Select Committee on Defence Minutes of Evidence


Examination of Witnesses (Questions 20 - 39)

TUESDAY 18 OCTOBER 2005

MR JOHN COLES CB, MR ALLAN CAMERON, MR CHRIS GEOGHEGAN AND MR TONY PRYOR CBE

  Q20  Mr Jones: The answer to that question is BAE systems or Thales on their own could not have done this?

  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 role?

  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 to account?

  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 sector—we have provided a team of people with that expertise—and 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 by—using Kevan's words—a 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 all.

  Q27  Robert Key: Has there been a proposal from the French Government?

  Mr Coles: That is a different question.

  Q28  Robert Key: That is why I am asking it.

  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 adapted—I use the phrase adapted—to 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 made.

  Q29  Robert Key: Can I explore who the "they" are in France? Are we talking about the Director-General of Armaments?

  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 French Alliance?

  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 be.

  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 ago.

  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 is possible.

  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 administration—to use that phrase with apologies—decides 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.


 
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