Examination of Witnesses (Questions 40-59)
MR GUY
GRIFFITHS, MR
ROGER MEDWELL,
DR DAVID
PRICE AND
MR CHRIS
CUNDY
31 JANUARY 2006
Q40 Mr Havard: It fits in with this
feast and famine aspect and what happens post 2015.
Mr Cundy: I am not qualified to
comment on the submarine side of life. I have to say on the warship
building side of life we will need capacity and design capability
beyond 2015 and that could include some of the submarine capabilities.
Q41 Chairman: Would any of the rest
of you like to take on this submarine issue?
Mr Griffiths: I do not think any
of us is qualified.
Chairman: Okay, we will find some other
victim! Thank you very much. Moving back to the general impact
of the Defence Industrial Strategy, Brian Jenkins?
Q42 Mr Jenkins: Morning, gentlemen.
I know sometimes if you are listening to a Committee you might
not get the right emphasis of the question because you are sitting
there being nervous and wondering if we are going to trip you
up. We are not here to trip you up in any way, shape of form.
In fact, listening to some of my colleagues asking questions,
I get lost on a question and I understand why you would. However,
when Mrs Gilroy asked a question she asked quite simply: if you
have got a prime contractor with a lot of sub-contractors how
is best practice moved across them? I think, Mr Griffiths, you
gave an answer that the European Code of Practice is in place.
That is not quite the same terminology or the same document, so
when I was involved in a real job, part of my task would be to
go out to small contractors and pass best practice between them.
I know how difficult it is with regard to intellectual property
rights where a firm does not want to lose its competitive edge
by giving its secrets away. In that sort of question that Mrs
Gilroy was asking you, as the prime contractor how would you ensure
that best practice got shared within the pyramid of the group?
Mr Griffiths: I could illustrate
it perhaps from the work that we are doing in my particular sector,
which is the complex weapons sector, and again the relevant chapter
of the White Paper does identify, apart from my own business,
a number of other players in the industry whom MoD, from the analysis
they have done, recognise as having particular niche capabilities,
particular intellectual property, if you want to express it in
those terms, which needs to be safeguarded. You are absolutely
right there is a sensitivity amongst some of those players about
being willing to share the benefit of some of that intellectual
property either with us or with other of the players in the sector,
but what we have sought to do really, with the encouragement of
the MoD, is first of all to initiate bilateral discussions with
each of those players to say, "Here on the basis of the White
Paper is the best prognosis that is available on the levels of
business which are available to this sector over the coming five
to 10 years. Here is our industrial position in terms of what
it means"
Q43 Mr Jenkins: I am going to lose
the will to live shortly. Yes, we see it as a problem. Yes, we
have the technology and the strategy to deal with it, that is
what I want to know, and if we have a strategy to deal with things
like that, and the strategy we have got for the defence industry,
if you can call it a strategy, says that industry will need to
reshape itself. My simple question is: if industry needs to reshape
itself, what is the future and what shape do you see? If we have
got 305,000 people employed in the industry now and we will have
for the next few years, let's say 10-15 years down the track how
many people do you envisage being employed in the industry? Where
will they be in the country? Shipbuilding is okay; it is still
going to be on the coast, we know that, but where will they besouthern
England, northern England or whereverand who is going to
do the reshaping because no-one is going to throw themselves on
the sword, so who is going to beat these things into shape? Are
you going to do it, is the MoD going to do it, or is it left to
the market-place?
Mr Griffiths: Certainly in terms
of what we are trying to do in our sectorand I use that
as an examplewhat we are seeking to do is to compare the
analysis which we have from the key players within the sector,
identify looking ahead where we have got duplication or overlap
in terms of capabilities either in one company or another and
to see between usand you are right these are not easy conversationsas
to where that capability, where it is surplus can be eliminated
or indeed, and there are instances in the document where there
are envisaged future military requirements that perhaps we are
not totally equipped to deliver today and maybe jointly we need
to invest in particular technologies in order to provide that
capability.
