Select Committee on Defence Minutes of Evidence


Examination of Witnesses (Questions 146 - 159)

TUESDAY 25 OCTOBER 2005

LORD DRAYSON AND SIR PETER SPENCER KCB ADC

  Q146  Chairman: May I welcome everyone to the Committee and begin by apologising for the space constraints. One of the problems has been that the Committee itself has increased from 11 to 14, which means that this end has got bigger and you have been squeezed and I apologise for that. The rooms in Portcullis House are themselves rather over-subscribed, but we will try and address this as we go through the next few weeks. Minister and CDP, welcome to the Committee. It is very good to see you. We took some evidence last week from the industrial partners on the Carrier and the Joint Strike Fighter. I wonder whether we could possibly begin by focusing on the Main Gate decision that will decide when the investment decision is going to be made. In the beginning there may be other issues that you wish to cover, but I would like our questions to be as brief as possible and I would also like that your answers could be as succinct as possible, although from time to time you will need to go into detail. The original target we were told was December 2003 for the Main Gate decision. In January this year this Committee was told that the Main Gate decision was expected to be taken in the second half of 2005. Last week we were told that there was no current expectation of when that Main Gate decision was going to be taken but that it was unlikely to be this year. What target date for a Main Gate decision are you working towards? Do you actually have a target date?

  Lord Drayson: Chairman, what I have is a clear appreciation of the importance with a project as complex and as far reaching in its implications for the maritime industry in this country that the Main Gate decision is taken when we really do know with confidence the risks that are involved in building these carriers and, importantly, the implications and the way in which these carriers are built for the longer-term situation on shipbuilding. Given the intimate relationship between the building of these Carriers and the future capacity which we have in this country, the interaction between this Carrier project and our other shipbuilding projects, it is so important that when we pass the Main Gate investment decision we have got clarity over the timescale and cost and the risks. What I am doing as Minister in coming in to this Department is to ensure that that decision, when taken, does properly determine the answers to those questions, which can then give us confidence on the long-term delivery, cost and performance of these ships when built.

  Q147  Chairman: Would you say that you had no target date?

  Lord Drayson: My view is that the ideal would be for this Main Gate decision to be taken as soon as possible, subject to it meeting the criteria which I have described. I do not want to see the Main Gate decision taken before we have the answers to these questions to a level of confidence which means that the answers to questions on cost and time and risk are really understood.

  Q148  Chairman: So from the sound of things, if I may delicately press you, the answer is yes, you would say that there is no target date as such. There is a target of clarity that you need rather than a target date.

  Lord Drayson: In my experience of managing projects over 20-odd years it is very important that the disciplines that any organisation uses to manage projects are clear and set out the principles under which decisions will be taken to commit to projects and the level of risk that in this case the Ministry of Defence takes in doing so. I think I would want to say very firmly to the Committee that I am looking to see this decision being taken as soon as possible. The reasons for that are the fundamental importance of the Carrier projects to our Forces in the defence strategy which we have set out in the Strategic Defence Review and the equally great importance of this project to the shipbuilding industry in this country. I am well aware that the sooner we make the decision on the Carriers the better for both the Navy and for the shipbuilding industry. However, this decision to go through Main Gate must be taken when we are clear about the answers to these questions. The reason why in this particular project this is challenging is because these ships are so large that they will involve multiple shipyards to build them. They will also involve multiple industrial companies who own these shipyards working together in a way which has never been done before in this country. If we do this right we have a real opportunity to help the shipbuilding industry in this country to evolve in a direction which will be suitable for the long-term needs of this country and to be globally competitive. The importance of getting this interaction between the Carrier project and our long-term Maritime Industrial Strategy is key.

  Q149  Chairman: But all of this was true in January of this year when we had a target date.

  Lord Drayson: That is absolutely right. I am committed to making sure that as much effort as possible is put into reaching this Main Gate decision, subject to it meeting the criteria which I wish to see that this Main Gate decision fulfils in the context of the long-term strategy which we have to have for the maritime industry in the UK.

  Q150  Chairman: What has changed since January of this year, not in terms that you have changed the target date but that we no longer have one? What is the main factor that has caused the delay in the Main Gate decision?

