Examination of Witnesses (Questions 40
- 59)
TUESDAY 18 OCTOBER 2005
MR JOHN
COLES CB, MR
ALLAN CAMERON,
MR CHRIS
GEOGHEGAN AND
MR TONY
PRYOR CBE
Q40 Mr Crausby: Clearly it would
involve quite complicated negotiations on a project of this size.
Can we be absolutely assured that the MoD will not make any compromises
from the point of view of design of the programme? One of the
things that interests me is what will the French fly off their
carrier in comparison to what we fly off our carrier? Will that
mean completely different things from the point of view of the
carriers? I know we are going to talk about the Joint Strike Fighter
later but these two things have got to come together in some respects
from the point of view of the initial design. Can you tell us
something about that?
Mr Coles: There are some parts,
of course, and the aircraft is a particular one, where the French
Navy would be operating different aircraft, but the broad characteristics
of how those aircraft would be operated from either ship would
be very similar. There would not need to be detailed changes to
support the individual aircraft because of the aircraft characteristics,
so that is not a big issue, I do not think. The rough shape and
size will accommodate both aircraft. The real issue—and
you have touched on this—is we do not want to make it over-complicated
in terms of administration, in other words you do not want to
produce costs and delay in decision-making. The key to any collaborative
programme or co-operation programme—call it what you like—if
that is the way that Ministers decided to go, would be to ensure
that we did not produce additional bureaucracy and decision-making
in the process. Perhaps finally, it is not aligning our requirements.
This is taking a solution that we have developed, as Mr Key said,
and adapting it to meet French requirements. So it is adaptation
of this new product, but of course any adaptation, if they decided
to co-operate or collaborate, would be for the French administration,
for the French DG in this case, to decide how to fund that. It
would not be funded by UK plc.
Q41 Mr Crausby: You have talked a
great deal about cost but what about jobs? There are many different
cross-references from the point of view of what is done in British
shipyards. Would you, for instance, consider building all three
carriers in French shipyards? Is that on the cards? Is that politically
acceptable?
Mr Coles: I think those discussions
on the particulars of how, what and when we would like to collaborate
or co-operate are really quite some distance off, so I do not
think I can give a view on that at this stage. However, you would
save some non-recurring costs if you did it in terms of design
costs and procurement costs, as I have outlined, you are bound
to. How that would work out in terms of sharing those costs and
where they would fall is speculative at this stage.
Q42 Mr Crausby: The fundamental question
is there is an enormous difference between STOVL from our point
of view and the French. Can we have some qualification on that
as to what the French would fly off their carrier?
Mr Coles: I think you would have
to ask the French Navy what they are going to fly, but my understanding
is that they are flying the Rafale off the carriers (and other
aircraft too actually) but you will have to ask them. I can send
you a note if you wish.[1]
I am not qualified to give an opinion on that.
Chairman: I think that
would be helpful because the difference between flying STOVL on
aircraft and non-STOVL would be quite significant.
Q43 Mr Hancock: I must say, Mr Coles,
your response to Mr Crausby's question was a lot different to
the one you gave to Robert Key. You seem to have had considerable
discussions about a contract possibility with the French. In your
response to Mr Key you gave the impression that you were just
on the edges of it. You went into some detail about what had been
discussed and what was potentially on offer there in the relationship.
I would be interested to know exactly what your role has been
in those negotiations.
Mr Coles: I did qualify my remarks,
I think, by saying that if we did decide to collaborate with France,
this is what we could do, not that we had decided to do, so I
did make that distinction.
Q44 Mr Hancock: So what was has been
your role in the negotiations to date?
Mr Coles: To facilitate discussions
between the French and British industries about what is possible
from a technical solution point of view, what is possible—
Q45 Mr Hancock: Has this been going
on for some time?
Mr Coles: It has been going on
with the French for, I think, something like two years.
Q46 Mr Hancock: Two years with the
possibility of a joint venture?
Mr Coles: No, no, no, to establish
what was possible, whether it was feasible for this particular
design to meet the French requirement? That is the first question.
Then deciding it is possible, does the French administration wish
to pursue and in what format any form of co-operation. That is
for them to decide. What could be done thereafter, as I said,
there is a whole range of things you could do but that has to
be decided and agreed by ministers and none of that has been decided.
I was just saying these are the range of things that could be
possible in any form of programme.
Q47 Mr Hancock: Have you had meetings
with senior French ministers and British ministers on this issue?
Mr Coles: I am sure that is a
question for ministers to answer rather than myself.
Mr Hancock: You do? I thought that was
a legitimate question to ask you.
Chairman: I think the question was about
senior French ministers rather than—
Q48 Mr Hancock: French and UK. I
expected an answer.
Mr Coles: With respect, Chairman,
I think ministers must answer whether they have met with opposite
numbers.
Q49 Mr Hancock: I asked whether you
had met with senior French ministers.
Mr Coles: French officials I have
met but not French ministers.
Chairman: Thank you.
Q50 Mr Havard: Can I be clear. What
I understood the situation to be is that industry have been tasked
with doing these discussions you have talked about, which are
about technical feasibility and about reducing cost and risk,
whilst preserving the national programme that currently exists
and the time-line. So there is going to be no change there. Is
that what you are about doing because that is what the Ministry
of Defence think you are doing because that is what they have
written to me and told me you are doing? Additional to that, there
are other working groups and goodness knows what going on to investigate
the range of co-operative possibilities perhaps within that and
beyond that as well. That is what I understand is going on. On
this question of the French specifically, you talk about adaptations
being made so that we do not disturb our national programme, we
do not disturb the time-lines and all the rest of it, but if the
French participate and do whatever they want to do, if they want
to put a new deck on it and have sling shots instead of short
take-off and landing or whatever, that is their problem and they
pay. Is that where we really are?
