Select Committee on Defence Minutes of Evidence


Examination of Witnesses (Questions 60 - 79)

TUESDAY 18 OCTOBER 2005

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

  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 being—you mentioned de-risking and I understand risk aversion—because 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 asked you.

  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 Times.

  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 Hunter?

  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 shipbuilders—the four and others—to see how we can integrate the plan to the best possible outcome for all parties.

  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 complex area.

  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 in manpower.

  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 risks.

  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.[3] 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 assessment phase.

  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.


3   Ev 47-49 Back


 
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