House of COMMONS









Tuesday 27 June 2006



Evidence heard in Public Questions 1 - 111





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Oral Evidence

Taken before the Defence Select Committee

on Tuesday 27 June 2006

Members present

Mr James Arbuthnot, in the Chair

Mr David S. Borrow

Mr David Crausby

Linda Gilroy

Mr Brian Jenkins

Mr Kevan Jones

Robert Key

Willie Rennie

John Smith



Memoranda submitted by the Ministry of Defence


Examination of Witnesses

Witnesses: Dr Iain Watson, Operations Director for Information Superiority, Dr Andrew Tyler, Director, Land and Maritime, Mr Jonathan Lyle, Director, Air and Weapons Systems, and Lieutenant General Andrew Figgures, Deputy Chief of Staff, (Equipment Capability), Ministry of Defence, gave evidence.

Q1 Chairman: Would you like to introduce yourselves? General, would you like to begin, saying your role and who you are?

Lieutenant General Figgures: Yes, Chairman. My name is Lieutenant General Andrew Figgures. I am the Deputy Chief of Defence Staff (Equipment Capability) and this is my second week in the appointment.

Q2 Chairman: All questions will be directed to you!

Lieutenant General Figgures: Thank you very much indeed for that consideration. I am responsible for setting the requirement and allocating the appropriate resource and the balance of resource to those requirements such that we can then hand over a project to the Defence Procurement Agency for them to turn that requirement and that money into the equipment capability that we require.

Dr Watson: Iain Watson. I am the Operations Director for Information Superiority in the DPA and, therefore, have oversight of two clusters of IPTs that are principally directed towards delivering capability in communications intelligence and, indeed, broad electronic systems.

Dr Tyler: Andrew Tyler. I am the Director, Land and Maritime. I look after two clusters. One cluster contains all of the Maritime projects with the exception of the submarine-related projects, and the other cluster contains all of the land-related projects, with the exception of those which have complex weapons involved with them.

Mr Lyle: Good morning. My name is Jonathan Lyle. I am the Operations Director for Air and Weapons Systems, so my role is very similar to my colleagues Ian and Andrew. I look after the fixed wing, the rotary wing and the weapons sectors and have oversight of projects within those sectors.

Q3 Chairman: We intend to finish this evidence session this morning by 12 o'clock. This will require help from you, as well as discipline from us. Let us start by saying we are looking at four medium-sized projects rather than the larger ones, which are normally scrutinised. Are such projects managed differently from larger projects and, if so, in what way and why?

Dr Watson: Perhaps I can lead on that. No, they are not managed differently. The instructions, the techniques, the staffing is similar. The only external difference that one would notice is that typically these projects form part of a project portfolio, a number of similar types of projects within a single IPT, but the approach is identical for all sizes of project.

Q4 Chairman: Are the principles of Smart Acquisition applied in the same way?

Dr Watson: Yes.

Q5 Chairman: The issue of whether the Smart Acquisition principles have been fully applied over the last five or six years has come under scrutiny by the Chief of Defence Procurement. Has there been any difference in large projects and small projects as to whether those principles actually have been applied, or has there been a similar failure in some of the application of those principles with medium-sized projects?

Dr Watson: I think you would find the same characteristics applying to projects at all sizes. The fact is that a number of these projects are shorter in duration, so they do tend to be fresher and, therefore, more immediately affected by any changes in our policies.

Chairman: Do any of the rest of you wish to add anything to what has just been said? No? Okay.

Q6 Mr Jenkins: I know we are getting the verbal and you are saying words, but I would like to make some more sense of this. If it is successful and you can deliver a small project, I would go on to say how many of our legacy projects are small and how many are large? So, although you are applying the same techniques, we are getting different outcomes. What is the reason we are getting different outcomes? Why do we get overruns mainly on larger projects and we get underruns on smaller projects? Can you tell us why that is happening, please?

Dr Watson: I cannot give you a precise analysis of that, because there is not one available to me.

Q7 Mr Jenkins: When we ask questions, we expect the people sitting in front of us to be experts and to tell us the reason. You are saying you cannot tell us the reason?

Dr Watson: If I were to take this sample, the TSS, the one that comes particularly from my cluster, is a pre Smart Acquisition project, so it has been running since 1997 in its initial assessment phase. The shorter projects do tend to be slightly more successful, but we do not have that kind of separation. What we do have is a summation of all our achievements in the key targets, and the key targets are not weighted by size of projects other than the financial figures, they represent an average of all of the slippage and performance characteristics.

Q8 Mr Jenkins: You told us firstly that you could not tell us. Would any of your colleagues like to offer their view on this from their particular silos, or should we be talking to somebody above your level, above your pay grade, to tell us why it works in small, why it does not work in large in general?

Dr Tyler: Perhaps I can add a little bit here. The smaller projects, by their nature, tend to be more focused on fairly focused pieces of equipment; the larger projects are often characterised by being very large integrative systems. If you take something like a warship, for example, you have got a multitude of different systems that have been brought together in a very complex manner on a project like that. What that gives you is a very complex project environment that you are operating in with an awful lot of external dependencies, all of which are subject to change. If you take a warship project, one part of that project, there may be some issue with a supplier or with a particular piece of technology that has not worked out the way it was expected to, and that knocks on through the programme.

Q9 Mr Jenkins: Can I stop you there. You are amateurs at this level. We are professionals. We pull our rank all the time; it is our job. We confuse people. What you are telling me is that because it is a larger project it has more components in it, therefore it is more difficult. What you have said to me is that smart operation requires the same discipline and the same procedure whether it is small or large. Therefore it must get the same outcomes. What you are not telling me is the degree of planning, the amount of technical input into the planning stage, before it gets to Main Gate, even though that is where it has fallen down in the past, but, basically, I am getting the message that you do not know why. Yes or no. Who do we talk to to find out why?

Mr Lyle: I think, Mr Jenkins, what my colleague is saying is that the larger and more complex projects are larger and more complex.

Mr Jenkins: Of course they are; it is self-evident. I have just said, we are professionals.

Q10 Chairman: What is it that is injected into such a project by the size and the complexity that cannot be predicted in advance?

Lieutenant General Figgures: I was a Technical Director of the Defence Procurement Agency in my previous appointment. If I can give an example, if one were to seek to acquire pistols, nine millimetre pistols, that is essentially a very simple problem to solve in so far as the supply chain is understood, the requirement is well understood, the pistols have been developed over time, the ammunition has been developed over time. All the technical risks that you might experience in terms of acquisition have, to all intents and purpose, been worked through. That does not mean to say that you might not come up against some problem with the acquisition of pistols, there might have been a change in the supply chain, a change of material that might lead to cracking of the top slide, or something like that, but it does illustrate the point which I think has been made by all three, that the more complicated the project, there are more working parts, more things to go wrong, the supply chain is more complicated, the requirement is more complicated to assess and bring into service. It is a bit like anything that we deal with in civilian life. A small road project is very different from a motorway project, so complexity brings with it an increase in things that will go wrong.

Mr Jenkins: I understand that. I understand all this - in a previous life I was an engineer, so I know exactly what it is - but what I am trying to get at, on the small project, I understand there is not so much complexity, but on the large project there is more complexity, therefore I build in what I need to overcome that complexity. I do not turn round at the end of the day and say, "We underestimated that. There will be an overrun consideration, because we did not understand what we were doing. We can only handle small projects." That is what is coming over to me.

