Examination of Witnesses (Questions 1-19)
MR GUY
GRIFFITHS, MR
ROGER MEDWELL,
DR DAVID
PRICE AND
MR CHRIS
CUNDY
31 JANUARY 2006
Q1 Chairman: Good morning. Thank you
very much indeed for coming to give evidence about the Defence
Industrial Strategy. We are starting with the Defence Manufacturers'
Association and I wonder if you could begin by introducing yourselves
and saying very, very briefly what you do. You are most welcome
to the Committee.
Mr Griffiths: Thank you, Chairman.
My name is Guy Griffiths and I am Chief Operating Officer of MBDA
Missile Systems and also a Council member of the Defence Manufacturers'
Association. DMA, as I am sure you will be aware, is a trade organisation
with over 600 defence companies as members, spanning all sectors
of the defence industry in the United Kingdom and indeed all tiers
of the supply chain. We have chosen four representatives from
the DMA today who we hope will provide you with a cross-section
of views from various sectors and, as I say, from various tiers
within the defence sector to give you perhaps slightly different
perspectives on how the DIS has been received.
Dr Price: Dr David Price, I am
the Chief Executive of Chemring Counter Measures, a public limited
company in aerospace and defence, with a £300 million market
cap. We are a world leader in expendable decoys and essentially
operate in energetic material, both directly to the Armed Forces
but also to prime contractors, so we operate in both tiers.
Mr Medwell: Roger Medwell, MD
NP Aerospace in Coventry. We are specialists in the manufacture
of composites and technical modellings for the NLAW programme,
helmets for the British Army, body armour and also composite armoured
vehicles such as the Armoured Land Rover (Project Snatch) in Iraq.
Mr Cundy: Chris Cundy, Commercial
Director for VT Group, which is a plc with a turnover of over
£800 million, both in the commercial warship building industry
and in related support to a number of government agencies.
Q2 Chairman: Thank you very much.
If we can begin with a few generalities. Work on the Defence Industrial
Strategy started in August 2005 and the Minister said that "we
need something that pulls everything together rapidly". Did
you agree with that and why was it necessary to do it all so urgently?
Who would like to begin?
Mr Griffiths: If I may start with
that, Chairman. I think, first of all, whilst the timescales that
were set for the exercise were extremely ambitious, I would observe
that industry nonetheless was very supportive of the expeditious
way in which the Minister and his team approached it. Why is that
the case? Well, I think in a number of sectors we do see as a
matter of some imperative guidance in terms of the UK's acquisition
plans as driving some key decisions in terms of industrial rationalisation,
restructuring and investment, and certainly talking of some of
the sectors—and maybe we will get into some specific sectors
later if you wish—some of those decisions are quite urgent.
I would also observe, I think, that in these exercises it is sometimes
easy to let the best be the enemy of the good, and I think probably
in the timescales that were allowed for the exercise we have been
able to derive collectively quite a lot of useful input in a very
short time. So I think on balance we support it. I think if there
is one area where the DMA probably would observe that some quality
has been sacrificed in the short timescales allowed for the exercise,
it was in the degree of consultation that was afforded not to
the big, prime contractors particularly because I think they were
heavily engaged in the exercise, but perhaps some of the smaller
and medium-sized companies did not feel necessarily they had had
their voices heard to the extent that would have been wished if
more time had been allowed.
Q3 Chairman: We will come on to the
involvement and reaction of small and medium-sized companies during
the course of the morning, but in general do you believe that
industry was involved then in the drawing up of the DIS?
Mr Griffiths: I think, Chairman,
I would go further than that and I would observe that the degree
of engagement, notwithstanding what I have said about the small
and medium-sized companies, was unprecedented. If I speak by way
of example as far as my own company was concerned, the Minister
personally spent half a day with me and my team rehearsing the
issues as they affected our particular sector and really was determined
to understand what the technology issues were, what the capability
issues were militarily, and I believe I was not alone in terms
of that dialogue which was going on with other companies. If I
look at the degree of engagement, I genuinely do think that over
the course of the last six to eight months the degree of openness
and transparency in both directions was unprecedented.
Q4 Chairman: Do you think that your
views were reflected or does industry think that its views were
reflected in the overall result?
Mr Griffiths: I think again it
is difficult to generalise because from one sector to another
there may be differences of emphasis there, but certainly I think
in the context of the DIS document overall the overriding themes
which emerged from it are ones which generally do reflect the
views being expressed by industry during that consultation process.
Dr Price: Again it comes back
to one of the main themes to which Guy has referred. I think the
area where there is the main concern is when you are looking at
second and third tier SMEs where the engagement was significantly
less and obviously where there is quite a significant degree of
capability and innovation for the technology going forward, where
it is certainly much more unclear in terms of the degree with
which it reflects industry's position.
Q5 Chairman: What was the cause of
that? Why do second and third tier companies feel left out?
Dr Price: It is not so much left
out but more to do with in the time available. It is quite difficult
particularly since a lot of second and third tier companies, of
course, have their primary relationship with prime contractors.
