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Select Committee on Defence Second Report


2  FUTURE CARRIER PROGRAMME

Background

11. The Future Carrier (CVF) programme is a UK programme which MoD is seeking to run under an 'Alliance' approach. The MoD as the customer for the two aircraft carriers is also a member of the Alliance. France also has a requirement for a new aircraft carrier in a similar timescale to the UK. We examined the possibility of France's participation in the CVF programme as part of our inquiry.[28]

12. The CVF programme is being procured under the Smart Acquisition[29] initiative. A list of key events to date in the procurement of the CVF programme is shown at Table 1.

Table 1: Key events to date on the CVF programme

DateKey Event
December 1998CVF programme received Initial Gate approval
January 1999Invitations to Tender were issued for the Assessment Phase.[30]
November 1999Contracts for the Assessment Phase were awarded to BAE Systems and Thales UK
June 2001Completion of Stage 1 of the Assessment Phase
November 2002 Completion of Stage 2 of the Assessment Phase (which had been revised and shortened)
January 2003Announcement that an Alliance approach involving BAE Systems, Thales UK and MoD represented the best approach to the CVF programme.
March 2004Completion of Stage 3 of the Assessment Phase
July 2004Assessment Phase extended into Stage 4 to further mature the design and carry out risk reduction work
February 2005Selection of Kellogg, Brown and Root (KBR) UK Ltd as the Physical Integrator and additional participant in the Alliance

Source: National Audit Office[31]

Forecast costs

13. The procurement cost of the CVF programme is expected to be in excess of £3 billion. The National Audit Office's (NAO) Major Projects Report 2005, published on 25 November 2005, states that the forecast cost of the Assessment Phase is £300 million (the Approved Cost at Initial Gate of the Assessment Phase was £118 million), and the 'most likely' forecast cost of the Demonstration and Manufacture Phase at Initial Gate was £2,877 million.[32] No details are shown for the 'most likely' current forecast cost of the Demonstration and Manufacture Phase as the information is classified as 'commercially sensitive'.

14. The procurement costs of the core projects of the Carrier Strike capability are some £12 billion.[33] We asked how much of the procurement cost of £12 billion related to the two future carriers. Mr Coles, the CVF and MASC Integrated Project Team Leader, told us that 'it is about a quarter'.[34] This would equate to some £3 billion, although the previous Committee noted in its 2004 Defence Procurement report that press reports had suggested that the expected costs of the two carriers could be nearer to £4 billion.[35]

Forecast In-Service Dates

15. MoD's written evidence notes that 'the target ISDs for the two future aircraft carriers remain unchanged at 2012 and 2015'.[36] The NAO's Major Projects Report 2005 states that the 'most likely' forecast ISD at Initial Gate was August 2012.[37] No details are shown for the 'most likely' current forecast ISD as the information is classified as 'commercially sensitive'.

Assessment Phase and Main Gate approval

16. The Assessment Phase is defined as 'the second phase in the acquisition cycle after the Concept Phase and beginning with Initial Gate. The aim of the Assessment Phase is to develop an understanding of options for meeting the requirement that is sufficiently mature to enable selection of a preferred solution and identification, quantification and mitigation of the risk associated with that solution. At the end of the Assessment Phase a Business Case is submitted to the Investment Approvals Board for Main Gate Approval'.[38]

17. Main Gate is defined as 'the approval point between the Assessment Phase and the Demonstration and Manufacture Phases. At Main Gate, a Business Case is presented, which should recommend a single technical and procurement option. By Main Gate, risk should have been reduced to the extent that the Customer and the IPT [Integrated Project Team] can, with a high degree of confidence, undertake to deliver the project to narrowly defined time, cost (procurement and whole-life) and performance parameters'.[39]

18. Following Main Gate are the third and fourth phases in the acquisition cycle—the Demonstration and Manufacture phases. During these phases 'development risk is progressively eliminated, the ability to produce integrated capability is demonstrated and the solution to the military requirement is delivered within time and cost limits appropriate at this stage'.[40]

19. The CVF programme is currently in the Assessment Phase of the Smart Acquisition lifecycle. We were keen to examine how the Assessment Phase on the CVF programme was progressing and the implications for the Main Gate approval date. The original target date for Main Gate approval for the CVF programme was December 2003.[41] However, the date for Main Gate approval and the subsequent placing of a Demonstration and Manufacture contract has been progressively delayed. The previous Committee was told:

  • in May 2003, that the Main Gate approval was expected in February 2004 and the award of the Demonstration and Manufacture contract in 'early 2004'.[42]
  • in October 2003, that 'the current intention remains to place a Demonstration and Manufacture contract in Spring 2004'.[43]
  • in February 2005, that the main investment decision [Main Gate] 'is anticipated to take place in the latter half of 2005'.[44]

20. At the oral evidence session on 18 October 2005, Mr Coles told us that there was now no official target date for the main investment decision and that 'the main investment decision I doubt very much will be taken in 2005'.[45] We asked Lord Drayson, Minister for Defence Procurement, what target date for a Main Gate decision MoD was working to. The Minister told us that:

    It is so important that when we pass the Main Gate investment decision we have got clarity over the timescale and costs and risks.[46]

    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.[47]

21. In early October 2005, some press reports suggested that MoD hoped to achieve Main Gate approval in the first quarter of 2006.[48] In mid-November 2005, some press reports suggested that the production contract for the CVF might be delayed until 2007 as consideration was being given to a two-stage Main Gate phase—allowing a Demonstration contract to be awarded first and a Manufacture contract awarded second.[49] It seems possible that an intermediate decision may be imminent that will serve as a partial Main Gate.

22. Given that the original target date for Main Gate approval on the CVF programme was two years ago, it seems to us extraordinary that there is now no target date at all. MoD should have a target date, even while accepting that it may not be achieved because work to clarify programme timescale, costs and risks is still being undertaken.

23. A key aim of the Assessment Phase is to mature the design and carry out risk reduction work to ensure that the best technical and procurement solution is achieved. The previous Committee gave its support to MoD's approach to de-risking the CVF programme: 'we consider it vitally important that defence equipment programmes, particularly of the scale of the Future Carrier programme, are properly de-risked and we support the sensible decision to continue with the Assessment Phase of this programme'.[50]

24. The First Sea Lord told the previous Committee in November 2004 that 'we have 60 per cent design definition now, which is higher than any other project'.[51] In October 2005, Mr Coles told us that:

    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…. If it was 60 per cent then, my judgment is it is not a great deal further on…. It is not a linear thing. In other words, you do not make six months' progress and you are five per cent on. It can take a long time to go from 60 to 70 to 80.[52]

25. It is disappointing that design definition work on the CVF programme has not progressed much in the last year, even though it is a key objective of the Assessment Phase.

Reducing costs on the CVF programme

26. MoD's submission states the Demonstration and Manufacture phases of the CVF 'will not be bounded until Main Gate. At that point the boundaries of the costs will be established at "Lowest, Most Likely and Maximum"'.[53]

27. The Alliance undertook a 100-day review which concluded that the CVF programme was still financially viable.[54] Mr Coles told us that:

    What the 100-day programme did was it looked at what industry and ourselves thought this project should cost, and the outcome of that was that although we have yet to tease out the final costs, it can be made compatible with the funding that is available for this project. In other words, we think that the cost that we have in the assessment phase today, what we think this may cost, with some changes we would drive in through the Alliance arrangements can be brought in line with the available funding.[55]

28. Mr Coles also told us that one of the roles of the Physical Integrator was 'on behalf of the Alliance to police precisely prices and the programme to make sure that it is all viable'.[56]

29. Because of the complex nature of the CVF programme, MoD wanted an independent, objective analysis that evaluated the economic implications, schedule impact, and technical risk of adopting new technologies and alternative manufacturing options. MoD commissioned the RAND Corporation to undertake this research, the outcome of which was published in a 2005 report 'Options for Reducing Costs in the United Kingdom's Future Aircraft Carrier (CVF) Programme'. The RAND report examined both procurement and construction costs, and in-service costs.

30. The RAND report identified a number of options which might lead to lower CVF construction costs including: using more advanced outfitting, especially for electrical, piping, and HVAC (heating, ventilation, and air conditioning), than is currently used by most UK shipbuilders; setting the start of the second ship to minimise total labour costs at the shipyards constructing the large blocks; centralising the procurement of material and equipment.; considering the use of commercial systems and equipment in place of military standard equipment wherever there is no adverse impact on operations or safety; and minimising changes during ship construction and quickly resolving any that must be made.