Chairman: We could go around in circles.

Q11 Willie Rennie: I want to focus on the staff aspect. The Permanent Under Secretary of State in January told the Committee that he would be paying a lot of attention to whether the DPA had the staff, training and skills to implement the Smart Acquisition principles. Where is the appeal for staff? Is it the smaller projects? Is it the bigger projects? Which projects get the best staff and why is that the case?

Mr Lyle: I think it is a bit of both. Clearly, we look to put good staff onto all projects. What you tend to find is that the smaller projects offer a really good development opportunity for the aspiring younger people, let us say, equivalent to squadron leader level, where in a large project team there would be a small cull from quite a large project. In a smaller project they get to be someone who is the project manager and, particularly as Andrew has described, because the duration is shorter, they tend to see the project through from cradle to grave. Good people will have experience in both large and small projects. You would look in guiding them on their careers to saying, after having worked in a large collaborative project, to go and then work in a smaller project team, but we try and make sure that in all the projects we have a sampling of our best people. We put a lot of care and attention into how we recruit the team leaders for each of our project teams, and it is then for those team leaders, with our support and guidance, to build around the team the relevant professionals (engineers, requirements managers, commercial people, financial people) to build a cohesive team. It depends. For some the attraction is being in a large project, for some it is being much more hands-on in a smaller project.

Q12 Willie Rennie: So it is a mixed pool?

Mr Lyle: Yes. There are certainly no premier league staff that go into big projects and a second division who go into smaller projects.

Dr Tyler: It is worth just adding, as Iain has said, that a lot of the IPTs that are dealing with the smaller projects have a basket of smaller projects within it. So, taken together, you might have anything, from a handful up to may be even as much as a couple of dozen projects, within a single IPT, with an IPT leader running it, and then more junior people running the individual projects within that IPT.

Q13 Willie Rennie: The Permanent Under Secretary also told us that they are doing a review into procurement to identify the current procurement approach and how it can be approved. It was said it was going to be published in May. I wondered what the update is and when it is expected and if there are going to be great changes.

Mr Lyle: The review, which is called "Enabling Acquisition Change", has been conducted and is complete. The recommendations are now with ministers, and we understand they hope to make an announcement on it very shortly.

Q14 Chairman: Will those recommendations be published?

Mr Lyle: I would imagine so, but I do not have a line on that, I am afraid. I am sure the substantive details of the changes to be made will clearly be published.

Q15 Chairman: But not the report itself?

Mr Lyle: I do not know, I am afraid.

Q16 John Smith: (1) Is it the case that staff have greater omission and are, therefore, more accountable for smaller scale projects than larger projects because of the time period and the amount of resources involved, and (2) what training is provided for your staff, especially your technical staff, in project management within the department?

Dr Watson: If I could take those in order, I would say, no, there is not a greater ownership, individual team members will have a set of performance goals for the year. All of our staff on project teams tend to identify very strongly with the outcomes of their project and typically are very enthusiastic about pursuing the goals. There would be a very clear identification of an individual who is responsible for managing the project, so the project manager does tend to have a very clear tick against his objectives for the year and the objectives of the project. As far as training is concerned, we recruit from a variety of sources. Obviously, there is a graduate recruitment scheme which we have put in place which provides a couple of years of dedicated professional development with a range of jobs and then some continuing professional development. There are a vast variety of technical teams' demands, and we associate those with a defence procurement management training organisation, which offers a large variety of different types of training appropriate to the jobs in commercial, technical, financial and other disciplines. We probably need to improve. We have concluded, we need to improve the amount of through-life training that we give to individuals, and we have developed under the DPA forward banner an approach which sees a number of technical experts - we are calling them development partners - who will take on the responsibility for developing their particular area of expertise. That is to enhance what we have already been doing, and we would see that developing into the future.

Q17 Chairman: Can I come back to the question I have just asked about whether the Enabling Acquisition Change report will be published. The way the Ministry of Defence does business is of great importance, both to the country and to the industrial base. What could be the grounds for not publishing the report, which I understand is being done by Mr McCain, is it?

Mr Lyle: It is Tom McCain's report. Generally, Chairman, I am not seeking to give an evasive response, I just genuinely do not know the answer. All I would say is pretty much everything we have done recently has----. What I am saying is it is my Minister's decision whether he chooses to publish.

Q18 Chairman: But you yourself can see no reason why such a report should not be published. Is that right?

Mr Lyle: Given my understanding of the way in which the department operates and the way in which we engage with Parliament, particularly under the Freedom of Information Act, it would be surprising were we not to do so, but ultimately it is for my Minister to decide whether he would choose to publish a piece of advice given to him within the department. All I could point to is the Defence Industrial Strategy, and all the work that was published with that. We were very hopeful with that and, given this is part of this; it would be cursory not to do so.

Q19 Chairman: We will certainly wish to take a close interest in that report.

Mr Lyle: I will certainly pass back to my Minister the Committee's interest in seeing the McCain Report.

Chairman: Thank you.

Q20 Mr Jenkins: Can I go back to project managers, because I think that is one of the key elements. When you have got a short project, a project manager can see the life of it out. When it is a longer project, because the project manager hands over to somebody else, there is no ownership, there is no responsibility, there is no accountability. Do you think it is important that any project has a project manager to see it out and to see its life out, and do you think there is a time beyond which a project manager should be removed, two or three years, or what is the guiding principle now used by your different sections for project managers? In the past I have been appalled about the number of project managers who are turned over on a particular project. Do you think it is important?

Dr Watson: The period of appointment of a project manager is an important topic, it is one that we watch very carefully, and typically we are looking for a sensible degree of continuity. At the same time, we need to recognise that people do need to move on. They do get stale in doing the same job, and, therefore, you want to balance how long they have been doing the job with the needs of the project. We would only look to make major changes if it was necessary for the individual or, indeed, it was necessary for the stage of the project.

Q21 Mr Jenkins: So it is not the shift in the individual where the blame falls directly?

Dr Watson: I am sorry, could you repeat the question?

Q22 Mr Jenkins: Sometimes you move a project manager off the project because you know it is not going to run to plan, and you move another project manager on and then, when they come before them, they say, "It is not his fault really because he was not there for the complete life of the project." There is none of that done in the department?

Dr Watson: Let me answer that more directly than I was going to. Clearly, if you have a failing project manager on a failing project what you do is you move him. We would do that, and we have got examples of having done that. If you have got a project that needs a fresh pair of eyes, then you would move the project manager. If you have a project manager who has won his spurs and is right for doing something tougher, then you would move him on. There are reasons why you would manage it, but we would not look to move people on because it is just the turning of the wheel. We would want reasons for doing that.

Mr Lyle: There is another factor as well which comes into play, which certainly bears on many of my projects. I like to keep my team leaders and the key specialist there as long as possible, but we hint also the potential fraud, and we have what we call a five-year rule in that, if anyone is in post with a particular contractor for five years, we have to undertake a formal review because they could have become too close to the contractor. I have got people who have been in project teams in similar posts for seven or eight years, and every year I have to revalidate to say what is the balance? Is it best to keep them there for their experience, for the next challenge, and we have to investigate whether there is scope for them to have got too close to the contractor, and that is a balance we have to draw, but I can certainly think of several individuals in my area where there are some really keen individuals I really want to keep there for quite a long time, because there is some real key knowledge with them and some key relationships with the company to be sustained.

Chairman: I would like to move us on a bit.

