Examination of Witnesses (Questions 200
- 219)
TUESDAY 25 OCTOBER 2005
LORD DRAYSON
AND SIR
PETER SPENCER
KCB ADC
Q200 Mr Swayne: Will the demonstration
and manufacture contract be for one or two ships?
Lord Drayson: The demonstration
and manufacture contract for one or two . . . I am sorry, I do
not really understand this.
Q201 Mr Swayne: When the contract
is let for the demonstration and manufacture will it be for one
ship or for two ships?
Lord Drayson: You are asking me,
basically, are we intending to build one carrier or two carriers?
Q202 Mr Swayne: Is it the same contract
or are there going to be two separate ones?
Lord Drayson: I am sorry for being
a bit slow on the uptake here. The intention is for us to build
two carriers; that is what we require. We are moving forward on
the basis of two carriers. In terms of the elements of the contract
within those two carriers there may be differences in terms of
the Alliance contracts for each carrier, but that does not mean
to say that there is a lack of commitment to two carriers as opposed
to one. But in terms of the fact that we need to manage the capacity,
the time delay between the first carrier and the second carrier,
in terms of the peaks and troughs, the interface with other projects,
it is very important to get it right. So it may be necessary for
us to have separate contracts for each ship within an overarching
structure for both ships. That is a complicated answer to your
question but I want to make sure that I am giving the Committee
clarity. The intention is for us to build two ships but to build
two ships in the most efficient manner, taking into account the
maritime strategy. The details of those contracts are being negotiated
at the moment. It may be that it is better to actually structure
them as two separate sets; it may be that it can be done as one
set but that has not been determined at the moment.
Q203 Mr Swayne: What will be the
contractual arrangements between the Ministry of Defence and the
other Alliance partners and the shipyards? For example, how will
those contractual arrangements and the transfer of risk be affected
by the Ministry of Defence retaining the decision-making power
over the allocation of work between shipyards?
Lord Drayson: I think that the
principle of the Alliance structure is that in going into the
Alliance negotiations there is a negotiation about responsibility
for the various proportions of work, at the blocks of work that
come together to create the ships. The Ministry of Defence shares
the risk because the Ministry of Defence is an Alliance partner.
The Ministry of Defence is also in a sense chairing this from
the point of making sure that there is a fantasy football team
coming together to do this. So that is the way in which that process
of decision is on the allocation of work. It has to be done on
the basis that the Ministry of Defence is satisfied with it; it
has to be done on the basis that all of the Alliance partners
are satisfied with it, for the Alliance contract to be signed.
Q204 Mr Breed: Minister, in the context
of the Ministry of Defence submission that the Whole Life Costs
for the carrier strike capability is going to cost something like
£31 billion, of which part of that is acquisition costs of
approximately £12 billion, what are the estimated costs for
the acquisition of the two carriers at this moment in time within
that sort of framework?
Lord Drayson: The decision that
we are going to take on the Main Gate, as well as setting the
timescale, is going to set the costs for the carriers. So when
we sign the contracts for the Alliance, because the Alliance structure
is going to be what is going to deliver the project, it is also
going to be the contracts under which the participants sign up
for the delivery price for the carriers. So that will be determined
at the Main Gate decision.
Q205 Mr Breed: Is that cost going
to have to be contained within the current equipment programme
or will other programmes have to be cancelled or modified in order
to make way for it?
Lord Drayson: We need to ensure
that in the management of the overall equipment programme that
the cost that we are signing up for, as part of the Alliance,
is one that meets the equipment programme which we have.
Q206 Mr Breed: If, God forbid, with
all this work that is being done in de-risking and everything
else, there is the unusual possibility that the costs might increase,
at what point might it be considered that the whole project is
unaffordable?
Lord Drayson: You can certainly
envisage hypothetically a wide range of scenarios in terms of
speed of cost increase and so forth. I think it is important for
us to make sure that we go into this project on the basis that
we do have clarity over the risks and responsibility, and that
we have managed them such that we do not go over in terms of cost.
That is a challenge for the whole of the defence procurement area
within the department that I have responsibility for; it is not
unique to carriers. Because of the pressure that we have in terms
of the significant needs across a wide range of a number of projects
it is important for us to deliver our projects on time and to
cost in all cases. That is a challenge for us to do in the current
environment which you have, as I described earlier, and that is
something which we need to improve. We have made good progress
on that but there is further work that needs to be done.
Q207 Mr Breed: But the risks are
obviously somewhat greater because of the size of this particular
project and its other bits around it, in terms of the total budget
of the Ministry of Defence's procurement.