31. MoD assured us that it was 'alert'[57] to the opportunities identified in the RAND report to lower construction costs and 'to a significant extent the cost reducing options identified in the RAND report are being implemented'.[58]

32. The RAND report also identified Whole Life Cost (WLC) reduction and reducing manpower requirements as the two main areas where support costs could be reduced on the CVF. MoD told us that 'a detailed WLC model has been constructed…. This model has identified the main in-service cost drivers for the CVF and is being used to focus design effort. The cost model…. is assisting the MoD to assess the long-term affordability of the CVF and Carrier Strike capability'.[59] The CVF WLC model confirms that 'manpower at approximately half of the total in-service costs remains the most significant area of opportunity for cost reduction'.[60] The RAND report identified a number of initiatives to reduce the manpower complement. MoD told us that these initiatives 'have been reviewed by the Aircraft Carrier Alliance…. the majority of these align with design and operating principles that either have been adopted or are being considered for CVF'.[61]

33. The second highest in-service cost driver will be the maintenance of the two aircraft carriers. In order to minimise costs, work has commenced on 'reducing the number and complexity of systems and selecting equipments with lower maintenance requirements'.[62] MoD told us that 'current predictions indicate that the total CVF class maintenance costs could be as low as those of the CVS class [the current class of aircraft carriers] despite the total tonnage of the class being nearly double'.[63] We would have expected the maintenance costs of the Future Carriers to be lower than the current class of aircraft carriers as the three current aircraft carriers inherently require more maintenance than the two future carriers. In addition, we would expect new systems to be designed to require less maintenance than older systems.

34. The RAND report concluded that MoD could not have a Contractor Logistics Support arrangement in which the contractor is responsible for every aspect of making a carrier available and is paid solely for available vessel days. MoD support the conclusions in the RAND report about Contractor Logistics Support and envisage that the support solution 'will be of a "mixed economy" nature, where responsibility for support and delivering availability is shared between various industry support providers and the MoD'.[64]

35. We welcome MoD's decision to commission an independent analysis by the RAND Corporation to identify options for reducing costs on the CVF programme. We acknowledge that the cost reduction options have been considered and are mostly being implemented. The CVF programme is likely to be very costly, both in terms of procurement and construction costs, and through-life costs. It is essential that MoD and the other Alliance partners continue to identify ways to drive down costs. If costs are not constrained, there is a very real risk that the CVF programme could become unaffordable.

Possible Slippage of the In-Service Date

36. The First Sea Lord, Admiral Sir Alan West, told the previous Defence Committee on 24 November 2004 that, in relation to the first carrier, 'I am still adamant that I want it in 2012'.[65] We support the need to de-risk the CVF programme in the Assessment Phase. However, further delays to Main Gate approval and the subsequent letting of a Demonstration and Manufacture contract, will impact upon the target ISD of 2012 for the first carrier—some seven years away. Mr Coles told us that 2012 was 'still the target date [ISD] for this programme'.[66] He also told us that:

    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 de-risking in the assessment phase which actually makes the date you are going to deliver it more achievable.[67]

37. The Minister told us that:

    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.[68]

38. Some press reports in late November 2005 suggested that the delivery of the first of the carriers could be pushed back four years to 2016.[69]

39. We remain to be convinced that the date for Main Gate approval and the In-Service Date are not directly related. While we acknowledge that some slippage of the Main Gate date can be contained, there must be a point at which the lack of Demonstration and Manufacture phase funding, including the purchase of long lead items, impinges on the In-Service Date.

40. We welcome the frankness of the new Minister for Defence Procurement with regard to the target In-Service Dates for the CVF programme. But, while we agree that the programme needs to be fully de-risked and understood before proceeding to the Main Gate decision, we are concerned that further delays to the main investment decision will lead to slippage to the In-Service Dates well beyond those which MoD originally set itself.

41. If the In-Service Dates for the CVF programme are substantially later than 2012, there is a serious risk of a capability gap emerging which would impact upon the ability of the Royal Navy to undertake its role effectively. If there is a serious risk of slippage, MoD and the Royal Navy must make plans for bridging this gap, which might include extending the lives of the current aircraft carriers and the aircraft which operate from them. This could be at substantial additional cost, particularly if the current carriers require major refits. We expect MoD to demonstrate that appropriate contingency plans are in place to address any potential capability gap.