Q23 Linda Gilroy: Some smaller-size equipment projects are likely to be manufactured by small and medium enterprises rather than the big defence companies. How do you ensure that SMEs are alert to such opportunities and that they did bid for contracts?

Mr Lyle: Perhaps I could start by saying that we are aware of the supply chain. Defence contracts are advertised. Over 100,000 of non war-like material are advertised in the EU Journal, material which is war-like - so it is a weapons system or something of the sort - above a value of half a million is advertised in the Defence Contracts Bulletin, which appears fortnightly, and that is available as a paper, or as a CD, or via Internet access; so there is that stage. There is a series of help that is provided. There is a contracts commercial help desk, there is a commercial cycle of briefings and we do things like "industry days" on a regular basis, specifically trying to ensure that what is available by way of business is seen by potential bidders and they are encouraged and helped to be able to do business for the MoD.

Dr Tyler: One of the things that you would have very early on in projects of any size is an invitation to potential members of the supply chain to come together for an "information day", where they will be told about the project and they will be given some view of the sort of opportunities that there would be for members of the supply chain. Those are extremely well attended.

Q24 Linda Gilroy: The supply chain is a supply chain as part of bigger contracts, but on some of the smaller projects that you are dealing with, would it be the case that a small or medium enterprise would be interested in bidding for the whole project and the method that Dr Watson described as the one that people would have to be alert to to participate in that?

Dr Tyler: As I say, I have just come from an SME before coming into the Ministry of Defence, and we used a variety of methods of finding out where the work was within the Ministry of Defence, just as I would expect to do in any other sector. Some of it is the more formal "industry days" where you can go along and be proactively given information. The Defence Contracts Bulletin was an excellent source. That was always scrutinised to find out what opportunities were coming in, and obviously with the very large projects there is a barrier to SME involvement just to do with financial strength and muscle to be able to take on the risks, but generally they are all open to SMEs.

Q25 Linda Gilroy: When we were taking evidence on the Defence Industrial Strategy we had some evidence from trade associations, which small and medium enterprises take part in, that some of them were giving up because they were finding the route to market so difficult. Do you have any evidence of that perhaps from your previous role?

Dr Tyler: I think, to be honest, you would find that was very dependent on the area into which the defence market that they were trying to sell.

Q26 Linda Gilroy: Which areas are most difficult for people?

Dr Tyler: I suppose, in the round, we are not investing so much money in a particular area of defence technology at the moment.

Mr Lyle: If I can give one example, the one about which you have asked us to come and talk about today, the Anti Surface Warfare Littoral Defence System, one of the contractors in there is a small medium sized enterprise, the MSI Defence System, about 160 employees, I think, based in Norwich, a relatively small turnover, but they competed directly with Ultra, who are a medium-sized business, and BA Systems, who are well known to all of us, and won the competition. They clearly found a route there to access the market directly and are now trying for a contract of about 20 million directly to supply these systems; so they can succeed. I think in that case they have a fairly established relationship with us over many years.

Q27 Linda Gilroy: Universities have a key role in promoting knowledge partnerships. Do you have a relationship with universities which allows them to understand your procurement processes so that they can work with those knowledge partnerships?

Dr Watson: Yes, indeed, we do. There are a number of endeavours, such as the Defence Technology Centres, which have spread the opportunity to gain from the defence's investment in science and technology. We have also used universities extensively as advisers on individual projects and on management projects, and so I think there is quite a broad arrangement. I am not aware of a particular register which would enable us to give you a quick survey of that.

Q28 Linda Gilroy: It is not so much a register as firms which may have something that is relevant to defence, but they are working in another area. They may be new to trying to compete in that area and it is how you reach out that you get the benefit of that as well as them being able to come. Another and final question in relation to small and medium enterprises, where prime contractors are responsible for delivering smaller size equipment projects (I think you touched on the supply chain issue just now), does the DPA have specific ways of ensuring that they can compete for sub-contracts? You are beginning to describe ways in which you do that, but could you flesh that out a bit?

Dr Tyler: The answer to that is most definitely, yes, particularly as a lot of the SME sector is providing specialist areas of site engineering and technology which the large contractors are as dependent upon as we are. It is not something that they would necessarily maintain within their own organisations. We have to walk a fine balance here between, on the one hand, ensuring that we are engaging the full supply chain and we are bringing in the specialist companies, but, on the other hand, not overly suggesting to a particular prime contractor or a major contractor that they are forced to use particular parts of the supply chain: because if we do that we are then finding ourselves within the contractual chain, which can mean that we end up with contract liabilities later on which we do not want. What we try and do is to encourage a teaming very early on in the genesis of the project, and that is generally what happens. If it is a large project, you will get three or four of the large organisations teamed with the smallest companies.

Q29 Willie Rennie: How would you rate your performance in attracting SMEs or getting work to SMEs? I know it is not your job to give work to SMEs, but how would you rate their performance in that area?

Dr Tyler: I have not got statistics instantly to hand, but, intuitively, from having worked personally in different sectors, I would say that there are some additional barriers to companies operating in the defence sector to do with some of the rigors of the science, engineering and technology that we are implementing, but, in broad terms, I have found the defence industry to be as receptive to SME engagement as other industries I have worked in, like the oil and gas industry. If you have got something that is to the customer's benefit, they will generally take notice of it and be interested in it.

Q30 Willie Rennie: Have you highlighted the necessary improvements or the areas that you would like to make improvements in to attract more SMEs?

Dr Watson: I think one of the areas that is important is the early stage in programmes and the openness that we are increasingly giving on the research and technology front, where much more of the research budget is to be completed in the future rather than directed into the former government laboratories.

Q31 Mr Jones: I think, Mr Tyler, you said it is a point of fine balance, but is it not your job as part of the Defence Industrial Strategy, to encourage and ensure that SMEs are involved in the supply chain? I have to say, my experience, talking to a lot of SMEs who are not defence-related contracts but people who possibly have got technologies who would be part of a larger company, like Linda Gilroy said, find it very difficult to get anywhere near Abbey Wood?

Dr Tyler: For a new entrant into the defence market, I will definitely not deny there is not a hurdle to entry, but I do not think it is a barrier to entry. Frankly, if you are new entrant into the off-shore oil and gas market, there are hurdles to be overcome.

Q32 Mr Jones: That is different, because that is a private sector operation. This is a government operation. Should we not be looking for opportunities for SMEs to say to some of the larger primes, "Look, we expect you to look, especially in regional players"---

Dr Tyler: I do not think the hurdles are put in place by the organisation. They are more to do with understanding the market environment you are going into. Defence projects, as we are all aware, have a lot of special features to them which have to be understood by the supply chain in order to be effective suppliers, in the same way as I would expect to understand the way the oil industry works if I was going to be a good supplier into the oil industry.

Q33 Mr Jones: I disagree with you. I have to say that this is a multi-million pound business that the tax-payers are paying for. I would expect you, in terms of you as an organisation, to encourage SMEs into that. Are you aware of organisation called Northern Defence Industries?

Mr Tyler: I am sorry?

Q34 Mr Jones: Northern Defence Industries?

Lieutenant General Figgures: Yes.

Q35 Mr Jones: They are a body in the North East, in Yorkshire and Lancashire, who try and put small SMEs into the supply chain for larger contracts. Listening to one my firms, that I did last week, who do battle technology for electrical vehicles, they said trying to talk to you is like trying to talk to the Pope?

