Select Committee on Defence Minutes of Evidence


Examination of Witnesses (Questions 80 - 99)

TUESDAY 18 OCTOBER 2005

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

  Q80  Mr Jones: In terms of these discussions you have had so far with these various shipyards, can you confirm that the owner of Swan Hunter Shipbuilders, Yap Kroese, has said that unless he is one of these prime yards he is not going to tender for the work? That is what he has said publicly on Tyneside. Did he say that to you directly?

  Mr Coles: Not to me I do not think.

  Chairman: We do not want to go over that ground again because we have had that question before. Moving on to Main Gate, John Smith, you have got some questions.

  Q81  John Smith: The original target date for Main Gate was December 2003 and there have been a few target dates since. What is your current target date for Main Gate and what work will have to be completed to achieve that target? Following on from the earlier discussion are the negotiations with the French having an impact on this?

  Mr Coles: Let me take the last point concerning the French first. As there is no formal connection with the French, that will not impact on anything because there is nothing we can say about it other than it may be. As to Main Gate, when it is will only be decided when we are confident that we have teased out the relationship between cost, performance and schedule. In other words, when those things are teased out and all joined up and the Alliance partners believe that they can deliver it, and have said so to their own boards—because one of the strengths of the Alliance is that partner companies have to convince their own boards that they can do this, to enter this particular approach—then will we go to Main Gate and confirm that we can deliver this capability with the budget in the time-frame. Therefore, we are not going to say when the main investment decision is going to be made. If we do that we force ourselves to make decisions when we have not derisked the programme, one of the clear tenets of Smart procurement. So I cannot say when, all I can say is it will be when we have teased out the issues. The issues will be: can we deliver the capability for the solution offered for the risks and have our Alliance partners bought into this with the risk and reward that it gives, in CPD's view, coming in at the EP funding which we have got for this particular programme? Until we are there we are not going to say when we are going to Main Gate because if you do that you end up making decisions which are not based upon getting those three parameters in line.

  Q82  John Smith: I am a great believer in getting things right rather than rushing them, but no ball-park, no guesstimate?

  Mr Coles: I would be speculating if I said so.

  Q83  John Smith: Without going into the question of facilities?

  Mr Coles: No, I would not want to be drawn on anything further than that.

  Q84  John Smith: So there is no official target date for the main investment decision?

  Mr Coles: There will not be any official target date for the main investment decision until we are confident that we have teased out the risks, we have agreed on capability, the solution and the price, with our Alliance partners because in this particular case they have to sign up to it as well. It is not just Ministry of Defence, they have to say they can do it, and this time it is four companies doing it, not three, so it is quite a powerful discipline on the system.

  Q85  Chairman: In January of this year this Committee was told that the Main Gate decision is expected to be taken in the second half of 2005. Is that no longer the case?

  Mr Coles: The main investment decision I doubt very much will be taken in 2005.

  Q86  John Smith: A further question. In a previous meeting of the Defence Committee in November 2004 the First Sea Lord said: "We now have 60% design definition, which is higher than any other project." As almost a year has lapsed now what is the current level of design definition of the programme?

  Mr Coles: The definition of design maturity used, and to which the First Sea Lord may be referring, is the definition about the ability to enter into what we call production engineering. It is not the design being complete. It is an assessment about whether the design is ready to enter into production engineering. If it was 60% then, my judgment is it is not a great deal further on. It is a little further on but not a great deal further on because we have had some value engineering since then which has set it back a little bit. It is not a linear thing. In other words, you do not make six months' progress and you are 5% on. It can take a long time to go from 60 to 70 to 80. In other words, it is not a linear thing. It can be a long time at the same number, if that is helpful.

  Q87  Mr Swayne: The First Sea Lord also said that the Navy had to have the first ship by 2012. Given that you have told us there is now no target for Main Gate, is he going to be disappointed?

  Mr Coles: He will only know that when ministers and others have signed up to the final main investment decision, whenever that is, so I cannot answer your question.

  Q88  Mr Swayne: Is delivery by 2012 still feasible?

  Mr Coles: It is still the target date for this programme, yes.

  Q89  Mr Swayne: So when would the Main Gate decision have had to be taken by to be consistent with the delivery of the first ship in 2012?

  Mr Coles: It does not follow that taking the main investment decision is linearly related to when the in-service date will be. You can be doing a lot of derisking in the assessment phase which actually makes the date you are going to deliver it more achievable. In other words, the main investment decision is when you commit your large resources.

  Q90  Mr Swayne: But that does not invalidate the question as to with what delivery date the decision on Main Gate is consistent. The question therefore remains: in order to deliver the ship by 2012 when will we have to have the Main Gate decision by?

  Mr Coles: They are not directly related.

  Mr Borrow: They have got to be.

  Mr Swayne: There has got to be a cut-off.

  Q91  Mr Breed: How long does it take to construct a ship?