And then when you are looking at a lot of the sector strategies,
it is about the way in which the very large primes, whether it
is Agusta Westland, MBDA obviously, or British Aerospace in the
different sectors, implement their strategy going forward. This
is quite an important point from the MoD point of view. A lot
of their supply chain, where an industrial strategy would have
to flow down in terms of the partnership, is not very well brought
out and I suspect—and perhaps you would like to comment,
Roger, as a small company—there was comparatively little
engagement across what is a very large number of companies.
Mr Medwell: The review does not
really go into how SMEs are going to be involved and what protection
they have. Clearly we are going to be interfacing with known primes
and we have been doing projects, as opposed to the DPA for instance,
and the question for SMEs is will they be treated as fairly with
the primes as we are with the MoD. It is obviously a concern because
it is going to be quite a new relationship for us on a number
of programmes.
Mr Cundy: I think I would corroborate
what my colleagues have said, particularly in our sector which
is the maritime sector. With the Maritime Industry Strategy there
has been extensive consultation.
Q6 Chairman: We will come on to the
small and medium enterprise issues in more detail in a few minutes.
The Secretary of State said that the DIS communicates for the
first time to industry and the City those skills, technologies
and industrial capabilities that are assessed as being required
onshore. Do you think the DIS does that?
Mr Griffiths: I think it does
articulate sector-by-sector what is required. I think there may
be one or two gaps which we would want to clarify as an industry
during the implementation period going forward. I think, however,
it is less clear (and maybe that is understandable given that
we are moving into an implementation phase) as to the precise
mechanics by which some of those key capabilities will be retained
within the affordability limits that we know apply to this sector
at the moment.
Q7 Chairman: What are those gaps?
Mr Griffiths: They may not be
gaps in terms of complete sectors but I think when one actually
looks at the composition of the nine or 10 sectors which are referenced
in section B of the White Paper, there is no specific reference,
as far as we can observe, to such things as guns, logistics vehicles
and personal equipment for soldiers. One might expect that some
of those perhaps would be encompassed within the generality of
some of the sector headings within section B, but I think there
is a strength of feeling—and again perhaps this is reflected
amongst the SME community in particular—that there are some
particular niche military capabilities which those companies judge
they have particular expertise and strength to bring to bear which
are not referenced within the document.[1]
I think clarity is sought as to whether those are encompassed
within the sector headings and recognised as particular capabilities.
Q8 Mr Hancock: Can I ask how you would
envisage that they would be able to put that point of view across
about those gaps in the various things that you have talked about
and how those companies (who might not in any instance be seen
as a prime contractor in any of this) would be able to influence
that if they have not—to choose Mr Price's words—really
played a part in the formation of the policy? How are they going
to feel welcome in this new world?
Mr Medwell: I guess this has to
be a top-down process. We have to as SMEs engage with the primes.
They have to almost take the position with regard to the SMEs
that the MoD are going to be bringing these programmes together,
so clearly we know there will be a restructuring of our base depending
who will be seen as partner companies.
Q9 Mr Hancock: That could be very
painful for a lot of small companies.
Mr Medwell: It could be painful.
Q10 Mr Hancock: You would have nowhere
to go when you are being pushed into extinction.
Mr Medwell: We are interested
in what safeguards are going to be put in place for the SMEs.
One of my worries is that work could be put overseas without any
control. Will there be offsets as there were on the NLAW programme,
which I know you were directly involved on?
Q11 Mr Hancock: Do you not think
there is a failure in the policy not to recognise that? When the
Secretary of State suggested that some of the change is going
to be painful, he goes on to say that no change could be even
worse. For medium and small companies they are going to be under
a real pressure, are they not, to cut costs because the threat
of being able to go overseas by the prime contractor is always
going to be there hovering over them. There is a failure in this
policy to recognise the importance of these small companies to
the British defence industry, is there not?
Mr Medwell: There is no detail
with regard to the SMEs. It has not gone down to that level.
Q12 Mr Hancock: There is no mention
of them really. There is no policy in here which gives them any
real say at all. This is a charter for the big boys.
Dr Price: I think from our point
of view one of the issues, looking forward to how the Defence
Industrial Strategy is going to be implemented, is the prime contractors'
relationship and the industrial strategy with its supply chain
will become quite an important element because if the prime contractors
do not essentially follow a common industrial strategy with that
of the MoD you are going to have huge shadows essentially blocking
the light of transparency and coherent strategy going forward.
Q13 Mr Hancock: How can you control
that?
Dr Price: One of the ways you
can do it is through a proper partnership approach. If you look
at commercial industry, it goes down through the supply chain,
and certainly I know from my previous experience on the maritime
sector that a lot of effort has gone, prior to the industrial
strategy, into trying to work up how partnerships would start
to involve the second and third tier suppliers. That is not specifically
identified as a process in the Defence Industrial Strategy.
Q14 Mr Hancock: But there is nothing
in the policy which suggests that the prime contractor will have
those responsibilities to make sure.
