Appendix: Government Response
The House of Commons Defence Committee published
a report, analysing the progress made by the Ministry of Defence
in acquiring two new aircraft carriers and the related Joint Carrier
Aircraft programme, on 21 December 2005. The Government's response
to that report's conclusions and recommendations is set out below.
1. 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. (Paragraph 22)
As announced on 14 December 2005, the project has
now entered its Demonstration phase. This will be focussed on
delivering the maturity of design, detailed cost definition, programme
risk reduction and contractual framework that will allow a decision
to be made to commit to manufacture. This main investment decision
will be only taken when all of these key elements have been fully
developed. Setting an arbitrary target date by which all these
should be achieved would not be in the best interests of the project.
2. 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.
(Paragraph 25)
The maturity of design of the Future Carrier, and
any major warship, is not linear in its relationship to time.
Generally, the design would be assessed against its ability for
use in production engineering. During the Assessment phase, the
design (previously, in 2004, described at "60% maturity")
was subjected to value engineering which was part of the process
of risk elimination. Nevertheless, the design reached a sufficient
level of maturity to allow the project to move to the Demonstration
phase, and further work will now be undertaken to achieve the
required level of design definition to allow the main investment
decision to be made to move to manufacture.
3. 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. (Paragraph 35)
The project team has taken full cognisance of the
RAND report and will continue to use its suggestions as well as
other innovative and pragmatic approaches to ensure that procurement,
construction and through-life costs are constantly re-assessed
for possible savings.
4. 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. (Paragraph 39)
The timescales for the transition from Assessment
to Demonstration to Manufacture are not proscribed and therefore
the date at which the main investment decision is taken cannot
be accurately predicted. Setting an arbitrary date would not
be in the best interests of the project. At the time of the main
investment decision - when the design, detailed cost definition,
programme risk reduction and contractual framework are fully developed
- a clear production schedule will also be agreed with the contracted
companies and at this time it will be possible to set an In Service
Date.
5. 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. (Paragraph
40)
It is only at the time of the main investment decision
- when the design, detailed cost definition, programme risk reduction
and contractual framework are fully developed and a clear production
schedule is agreed - that it is possible to set an In Service
Date. This is the case not only for CVF but for all other projects.
6. 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. (Paragraph 41)
The In Service Dates for the future carriers will
not be fixed until the main investment decision is taken. It
is therefore too soon to know whether there will be implications
for the planned out of service dates for the Invincible class
carriers. However, the Department is alert to the need for coherency
in maintaining continuity in our carrier capability. For this
reason, the announcement on 14 December outlined our intention
to consider, subject to negotiation, how the CVF build contract
can be extended to encompass not only the carriers' initial support
but also the support for the Invincible class carriers until their
out of service dates.
7. 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. (Paragraph 49)
The six Alliance members (Babcock, BAE Systems, KBR,
MOD, Thales and VT Group) have signed an Alliance Charter and
agreed the roles and responsibilities of each member within the
Alliance. The final Alliance Agreement will not be completed
until the main investment decision is taken.
8. 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 be 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. (Paragraph
55)
The six Alliance members (Babcock, BAE Systems, KBR,
MOD, Thales and VT Group) have signed an Alliance Charter (which
confirms and commits each member to achieving the objectives of
the Alliance) and agreed the roles and responsibilities of each
member within the Alliance. The final Alliance Agreement will
specify the risk and reward levels attributable to each member.
9. 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.
(Paragraph 56)
It is accepted that Alliance Industry participants
remain employees of their company but the overall Risk & Reward
in which they share is determined by the success of the Alliance
as a whole and not the performance of individual companies.
Corporate Governance is addressed by a system of checks and balance:
the Alliance Management Board which steers the project is chaired
by MOD and includes senior company representatives. The Chief
Executive Officer of the Alliance Management Team which manages
the work acts under the authority of the AMB and is constrained
by his need to seek AMB approval and, in certain areas, MOD commercial
and financial concurrences
10. 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. (Paragraph 57)
The MoD will regularly apply lessons learned from
the CVF project to other areas/projects as appropriate, including
the use of the Alliance approach to deliver its procurement programmes.
11. 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. (Paragraph 63)
Plans for the construction and assembly of the ships
were announced by the Secretary of State on 14 December 2005.