  Mr Cameron: We are still in the assessment phase. Since last January, when you have quoted a couple of the remarks that were made, and as my colleague has said earlier on, we have engaged 21 companies that are either shipyard or fabricators in this country. As Tony mentioned earlier on, that is now down to 16 companies who will participate some way or other in the fabrication and shipbuilding aspects of this project. There are 12 other major procurement suppliers that have been engaged since January on the project, suppliers such as Rolls-Royce for power and propulsion and ALSTEC for the weapons handling side of the project, so there is significant industrial engagement across the country taking place on the project and it is a very iterative process, as John just mentioned. However, we are making progress. Sometimes that progress does not have an impact directly on the detailed design or the design maturity, that number that you are talking about, but in other areas significant industry engagement is taking placed across the country.

  Q92  Chairman: Mr Coles, can I bring you back to the question that Desmond Swayne first asked which was because the First Sea Lord said that he was adamant that he wanted this ship in 2012, Desmond Swayne asked if it was still feasible and you said that that remained the target date.

  Mr Coles: Correct.

  Q93  Chairman: Which is a different answer to a question that had not been raised in that way.

  Mr Coles: Until the ship building strategy has been agreed, until we are sure we have the capacity and capability (with all the other constraints I have mentioned) actually nailed down and the Alliance partners have agreed to all that, I cannot confirm what date that would be. We can have a date that we are aiming for. We have to do our best to try and achieve it. We will only agree to the date, whatever that might be, once we go to the main investment decision. To do anything else would set an artificial date and lead to pressures in the system to make decisions in advance of teasing out the risks, which we want to avoid.

  Q94  Mr Jones: I hear what you are saying and you are very good at avoiding answers, but what advice are you giving to ministers about this then on that in-service date? Is 2012 still feasible? You must have an assessment.

  Mr Coles: I have a target date which is given to me which is 2012.

  Q95  Mr Jones: Politicians tend to pull figures and years and delivery dates out of the air. Is it feasible; yes or no?

  Mr Coles: The answer is I do not know yet because until we have made the Main Gate investment decision, I cannot answer the question. We are seeking to try and achieve it.

  Q96  Mr Havard: You told us the Main Gate investment decision was not necessarily consistent with the delivery date. You cannot have it both ways.

  Mr Coles: What I actually said was the data with which you go to Main Gate is not directly related—in other words, if you shift the Main Gate by six weeks it does not mean the ship is out six weeks later. That is what I am saying. They are not directly related.

  Q97  Mr Havard: They are.

  Mr Coles: They are related but not directly.

  Q98  Mr Hancock: Mr Coles, it is a shame that you were not with the Defence Committee when we had three presentations on this. The starting point for each of the presentations on this was the delivery dates to the Royal Navy of the carriers. That was the critical date—2012—and back from that there were a number of critical points on the graph presented to us on three separate occasions as milestones that had to be achieved for that date to be a feasible date, to use your words. We have already gone way past two of the milestones for that and yet you are still sitting there saying that, in your opinion, it is achievable. We were told by the then project leader of the carriers when they presented the case to this Committee that it was critical that these milestones were achieved and that there was a price to pay if any of them were missed for any reason, and the price if you wanted to keep the in-service date of the carrier was an increase in cost. It is a legitimate question for us to ask for you to re-examine the evidence that has already been given to this Committee and tell us whether you now believe that missing those milestones which you obviously have done, and your inability to be able to give us a Main Gate date is going to lead to a significant increase in the cost of this ship or the first ship is going to be very late in delivery to the Royal Navy. If that is the case, we should then ask what the contingencies are within the MoD for keeping the existing carriers in service for longer?

  Mr Coles: Well, I will examine what my predecessor has said and perhaps advise you[4] because I do not have his words here of what he actually said.



  Q99  Mr Hancock: We had a graph. The critical points were all indicated to this Committee and they were crucially important for that delivery date. They were working on the assumption that they were not going to deviate from 2012. Too much hinged on it as far as the Navy was concerned.

  Mr Pryor: Could I comment and observe on a couple of those issues. I understand the question about this direct linkage with the Main Gate investment decision and the delivery date. This is an innovative working experience for us with the Ministry of Defence and an innovative working experience for the Ministry of Defence with us. It is an Alliance which in its nature is unique but it is designed that we are all of one mind to deliver an affordable carrier programme to the target date. That is what we want to do. As project managers we are looking at every which way we can do that. One aspect where I believe the Ministry of Defence has been criticised in the past is for spending too little time before the Main Gate decision. 15% of assessment funds need to be spent—and we were talking about that—before a Main Gate decision. As a supplier, in the past I have seen Main Gate decisions taken too early when the risk has not been assessed. We, the industrial partners, with the Ministry of Defence are going to be sharing the risk in this and we want to get it right for our own companies and our own percentage risk in the overall deal, therefore we want to spend the assessment monies as recommended by the various bodies and get the investment decision right at the time we want to take it. My observation as to why there is not a fixed date for the investment decision and, as I think one of your colleagues said, if you can get it right it is better than getting it wrong earlier. That is what we want to do. We are still aiming to do everything we want to do to modify the programme and modify the strategy to meet the target date at an affordable budget.

  Chairman: We are now running really quite late. I am going to move on to the Whole Life Costs. Dai Havard?


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