Dr Price: Not explicitly.
Q15 Mr Hancock: That the rest of
the industry is in some way protected or engaged even; the choices
are all down to them. Once the decision is made to give them the
job it is then down to them to deliver in any way they see fit,
so this policy does nothing except protect them?
Dr Price: It is clearly a risk.
Mr Griffiths: It is a risk and
one of the observations in the written evidence submitted by the
DMA[2]
is that there needs to be some established appropriate safeguards
by the MoD, to make sure that those industry champions, the prime
contractors who have been identified in this document, are subjected
to some measure of control to make sure there is no abuse of that
privileged position they have been given.
Chairman: I am going to bring in Linda
Gilroy and then we will come back to you.
Q16 Linda Gilroy: There was an article
in Jane's Defence Weekly in early January which was looking
at this issue and one managing director of a small and medium
enterprise was quoted as saying: "Bit by bit we are giving
up and gravitating towards other sectors, like the oil industry".
So the safeguards you are saying which need to be there if we
are going to protect or at least give a level playing field to
employment through SMEs in this country are important. What sort
of safeguards should we be urging should be considered? Do you
have any views on that?
Mr Medwell: We have certainly
got to ensure that the supply base in the United Kingdom is given
a fair opportunity to bid for the work, and I think if the British
taxpayer is paying for it then if price is equal and service is
equal the contract should come to a UK company. We have done this
on overseas bids. NLAW was a classic where Saab won the contract
with 100% offset for the small SMEs, and that has been a fantastic
success and supported the SMEs in this country. Whatever happens,
I would like that sort of approach to be taken that was so successful
with the NLAW programme.
Mr Cundy: I would just reiterate
what my colleagues have said. As a tier one supplier on certain
contracts we are a prime contractor in that respect. About half of
a typical shipbuilding contract will be subcontracted and we obviously
need to build those relationships to work with companies.
Q17 Linda Gilroy: Is there a programme
of spreading good practice in that of which you are aware?
Mr Griffiths: There is a Code
of Practice for dealing with supply chain relationships of the
type that my colleagues have described, which was developed in
collaboration between the MoD and UK industry and has now been
adopted by the European Defence Agency for application across
Europe. I think that Code of Practice does provide a useful framework.
I am bound to say within the DMA we have from time to time tested
the penetration of that Code of Practice through various tiers
in the supply chain, and I have got to say the application of
it beyond about tier two has proved to be fairly patchy. I think
one of the things we would want to do as an industrial group with
the MoD is look collectively at how we might enforce application
of that Code of Practice more systematically.
Q18 Mr Hancock: I think, Mr Medwell,
you gave a very good example of where the system can work and
that was the Saab contract. How could that be incorporated into
a policy which says "here is an example of good practice
where all of the work really did remain in the United Kingdom"
and this is what your organisation would like to see to be the
pattern for the future? Do you not think in this policy there
was something missing there not to state those sorts of examples
as being what the Government would want to see in the best interests
of the nation to continue to be the norm rather than the unique
example?
Mr Medwell: Just taking that as
an example, they certainly made everyone aware in the industry
in the UK of the opportunities. We then made ourselves acquainted
and told them of our capability. We had our capability assessed
by Saab and indeed Thales. We got onto the tender list and we
were declared the prime for the mouldings element, so they did
a "down select". I think that is all we ask, that they
do go out to British industry, the SMEs, and give them the opportunity
to be aware of the programme and to qualify for the programme.
Q19 Mr Hancock: Can I just then ask
on a point that the Secretary of State made when he suggested
that there are things in this policy that industry would not want
to hear. I am at a loss to find those in the document. Do any
of you foresee anything in there that you are worried about which
you thought the Secretary of State was unfair about or that the
policy had actually uncovered some sort of mystery failure on
your part that had not been addressed in the past? For him to
say specifically this should be a "gritty and relevant document"
and there will be things in here that the industry will not want
to hear, have any of you been made nervous by the reading of this
document, that things have been uncovered that you have been up
to that had to stop?
Mr Griffiths: Your question implies
some measure of surprise. I would not necessarily cite this example
as being one that falls into this category. Certainly in my sector,
the complex munitions sector, there is a statement in it which
says that if one looks ahead over the course of the next five
to 10 years, the level of planned expenditure in this sector shows
a reduction of approximately 40% compared to what has preceded
it in the last five to 10 years. I am bound to say when we observe
the degree of rearmament that has gone on for the British Armed
Forces over that period that is not a great surprise for us. Is
it a source of some disappointment? Clearly it is; it is not a
surprise but nor is it palatable and it does demand some really
close work with the MoD to see how that level of funding reduction
can be accommodated in a way that does not destroy important industrial
capability. So that is one example.
1 Note by Dr David Price: Two good examples
are expendable decoys and personal body armour, both of which
have played a key role in recent peacekeeping, but are not explicitly
mentioned in the strategy document. Back
2
Note: See Ev 91 Back
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