Dr Tyler: They are a supplier into the defence business?

Q36 Mr Jones: They are trying to be but they are finding it very difficult to get in.

Mr Lyle: We do engage with them. We have had seminars with the Northern Defence Industries organisation in the last few years on Abbey Wood, about which one of my colleagues spoke not very long ago. We are trying to outreach as best we can through the contracts bulletin, through the seminars, but inevitably people will sometimes struggle and with the specific proposition they have got, not find a home for it, either because it is not the solution we need or there is not a requirement for that particular solution. We do quite a lot, as we describe, in terms of trying to outreach, but I recognise there will always be hard-luck stories or difficulties from SMEs who cannot---

Q37 Mr Jones: What priority is that for you? Clearly, Lord Drayson has put great stay on the Defence Industrial Strategy in terms of ensuring not just traditional defence industry contractors get into the supply chain but actually some non-suppliers. I have got examples from the north-east where small SMEs down to two or three-man outfits have supplied things now into defence contracts which have never done before. How much vigour is there behind this? I would to like see a lot more in terms of ensuring that SMEs are being encouraged to get in, not just on "industry days" but going out there and looking at what is actually in the market place.

Mr Lyle: Certainly in terms of the way I think about SMEs, for me it is about, as Andrew has described, making sure that those niche technologies or capabilities that we depend on in SMEs are sustained. It is very much a capability or Defence Industrial Strategy, a different thing from the sectors that I look after. There are certain elements in the capability and certain companies in this country for the weapons industry, but there are some slightly small companies doing some really key thing. Those are the SMEs that I worry about in terms of delivering capability. I do not have a remit to go out and foster the SME base of this country. That is a broader policy remit.

Chairman: We will come back to this.

Q38 Mr Jones: I know we will, but I think it is an important point. He is trying to say that they have not got the remit to do this. This is a major investment of tax-payers' money every year into the British economy. Surely, if the Defence Industrial Strategy is going to mean anything, it should be about trying to get that taxpayers' money into those SMEs and get them involved?

Mr Lyle: Absolutely.

Q39 Mr Jones: I get the impression that this is second thoughts to you?

Mr Lyle: No. My role in the agency is to deliver my projects and worry about assistance in mine. To say it is not my personal role, in terms of what I worry about, in terms of the SMEs I worry about, in other words the ones I need to depend on, there are other people in the department, the agency, who have responsibility for trying to encourage the base.

Chairman: We will probably have to come back to this when we eventually return to the Defence Industrial Strategy, and we might well build on your answers today.

Q40 John Smith: The four projects that we chose to look at are all estimating considerable cost underruns from 2-13 million. Were we just lucky or unlucky or is this typical?

Dr Watson: I think you made a sample from the list we gave you. I do not think they are unrepresentative. I am rather flattered to hear them described as being considerable underruns. It is considerable sums of money but they are not considerably proportionate underruns, as I would call it. There is a general feeling that the sample that you selected is projects which are done reasonably well, and that is a combination of good management and the right project. I think, if you had selected a different sample, we might have had a slightly different conversation. The average, as I have said, for the key targets is the average, and that shows overall the slight slip, and one we would like to improve on.

Q41 John Smith: You are not concerned that there is any overestimating in your assumptions, either overestimating the original cost of these projects or, indeed, overestimating their ultimate cost, their anticipated cost, which is something that concerns this Committee. In our most recent report, where we did a study of the annual accounts, an example in there were claims of savings of 400 million in land and air logistics but, in fact, the NAO could only validate just over half of that, I think 280 million. Is there an inbuilt propensity to make sure that you do deliver on target to overestimate? Is that the culture?

Dr Watson: We are obviously careful to set the targets so that they are achievable for challenging. There is an internal scrutiny process which does just that, does not allow us to put too much money behind a particular project proposition, and, moreover, conducts some external scrutiny of the "should cost" figure for a project to ensure we are asking for the right sum of money.

Dr Tyler: Even though we call these projects small and medium-sized projects, we are still talking about fairly large sums of money in these projects, and, if we were to overestimate the cost at the outset, then that would aggregate it up over the whole of the agency and give us significant pressure on an already pressured equipment programme in terms of the money that there was available; so we would not be doing ourselves any service whatsoever to have projects that have been carefully overestimated at the beginning in order to then over-perform otherwise.

Mr Lyle: It is the opposite of what we are normally accused of. We are normally accused of underestimating. We certainly want to try and ensure that we build credible estimates, and I think, as Andrew has alluded to, the customer at the other end of the motorway is always keen to ensure that they are tall costings, because if we have overestimated it, it has displaced something else out of the programme. There are plenty of pressures on us to make sure that we are not overestimating either in cost or time, and that is the figure that is approved at the Main Gate approval. All we are reporting here is what was approved at the Main Gate and what our current estimate is.

Chairman: Urgent operational requirements, Kevan Jones.

Q42 Mr Jones: Lord Drayson, when he was before us in February, told us that there had been some vital lessons learned from the urgent operational requirement and that some of those lessons could be adapted to some of the larger projects. Have any similar lessons been adapted for the small and medium-sized projects?

Dr Watson: I actually have a number of the projects teams which are most active in UORs, and we do try and share the experience as much as we can. The kind of things which we could learn from them are, if you like, the corners that we might be able to cut in some parts of the acceptance process, the acceptance of capability at a mature enough but perhaps less rigorously proven level, more continuous involvement of the project teams in a developing programme, and that has helped us enormously in UORs, but there are some counter-problems. The counter-problems are things like having a robust enough support arrangement. An urgent operational requirement is needed to deal with the current operational condition, and, as long as we are able to manage that support through that period, we might cut a corner or two, and that is not something we could probably accept across an entire programme.

Q43 Mr Jones: So the answer is, "No"?

Dr Watson: The answer is there are some things, and it is that early and continuous engagement with industry which is, I think, very helpful in the UORs and we could probably apply more to our broader range of projects.

Q44 Mr Jones: It does not surprise me, because the urgent operational requirements would actually kill off the Abbeywod beast, would it not, and clearly it is in your interests to keep feeding Abbey Wood in terms of keeping things going to keep all your civil servants involved there. So, why are we not going over to buying more off the shelf rather than the long procurement process which we have got? Your nervousness in answer to the question between the four of you is clearly that this is something that is going to get to the heart of the real problem. In fact, do we need the size of Abbey Wood as we have got it?

Dr Tyler: First of all, the Urgent Operational Requirements is not necessarily off the shelf. Quite a lot of those Urgent Operational Requirements require a very accelerated, granted, but a development programme in order to develop them. It is not a just a matter of popping down to B&Q and buying that bit of equipment off the shelf. The other thing is that they tend to be fairly specific, localised pieces of equipment that are being fielded. Most of the agency's business, as you are aware, is on these much larger platform and integrated system projects which there is no way on earth you could apply UOR principles to. Trying to procure a war ship under a UOR type arrangement would be an absolute disaster.

Q45 Mr Jones: No, but you could buy certain equipment which has been proven and tested by other Armed Forces who buy it off the shelf?

Mr Lyle: Yes, and we do that very successfully. If you look at the C17 procurement, if you look at the Javelin procurement, delivered last year four months early, those are two examples where we have bought equipment off the shelf from the United States and it has been delivered very successfully, but that still requires a team of people to do it.

Q46 Mr Jones: They are two projects and how many projects are you currently dealing with?

