Uncorrected Evidence 1705

SND2 41

Memorandum from BAE Systems

Summary

BAE Systems Submarines is the UK's centre of excellence for the design and build of nuclear powered submarines. The BAE Systems' evidence presented in this memorandum is specifically concerned with the sustainability of the UK's ability to design and build nuclear powered submarines, rather than with the wider issues about renewal of the nation's strategic nuclear weapons capability. The UK's present strategic nuclear deterrent capability (Trident) is carried in a fleet of nuclear powered submarines (the Vanguard class), and a new class of nuclear powered submarines could offer the preferred platform from which to deploy any successor system to Trident.

The Submarine enterprise has faced significant challenges in sustaining this capability - both within the Submarines business itself and within the supply chain. The capability is very fragile. BAE Systems is working with MoD and the supply chain to understand the challenges and to establish measures to ensure that capability can be sustained.

The capability to design and build nuclear powered Submarines is dependent on sustaining a complex range of key and unique skills. Suitably qualified and experienced design, engineering and production staffs are required for the safe and efficient execution of nuclear powered submarine programmes. These skills can only be sustained by work on real submarine projects. Surface warship work, for example, can provide some very important assistance to the effective utilisation of facilities and overall skills, but cannot by itself sustain those skills that are specifically needed for nuclear powered submarine work.

It is the BAE Systems view that sustaining the required capability and skills is critically dependent on establishing and maintaining a regular drumbeat of nuclear powered submarine production work - a boat every 22 months is considered the minimum necessary drumbeat.

In addition, to sustain the core specialist nuclear powered submarine design and engineering capability, BAE Systems believes that there should be no significant delay to the start of design work on a future submarine with assumed delivery of around 2024.

Introduction

1. BAE Systems Submarines, based at Barrow-in-Furness, is the UK's centre of excellence for the design and build of nuclear powered submarines. BAE Systems Submarines is currently engaged in the design and build of the first batch of Astute class SSNs (nuclear powered attack submarines). The business employs c 3,500 people directly. Approximately 50% of the prime contract value for a nuclear powered submarine is subcontracted to the supply chain; the top 10 companies together with BAE Systems account for c 80% by value of a nuclear powered submarine.

2. BAE Systems Submarines has also had a history of designing and building conventionally powered submarines, but the last such boat was completed in 1989, and the business has no current conventionally powered submarine design available. The business has also been engaged in design and build of surface ships for the Royal Navy (eg HMS Albion, Bulwark, Ocean), and anticipates having an important role on the UK's Carrier programme.

3. The Astute Class of nuclear powered submarines is currently under construction by BAE Systems Submarines acting as Prime Contractor. The target for the launch of the First of Class boat is June 2007, followed by Contract Acceptance in November 2008. BAE Systems Submarines is responsible, as the Prime Contractor, as the submarine builder and as the system-of-systems integrator, for ensuring achievement of the performance and programme requirements stated by the MoD Customer.

4. The modern submarine is required to deliver multiple capabilities: stealth and covertness; endurance and sustainment; reach and poise; the ability to insert Special Forces and to deliver weapons. All of these capabilities are inherent in the design of the current first batch of the Astute Class. However, further developments will be required, to keep pace with technological advances and the increased sophistication of potential opponents, for any future submarine design, particularly in the SSBN role (nuclear powered ballistic missile firing submarine).

5. This will demand the imaginative insertion of new technology (for example the use of Open Systems Architectures to both reduce procurement costs and provide protection against obsolescence) and the better utilisation and management of both design margins and space within the high density arrangement of a nuclear powered submarine. Opportunities for achieving this are already being studied and it is clear from the ideas being generated to date that there are good prospects for delivering the capability advances that are likely to be sought by the MoD.

6. However, it is not capability alone that is needed. The second key characteristic is affordability. This has rapidly become, and will continue to be for the foreseeable future, a dominant theme. It is not only Unit Production Cost, but the total Cost of Ownership that must be made affordable.

7. BAE Systems Submarines is determined to continue to nurture and develop the existing submarine engineering and construction capability (facilities and expertise, both within BAE Systems and in the supply chain) and to build on recent successes on the Astute programme. The overriding intent is to deliver affordable submarines to the Royal Navy within a sustainable business environment.