Alliance Agreement

42. In January 2003, MoD announced its decision to follow an 'Alliance' approach for the CVF programme involving BAE Systems, Thales UK and MoD.[70] The Alliance approach is a novel approach for MoD procurement programmes and represents a major change, as MoD procurement policy for the last two decades has been to devolve risk and management authority to a prime contractor. As a member of the Alliance, MoD will be part of the decision making process as the Alliance develop the Carrier programme and will have early visibility of the programme's progress.[71] The previous Defence Committee concluded in its 2003 Defence Procurement report that 'there is significant merit in the novel 'Alliance' arrangement for the Future Carrier programme'.[72]

43. On 7 February 2005 MoD announced that it had appointed 'Kellogg Brown & Root (UK) Ltd (KBR) to act as the preferred 'Physical Integrator' on the future aircraft carrier (CVF) project'. MoD appointed a Physical Integrator (PI) for the programme because it considered that due to the size of the proposed carriers no single shipbuilding facility in the UK had the infrastructure, skills or capacity to build the two ships on its own. The appointment of the PI followed discussion with the Alliance partners. It was agreed that building and integrating the two carriers represented a major challenge requiring considerable project management skills. According to MoD, the PI was appointed to 'further strengthen…. this area and introduce innovation to the manufacturing phase'. KBR has extensive experience of alliances from other sectors including oil and gas and infrastructure.[73]

44. The previous Secretary of State wrote to the then Chairman of the Defence Committee on 7 February 2005 about the announcement of the selection of the PI. The Secretary of State noted that 'we will develop the precise role and responsibility of the PI in consultation with all Alliance participants over the coming months—an approach that is consistent with alliancing best practice where each participant's work scope is agreed by the Alliance to ensure that work is allocated to the company best able to deliver it in the most cost effective manner'.

45. MoD's submission states that 'agreement of the alliancing principles by the current participants was a significant step forward. Work continues to develop the detailed arrangements. This includes the Alliance Agreement—which will confirm and commit each participant [i.e. MoD and the three commercial companies] to achieving the objectives of the Alliance—and the complementary Works contracts for the Demonstration and Manufacture phase. We aim to conclude these prior to the main investment decision'.[74]

46. Progress on finalising the Alliance Agreement does not appear to have progressed substantially since this issue was examined by the previous Defence Committee. In May 2004, Sir Peter Spencer, Chief of Defence Procurement (CDP), told our predecessors that 'there is agreement on the large majority of the detail, there are one or two loose ends which we are tidying up'.[75] However, CDP told us, some eighteen months later, that:

    those loose ends turned out to be much more fundamental than I had understood them to be at the time.[76]

47. In January 2006, it will be three years since the announcement that the CVF programme would follow an Alliance approach. Mr Pryor, Chairman of Devonport Royal Dockyard Limited and the KBR representative on the UK Aircraft Carrier Alliance project told us that 'it is our experience that it takes time to settle down relationships between the companies and between individuals in their companies'.[77] He also told us that 'another reason why it takes so long to build the Alliance because we have to agree the risks that are being handled by my partners and they have to agree the risks that we are handling and the quantification of those risks in monetary terms'.[78] Mr Coles told us that:

    It takes a long time to reach those agreements because each company in the Alliance has to assess its role and its responsibilities and those of its partner companies in the Alliance to share in the risk and reward. It takes a long time to reach an agreement in that process.[79]

48. The Minister told us that:

    we are asking the potential participants, i.e. 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.[80]

49. It is disappointing that the Alliance Agreement has still to be finalised, eighteen months after our predecessors were told that there were only "one or two loose ends" to tidy up. We remain unclear as to what the precise role of the Physical Integrator is and will be. If the Alliance partners continue to be unable to finalise the Alliance Agreement, we consider that this might indicate that the Alliance approach is not suited to this particular programme, or that there are issues with the individual partners which cannot be resolved.