Q44 Mr Jenkins: With technology we
have a moving feast here and we do not know what is going to happen
in 10, 15 or 20 years' time, I understand that, the question is
who is going to reshape the industry?
Mr Griffiths: I think the onus
is on industry ultimately to do that.
Q45 Mr Jenkins: You are going to
do that?
Mr Griffiths: But based on the
best available information from MoD as to what its future military
requirements and spending plans are.
Dr Price: There is probably a
gap.
Q46 Mr Jenkins: It is not a gap.
Dr Price: I said it is a gap in
the strategy. The third objective of the Defence Industrial Strategy
is to identify how one should go forward and that is probably
the weakest part of the defence strategy that when you look at
the plan going forward which says how many people will be employed,
I think it is probably missing altogether.
Q47 Mr Jenkins: It is not the weakest,
it is just non-existent. It is so fundamental and basic that to
call this a strategy, you just have to be searching for a better
term. This is a wish-list, some off-the-wall idea of "we
would like to move forward; how do we move forward?" They
have come up with this prime contractor concept to carry the entire
load. The prime contractor might carry the load in a specific
area or task but not across the industry. You need to sit down
as an industry and my difficulty is when you start talking about
merging what we start looking at is monopoly. If we have only
got one supplier, we are tied into it. How do we know when we
get close to falling below that critical mass so that we cannot
produce our own defence requirements, because nobody is going
to tell us out there, are they, because you have not even got
your act together yet as an industry to tell us what shape it
is going to be? There are lots and lots of questions that should
be basic, fundamental questions that are missing at the present
time. Do you agree?
Mr Griffiths: I do not totally
agree with that because I think one can envisage a scenario where
it might be better to have one player indigenously within the
sector who does himself have critical mass rather than three or
four smaller players each of whom is below critical mass.
Q48 Mr Jenkins: That is what I am
asking for that someone has come up with a plan that we can look
at, evaluate as to how we get from the situation we are in now
to the next wave where we say we will have an industry that will
only comprise of 200,000 employees and do you see that future?
Mr Griffiths: I cannot see it
in those quantified terms, but what I would say is for industry
to assume the responsibility for sizing and reshaping the defence
sector in the way I think is envisaged in the White Paper it is
helpful and desirable that industry has the benefit of a greater
level of transparency in terms of future military requirements,
future spending plans than the White Paper envisages.
Q49 Mr Jenkins: Let's push this a
little bit longer. Would you say if I were to sit down with a
clean sheet of paper now to design a realistic strategy, what
I should do is to look for a company that has extremely good management
capabilities, that has good accountancy capabilities, that has
a good track record but does not make anything, as my prime contractor
as my prime "go and fetch" boy, and they then come to
the manufacturers and they come to the people who may not be in
the defence industry, who may be outside the defence industry
as they knit the project together and they develop project experience
and expertise that might be limited in an individual we have got
now as a prime contractor? Do you see that as a way forward?
Mr Griffiths: From my experience,
it is difficult to envisage a company having the requisite degree
of system engineering skills and management skills of the type
that you have just described without actually having the ability
within that organisation also to understand some of the sub-system
technologies that are intrinsic to it. So I do not particularly
buy this idea that you can just have a pure system integrator
as your prime contractor.
Q50 Linda Gilroy: I am interested
to ask a final question of where small and medium enterprises
fit into all of this. In particular, I come from Plymouth, the
South West, where the supply chain is as big as it is anyway in
Europe, never mind the rest of the country. I just wonder if any
of you have any experience of the relationship between the small
and medium enterprises, universities and knowledge partnerships,
because it seems to me we were talking about how they might want
to safeguard their innovation from being exploited without them
having the benefit of it and knowledge partnerships are surely
one way of dealing with that? Do the big primes have a role in
relation to the universities in enabling them to facilitate that
kind of support to small and medium enterprises?
