Examination of Witnesses (Questions 27-39)
MR ARCHIE
HUGHES
21 NOVEMBER 2005
Q27 Chairman: Thank you
very much, Mr Hughes, for showing us round DARA earlier today.
We found it impressive and helpful. In your statement in June
you said: "At the end of the last financial year we received
the disappointing news that the Armed Forces Minister agreed to
the immediate transfer of work on the Harrier fleet. For St Athan,
the news could not have been more devastating." You have
come into an organisation, of which the future looks uncertain.
Do you accept, as the Ministry of Defence suggests, that the RAF
Main Operating Bases are more efficient and more cost-effective
than DARA at supporting fixed wing aircraft? That is an easy question
to start with!
Mr Hughes: Thank
you very much for that. I cannot comment about the efficiency
as such for the Main Operating Bases because I do not run and
operate then them and I do not know what their efficiencies are.
What I do know is that DARA as an organisation is as efficient
as any other in doing deep maintenance repair and overhaul in
terms of the physicality of doing the work. Whether the overall
costs of doing the work at DARA are the same is mainly what the
investment appraisal process looked into. I am pretty sure that
the workforce at DARA are very efficient and very competitive
in doing that particular maintenance work.
Q28 Mr Jones: The Chairman
used the word "impressive"; and I have to say that,
walking round there this morning, nobody could be other than impressed
with it. However, I still cannot get my head around the fact that
£100 million has been spent on a brand new facility, which
is now going to be wasted and mothballed. Who was talking to whom?
Was there a contact in the Welsh Assembly, the MoD and Whitehall
when decisions were taken for spending that amount of money as
a long-term solution to a problem? How did it unravel so quickly?
Mr Hughes: If we go back in time
to when the Red Dragon project was first thought of and then worked
through, I think you will find that the WDA, DARA and central
MoD worked very closely together in working out the best solution
for St Athan. When looking at St Athan and DARA as it was back
in 2000/2001, DARA was spread across a wide range of facilities
on the St Athan side. There were thirty main hangars and lots
of different buildings. In relation to the future of DARA at St
Athan at that time it was felt that to improve the competitiveness
of the business you needed to eradicate a lot of the waste that
was there. That was the gestation of what turned out to be the
new Red Dragon facility. The Welsh Development Agency, DARA and
the MoD worked very closely to put together the business case
for the new hangar and for the site as a whole. In actual fact,
from the MoD there were broader benefits than just DARA; there
were benefits for the PTC as well as benefits to the Welsh in
general in the aerospace park. Throughout the whole process, all
three elements worked quite closely together. In terms of unravelling
it, the decision was taken to go ahead and build the facility,
and subsequently the decision to build the facility at the MoD.
The Defence Logistics Organisation looked at the whole logistics
chain to make it more efficient, and out of that came the end-to-end
study; and out of the end-to-end study came recommendations as
to where the work should then go.[3]
Q29 Mr Jones: With great
respect, we know all that, but whether you like it or not this
is £100 million, whether of MoD's money or Welsh Development
Agency money or what, of public money. As a representative of
the north-east of England, if I had an organisation that had just
spent £100 million of public money to then sit possibly idle,
there would be a hell of a lot of questions asked. When did the
MoD jump ship?
Mr Hughes: I think you will find
that as part of the end-to-end process the decision to build the
Red Dragon facility was revisited to see whether or not it was
still a viable option—
Q30 Mr Jones: Yes, but
do you not think it is absolutely bonkers to commit £100
million of public money, and then less than half-way through the
process one of the partners suddenly pulls out? That is just inefficient,
bad use of public money, surely?
Mr Hughes: At the time the business
case was made to build the Red Dragon facility, there was no intention
of that being the case, but in terms of building the facility,
from the point in time of deciding to build it—
Q31 Mr Jones: But when—
Mr Hughes: If you would let me
finish, I will give you the answer in terms of the points you
have mentioned. I think you will find that the MoD investment
in the Red Dragon facility will pay back by the time the facility
closes.
Q32 Mr Jones: That is
not the point. It is public money, and if I was in the Welsh Development
Agency or the Welsh Assembly—God forbid!—I would be
very annoyed if I had gone into a negotiation and committed huge
sums of public money, to know that even before that project was
finished a key partner, the MoD would pull out. When did they
actually pull out, because surely committing that amount of public
money to a project of this size, knowing that one of the partners
was going to pull out, both the Welsh Assembly and the WDA, even
with their track record, would have not committed to this if they
knew that even before it was finished it was going to become a
bit of a white elephant.
Mr Hughes: I am sure you will
take evidence from the Welsh Government, which will give you their
point of view on that. The MoD—in terms of when they "pulled
out", to use your phrase—only with the full evolution
of the end-to-end recommendations did it become clear that the
work was going. So only after the decision was taken for the work
to transfer from St Athan to Marham, for example, and Cottesmore
in the case of the Harrier, was it clear that the Red Dragon facility
would not be full and occupied in the fullness of time. It was
not a decision taken earlier than that; but only came out of the
end-to-end process.
Chairman: We are going to be able to
take evidence from the Minister next week and we will pursue those
questions then.
Q33 John Smith: To clarify
this argument, Mr Chairman, it is the case that the business case
for constructing the new £100 million hangar was based on
the Fastjet work staying at St Athan. My second point, which is
a very important one, is that the cost of that hangar may be recovered
over a very short period of time, but is that not precisely because
the workforce at St Athan have been so efficient? They have been
achieving something like £26 million a year efficiency savings.