The ships will be constructed in yards owned by members of the
Alliance - hull block 4 at BAES Govan, block 3 at BAES Barrow,
block 2 at VT Group Portsmouth, and the bow (block 1) and final
assembly at Babcock Rosyth. Award of manufacture contracts are
still subject to value for money and cost effectiveness considerations.
Other substantial elements of the ship's super structure are
to be competed for by other UK shipyards and manufacturing facilities.
12. 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. (Paragraph 70)
The CVF programme of work was fully taken into consideration
during the Defence Industrial Strategy (DIS) review of the Maritime
Sector. The Maritime Industrial Strategy will be the primary
vehicle for delivery of DIS in the maritime sector and will build
on the industrial and commercial arrangements being put in place
for CVF as we work to develop an industrial strategy for the UK
maritime sector that will deliver improved performance, quality
and competitiveness and sustain key skills and capabilities in
the longer term.
13. 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. (Paragraph 71)
Demonstration phase contracts for CVF are expected
to be placed early in 2006. Work continues with industry to progress
the design to a point of maturity such that contracts can be placed.
There is no doubt about MOD's strong support for the UK naval
shipbuilding sector. MOD has embarked on the largest procurement
programme of new ships for the Royal Navy in many years centred
on the Future Carrier, Type 45 Destroyers, new vessels for the
Royal Fleet Auxiliary and the Astute submarine. There will be
short term fluctuations in work at a number of shipyards across
the country prior to CVF coming fully on stream. However, the
MOD order book alone cannot be expected to sustain shipyards,
and they need to remain competitive and also seek alternative
customers.
14. 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. (Paragraph 72)
MOD and industry have undertaken a detailed analysis
of the wider forward maritime programme, looking at all military
vessels (current and future) and have developed a more balanced
and potentially more stable industrial demand within affordability
and capability constraints, thus avoiding the damaging peaks and
troughs of the past. The introduction of a managed and steady
work stream will allow industry to plan efficiently and to retain
its highly skilled workforce. It is, however, primarily for the
shipbuilders themselves to manage fluctuations in workload.
15. 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. (Paragraph 73)
The current level of surface ship build infrastructure
will be unsustainable following completion of the current substantial
warship build programme. The future Defence Programme points
towards the requirement for fewer, more capable, ships. The Maritime
Industrial Strategy will establish a stable long-term core workload
to sustain the critical maritime capabilities we need for the
future on the basis of benchmarked performance. Industrial consolidation
is likely to be a key feature of any improvement programme, and
fundamental to creating a viable and sustainable business to meet
anticipated steady state demand post CVF.
16. 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. (Paragraph 80)
As announced on 24 January, we have been joined by
France for the Demonstration Phase of the CVF programme. They
will pay an entry fee in recognition of the investment the UK
has already made in the design and will contribute one third of
the demonstration phase costs of the common baseline design.
But this is not a full collaborative programme - we are not harmonising
requirements. The UK and French requirements remain separate:
we are exploring and exploiting areas of commonality which will
bring savings in design costs and procurement. Throughout our
discussions with France and during industry-to-industry work,
we have made it clear that any co-operative programme of work
will not be allowed to impact on CVF timelines. The French concur
with this approach.
17. We are concerned that the In-Service Date
for the JSF has slipped from 2012 to 2014, some two years after
the first carrier was originally expected to come into service.
It is essential that the In-Service Dates for the CVF and JCA
programmes match. If not, the UK could be left with new carriers
without new aircraft to operate from them, or new aircraft with
no new carriers to operate from. (Paragraph 90)
Any In Service dates are internal planning assumptions
only. As stated in the memorandum, we plan to start taking delivery
of aircraft from 2011 and to be conducting flight trials, including
work up from the CVF, in advance of the In Service Date. This
progressive approach to introducing the aircraft onto the carriers
allows us to further de-risk integrating these extremely complex
elements of the carrier strike capability. We intend to ensure
that both programmes remain in step, but this is not dependent
on In Service Dates being simultaneous. We will set In Service
dates when main production decisions are taken on both programmes.
18. We note that the weight problems on the STOVL
variant of the JSF have been mitigated but we expect MoD to continue
to monitor closely weight and other risks on the JSF programme.
(Paragraph 95)
The Department agrees that this issue needs close
monitoring and we have plans in place to do so as we approach
the Production Main Gate approval points for both CVF and JCA.
The UK continues to closely monitor all JSF Programme risks, including
the achievement of weight reduction targets set by the JSF Programme
Office.