Dr Price: Clearly from previous
experience with Rolls-Royce, Rolls-Royce has led to some extent
the formation of university technology centres essentially
for partnership development over a longer term period, which to
some extent I think the MoD has now picked up with its defence
technology centres going forward, which is essentially to make
use of the very best capabilities in universities in a partnership
of targeting so that there is continuity and consistency of vision
for where it should go and that also links in to some extent,
in my experience, take Portsmouth for example there is quite a
strong knowledge partnership that operates between the smaller
companies and the University of Southampton and some of the other
universities in trying to promote greater understanding of where
the benefits of new technology can be applied and perhaps, Chris,
you would like to build on that.
Chairman: Thank you very much. Moving
on to complex weapons, David Crausby?
Q51 Mr Crausby: My questions are
directly specifically at Mr Griffiths because MBDA specialises
in missile systems and, as you have already told the Committee,
the Secretary of State has said to the House that there has been
a significant investment over the last 10 years and investment
in this area is now likely to reduce by 40% over the next five
years. How will MBDA adjust to a reduction of this scale and,
most importantly, how will it retain the specialist missile skills
in the UK with this likely reduction?
Mr Griffiths: In part we had anticipated
some of this because, as you observe quite rightly, over the course
of the last 10 years we have seen what we always envisaged to
be a peak in terms of the rearmament cycle, so to some extent
we had manned up to service that particular peak on the basis
of managing that peak by employing a number of particular skills
on fixed-term contracts of employment, envisaging all the while
that as that peak then declined, as those people's contracts became
time-expired, they would be released. At the moment that is the
phase that we are going through. Then in terms of sustaining the
core skills and the permanent skills that we have within the business,
what we have done (again in conjunction with other companies within
our supply chain who, if you like, face exactly the same issue)
is to propose to MoD a series of route maps for the migration
of the current portfolio of weapons that they have in service.
Today the UK MoD has 27 complex weapons either in service or under
procurement, and one can envisage over the course of the next
10-20 years that through a policy of technology insertion (not
massive new programmes but small investments in particular enhancements
to those systems) one could both increase military capability
at a relative modest expense but also, through introducing modularity,
thin down and reduce the number of systems that need to be retained
in service by making them more versatile to particular varieties
of applications. The model we have presented in a substantial
proposal that we had made to the MoD is a series of planned technology
insertions/investments which by reducing the portfolio of weapons
would then reduce the through life cost of maintaining the inventory
of systems with the Armed Forces today because the programme of
work is self-financing through the payback and the reduction of
through life costs. We do believe that is a win/win because we
believe in total we can reduce the operating costs of the complex
weapons that are in service with the UK at the same time as freeing
up from those savings funding in the technology insertion, which
can contribute to retaining those core skills which you mention.
Q52 Mr Crausby: You present a memorandum
to the Committee[4]
in which you state that the challenge now is of course to implement
the Strategy in time to avoid seeing UK complex weapons industrial
capability going into decline, and I think you have said time
is short.
Mr Griffiths: Yes.
Q53 Mr Crausby: So who is responsible
for meeting this challenge? What needs to be done and by when
in order to avoid this decline?
Mr Griffiths: I made these proposals
and I sent very detailed proposals to the MoD in the second half
of last year. As far as I am concerned, the implementation phase
in our sector over the course of the next six months is imperative,
and in particular the answer I need over the course of the next
six monthsand it is that sort of time-frameis whether
or not the sort of route maps that were presented in that proposal
are ones which attract the support of the MoD. If the answer to
that is yes, then I think there are investment decisions that
I can make within the company that would take the first steps
towards developing the sort of technologies which progressively
over the course of the next 10 or 15 years would need to be injected
into that portfolio of weapons. In the absence of some clarity
as to whether or not the MoD share that vision as to where we
are headed then, frankly, as we move into the second half of this
year, I have to take across the whole of my business, not just
in the UK but France and Italy and Germany as well, decisions
as to how I cut capacity. There will be choices to be made, as
far as I am concerned, as to where those cuts fall as we seek
perhaps to specialise particular capabilities in my sector in
one country rather than in three or four. So by the second half
of the year it becomes critical for me.
Mr Crausby: I look forward to that.
