cost us measurably less. We would
have to look at the areas where that could be achieved. One is
clearly the non-recurring costs that all projects have. Clearly
if you were to have some form of common parts of the ship, the
effort required could be in some way shared, if I can use that
phase. You could imagine that some of the equipments could be
bought jointly as opposed to separately, so for example buying
three of things instead of two of things could give you some marginal
savings, both in the administration and the procurement costs.
Finally, there is the whole life support costs. The long-term
support of three ships as compared to two ships is a saving to
both nations. The dialogue about how that would work and if it
would work needs to be teased out because what you do not want
to do is introduce any additional bureaucracy to the programme
to make it more complicated because clearly neither nation would
wish that. So there is a whole range of possibilities. None has
actually been decided because until the French administrationto
use that phrase with apologiesdecides it wishes to pursue
this, then really they are only possibilities and they only become
probabilities by further clarification with French officials and
with the French Navy.