50. On the roles and responsibilities of the Alliance partners, Mr Pryor told us that:

    The precise roles and responsibilities of each member of the Alliance will be agreed and they will have to accept as part of that agreement a risk reward in the Alliance contract. Each company has a specific task agreed un-contractually and they buy into that by taking a share of the risk and the reward within the project. All which will be put into the contract as the over-arching contract, the individual contracts will say what they have to do and the risk reward is built into that mechanism.[81]

51. Mr Coles also told us that the individual parties will 'all share in the risk, that is the difference'.[82] Mr Pryor told us that:

    The point of the Alliance is that we all sink or swim together, so if one of my Alliance colleagues or partners fails in his scope of work, I take the risk on that failure, likewise he is taking the failure on my scope of work'.[83]

52. CDP emphasised that 'because risk is not transferred but is shared, because we all win or lose together, there is much more of a due diligence process going on by all members of the Alliance to make certain that they do really understand this proposition, because there is not the scope that there would have been in a more conventional contract for that risk and cost increase simply to be handed back to the Ministry of Defence'.[84]

53. The proposed contractual arrangements on the CVF programme give rise to questions about conflicts of interest. MoD is a member of the Alliance and also the customer, while BAE Systems is a member of the Alliance and also an owner of one of the shipyards likely to be involved in building the carriers. The Minister told us that:

    Whether it is with an Alliance structure or not the MoD has that conflict of interest. What the Alliance structure does is manage it properly…. It actually puts the Ministry of Defence into the relationship with the other partners such that there really is a joint contract which both sides are bound to, which motivates both sides when the going gets tough, as it always does on these complex projects, and to sit down together and quickly and efficiently make the decision to resolve them. So it is a recognition of that potential conflict which exists and it is a mechanism for managing it'.[85]

54. Mr Coles did not believe that BAE Systems had a conflict of interest, but acknowledged that MoD has 'to make sure they do not have two voices at the table, a shipbuilding voice and a voice as a member of the Alliance'.[86] He told us that 'it is something that we have to tease out. You are right to recognise it'.[87]

55. There continues to be uncertainty about the precise roles and responsibilities of each of the Alliance partners. The proposed risk-sharing on the CVF programme will be different to the risk-sharing arrangements on previous defence equipment projects and the contractual arrangements between the Alliance partners have still to finalised. Sharing risks should incentivise the Alliance partners to deliver a positive result on the programme, but we were concerned by talk of 'sink or swim together'. If the Alliance approach does not deliver the expected results, the real losers will be the British taxpayers and the Royal Navy.

56. We have some concerns about potential conflicts of interest for Alliance partners and expect MoD to have in place appropriate arrangements to ensure that these are properly managed. 

57. The Alliance approach is a novel approach for MoD and we consider it too early to assess whether the Alliance approach on the CVF programme has been successful. We expect MoD to identify lessons from the experience of using an Alliance approach on the CVF programme, and to ensure that such lessons are implemented if an Alliance approach is to be used on other equipment procurement programmes.

Shipbuilding Strategy

58. Four UK shipyards were identified in January 2003 as being potentially involved in the CVF programme—BAE Systems Naval Ships at Govan, Vosper Thornycroft at Portsmouth, Swan Hunter on Tyneside and Babcock BES at Rosyth.[88] MoD's submission states that 'the extent of their involvement, and the potential for involvement of other yards will be decided on the basis of achieving VFM [Value for Money] while taking into account the capability, capacity and resources of UK industry to meet the full range of planned naval programmes.[89]

59. MoD's submission states that 'the creation and integration into the Alliance of the Shipbuild Entity and the development of the optimum shipbuild strategy is clearly a key issue for the Alliance and work on this continues'.[90] Mr Coles told us that the Shipbuild Entity:

    was that part of the programme which would bring together all the people who might be engaged in building the ship, i.e. the physical construction and the detailed design, to form, if you like, a piece in the Alliance we would contract with or negotiate with about how this is best to be done.[91]

60. Mr Coles told us that, in relation to the progress on developing the optimum shipbuild strategy, 'there are a number of proposals that the industry and the Alliance have had about where this ship could be assembled and where it could be done and how it could be done, but we have not reached a definitive view on any particular solution.[92] He stressed that 'it is a long process and no decisions have been taken.[93]

61. On the issue of where the two carriers will be built, Mr Coles told us that 'we are going to build two aircraft carriers in this country…. There is no wish, no need, nor political will to go overseas'.[94] In terms of the actual shipyards which would be used, the Minister told us that:

