Examination of Witnesses (Questions 80
TUESDAY 18 OCTOBER 2005
COLES CB, MR
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 boardsbecause
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 approachthen 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
Q82 John Smith: I am a great believer
in getting things right rather than rushing them, but no ball-park,
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
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
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
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
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 relatedin
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
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 date2012and
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
Mr Coles: Well, I will examine
what my predecessor has said and perhaps advise you
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 spentand we were talking
about thatbefore 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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