Dr Tyler: There is a much longer list of projects we are dealing with where we are buying collaboratively or where we are buying solutions that have been developed elsewhere and we are effectively piggy-backing on somebody else's development programme, and so on. There are countless examples.

Chairman: Dr Tyler, we are interested in this, and we will come back to this as a subject during the course of the various projects that we will now start to go through. Robert Key.

Q47 Robert Key: Gentlemen, could we turn to the General Service Respirator. I have read the post Main Gate project summary sheet but I wonder if somebody could tell us briefly, what is the purpose of the General Service Respirator project and who will be using it?

Dr Tyler: I am going to take the general line of questioning of the General Service Respirator. While I answer that question, I hope this is appropriate, Chairman, but I thought it might assist you in understanding the project for me to bring a sample, first of all, of the current in-service respirator, that is the S10 respirator, which is the one currently in service with all of the Armed Forces. This a tri-service piece of equipment - so this is issued to soldiers, airmen and sailors - and here I have got a version of the new respirator, the GSR. As I pass this round, one thing to be aware of is this is not off the production line, we have not started formal production, and so this is effectively a prototype, but it is a prototype that has been used extensively in the field trials over the past few months. Essentially, the purpose of the respirator is to provide primary protection from chemical, biological and radiological hazards in the battlefield. As such, it is balancing the need for protection against the need to be able to use this equipment and operate as a soldier, an airman or a sailor. I have forgotten the second part of your question.

Q48 Robert Key: Who will be using it?

Dr Tyler: All of the service personnel, right across the Armed Forces.

Q49 Robert Key: So it will not be going to police or ambulance, for example?

Dr Tyler: I do not believe so at this point. It is a very high specification respirator for use in a military context. There is no reason in principle why it could not in due course.

Q50 Robert Key: The Police and Ambulance Services train at Winterbourne Gunner alongside Army personnel. Why can they not procure these? They have had terrible problems, particularly the Ambulance Service, right across the nation, and Winterbourne Gunner trains every police force in the United Kingdom, so why on earth can we not have an a standard GSR?

Dr Tyler: As I said, in principle, I cannot see a reason why that would not be the case. However, this has been procured by the Defence Procurement Agency for military forces and not for civilian forces.

Robert Key: Joined up government!

Q51 Mr Jenkins: How many of these are we purchasing?

Dr Tyler: The initial buy is for about 310,000 of these.

Q52 Chairman: How large is the Army?

Dr Tyler: 108,000.

Q53 Mr Jenkins: And the Air Force and the Navy?

Lieutenant General Figgures: About 36 and 48 and then there is, the total Army, the Reserves, plus one needs a range to fit the shape of all faces. You could not buy one for one, you would have to fit them, and, indeed, one of the reasons why this is particularly good is that you get a very close fit and there is lots of variation in it, so it is a very effective protection which can be suited to the individual.

Q54 Robert Key: The GSR is another example of a substantial cost underrun, a 20 per cent cost underrun here, and it is forecast to be 13 million under the approved cost. What are the main reasons for that underrun?

Dr Tyler: When we price a project initially, the most difficult thing in pricing a project is to price the risk in the project, basically to price the uncertainty. Here we have got an example of a next generation respirator where there was a level of technological risk in the programme as we worked through the development of the system. One of the things I wanted to appraise you of, and this is as good a time as any, just to illustrate this fact, is that although the trials that have been on-going for the last few months have generally been extremely successful with a good user feedback, we have had a fault with the product discovered in the last of the user trials, which rather illustrates the technological risks that we are exposed to when we are developing these pieces of equipment. This was where the mask has been used in an extremely hot and humid environment and we got some build up of sweat at the bottom of the respirator.

Q55 Robert Key: Was this the Australian trials?

Dr Tyler: That is right, yes, the Australian trials. What that is requiring is a little bit of our money to be spent in some of the design changes and modifications that are going to be required, and, in particular, for the re-trialling programme, which is obviously necessary to make certain this equipment is fit for purpose.

Q56 Robert Key: The initial in-service date, the latest acceptable and initial date, was May 2006. Clearly that has now gone. When do you anticipate there will be now an in-service date? For October?

Dr Tyler: We were hoping to have an in-service date for October prior to this problem which emerged with the recent trial. What we have done now is we are busy assessing exactly what the implications are of that in programme terms, but it is possible that it could be as much as a six-month further delay, so that would have an entry into service in spring 2007.

Q57 Robert Key: Looking at the samples that we have in front of us, I notice that the new one appears to have two sections?

Dr Tyler: Two of the cartridges, yes.

Q58 Robert Key: In Op Telic 1, we found that there were a lot of non-functioning kits distributed to the military. Have you overcome that problem, and how are you going to maintain and upgrade constantly each of these 300,000 pieces of equipment?

Dr Tyler: The equipment, as you might imagine, has been designed for very high reliability because it is a critical piece of safety equipment. As such, not only has that been intrinsically built into the design, one of the features of this design, for example, is an extremely low component counter - it goes back to our earlier discussions with Mr Jenkins about the complexity - and so we have tried to keep the piece of equipment as simple as we possibly can. This is issued as personal equipment to the individual service personnel, and they are given explicit instructions about how to keep their piece of equipment maintained, and every year there is a test done of the equipment to ensure that it is still delivering the same level of protection for those service personnel.

Q59 Robert Key: Originally we were told that the definition of the in-service date was for 45,000 personnel. That has slipped to 26,215 personnel. What is the reason for that?

Dr Tyler: The definition of "initial operating capability", on some projects, is subject to some level of definition, because clearly you could say there is initial operating capability as soon as a few come off the production line, but that is not a meaningful capability. The choice of 26,000 is that it gives us a meaningful capability to be able to field. We have then got a five-year production line, which will then deliver the rest of the 310,000 to be delivered.

Q60 Robert Key: Was the development work on the new respirator done in conjunction with, for example, Fort Dietrich in the United States?

Dr Tyler: No, but it is very heavily used. There was a long period of research at DSTL.

Q61 Robert Key: Lawrence Livermore Laboratories, were they involved in the development of this project?

Dr Tyler: Not to my knowledge.

Q62 Robert Key: Was it all therefore at DSTL Porton Down?

Dr Tyler: A lot of the underpinning research and development was done at DSTL and then pulled through, and the mechanism by which that actually happened was that that information was provided to the aspirant contractors for the general service respirator, who were then allowed to use that in their prototypes that they had fielded during the bidding.

Q63 Robert Key: If the work was done at the DSTL Porton Down, why was the contract won by an American company when we have a United Kingdom company that has actually been supplying 2.5 million respirators to the US?

Dr Tyler: The company that is providing this is a UK company of 35 years. It was formed 35 years ago, and employs 250 staff, I would imagine the majority of whom are British born and bred. It is true that it is now, having been acquired a few years ago, part of Tyco International, which rather reflects the general internationalisation of this business. The fact of the matter is that there was an open competition run between Avon and Scott, and Scott won on the value for money that they were offering to the taxpayer, and it is, after all, a British company.

Q64 Robert Key: Will there be interoperability between US and UK forces with this particular bit of equipment?

Dr Tyler: It depends what you mean by interoperability.

Q65 Robert Key: Will they both be able to use it and both be able to maintain it?

Dr Tyler: That will fit to anybody who has had it personally fitted to them, but you would expect the US personnel to have to be fitted with their own personal equipment. Bear in mind this is personal equipment; this is not just stock equipment that is brought out for a specific purpose. This is individually issued to service personnel.