    We are talking with a number of yards about the various aspects of the shipbuilding…. But we have not signed contracts with any of them yet, so therefore I cannot say whether a particular yard is or is not in the deal.[95]

62. When allocating the work on the two carriers to the UK shipyards, Mr Coles told us that 'when we come to the time to make decisions about where the work will be contracted we will doubtless take in performance as one of the criteria'.[96]

63. MoD has yet to reach a view on the optimum shipbuild strategy for the CVF programme. We note that MoD's plan is to build the two carriers in the United Kingdom but it has yet to decide on which shipyards will be involved in the construction of the two carriers.

64. The CVF programme is of key importance to the UK's military shipbuilding industry. The Minister told us that:

    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 be globally competitive. The importance of getting this interaction between the Carrier project and our long-term Maritime Industrial Strategy is key.[97]

    If we get this Carrier project right we will put shipbuilding on a strong footing for the evolution in the future.[98]

And:

    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.[99]

65. The scale of the CVF programmes raises issues about the UK's naval shipbuilding capacity, both in the short term and the long term. Delays to Main Gate approval and to the letting of a Demonstration and Manufacture contract can have serious implications for UK shipyards, on, for example, investment decisions and issues concerning training and retention of workers. The Minister told us that he was 'very mindful that the yards around the country need to have the earliest possible decision on the carrier project'.[100] Mr Coles admitted us that 'the issue raised about skill loss and facilities loss is a real issue and we are alive to it.'.[101] In relation to short-term capacity, Mr Pryor told us that:

    We now have to match a programme of two complex ships, decide what is the cheapest, best, most easily constructible design of the ship, how you break it up into small pieces, where you deliver it to build into a big ship, and we are talking about trying to do this in facilities that we are going to need in five years' time or longer.[102]

    The team has gone out to industry with request information to assess the current state of facilities. We went out to 21 shipyards in this country. 18 responded within the timescale, two have since gone into administration, leaving us with 16.[103]

66. Scottish Enterprise Glasgow commented that:

    procurement delays on the largest naval programme, CVF, mean that the industry is instead currently facing significant potential job losses. As a consequence, the potential for naval shipbuilding projects to act as a catalyst for long term skills development is looking increasingly problematical.[104]

67. We asked whether the UK would have the capacity to build the two carriers. Mr Coles replied that 'our current analysis suggests that we have enough national capacity to manufacture and assemble these ships with some marginal increase in capacity in manpower'.[105]

68. In respect of the longer term issues, MoD commissioned the RAND Corporation to undertake a study of the UK's naval shipbuilding. The outcome of the study was published in a 2005 report 'The United Kingdom's Naval Shipbuilding Industrial Base—The Next Fifteen Years'. In this report, RAND noted that the impetus for the study was a concern on the MoD's part that the confluence of several ship-building programmes could potentially overburden the industry. Some of MoD's ship programmes have passed Main Gate, such as Astute-class attack submarines, Bay-class landing ship dock (LSD(A)) and Type 45 destroyers. Other ship programmes which are pre-Main Gate are the Future Carrier (CVF), Future Surface Combatant (FSC), Joint Casualty Treatment Ship (JCTS) and Military Afloat Reach and Sustainability (MARS). In its report, RAND noted that 'the period between 2007 and 2013 is much busier for naval shipbuilding than has been seen recently'.

69. The Minister for Defence Procurement has been asked by the Secretary of State to deliver a Defence Industrial Strategy by Christmas 2005.[106] He told us 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'.[107] The Defence Industrial Strategy would include a Maritime Industrial Strategy.[108] On the latter, the Minister is 'demanding gritty conclusions on shipbuilding and ship support….'.[109]

70. We welcome MoD's decision to produce a Defence Industrial Strategy, which will include a Maritime Industrial Strategy. The CVF programme is vital to the future of the UK's military shipbuilding industry and its importance will need to be reflected in the Maritime Industrial Strategy. We plan to examine the Defence Industrial Strategy in the New Year.

71. We note that MoD considers that there is enough national capacity to manufacture and assemble the two aircraft carriers. However, we are concerned that delays to Main Gate approval and the letting of Demonstration and Manufacture contracts are impacting upon UK shipyards, jobs are at risk and some potential contractors have gone into administration. 

