Select Committee on Defence Minutes of Evidence


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 be—southern England, northern England or wherever—and 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 sector—and I use that as an example—what 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 us—and you are right these are not easy conversations—as 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 months—and it is that sort of time-frame—is 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 proposed—which is basically spend to save and reinvesting some of that saving into sustaining industrial capability—is 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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