  Lord Drayson: We are working towards meeting our Main Gate as quickly as possible. What we are also doing is really grasping the nettle of building these Carriers in a way which will facilitate the long-term health of this industry. What has happened since January is that as we have worked on the Alliance structure for these Carrier projects we are building the prototype for the long-term structure of shipbuilding in this country. If we get this Carrier project right we will put shipbuilding on a strong footing for the evolution in the future. What has changed this year is a lot of work has gone in to understanding the characteristics of the changes that have to take place both within the industry itself and in terms of the engineering challenges of building these ships. Because we are going through an Alliance approach—and I would be happy to explain to the Committee if you wish more details about this—we are asking the potential participants, ie the companies coming into this Alliance, to sign up to a commitment in terms of the cost, risk and timescale in a way that has not been done before. A lot of the work which in the past would have been done later in a project is being done now and has been taking place over this year. I can appreciate the concern that it seems that failure to pass a Main Gate seems that the project is being delayed. However, I feel that this approach is in the long-term interests of this project, the long-term interests of the Navy and of getting the industry to reshape in a way which will be healthy for us over the next 20 years.

  Q151  Mr Jones: I am a bit confused by last week's answer. In last week's evidence Mr Coles said, "I have a target date which was given to me which is 2012." How rigid is that? You are saying you want to fit into an overall maritime strategy, which I agree with. If this is delayed much longer some of that capacity is going to go bust, is it not?

  Lord Drayson: As I have said, I absolutely recognise the fundamental importance of these Carriers to the Navy in the future and I understand the importance in terms of timing. I note the target dates the Department has set itself in the past. However, as Minister I reserve the right to set the in-service date of these ships once these Main Gate decisions have been properly bottomed out. I think it is important for the long-term development of our industrial base and projects such as these that we have really clear disciplines about things such as in-service dates, costs of projects and that we make sure the principles which we have set for the Department in terms of making sure that enough investment goes into the assessment of these projects—and the guidance is well established, it is up to 15%—is met.

  Q152  Mr Jones: I see this as very significant and well done to you. I think we should put up a plaque up in this room to acknowledge that someone at the MoD has admitted that these were fictitious figures for in-service dates we have had in the past. I am not sure whether you will last very long in the MoD if you continue to do this.

  Lord Drayson: My experience in business in terms of management of projects is that the only way to manage projects successfully is to set out a framework that people who are managing those projects understand and also that the people who are relying on those projects to be delivered, the Defence Committee, understand and that that in the long term is stuck to. Then we have a framework which, in terms of accountability, in terms of the interface of all of these projects to the successful defence of their country, can be managed as well as possible. This discipline is not something which I am introducing from scratch. This is building upon a lot of work which has been done in the past and I think that we are making some significant progress within the Department. I will give you one clear example of that. It has been recognised for some time in the Department that the lack of a clear Defence Industrial Strategy has dogged our ability to make decisions on projects within an overall framework. This has been worked on within the Department for some considerable time.

  Q153  Chairman: I think as a Committee we will probably need to come back to you in relation to the Defence Industrial Strategy, Minister, because that is such a large subject that we could well move on to that and spend the rest of the morning on that.

  Lord Drayson: Within the Defence Industrial Strategy, which I have committed to deliver by Christmas, it will have the Maritime Industrial Strategy. The Maritime Industrial Strategy has to dovetail with the Carrier project because the Carrier project is so important.

  Q154  Linda Gilroy: Minister, Kevan has just referred to the worries that I think are in a lot of shipyards about retention problems the longer the delay and the uncertainty goes on. In the March 2004 RAND report which your Department commissioned on "The United Kingdom's Naval Shipbuilding Industrial Base—the next fifteen years", years they noted that it was going to be busier for naval shipbuilding than has been seen recently. Indeed, I think they said that the current shipbuilding plan of the MoD will be a challenge to the industry resources available in the UK and the overlap of several programmes in the next few years will result in a high demand for labour and facilities and that any potential shortfalls could result in cost increases and unscheduled delays. I wonder if you can share with the Committee what your current assessment is of whether the UK industry has the resources and if there are specific gaps which relate to what you were just saying and what we are looking at in terms of the on-going delays in coming to the Main Gate decision.