Mr Coles: What I have said, and
I will repeat it, is that we have looked at the technical feasibility
and between British and French industry we have concluded—the
French administration as we have accepted—that it is technically
feasibly to adapt this ship to meet their requirements. Thereafter
no decision has been taken about whether they are going to pursue
that. If they did, that opens up a whole range of possibilities,
as I outlined already, of how you might take that forward, within
some constraints about time, our own programme and all the other
constraints. So in a sense we have explored what is possible.
We have not taken any decisions. It is a decision for the French,
I might add, in the first place about whether they wish to pursue
it.
Q51 Mr Havard: You told me mid-December
earlier on. That is when the answer is coming, is it?
Mr Coles: That is the sort of
time-frame.
Q52 Mr Havard: That is the sort of
time-frame. What does that mean? Does that mean Christmas or does
it mean the middle of January?
Mr Coles: I think it means around
that time-frame.
Mr Havard: That is the best I
can do, Chairman.
Chairman: I think we have taken that
as far as we can. We will now move on to ship building. David,
do you want to take that?
Q53 Mr Hamilton: The MoD's submission
mentioned the "creation and integration into the Alliance
of the Shipbuild Entity".[2]
What is the Shipbuild Entity and when is it expected to be created?
Mr Coles: The Shipbuild Entity
was that part of the programme which would bring together all
the people who might be engaged in building the ship, ie the physical
construction and the detailed design, to form, if you like, a
piece in the Alliance we could contract with or negotiate with
about how this is best to be done. That is what the Shipbuilding
Entity was set up to actually do some time ago. The proposals
to the Ministry are not mature enough about how that might work,
but it has the aim of creating an entity, ie how to build it and
where and the people who might be associated with it.
Q54 Mr Hamilton: What would its status
be within the Alliance?
Mr Coles: That would need to be
debated. It could either be a separate sub-alliance or they could
be full partners or a combination. That is yet to be teased out
because we have not received formal proposals from the companies
about what that format might finally look like.
Q55 Mr Hamilton: BAE Systems is a
member of the Alliance and owner of one of the shipyards. There
is an obvious conflict there. How will you be able to resolve
that conflict with BAE Systems?
Mr Coles: One of the roles is—and
it does depend on the final format of the Shipbuild Entity of
course—for KBR on behalf of the Alliance to police precisely
prices and the programme to make sure that it is all viable, so
they would have a role in that as well. I am not sure there is
a conflict of interest, although we have to make sure they do
not have two voices at the table, a shipbuilding voice and a voice
as a member of the Alliance.
Q56 Mr Hamilton: That is not a conflict?
Mr Coles: It is something that
we have to tease out. You are right to recognise it.
Mr Pryor: There are many normal
procedures which we have employed in very similar situations when
individual companies inside an alliance are bidding to the alliance
for work in various of their facilities. What normally happens—and
certainly this is my own personal experience—is that you
run an assessment tender process with sealed bids at which you
have independent observers for those sealed bids (in this case
we had the Ministry of Defence as the independent observer) and
the participating Alliance member does not participate in the
recommendation of the assessment team. It goes to the Alliance
Management Board, which is the executive authority for the whole
project, and at that board the participating member has to be
excused, or they excuse themselves, from the decision process,
and it accepts the decision of the other alliance members on the
particular tender put forward. So there are some very robust procedures
for making sure that the conflict of interest is not there.
Q57 Mr Hamilton: Can you find an
independent observer?
Mr Pryor: I have operated many
times with independent observers. They come either from industry
or from one of the trade associations normally.
Chairman: We will now move on to the
potential shipyards. Mike, do you want to start on this?
Q58 Mr Hancock: When the contract
was being talked about there was a lot of speculation around the
country about who would benefit from the shipbuilding. It finally
came to fruition, I think, in January 2003 where four yards in
particular were identified—BAE Systems' naval yard at Govan,
Vosper Thornycroft in my own constituency at Portsmouth, Swan
Hunter on Tyneside, and Babcock BE at Rosyth. Is it still the
intention of the Alliance to give the work to these four yards
in the same sort of proportions that were being discussed back
in those heady days of January 2003?
Mr Coles: I think what I would
say is there are a number of proposals that the industry and the
Alliance have had about where this ship could be assembled and
where it could be done and how it could be done, but we have not
reached a definitive view on any particular solution. Clearly
what I and the rest of the Alliance board want to establish is
any solution that is put up minimises capital investment, that
the solution offered has the capability and capacity to match
all this, that we have the right level of competition and the
right skills-set to do this. In a project like this to bring all
the Alliance partners in and to sign up to that, as I said some
time ago, is a long process and if we want to de-risk this and
take the risk out of the programme we have to get all that information
assembled, clearly on the table, and understood by all, before
we make recommendations. In the end these would be the sorts of
things you are doing to the rest of the Ministry of Defence to
make sure that it is the viable way forward and is a minimum-cost
solution for the delivery of these ships. So it is a long process
and no decisions have been taken. A lot of people are speculating
how we could do this, where we could do this, but I need to think
about capacity, capability, cost, risk and minimum capital investment,
because all those are important factors in driving the final costs
of the programme. We do not want to create capacity, for example,
that we would only need for a short time. So it is a complex jigsaw
to put together and we have not actually reached a solution yet.
Chairman: Mike Hancock wants to come
back on that but before he does Kevan has a question.
Q59 Mr Jones: So the report in the
Sunday Times that Swan Hunter, one of the main four yards
mentioned, is not actually one of the main yards is not correct?
Mr Coles: As I said, we have not
decided on any solution so no decision has been taken. As far
as I can judge, there is enough potential work for any of these
four who wants to compete for work.
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