72. If there are delays to the CVF programme, there is a risk that the construction of the two carriers will come at a time when a number of naval shipbuilding programmes will also be in the Demonstration and Manufacture phase. This is likely to put pressure on the UK's naval shipbuilding capacity and could lead to work going overseas. We recommend that MoD identify ways to manage the potential peaks in demand for naval shipbuilding programmes over the next ten years or so.

73. We are concerned that, once the busy period for the UK's naval shipbuilding industry ends in 2013 or so, that there will be another gap in work for UK naval shipyards. We expect MoD's Maritime Industrial Strategy to set out how the peaks and troughs seen in the UK naval shipbuilding industry in the past will be managed in the future.

Possible French involvement

74. France also has a requirement for a new aircraft carrier in a similar timescale to the UK. The UK and French defence industries have been 'tasked jointly by the UK and French National Armament Directors (NADs) to propose areas for possible co-operation as a way of reducing costs and risk whilst preserving our respective national programmes and timelines'.[110] Industry has confirmed that it is technically feasible for the basic CVF design 'to be adapted to meet French requirements, with the French being responsible for some specific adaptations'.[111]

75. Mr Coles told us that 'the French administration will have to decide whether they wish to pursue that with HMG or not, and those conversations are obviously going on but are not yet concluded nor decisions made'.[112] Some press reports suggested that the French might make a decision by mid-October 2005.[113] Mr Coles thought it would be 'a little bit later than that by couple of months'.[114] There is a range of possibilities for French involvement in the CVF programme. We were told that 'the dialogue about how that would work and if it would work needs to be teased out'.[115]

76. In terms of the potential benefits from French involvement in the CVF programme, Mr Coles told us that 'there would have to be genuine savings, i.e. that it did not cost us any more but it did cost us measurably less'.[116] Non-recurring costs would offer savings and 'some of the equipments could be bought jointly as opposed to separately, so for example buying three of things instead of two of things could give you some marginal savings, both in the administration and the procurement costs'.[117] There was also the potential for savings in whole life support costs. Mr Coles told us that 'the long-term support of three ships as compared to two ships is a saving to both nations'.[118]

77. Given that the UK has funded the design of the future carriers, we asked whether, if France decided to get involved in the CVF programme, it would contribute to the design costs. Mr Coles told us that:

    I am sure you would wish me to say that if we have developed something in the UK over a long period of time, we would expect some contribution towards that if we had entered into any programme, and I suspect that would be he case.[119]

78. On the other hand, collaborative projects have, in the past, frequently suffered from time delays. Mr Coles commented that 'the first thing is that any relationship on any sort of programme would have to ensure that the UK programme was not disturbed'.[120] The Minister re-iterated the point: 'it must not negatively impact the British project'.[121] CDP also set out the position: 'we will not countenance anything which will do any damage to the timescale of our programme or do anything to adversely affect risk and cost as well'.[122]

79. The Minister was aware of the risk regarding international collaborative projects:

    history also tells us that international collaborative defence projects can go seriously wrong, not always but quite often and therefore we need to make sure, because of the importance of this project to the United Kingdom's defence posture, to the United Kingdom's maritime shipbuilding industry, that any potential joint working which is done on the French Carrier is done in a way which is consistent with the needs which we have'.[123]

80. There could be potentially substantial benefits if France became involved in the CVF programme. These include the possibility of real cost savings, both procurement and support cost savings, and closer relations between the British and French navies. But international collaborative projects have in the past experienced problems, such as time slippage. If France decides to become involved in the CVF programme, we expect MoD to ensure that the UK programme would not suffer delays to the In-Service Date for the UK carriers.


