Examination of Witnesses (Questions 60
TUESDAY 18 OCTOBER 2005
COLES CB, MR
Q60 Mr Jones: I hear what you are
saying but can I come back to you and say that I actually met
last week with one of these four yards who confirmed to me the
fact that Swan Hunter was not going to be part of that four, the
reason for it beingyou mentioned de-risking and I understand
risk aversionbecause of the problems that Swan Hunter is
having already with its own landing support ship, notably that
the cost overruns had been tremendous, that it is basically now
being managed in the yard directly by 20 employees of BAE Systems,
and the fact that most recently there have been problems with
the electronics in those ships. Are you saying that Swan Hunter
is really still in those four?
Mr Coles: What I have said is
all shipyards are capable of building some parts of this ship.
Q61 Mr Jones: That is not what I
Mr Coles: I understand that. We
have not taken any decisions on any of the companies, never mind
if it is Swan Hunter or anybody else.
Q62 Mr Jones: I am sorry, one of
these yards told me last week that you had made a decision and
the reason for that is because the MoD are not satisfied with
the present ownership and management of Swan Hunter Shipbuilding
Mr Coles: With respect, I cannot
really take comments from somebody commenting to you about whether
that is the policy or not.
Q63 Mr Jones: Well, it was also in
the Sunday Times a few weeks ago.
Mr Coles: Or in the Sunday
Q64 Mr Jones: Obviously leaked from
a very good informed source. Can I just ask one last question
then. If they are not part of this, which it seems to me they
are not going to be, what is your reaction to Yap Kroese, the
owner of Swan Hunter commenting in the Newcastle Journal
the fact that he is not one of these prime companies, he is not
even going to tender for any of the work?
Mr Coles: That is a question Mr
Yap Kroese has posed and he will have to answer for it.
Q65 Mr Jones: Are you satisfied as
the MoD with the work that has been carried out so far on those
two ships in Swan Hunter?
Mr Coles: It is not my position
to comment on projects that I am not responsible for.
Chairman: That is not this inquiry.
Q66 Mr Jones: I am sorry it is, Chairman,
because this same yard might be part of this contract, therefore
of course you have got to study what is going on already with
a contract that has been let there, surely?
Mr Coles: When we come to the
time to make decisions about where the work will be contracted
we will doubtless take in performance as one of the criteria.
Q67 Mr Jones: If you have got a yard
which has gone way over cost on two ships, has had another company
come in to rescue it in terms of the management process, and I
understand some technical problems on one of those ships, surely
it is going to be a big no-no to put work in there if you want
this to be a risk-free project?
Mr Coles: It is certainly one
of the factors in selection.
Q68 Mr Jones: Can I have a final
bite of the cherry because you have not given me a great deal.
Have you actually had discussions about the performance of Swan
Mr Coles: Personally, no.
Q69 Mr Jones: Not you. What about
your team as a whole?
Mr Coles: Do you want to comment
on that? They were sent an enquiry out.
Mr Pryor: On discussions, if I
might backtrack slightly, the first question is very simple. We
are going to build two aircraft carriers in this country. Following
on from that, all the detailed questions, as John has alluded
to, are enormously complex. We are trying to make a plan to build
a ship of the nature that no one yard in this country can build,
we know that, and we have got to try and utilise the facilities
of this country. There is no wish, no need, nor political will
to go overseas. It is going to be built in this country. We now
have to match a programme of two complex ships, decide what is
the cheapest, best, most easily constructible design of the ship,
how you break it up into small pieces, where you deliver it to
to build into a big ship, and we are talking about trying to do
this in facilities that we are going to need in five years' time
or longer. We can all forecast where facilities are going to be
in five years' time. The team has gone out to industry with request
information to assess the current state of facilities. We went
out to 21 shipyards in this country, 18 responded within the timescale,
two have since gone into administration, leaving us with 16. Here
we are trying to make plans for facilities in four or five years'
time. I am personally reasonably sure that if Swan Hunter are
in business in seven years' time they will get business because
the fabrication capacity of this country is going to be required
to deliver these ships.
Mr Jones: Not under the current management.
Chairman: I think that is as far as we
can take this. Mike?
Q70 Mr Hancock: I think your last
point, Mr Pryor, is a good one. You are talking about capability
in five years' time. When these carriers were first talked about
the ministers came here to the House itself with glowing comments
about the way in which the work would be shared around the country
and these four yards in particular would benefit from it. Those
yards who you have contacted must be saying to you that delays
in getting the main contract decided and their share of the work
must be having a dragging effect on them and their ability to
hold skills together for five years' time, to have the workforce
in place and the ability to do it. I do not know whether the drag
out of this will inevitably mean that parts of British ships,
if we do a deal with the French, will be built outside of the
UK, but certainly if you do not make a decision fairly soon and
give some confidence to the companies and to the workforce, you
are going to have a real problem in having the skills that you
are going to require.
Mr Coles: Correct.
Q71 Mr Hancock: How are you going
to deal with that now?