19. We have been assured that the STOVL variant
of the JSF aircraft being procured by the UK and US are identical
and are being designed to the same set of requirements, though,
once delivered, the aircraft will be fitted with different weapons.
(Paragraph 97)
The US is developing all three variants of the aircraft
- Conventional Take Off and Landing (CTOL), Short Take Off and
Vertical Landing (STOVL) and Carrier Variant (CV). The UK is currently
planning on buying the STOVL version. The configuration of each
type can vary between platforms and users based on types of weapons
carried, unique national requirements and mission specific equipment.
However, the baseline configuration of the UK Joint Strike Fighters
and the US jets are common.
20. We fully support MoD's position that the ability
to maintain and upgrade the JSF independently is vital. We would
consider it unacceptable for the UK to get substantially into
the JSF programme and then find out that it was not going to get
all the technology and information transfer it required to ensure
'sovereign capability'. This needs to be sorted out before further
contracts are signed and we expect MoD to set a deadline by which
the assurances need to be obtained. If the UK does not receive
assurances that it will get all it requires to ensure sovereign
capability, we would question whether the UK should continue to
participate in the JSF programme. (Paragraph 107)
Information access to ensure our required levels
of sovereign capability on JSF has been recognised by the US and
UK in the Exchange of Letters signed between our respective Defence
Secretaries. The Department also recognises that demonstrated
progress on Information Exchange is a critical enabler to the
signature of the Production, Support and Follow On Development
MOU planned for December 2006. An engagement strategy exists to
ensure that progressive and targeted pressure is brought to bear
at senior political levels in the US DoD and State Departments
to deliver UK Requirements.
21. We note that production and support of the
JSF will be allocated on the basis of global best value. Achieving
best value is important but, if this resulted in all future support
of the aircraft being undertaken overseas, then achieving sovereign
capability could be put at risk. We expect MoD to demonstrate
that achieving global best value and ensuring sovereign capability
are compatible. (Paragraph 108)
As we made clear in our response to the HCDC, this
is not a work share programme but one where work will be carried
out on a global best value basis to ensure that JSF remains an
affordable option for all partners. Regardless of where the aircraft
are built or what arrangements are put in place to support the
global fleet, the UK is taking the necessary steps to ensure that
it can operate, sustain and upgrade JSF on a sovereign basis through
life. Our strategic requirements for having the sovereign capabilities
to operate and sustain JSF were set out in an Exchange of Letters
(EOL) between Secretary of State for Defence (Mr Hoon) and the
US Defense Secretary (Mr Cohen) agreed in January 2001. See also
Q.20 above.
22. We note that good progress with the release
of information and technological exchange on the JSF programme
has been made to date, but concerns remain. MoD has focussed its
efforts on the US Administration to ensure that all the information
and technology it requires on the JSF programme for the future
is obtained in a timely fashion. In our view, dialogue with the
US Administration is not sufficient given the key role played
by the US Congress. We will support MoD on this issue where we
can. We intend to visit Washington in the New Year and plan to
raise this issue with the US Administration and with Members of
Congress. (Paragraph 113)
Recent meetings between Officials and their US Counterparts
have raised to the highest level the UK requirements for sovereign
operations and the need for urgent progress. Substantial headway
is being made and Industry and Government currently has the access
it needs at this stage of the programme. The Department welcomes
the Committee's intention to raise this issue with the US Administration
and with Members of Congress, but would wish to ensure that such
engagement is planned and co-ordinated as part of the Department's
overall strategy.
23. We are concerned by press reports suggesting
that the US might cut back on the STOVL variant of the JSF as
this could have serious implications for the UK JSF programme.
While we note the recent assurance given by the US Defense Secretary
that the US JSF programme would be 'funded robustly', we expect
MoD to keep a close watch on this issue and to assess the likely
impact on the UK JSF programme.(Paragraph 120)
The US remains committed to the JSF programme despite
public speculation resulting from the US Quadrennial Defense Review
and the current round of considerations on the Defense Appropriations
- results expected early 2006 - although early indications are
positive. There are no indications that the US will cancel the
Short Take Off and Vertical Landing (STOVL) variant, despite recent
speculation which has been linked to the Carrier Variant (CV)
and Conventional Take Off and Landing (CTOL) variant. The Department
will continue to monitor the situation extremely closely as we
prepare for Production, Support and Follow On Development Memorandum
Of Understanding.
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