Sir Peter Spencer: That is the
whole point of alliancing, is it not? That you set your target
cost with much greater confidence and everybody who is involved
is trying to beat it as opposed to trying to come back to deal
with you with claims of additional costs. That is why we have
been so careful through the 100-day review, to take a really good
look at this with newly introduced, new challenging, probing questions
from KBR, as the Physical Integrator, and to take a look at some
of the assumptions that had formed the basis of costing up to
that point, and to recognise that the performance, time and cost
element of Smart Acquisition has to be done vigorously at all
stages in the programme and especially when you come up to that
main investment decision. That is a very important part of the
work that we have been doing. All of our experience is that projects
that put enough intellectual effort at the front end, do enough
due diligence at the front end, in the main create a successful
outcome. Too many projects claim bad luck where they have just
not spent enough time at this very important foundation stage,
and this is what this is about.
Q208 Mr Havard: A very short question.
Defence Industrial Strategy, December. Presumably at that point
maybe the Alliance is set up, maybe a Main Gate decision—we
were told it was going to be roughly about December. Is that we
are seeing? So should we be coming back in March and asking you
to come back in March and then perhaps we will get an answer to
2012 or whenever?
Lord Drayson: I am always very
happy to come back and talk to this Committee.
Q209 Chairman: I think we should
move on to the Joint Combat Aircraft. This is not going to be
a difficult question at all. We used to call this Joint Strike
Fighter, we now call it Joint Combat Aircraft; is that correct?
Lord Drayson: Yes, that is correct.
Chairman: Starting with what might or
might not be happening in the United States, David Crausby.
Q210 Mr Crausby: There appear to
be worries in the US about cutbacks in Joint Strike Fighters.
Senator Carl Levin for instance has said that the Joint Strike
Fighter is likely to be trimmed back. So how concerned are you
about these reports?
Lord Drayson: It is something
which we are watching very carefully indeed. We are having regular
communications on this subject, both with the Embassy and with
our partners, with whom we are working on on the project. In terms
of the requirement which the United Kingdom has for the Short
Take Off and Vertical Landing aircraft, we believe that the Short
Take Off and Vertical Landing aircraft, given its vital importance
to the US Marine Corps, is not under threat, but we are watching
this very carefully indeed.
Q211 Mr Crausby: What would the alternatives
be? It clearly must be a possibility that the STOVL could be cut
back. I know that that is not at all in your control when we consider
the number of aeroplanes that we are going to buy in relation
to the whole contract. If the Americans choose not to go ahead
with STOVL then where are we? What would the alternatives be to
that?
Lord Drayson: A decision was taken
some time ago to join the American programme for this fighter,
and the programme which we are now working on is one through a
process where we will be buying aircraft from this international
programme. It is therefore important to us that this programme
continues. In terms of a plan B, if there is a decision taken
not to go forward with the aircraft which we require, i.e. the
STOVL aircraft, then we will have to look at those plan B alternatives.
I do not think it is appropriate for me to go into what plan B
is. We do not believe that we need to do that. We are looking
at this very closely and for the reasons which I have described
we think that the Short Take Off and Vertical Landing aircraft
is one which will be continued with; but, as I have said, we are
watching the situation very closely.
Q212 Mr Crausby: Lockheed Martin
last week mentioned the Quadrennial Defence Review that is due
to report at the end of the month. Today's Defence News reports
that British defence officials are worried that the Pentagon's
Quadrennial Defence Review could affect their plans. Are you worried?
Is there a risk?
Lord Drayson: This is an American
programme which we had decided some time ago to buy into. Therefore,
if there is a decision taken to stop the programme or cancel elements
of it that would affect us, yes, and we would be concerned about
that; and we are monitoring the situation very closely. This is
an important programme for us; we are monitoring it closely. Our
assessment of it at the present time is that we do not believe
that it is likely to negatively impact on the STOVL aircraft.
Q213 Mr Crausby: Back to plan B,
I suppose there could be two plan Bs. One, would we continue with
STOVL with a different alternative—F-18, for instance? Or
would we want to consider the design of the carrier itself if
we abandon STOVL? Is the abandonment of STOVL on the cards in
the event of the Americans not producing that version in Joint
Strike Fighter?