Mr Coles: Those are the complex
questions that we are wrestling with at the moment to try and
put together a comprehensive project plan that we know will not
fall down at the first assessment of risk which is the facilities
in place in two years' time. You are quite right, the question
of the facilities is not just the facilities but it is the resources
and the people there to provide the workforce. We are not in business
as project managers, we are not in business in the Alliance to
place work in advance of design being completed. We wish to get
the programme done in an orderly manner as the best way to keep
it to cost, time and specification. We are in discussion with
all these shipbuildersthe four and othersto see
how we can integrate the plan to the best possible outcome for
Q72 Mr Hancock: It is not unreasonable
then for this Committee to assume that out of the four clearly
identified at all stages who would be the major beneficiaries
of this contract, that you would have had serious negotiations
with them and you would have looked, in your words, Mr Coles,
at the risks of giving them work. I am not to know. The workforce
in those businesses are entitled to know whether or not you feel
that they are up to the risk.
Mr Coles: Let me come back to
the question. The issue raised about skill loss and facilities
loss is a real issue and we are alive to it. We have to ensure
that when we build the ships they are going to be there. That
is one of the concerns we have. In terms of the companies that
people have nominated, there are a number of companies here which
clearly have the skills-set but not necessarily the capacity to
be part of this programme. Of course, we have entered into discussions
with a number of companies about what they can do and the contribution
they can bring but it is the matrix of all those companies and
how we put it together that gives us the most economic solution
for the final fabrication costs, manufacturing costs, and testing
and commissioning, that is the key to this and the roles each
might bring to that and those particular skills-sets. I am alert,
as we all are alert, to the loss of the fundamental skills-set
in design, manufacture, testing and commissioning in this rather
Q73 Mr Hancock: Are you satisfied
then, Mr Coles, that we will have the capability to build these
two ships wholly in the United Kingdom when you finally decide
to let this contract?
Mr Coles: Our current analysis
suggests that we have enough national capacity to manufacture
and assemble these ships with some marginal increase in capacity
Q74 Mr Hancock: So what you are saying
is that currently you would not have the capacity unless one of
these operators, or somebody, is prepared to invest in enlarging
their facilities? The alternative to that is to have part of this
ship built abroad?
Mr Coles: You could always look
to that as an option, but we will have to make some investment
in some companies to finally assemble this ship. We are looking
at the minimum capital investment, commensurate with all the other
Q75 Mr Hancock: My final question
is have you looked in your specific role, either you personally
or members of your team, at building parts of these ships outside
of the United Kingdom to date?
Mr Coles: No, we have not.
Q76 Mr Hamilton: Sticking with the
second last question raised there about capability and ability,
your current view is that we do have the ability within the shipyards
at the present time to do that. The problem of course is the time
span that you referred to earlier on and that is how these companies
are able to maintain that ability to be able to do that work over
the next several years. At which point are you going to be able
to make a declaration of which of the yards are going to be able
to do that even although it is several years down the road so
that they can retain the workforce that is necessary for them
to be able to do that?
Mr Coles: Part of the work that
we are engaged in now is to establish what is the optimum build
strategy and what that will cost and to ensure that each of my
partners in the Alliance agrees with that and the risk that that
poses and can sign up to that contractually and that cost, together
with all the other costs in the programme, is affordable for the
Ministry of Defence. As I say, it is a long drawn-out process
to establish that because each of them has to decide what they
can bring to the party, what risks they are going to run, and
what risks they are going to share with their other colleagues
for an optimum strategy. That does take, and I keep saying this,
a considerably time to do because clearly what we do not want
to do is embark on a programme that then goes off the rails.
Q77 Mr Hamilton: Just to follow up
on that. I understand the problem that you are facing. There are
30,000 people employed in Scotland in the defence industry and
over 300 companies involved in that. What discussions are you
having with other defence contractors when they are putting contracts
out? I know your responsibility lies with the two aircraft carriers
but there are a number of other contracts that come in between
now and that date. What discussions are you having with the Ministry
of Defence over that?
Mr Coles: We have a large number
of suppliers which will be equipment suppliers with which we are
holding discussions as part of the design evolution. I could send
you a list of the companies if that would be helpful.
There are a large number, in excess of 20 or 25, that we regularly
have as part of the dialogue and some are engaged and physically
employed by the other Alliance partners in supporting the current
Q78 Robert Key: Chairman, please
may we have that list?
Mr Coles: That is not a problem.
Chairman: I think that would be helpful.
Thank you very much. David?
Q79 Mr Crausby: I wanted to raise
the issue of Barrow because the expectation from the employees
in Barrow is that they are going to be very much involved in the
programme, but that inevitably will have an effect on other shipyards.
I welcome the question of the involvement of Barrow but it is
pretty obvious that if you bring in another yard, that is bound
to have an effect on others. I wondered what the prospects for
Barrow were. There is a real problem in holding skills, particularly
in a place like Barrow for submarines. Are there any complications
with Astute? Would you look at it from the point of view of the
complications that have been thrown up in the past?
Mr Coles: The Barrow site along
with the other sites in the United Kingdom are possible contenders
for building some parts of this vessel and with their skill-sets,
capabilities and facilities (subject to affordability and all
the other things I have talked about) they could, like the others,
be considered, but at this stage we have not decided whether it
is A, B, C, D or E, and I think that is right because we do not
want to be forced into solutions before we have got the right
solution and the right commitment because it is commitment from
the companies as well.
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