Q66 Robert Key: Was interoperability considered when the tenders were assessed?

Dr Tyler: Yes, interoperability is a factor here, and one of the things that we have been doing with, for example, the design of the cartridges - you have not pulled it to pieces. General, would you just pass those over to me and I can show you - you will notice the way that the filter comes off on this one is a bayonet device. That is very significant from the point of view that one of the major benefits of this is its usability benefits. When you take that off, it locks that valve to allow you to change one of these at a time rather than having to take a deep breath, as you used to. If you can pass the other one over, this one has a thread-type connector on it, and you might say, supposing you are in the battlefield and you had got one of these and this is all that is available, in that situation this piece in the middle here pulls out and leaves you with a screw thread to allow you to attach one of these NATO standard fitting cartridges on to it.

Q67 Robert Key: Is that NATO standard fitting one also used by the Americans?

Dr Tyler: I do not believe that is used by the Americans.

Q68 Robert Key: So it is not a NATO standard fitting.

Dr Tyler: Maybe it is a European standard fitting.

Lieutenant General Figgures: If I may, the first point you made, about joint research, there is a NATO committee, Land Group 7, that brings together all the research from the United States and other NATO nations, and there is a very good information exchange there, and standards for levels of protection and so on are defined there. Interoperability is also addressed. Up to now the United States, as I understand it, have operated to the NATO standard, but I understand with their Avon product that they are not pursuing interoperability. The reasons for it I do not know at the moment, but clearly, when I speak to my opposite number in the United States, that is just the sort of issue that I shall pursue.

Q69 Robert Key: Are there any other European Union military who have interoperable kit with whom we could exchange?

Lieutenant General Figgures: Yes, the canisters. The canisters you can exchange throughout NATO at the moment.

Q70 Robert Key: Thank you for clearing that up. I thought that was what we had been told was now not interoperable.

Dr Tyler: Can I just be quite clear? We are in a transitional state, where we have moved over to this bayonet-type fitting, with all the advantages it brings, but what we have ensured is that we got backward compatibility, so that in extremis, if you do need to use the screw thread type canister, you can fit it to this respirator.

Q71 Robert Key: You still have not actually explained to me how you are going to maintain these in the field. They are going to be out there wherever we are in theatre and they have to be upgraded, they have to be serviceable all the time. You are not going to be issuing kit which does not work; how are you going to achieve that?

Dr Tyler: All of the personnel issued with these are issued with a preventative maintenance guide, fairly simple guidance which basically ensures that the thing is kept in good order, and then annually they are tested within a chamber. The mask is instrumented and it is tested within a chamber to ensure that the level of protection inside the mask is as it should be. That would check to make sure all these seals are in good order, the key thing being that actually, the level of protection that is being given inside the mask face here is what it is supposed to be.

Q72 Robert Key: What proportion of the costs of the contract is the cartridge, roughly? A third? A quarter? Three-quarters?

Dr Tyler: I am sorry. I do not have that information.

Q73 Robert Key: In other words, how much every year is going to have to be spent on replacing cartridges?

Dr Tyler: The cartridges are not replaced each year. They have a long life.

Q74 Robert Key: How long?

Dr Tyler: I do not know exactly what the number is, whether that is as long as the life of the whole unit. They are treated effectively as disposable equipment in the sense that once the thing has been used, certainly over time, it is then got rid of.

Q75 Robert Key: I hope that there is rather more detail in the instructions to the forces than you have been able to give us this morning.

Dr Tyler: There certainly would be. I am sorry. I just do not have the specifics. I do not want to mislead you. I do not want to give you specific numbers when I do not know them. I am very happy to give you a note on that.

Q76 Linda Gilroy: I just want to know more about what determines the procurement route. On the summary sheet, UK competition, both this one and the next one we are looking at. The third one is international and the other one is non-competitive. What determines this one being UK?

Dr Tyler: I do not know that we would have had a problem with an international competitive list but the two companies that we have talked about, Scott Health and Safety, and Avon, are basically the world leaders in this particular type of technology, so they were the very best, and this is the world's most advanced general service respirator, so we wanted the companies who were in a position to deliver it.

Q77 Mr Jenkins: One very quick question. In fact, I will take a note on this, Chairman. I still cannot come to grips with the 310,000. I want to know how it is made up, etc. I did not know it was personal issue. The fit, like boots: which is the most common fit, in other words 9 or whatever? How many are we going to put it in store? I estimate we will probably have 9 million worth in store. What is the delivery date? If I ordered them next week, would they be here the following week? Therefore, do I have to carry a store?

Dr Tyler: We will provide you with a note covering all of that, yes.

Q78 Chairman: Thank you very much. Thank you, Dr Tyler, for bringing in an example. I dare say you will not have done the same for the next one, which is the anti surface warfare littoral defensive project. Can you tell us what the purpose of that project is and who will be using it, please?

Mr Lyle: Yes, I could not get it through the security devices, but I have brought some photographs of the systems. What this project is about is essentially countering the threat that emerged posed by fast attack craft and fast inshore attack craft, which could be rigid inflatable boats or even jet-skis armed with weaponry, and it is a particular threat to our ships when they are operating close to land in littoral waters or when they are at check points. That is something that is increasingly prevalent for the Royal Navy in operating in littoral waters. We are meeting that capability gap through two systems, both incremental, so for the Type 42s and Royal Fleet Auxiliaries we are upgrading the existing Phalanx 1A system which is fitted to the Type 42s to a 1B standard to provide it with better capability to meet this threat. For the Type 23 frigates we have a different solution, which is the automated small calibre gun, which is the one I referred to earlier being supplied by the SME based in Norwich. Again, that is an upgrade to the existing 30mm cannon that is fitted to the Type 23. In both cases we are upgrading the gun systems on the ships to replace gun barrels with better accuracy and to put on new sensors and fire control systems which basically give us a better capability in terms of target identification and giving better capability at night time and in poor visibility. That is the capability we are trying to address. We are addressing it through these two incremental systems, and it will be used by the Royal Navy to defend their ships.

Q79 Chairman: The Phalanx system is the one that throws a wall of lead into the air to deter aeroplanes or missiles. Is that right?

Mr Lyle: Yes, Chairman. It is the picture of the white turret hat thing. That is the existing 1A, and the one that looks similar to it is the 1B. So that is the upgraded system. It does fire a hail of metal into the air at a very high rate of fire. It was originally developed and originally fitted to our ships to defend us against the sea-skimming missile threat post the Falklands War, Exocet-type missiles.

Q80 Chairman: How is this project going to deal with fast inshore attack craft?

Mr Lyle: We are putting new barrels on, giving more precise, accurate fire, but more importantly, as you can see in the pictures, we are putting additional sensors on to the mount so we have a forward-looking infra-red imager. We have what we call side lobe suppression in the radar, which means - the engineers in the room will hopefully understand it - that we are looking to direct the beam more clearly so that it gives it a look-down capability to discriminate and pick up targets against sea clutter. The sea produces a scattering effect for normal radars. This gives it an ability to look down more. It is looking up to aircraft threats or sea-skimming threats. It gives it an ability to look down at things coming effectively below the horizon. The ship would look down on things on the water. It gives it that additional capability as well as retaining its capability to defend against sea-skimming and against aircraft.

Q81 Chairman: At the end of March the projected cost was 63 million, which was 3 million under the approved cost. Does it remain the same? Is that the current forecast?