  Lord Drayson: I believe the answer is the work which has been done over the past year on the Carrier project. In the context of all of the other projects which we are doing now and which we envisage doing in future, you are absolutely right to say that the level of war shipbuilding that this country is planning to undertake over the next ten years is the greatest which has been seen for a very long time. These two Carriers will be the largest ships we have ever built. What this means is that there is a challenge to make sure that the way the capacity is used of the whole programme is done in an efficient manner from two respects. We need to make sure that we find a new way of getting different yards within the country to work together such that the resources are pooled to enable more things to be done at once as we will require, but we also need to see that the yards make investments to improve the overall standard of efficiency and skills in the long term, such that at the end of these we have an industry which is more efficient and more effective than it is now. I think we have a tremendous opportunity if we get this right to encourage the industry, in the context of a long-term framework setting out the interfaces between these different projects, to make investment decisions. That requires the MoD to stick to a plan and to be more open about a long-term plan than it has hitherto been able to do. It also requires industry to step up to that challenge and to make the investment in skills and capital equipment to deliver the cost savings which we need to see over the long term to maintain an efficient war shipbuilding capacity in this country.

  Q155  Linda Gilroy: The RAND report referred to huge spikes in demand for certain types of skill and also for a capacity starting within the next year or two and running on to 2016. I hear what you say about perhaps this having long-term consequences for how we do shipbuilding in the UK, but how can you both plan for the long term and also ensure that for this particular project we are capable of meeting the peaks in the demand for certain skills where there are gaps? What discussions have you had with the Sector Skills Council to feed into the Defence Industrial Strategy announcement which you are going to be making later this year?

  Lord Drayson: It is clear that we will need to increase capacity in certain areas. What we will have to do is make sure that we make the best use of the capacity which we already have distributed around yards that we have in the country and make sure that we use the best facilities. What we are looking to do, as one person described it to me, is to put together a "fantasy football team" of resources to be able to deliver these projects. That is a good way of thinking about it. What would be wrong would be for us not to plan this properly such that we increase capacity in short-term peaks but which was not sustainable in the long term. What we need to see is that we put together a framework which meets the requirements in the short term and which is sustainable in the long term.

  Q156  Linda Gilroy: Are you confident that industry can respond to that over the period of the Carrier programme given that the report said there are certain points at which the demands of the Carrier programme and the MARS programme will require up to a doubling in certain very specific skills gaps that appear to exist at the moment?

  Lord Drayson: We should not under-estimate the challenge that this presents not just to industry but also to the Ministry of Defence. That is why it is very important that this Alliance approach which is taken on the Carrier project does work and it is important that the way in which the participants, the companies and the MoD sign up to this is on the basis that this is going to be the structure under which this transformation is going to take place. It is going to be difficult for us to do this because these are companies which normally compete and they compete hammer and tongs very successfully. In the Department over the last six months I have seen that there is a realisation across the industry. I have had many discussions both with industry and with the unions when I have been to yards and talked to people at different levels within the yards. There is a realisation that things have to change and I think that that gives me the greatest level of confidence that we will be able to do this.

  Q157  Mr Hancock: In your introductory remarks to the question the Chairman asked on the Main Gate you suggested that part of the delay was about bottoming out the risks and fully understanding what the risks were in this contract. I would be interested to know whether to date you are satisfied that you can overcome those risks in the foreseeable future, ie in the next three or four months, and that all of the risks can be overcome by using only British industry?

  Lord Drayson: I would just add one further point. It is not only that we identify what these risks are but that we agree who is taking responsibility for making sure these risks do not actually materialise and that is the hard thing. In the past, with more conventional structures which have been put in place, it has not been clear as to where the risk has come down in the end. What we are aiming to do here is to set up a structure whereby a lot of work is done upfront to identify these risks and then to set responsibility for meeting them but within a general principle that the success of the Alliance is down to the whole team being successful in meeting those risks and not just passing the buck around within the team. That is important to get right. In terms of my level of confidence, I can answer that question to the Committee with confidence when I have signed off on the Main Gate decision. I am encouraged by the amount of effort and commitment that have been shown both by the MoD and by industry to really work on this. There is more work that needs to be done. We are not there yet.

  Q158  Mr Hancock: Are you satisfied that all of the risk can be satisfied within the UK?

  Lord Drayson: I am sorry, I do not understand what you are asking.

  Q159  Mr Hancock: On the work that is needed to be done, one of the risks you identified was the co-operation that was needed and the effort that would have to be put in against competing resources etc. Are you satisfied that the risks that you are looking at can be overcome by simply maintaining the construction of these ships wholly within the UK?

  Lord Drayson: The current work which is being done looking at managing these risks is on the basis of these ships being built in the UK.


 
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