28   See paras 74-80 below Back

29   The Smart Acquisition cycle covers the following phases: Concept; Assessment; Demonstration and Manufacture; In-Service; and Disposal. There are two key approval points - Initial Gate at which parameters for the Assessment phase are set, and Main Gate, at which performance, time and cost targets for the Demonstration and Manufacture phase are set. Back

30   Initially the Assessment Phase was broken down into two stages Back

31   National Audit Office, Major Projects Report 2005 Project Summary Sheets, HC 595-II, Session 2005-2006, pp 129-130 Back

32   National Audit Office, Major Projects Report 2005 Project Summary Sheets, HC 595-II, Session 2005-2006, p 130 Back

33   Ev 45 Back

34   Q 102 Back

35   Defence Committee, Sixth Report of Session 2003-04, Defence Procurement, HC 572-I, para 76 Back

36   Ev 43 Back

37   National Audit Office, Major Projects Report 2005 Project Summary Sheets, HC 595-II, Session 2005-2006, p 130 Back

38   National Audit Office, Major Projects Report 2005 Project Summary Sheets, HC 595-I, Session 2005-2006, p 41 Back

39   National Audit Office, Major Projects Report 2005 Project Summary Sheets, HC 595-I, Session 2005-2006, p 43 Back

40   National Audit Office, Major Projects Report 2005 Project Summary Sheets, HC 595-I, Session 2005-2006, p 42 Back

41   National Audit Office, Major Projects Report 2005 Project Summary Sheets, HC 595-II, Session 2005-2006, p 130 Back

42   Defence Committee, Eighth Report of Session 2002-03, Defence Procurement, HC 694, Ev 69 Back

43   Defence Committee, Fourth Special Report of Session 2002-03, Defence Procurement: Government's Response to the Committee's Eighth Report of Session 2002-03, HC 1194, para 27.  Back

44   Defence Committee, Fourth Report of Session 2004-05, Future Capabilities, HC 45-II, Ev 179 Back

45   Qq 84-85 Back

46   Q 146 Back

47   Q 147 Back

48   Four shipyards to share £4bn carriers contract, Sunday Times, 2 October 2005 Back

49   UK Carrier Decision May Come in 2 Parts, Defence News, 14 November 2005 Back

50   Defence Committee, Eighth Report of Session 2002-03, Defence Procurement, HC 694, para 80 Back

51   Defence Committee, Fourth Report of Session 2004-05, Future Capabilities, HC 45-II, Q 534 Back

52   Q 86 Back

53   Ev 42 Back

54   Ibid Back

55   Q 104 Back

56   Q 55 Back

57   Ev 46 Back

58   Ibid Back

59   Ev 47 Back

60   Ibid Back

61   Ibid Back

62   Ibid Back

63   Ibid Back

64   Ev 7 Back

65   Defence Committee, Fourth Report of Session 2004-05, Future Capabilities, HC 45-II, Q 534 Back

66   Q 88 Back

67   Q 89 Back

68   Q 151 Back

69   Sunday Times, 27 November 2005 Back

70   HC Deb, 30 January 2003, col 1026 Back

71   Defence Committee, Eighth Report of Session 2002-03, Defence Procurement, HC 694, paras 78-79 Back

72   Ibid, p 50, recommendation 13 Back

73   MoD press release, KBR appointed 'Physical Integrator' for Future Carrier project', 7 February 2005 Back

74   Ev 43 Back

75   Defence Committee, Sixth Report of Session 2003-04, Defence Procurement, HC 572-II, Q 272 Back

76   Q 183 Back

77   Q 2 Back

78   Q 12 Back

79   Q 1 Back

80   Q 150 Back

81   Q 11 Back

82   Q 12 Back

83   Q 12 Back

84   Q 183 Back

85   Q 185 Back

86   Q 55 Back

87   Q 56 Back

88   Ev 43-44 Back

89   Ev 44 Back

90   Ev 43 Back

91   Q 53 Back

92   Q 58 Back

93   Q 58 Back

94   Q 69 Back

95   Q 195 Back

96   Q 66 Back

97   Q 148 Back

98   Q 150 Back

99   Q 154 Back

100   Q 197 Back

101   Q 72 Back

102   Q 69 Back

103   Ibid Back

104   Ev 50 Back

105   Q 73 Back

106   Q 153 Back

107   Q 152 Back

108   Q 153 Back

109   Speech to the Royal United Services Institute (RUSI), 12 September 2005 Back

110   Ev 44 Back

111   Ibid Back

112   Q 28 Back

113   UK urges France to accept existing carrier design, Jane's Defence Weekly, 7 September 2005 Back

114   Q 31 Back

115   Q 39  Back

116   Ibid Back

117   Ibid Back

118   Ibid Back

119   Q 33 Back

120   Q 39 Back

121   Q 173 Back

122   Q 175 Back

123   Q 180 Back


 
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