Q54 Mr Hancock: I think this is a
very interesting issue you have raised which is over and above
where we are going on our inquiry. It is whether or not this strategy
recognises once again the sort of decisions that you have to make.
It is the relationship between this strategy and the Defence Procurement
Agency and yourselves, which this document really does not address.
You once again have raised a real issue where this strategy does
not take account of that. How can you possibly make those sorts
of decisions if there is no clear strategy relating to where defence
is going over the next 10 years built into this document?
Mr Griffiths: Well, that is the
answer I need because the proposal that I referred to in response
to Mr Crausby was one that we did not develop totally in isolation,
it was one that we worked up in the second half of last year with
a lot of input from the MoD team themselves but, frankly, we are
at the point where we need decisions. I do recognise the model
I have proposedwhich is basically spend to save and reinvesting
some of that saving into sustaining industrial capabilityis
one that really does challenge the MoD's system because it is
testing whether or not they are really willing in terms of putting
their money where their mouth is to support this through life
management approach that is referenced within the document.
Mr Hancock: I find that hard to comprehend
because the document does not address that problem, I do not think;
I think it fails miserably, sorry.
Q55 Robert Key: If I may follow on.
This was what I would have been pressing a little later but since
Mr Hancock has raised it, the Ministry of Defence on page 124
of this document, paragraph B11.22 gives a very precise list of
technologies with emerging defence relevance and gives you a road
map of where it wants you to go in relation to technology. Did
you help create that list? Was this your input or is this something
the Ministry of Defence is just thinking up by itself when it
mentions smart materials and structures, micro electro-mechanical
machines, supersonic and hypersonic technologies, wideband, high
power electronics, all that list there in that paragraph? Is that
your input that you were talking about?
Mr Griffiths: That is not my input.
I think, in fairness to the Ministry of Defence, they prepared
their view of which technologies were critical. They then went
through a process of testing that through a series of sectoral
workshops sector-by-sector with industry. I think probably the
industry input calibrated their view but I would not say it was
sourced from industry.
Q56 Chairman: We will come on very
shortly to research and technology and we are building up to now.
A quick question about platforms and the sort of insertion of
new capability into existing platforms that you have just been
talking about. If we are going towards platforms which have very,
very long lives and it is the insertion of new technology that
is going to be the key, what is the consequence going to be for
retaining designers of platforms of new equipment if most of the
work is going to be involved in supporting existing technology?
Mr Cundy: Just to give an example,
Type 45, that is being designed for enhancement throughout its
life. It is a ship which has, as I say, a long platform life.
Q57 Chairman: Yes, but once it is
built what will happen to your designers of new systems, new equipment?
Mr Cundy: I think on Type 45 a
key issue is not necessarily the designers but how the ship will
be looked after through its life. It will be moved away from set
piece refits and upgrades to more through life upgrades as it
is operational to increase the operational capability. That means
that both the designers and the support teams need to be involved
throughout its life, both equipment and the supply chain.
Q58 Chairman: Will they not lose
the skills to build new ships and build new aircraft if we are
not buying any new ships or aircraft?
Mr Cundy: That comes down in the
strategy in terms of submarines there needs to be a drum beat
of how many years to design a new class of ships or to have a
new surface fleet of some sort.
Q59 Chairman: If they do lose the
skills what is the consequence for exports?
Dr Price: I was just going to
look at it from the modularity of the design looking forward with
technology insertion. Clearly, you are looking at a variety of
different platforms but if you are doing a technology insertion,
ie, an upgrade of a particular avionics, particularly if you look
at modern aircraft and modern missile systems, the integration
of that new technology, the new sub-system, which may well come
from a second or third tier, still requires quite significant
impact from the prime contractor in terms of the design capability
because essentially you have to model how that new capability,
that new technology is going to work with the rest of the system
that is essentially your legacy. So a technology insertion, if
the structure of the platform is designed properly to accept it,
should ensure that a core skill base is retained for some time.
Whether that is sufficient to be able to start again with a new
design 50 years later, if you take the Carrier in-service length
of life, is always a difficult question to answer.
4 Note: See Ev 66 Back
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