Mr Hughes: If I can answer both
of those points—yes, it was predicated on there being the
Fastjet business, and, yes, the DARA workforce have delivered
significant savings in a short period of time.
Q34 Robert Key: Mr Hughes,
under your management DARA has consistently delivered sound financial
results, and met all its performance objectives. Do you think
the MoD has made the right decision to break up DARA?
Mr Hughes: What you say is quite
correct. DARA from its inception, all the way through, has met
key targets and performance indicators. The decision of the MoD
has been taken in a much wider context than just DARA. It is not
obviously a decision which we at DARA would endorse from our DARA
point of view; we have done everything that has been asked of
us. It is for the MoD to answer whether or not it is the right
answer in the round.
Q35 Mr Havard: Can I go
back to the business of what opportunities you had to make the
arguments about keeping fixed wing facilities. We had the original
business case in the M20 review and we have had the investment
appraisal; then the business about partnering came along somewhere.
What we saw in Marham was a quite clear relationship between the
two prime contractors and the RAF. What opportunities at these
various stages did you have, and the workforce, to make an input
to keep this? What I am really after is this: what was your understanding
at any given time as to what you needed to do in order to win
that argument?
Mr Hughes: In relation to the
argument to keep the business at St Athan, DARA had been involved
in the end-to-end process throughout, from the issue of the McKinsey
report in 2003. Recommendation no. 40 was to do an investment
appraisal process as to the benefits and merits of doing the work
either at Marham or DARA. DARA were intimately involved in all
of that process with MoD in both putting forward a strong case
for keeping the work at DARA, and indicating the strengths of
DARA as a competitive and efficient organisation, as well as putting
forward other options to make the best utilisation of the DARA
staff and facilities. Throughout the end-to-end process, DARA
was involved in provisional of information to the investment appraisal.
There were many, many meetings from the point of view of a large
number of DARA staff. We were involved in putting the case for
DARA. The case that got put forward, however, into the investment
appraisal process, which took into account a wide range of MoD
criteria which DARA do not control—
Q36 Mr Havard: Did you
understand them? Did you have clarity on them, because I never
got it.
Mr Hughes: I think we had as much
clarity as was available in relation to the wider aspects. The
judgments were not for DARA to make but for others to make. We
put forward very strong cases about the professionalism, effectiveness
and efficiency of the workforce in DARA. However, what was being
considered was something wider than just the costs of doing work
at DARA; it was looking at best value for defence in the round.
Again, I think the MoD—the people who were running the investment
appraisal process—took the DARA input. It resulted in many,
many, many revisions and extra work back and forth before the
eventual conclusion was reached. We did put forward strong cases,
but, obviously, it was not strong enough for the work to be retained
at DARA, but when it came to the decision for the Fastjet business
rolling forward to Marham the incremental costs associated with
rolling forward versus rolling back was such that there was a
decision to roll forward. That is something that we could not
put up any counter arguments to.
Q37 Chairman: Mr Hughes,
you may not have seen Steve Hill's evidence to us, but you have
just said that DARA was engaged in the end-to-end review from
the beginning. What Steve Hill says is this: "In 2002 the
DMO initiated the end-to-end review, which aimed at looking at
all maintenance support in the RAF and Army. Regrettably, DARA
was not engaged in this study until, after many protests, it became
involved in 2003, by which time many key decisions had been taken
that directly affected its future." Is that wrong?
Mr Hughes: Obviously, I have not
seen the submission. I believe that is probably correct, going
back to 2002, that when the first DLO-wide McKinsey report was
instituted, looking at the DLO as a whole, DARA probably were
not intimately involved at that stage. By the time the end-to-end
review took place—by that time DARA was intimately involved.
Whether or not decisions had already been taken and the dye was
cast by then, I could not comment. What I do know is that Steve
Hill personally was instrumental in getting the investment appraisal
process done so that the recommendation to roll forward to Marham
was not just taken as a recommendation and there was further,
very much more detailed work, done. He was also instrumental in
an awful lot of the detailed work from our perspective that went
into the investment appraisal. What happened back in 2002—Steve
says he was not intimately involved at that stage, and I have
no reason to doubt him.
Q38 Mr Havard: Were you
in a discussion you could ever win? You were not in control of
certain factors it seems to me, like the crisis manning review
and so on. The question I really want to ask is the $64,000 question
in a sense: Given this has now happened and it has been rolled
forward to an operating basis, then it may well help with crisis
manning requirements but is it actually going to achieve, or what
effects will it have is a better question to you, a local question,
on the operational capability of the RAF—because that is
the guts of our inquiry?
Mr Hughes: I am not qualified
to talk about operational capability in terms of how the RAF and
military operate their jets. I can certainly talk about the maintenance.
There are obviously different risk factors at play when the work
that is done at DARA moves to another operating base and risk
judgments are made in the process of deciding whether the work
is done. There is no programme where there is no risk. There is
obviously a degree of risk in taking work away from an organisation
and workforce that has proved its capability to do it, and move
that work to somebody else. That happens a lot in business. In
this case, the operational capability is something that you might
ask the Minister next week.
Q39 Chairman: From your
point of view, do you think that risk is worth running?
Mr Hughes: I do not think I can
answer that question.
3 Ev 61 Back
| 