Mr Lyle: That is the current forecast, yes.

Q82 Chairman: At the end of March the forecast in-service date was July 2008. Does that remain the same?

Mr Lyle: Yes, that is the same.

Q83 Chairman: Does that in-service date projected relate to both the small calibre gun and the upgrade of Phalanx 1A?

Mr Lyle: The in-service date is a combination of the two systems. The in-service date is actually driven by the later of the two systems. So we plan to have an initial operating capability with the automated small calibre gun on the Type 23 in the summer of 2007; in July in fact. So that will already be in service in 2008. The ISD is defined as when we have both systems in service, so it is driven by the Phalanx system.

Q84 Chairman: When the Type 45 destroyer replaces the Type 42, is there still a need to fit the Type 42 with an upgrade to the Phalanx system?

Mr Lyle: The Type 42 currently has Phalanx 1A systems. A certain number of Type 42s, five in fact, will be upgraded to the Phalanx 1B system and will carry that until they are paid out of Royal Navy service. When that happens, the Phalanx 1B mounts that we have will be refitted to other ships in the Royal Navy's fleet and a decision will be taken at that time as to which are the priority to receive it. A number of RFAs are receiving modifications to enable them to receive this system. We will take a decision at the time. We will recycle the mounts, as we currently do, on to those ships that are best judged to need the capability at the time. So the assets will be reused.

Q85 Chairman: What system do other navies use to deal with these threats?

Mr Lyle: The Phalanx system is very much the market leader. I believe there are about 23 navies who operate the Phalanx 1A and about seven, including ourselves, who operate the 1B. The other contender which we do operate on our ships is the Dutch goalkeeper system, which we operate on some of our larger ships, but the market leader is very much the Phalanx.

Q86 Chairman: Getting back to the question that Kevan Jones was asking about buying things off the shelf, is there an element here of re-inventing the wheel with this project, or would it be possible to buy something that was already developed?

Mr Lyle: We are buying this off the shelf. We bought it off the shelf when we originally bought it as a Phalanx system, and we have then followed effectively the Americans. So the mod kit that we are now putting on, the mod 1B, which is part of this fit, is already in service with the United States. So it is off the shelf.

Chairman: Moving on to the Maritime Composite Training System Phase 1, Linda Gilroy.

Q87 Linda Gilroy: First of all, could you outline to us what the Maritime Composite Training System Phase 1 project will deliver, who it is for and what the other phases of the project will deliver?

Dr Tyler: Again, can I assist you by passing round a couple of pictures? The first one shows what we have presently in our maritime training simulator and the second one is a concept picture showing what we are aiming towards. The best way to describe this is if you imagine - some of you might have visited - a warship, that down in the guts of the warship is basically the nerve centre, the place where the ship is fought from, so it contains the radar systems, the missile control systems and so on, and what we have done in the past, and the existing system which is shown there, that is basically - I have heard it described as a concrete ship. They basically build the entire operations suite that you would find on board a ship at a land-based training centre. One of the key things about that is that each ship has a completely bespoke, unique set-up. So you will have one for the Type 23, one for the Type 22, one for the Type 42 and so on. They are completely inflexible. When the guys and girls go in it to practise and train, you need everybody present that you would have within the operations room, even if you were just using one or two bits of equipment. It has to be used as an integrated suite. What we are doing with the Maritime Composite Training System is we are taking great advantage of commercial off-the-shelf technologies in terms of the hardware, and indeed, this is the direction we are going in on the warships themselves, and you can see from that more conceptual picture there that what we have there is effectively standard hardware units inside of which will be maybe a slightly higher specification but the sort of computer you would expect to have, and all of the training, the systems, are provided as software to that. That has hugely opened up our flexibility for use of the system. We can now take one of those units and configure a classroom with, let us say, a dozen radars in it. So if somebody is getting radar training, we can have 12 of these set up, and you can have 12 people individually being taught how to use a radar. On the other hand, we can set them up and arrange the room and the equipment to simulate a Type 23 or a Type 42 and, even more significantly, what we can do is that when we are doing co-operative training, where we are trying to use more than one ship working together, we can basically set up any permutation and combination we like. At the moment all we can do is have one Type 23 and one Type 42 and one Type 22 working together. So we have enormously opened up our envelope of flexibility for use of the system. We have also, because of the flexibility it has given us, been able to reduce the number of instructional and training staff that we require to do this, the amount of real estate that we are using, so we are getting some very positive efficiency benefits coming out of this as well. The other thing that we have been able to do with this - and this is a subtlety but I think it is very important - is that in the past the training period that individuals would go through contained a relatively small generic training part and then a large specific training part. When I say specific, I mean specific to a particular ship. If that individual was going to move on to another ship, they would then need to go through a protracted specific training period. What we have done now is we have used this project as an opportunity to turn that on its head now and to have a much more protracted general training period followed by a much shorter specific training period. So you can imagine now that our ability to use our sailors more flexibly has been increased, because if they are going to move from one ship to another, they can come back for a relatively short period. I hope that answers the question.

Q88 Linda Gilroy: That is very clear. Thank you very much. What about the other phases of the project?

Dr Tyler: Both phase 2 and, being a little bit more visionary, phase 3, are - at the moment phase 2 has a notional amount of money put aside for it but it is not a confirmed project. At the moment all of this training goes on onshore, but obviously, what we would like to do is to optimise the amount of time that our sailors spend at sea, so what phase 2 would do is it that the equipment is actually fitted in the operations room on the ship but instead of being fed by live sensors, by live radar and the missile system, it would be fed by simulated and emulated data so they would sit alongside - this is not while the ship is under way - and take a data feed from the shore, and they would be able to sit in their own operations room and fight simulated conditions. Phase 3, going beyond that, is to do the same thing but at sea. That has quite a lot of quite complex issues associated with it so at the moment that is more of a vision for the future rather than something we have an extant plan for.

Q89 Linda Gilroy: As at the end of March 2006, some three and a half months into a four to three-month demonstration and manufacture phase, the project was forecast to be 2 million under the approved cost. Is the current forecast the same?

Dr Tyler: That is the current forecast, yes.

Q90 Linda Gilroy: The in-service date for initial operating capability for the system is July 2009. Is that right? March? July?

Dr Tyler: Our current forecast for the ISD is shown in table 3(b) at July 2009, which is seven months beyond our 50 per cent date, as we call it, our most probable date of January 2009. So we have slipped our timescale has slipped on this programme.

Q91 Linda Gilroy: What sort of things have caused that slippage?

Dr Tyler: Some of it we are going to have to put our hand up for here, in the sense that there was a more protracted negotiation. Immediately after we had gone through the main gate process, got the main gate approval, we were a bit optimistic about the time it was going to take to complete the contract negotiation. We have had to add in a three-month additional period into the acceptance process. The reasons for this are somewhat complicated but related to this changing of the way that we are doing the training. I talked earlier about the generic training and the specific training. One of the implications of that means that instead of being able to accept the different ships' simulators one after the other, we basically have to have them all ready at the same point in order to be able to accept them, and so that has effectively added three months into our acceptance process before we would actually be able to declare the initial operating capability.

Q92 Linda Gilroy: Can I just be clear? The initial operating is July 2009 but that has slipped?

Dr Tyler: Originally it was January 2009 for our most probable and it has now slipped to July 2009.

Q93 Linda Gilroy: Full operating was October 2010. That has slipped back.

