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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