Lord Drayson: I really do not
think it is appropriate for me to get into talking about hypothetical
solutions which we might put in place to circumstances when we
are not presented with those circumstances today. We anticipate,
we expect that the JCA aircraft in its STOVL version will go forward
on the basis that we have signed into the project in terms of
the rate of development. We are satisfied actually in the way
in which the aircraft is progressing to date, and so we are not
in a position today where we are so concerned that we are putting
contingency plans in place. We are monitoring it very closely
but I do not think it is appropriate for us to be getting into
a consideration of what the fallback alternative needs to be.
We are not there yet and we do not anticipate being there.
Q214 Chairman: Would you agree with
the proposition that if the United States did abandon or change
its intentions in relation to the STOVL version of this aircraft
it would cause us quite serious concerns?
Lord Drayson: Yes.
Sir Peter Spencer: May I add a
comment, Mr Chairman? We can only make the assumption that the
STOVL programme is going to go ahead for the time being; it is
not our place publicly to try to second-guess the United States'
government decisions. But QDRs are a pretty regular thing and
any programme which has large spend is being looked at, so all
of the big programmes in the United States are being looked at.
But it is a fact, as this Committee knows, that in view of the
longevity of these ships the fundamental design has been put into
place so that we could, under extreme circumstances, implement
the design as a more conventional aircraft carrier. So there are
options which will enable the carrier strike still to be delivered,
but they would not be as good as the current plan, which is why
we intend to stick with it.
Lord Drayson: Perhaps I could
also add, in terms of addressing the concerns, that there are
scenarios which are being talked about in terms of the shape of
the future programme in the context of future defence reviews,
which maybe advantageous to us in terms of the mix of aircraft
and so forth. So we should not assume that necessarily the QDR
is going to lead to a negative outcome for us. It may not affect
it, it may lead to a more positive outcome and we are monitoring
it very closely. But we are not in the position at the moment
of having to implement any kind of plan B.
Chairman: Of course, this is all speculation.
Robert Key.
Q215 Robert Key: Sir Peter, will
the UK variant of the JCA be identical to the US STOVL variant
in both design and performance?
Sir Peter Spencer: I think you
had answers on this last week in terms of the differences in the
potential of its weapon fit to make it UK-specific. In terms of
the baseline design, as you heard Tom Burbage tell you, we are
working to the same joint operational requirement document. Therefore,
we will get the performance for which we have contracted.
Q216 Robert Key: Will the stealth
features be identical? We were not quite clear about that at the
end of last week's session.
Sir Peter Spencer: I am not in
a position to speculate on sensitive aspects of technology in
the public place, other than to say on the basis of our contractual
arrangements with the United States we know that our requirements
are being designed for this programme. We are not aware of any
different requirements that the United States might have, and
as we are working from the same joint operational requirement
document I think the speculation is groundless.
Q217 Robert Key: Do you think there
is any chance that the French would buy into the JCA?
Sir Peter Spencer: You would have
to ask the French government.
Q218 Robert Key: But what is your
take on that?
Sir Peter Spencer: I have no opinion
on that.
Q219 Mr Borrow: One of the troubling
aspects of this particular project has been the transfer of information
and technology from the US to UK companies. Minister, I wonder
what discussions you have had personally with members of the US
administration on this problem and also other players within the
United States who will have an interest on this transfer?
Lord Drayson: I have had conversations
with members of the United States' administration and I have had
conversations with members of the industrial partners relevant
to this project, and I have stressed the importance to the United
Kingdom of issues around technology transfer, the way in which
that affects long-term operability of the aircraft for us, and
the fact that this is an aircraft which will be in service for
some considerable time and the effect that issues of technology
transfer have on our ability to upgrade the aircraft in the future.
My understanding of the position we are in at the moment is that
we are not short of any information at the present time which
is adversely affecting the project. The concern that we have is
that in the relatively near future we are going to need to see
the transfer of information and intellectual property for us to
see our needs in the long-term to be met. So it is important that
those things take place and we are making that point very clear.
I would also like to add that it is important for us to recognise
that we have entered into this programme, buying this particular
aircraft to benefit from the huge quantities of aircraft which
are going to be produced. The cost savings for us, both in terms
of initial acquisition costs and the long-term support, are very
significant because thousands of these aircraft are going to be
built and pooling the need to the United States with us and with
other countries, and we need to be mindful of being very clear
as to what aspects of long-term support and upgrade are peculiar
to the United Kingdom's need, strategically, because that is going
to have an adverse effect in terms of long-term overall support,
in terms of not being able to benefit from the cost savings. So
we need to have a balance to this. I think this whole area of
technology transfer within this particular programme is one which
is also shared with other programmes, but I think it probably
becomes most important over the next year or so.
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