Dr Tyler: Yes, by which time we would have... We are working on that at the moment. We are at very early stages in the project here so we are just working through the specific implications of whether that slip would then track through the whole of the programme.

Q94 Linda Gilroy: What is the impact of that slippage going to be in terms of people who are expecting to be able to use it and are planning for it?

Dr Tyler: Two things. I would like to make a point here, because I think it comes to one of the more general things that we were talking about earlier. One of the things I think this project can be held up as a good example of is the application of a technique which we are now mandating in all projects called earned value management, which, put simply, is basically gauging the stage you are in the project by the actual real value that has been executed in the project to that point in time. What that does is it forces you to be extremely rigorous about understanding very, very early on in the project how your programme is likely to develop. In times gone by, I am sure you have heard in the past of projects where we found out that things were slipping rather late in the event before we were able to really explore options about what we were going to do about it. What we have done is we have realised that there were some programme issues in this project at a very, very early stage, so that is allowing us to do two things: first of all, it is allowing us to obviously look within the project itself as to how we can get some of that time back, and I think there is a real prospect of doing that with our contractor, who is being very co-operative. The second thing it allows us to look at is what contingency plans we might need to have in place in order ensure that the customer is not going to be without their capability, and in fact, there are a couple of strands to that. First of all, we were originally due to be vacating the Southwick Park premises - it used to be HMS Dryad - but now that is staying in MoD's hands so that the enclave, as we call it, where the current simulators are based is going to continue to be available to us if necessary. The second thing is that we have some slippage in the Type 45 destroyer programme, which is the other critical date to have the simulator ready for the training for Type 45. So essentially, that has bought us a little bit of time on the programme. We can call that serendipity but that gives you some idea of the contingency plans that we are able to build in order to make sure that, whatever happens, we are not getting a situation where we do not have our sailors trained and ready for action.

Q95 Linda Gilroy: I am curious as to how the programme can slip but can become less expensive at the same time. I would have thought it would be the other way round.

Dr Tyler: It depends. This is a lump sum, fixed price contract that we have with the contractor. If the contractor determines that it is going to take him three months longer, that is his risk that he is taking.

Q96 Linda Gilroy: So his reward basically comes with meeting the deadline, and if he does not do that, he is losing something.

Dr Tyler: Of course, and one of the things he is going to have to do is to sustain his project team for a longer period than he had budgeted for, and so there will be a financial penalty to him for that.

Q97 Chairman: Have you built into this training system training for projected future aircraft carriers?

Dr Tyler: Not at this stage. However, one of the beauties of the maritime composite training simulator is now all the new classes, instead of us having to build a concrete CVF on some land site somewhere, what we will basically be able to do is, as somebody put it to me the other day, bring the CD, load it in and then reconfigure the floor space with those standing units that you saw in the picture to replicate the floor space at the CVF operations room, and the same for any other ship.

Chairman: Moving on to the thermal sighting system, David Borrow.

Q98 Mr Borrow: I was at TADL in Belfast yesterday so I have had a demonstration of this kit. I was a bit perplexed to understand why this sort of kit was not fitted in the first place with the SP HVM.

Dr Watson: It was an aspiration when the original project was carried forward. At that time the technology was not mature enough and the risk, both technical and financial, was excessive for that original project, so it was therefore postponed to a later date, and when we felt the technology was ready, we chose to take it forward.

Q99 Mr Borrow: At the end of March this year, the project is forecast to be 2 million underspent. Is that still the case?

Dr Watson: That is correct.

Q100 Mr Borrow: At the same time there was also a forecast five-month slippage. Is that still the situation?

Dr Watson: That is still the situation. The slippage was of a larger scale, nine months, I believe, at about 2004. We have recovered some of that in the current programme.

Q101 Mr Borrow: Will the slippage have any effect on operational capability?

Dr Watson: The operational capability will be delayed and therefore that does feed through. I think we will see the completion of the programme rather earlier than we would have otherwise seen. I do not have that date with me.

Q102 Mr Borrow: The original order was for 135 pieces of this kit to be fitted on 135 vehicles. At a later date that was reduced to 84 but, because of the nature of the contract, it was not possible to reduce the cost. What was the motivation for reducing the order in the first place?

Dr Watson: Perhaps General Figgures would like to start.

Lieutenant General Figgures: As time moved on from the original setting of the requirement and the proposed project to meet it, the threat had changed, the former air threat posed by the now defunct Soviet Union had diminished further, we had achieved improved air situational awareness, we had seen the introduction of the Typhoon, and perhaps, very importantly, we have been able to achieve the transmission of the recognised air picture into land headquarters through tactical data links. So in the round, and indeed the threat we were facing, it was considered that we needed to rebalance our capability, reduce the counter-air and invest elsewhere. This led to a reduction in the order of battle and hence the requirement for the AD4 systems.

Q103 Mr Borrow: We are going to have, as I understand it, 51 surplus systems that will not be fitted on to 51 existing vehicles. What are we going to do with those pieces of kit?

Dr Watson: Generically, there are three things we can do. We have not made up our mind which of these we will adopt, and we are working on that at the moment. Clearly, it would be good, and we are looking at opportunities to deploy this very capable sight in other roles. We could use the 51 items to enhance the spares and repair pool so that we could reduce our ongoing support cost. Finally, of course, we could decide to dispose of them from the inventory to avoid the storage and handling charges and perhaps get some recovery from another source. But we have not made up our minds yet which we will adopt.

Q104 Mr Borrow: We also have the 51 vehicles with the existing system on them, which, from what you have said, is surplus to requirements.

Dr Watson: Correct.

Q105 Mr Borrow: Have you found a new role for those? One of the suggestions that I picked up yesterday was that whilst the systems are very good at demobilising flying bits of kit, they could also be quite effective and quite accurate at fairly short range with vehicles or other targets, and potentially could be used in different roles. Is that something the MoD are exploring?

Lieutenant General Figgures: Yes.

Q106 Mr Borrow: Is it at an exploratory stage rather than a conclusion stage?

Lieutenant General Figgures: Yes.

Q107 Robert Key: Do all four of you work at the same location?

Lieutenant General Figgures: No.

Q108 Robert Key: Will Project Hyperion have any impact on any of you when the decision is taken?

Lieutenant General Figgures: Yes.

Q109 Robert Key: What will it be?

Lieutenant General Figgures: The impact will be that the personnel recruiting and training command and the frontline command, as you know, will come together. Those are both contributors and indeed customers to the equipment capability area and so I can foresee a better ability to integrate across the lines of development, i.e. the training, the recruiting, the structure, the support in the field.

Q110 Robert Key: The decision has slipped by many months so far. When are you anticipating an announcement on the result?

Lieutenant General Figgures: I could not answer that question.

Q111 Chairman: We have half a minute left. General Figgures, your answer on the thermal sights, about the reduction in the threat from the Soviet Bloc and the improvement of our capability on air defences, implies that we will see a similar surplus of Typhoons. Would you agree?

Lieutenant General Figgures: I would not like to give a short answer there because, again, rather looking at the capability of the aircraft, it may not just have an air to air capability. As with other aircraft, we may over the life of the aircraft develop that capability, for example, to air to surface.

Chairman: Thank you very much. Sorry to throw that at you right at the end. That is the end of this evidence session. I am most grateful to all of you for coming to give evidence and for doing so in what I think was a helpful and open way on something that we do not often look into. The meeting is closed. Many thanks.