8. The need for this was fully recognised in the Defence Industrial Strategy paper published by the MoD in December 2005, from which the following relevant points are extracted:

a. "The DIS will promote a sustainable industrial base, that retains in the UK those industrial capabilities needed to ensure national security";

b. "It is a high priority for the UK to retain the suite of capabilities required to design complex ships and submarines, from concept to point of build; and the complementary skills to manage the build, integration, assurance, test, acceptance, support and upgrade of maritime platforms through-life";

c. "For the foreseeable future the UK will retain all of those capabilities unique to submarines and their Nuclear Steam Raising Plant, to enable their design, development, build, support, operation and decommissioning";

d. "MOD and industry must demonstrate an ability to drive down and control the costs of nuclear submarine programmes";

e. "There are a number of specific key maritime system capabilities and technologies which we should retain onshore, and the ability to develop and integrate into platforms complex maritime combat systems is also a high priority".

9. The 'suite of capabilities' that is crucial to the successful delivery of nuclear powered submarines to the RN includes the development and maintenance of:

a. Systems Engineering (requirements, acceptance, configuration management, embodiment planning etc.) and Systems Integration capabilities i.e. the ability to ensure that a complex product such as a submarine can be designed as a coherent entity, and that the individual elements can be integrated to deliver the required capability.

b. Submarine specific expertise. This includes: naval architecture, hydrodynamics, structures, reactor plant, combat systems, weapon handling & launch, platform systems (propulsion, energy provision and distribution, heat management, life support, habitability etc), signature management (acoustic and non-acoustic), safety engineering (nuclear, ship, munitions, environment), marine engineering, design for production, design for through-life support, procurement, manufacture, construction, test and commissioning, programme management.

c. Computer Aided Design skills. The detailed design of a nuclear powered submarine is very dense; space is a highly valuable and important parameter and considerable precision is required for equipment and system placement, particularly where there is extensive use of modular build (see below). Some hard lessons have been learned during the Astute Project that will form valuable experience for future First of Class design work. Computer tool selection needs to be right (supportable for the long term; customised for the specific industry i.e. shipbuilding; operator friendly with the required functionality - ease of initial training and upskilling; speed of use).

Affordability

10. Nuclear powered submarines are very complex products. There is a 'Golden (Equilateral) Triangle' of activity: design; procurement from the supply chain; manufacture and build. These are all mutually supportive and entirely interdependent activities; synchronicity of the maturity of information is hugely important for taut cost and programme management, particularly where a degree of concurrency is necessary for ensuring that the Customer's demanding operational timescales are met. Another relevant factor is the fact that the First of Class boat is effectively the prototype. Safety engineering is a fundamental part of the design process; a cost effective and 'adequate and sufficient' safety case (consisting of claim, argument, and evidence) has engineered features demonstrably meeting well structured and carefully determined 'safety functional requirements' early in the overall process. Accepting that, for any future platform, a degree of Design & Development (Engineering effort) will be required, Unit Production Cost is predominantly driven by equipment procurement and construction costs as shown below.

Equipment Procurement Costs.

11. The majority of the acquisition and through-life support costs are determined by the supply chain, which has become highly bespoke over the last decades. Almost all of the acquisition costs have now been expended for Astute Boats 1-3. There are some opportunities for improvements for Boat 4 (although some long lead orders have been placed) but the proposals which affect procurement costs that follow are mostly for the later Astute Boats. These should lead into (and thus de-risk) any potential SSBN Successor.

12. Prior to construction of the Vanguard Class, there was significant investment by the MoD in ship systems, propulsion, etc. However, in the recent past, strategic R&T investment has been targeted mainly at increasing combat capability (primarily in improving Combat System effectiveness). Investment now needs to be targeted at both capability and affordability across the whole submarine design, including propulsion and platform systems.

13. The necessary approach to cost reduction is:

a. Simplification (the 'Lean Design' concept) at all levels ie. capability � requirements � standards � design solution � support arrangements. The overall theme is to continue to meet the essential capability requirements whilst reducing complexity and the bill of materials (parts count, etc.) and thus also reducing the maintenance requirement (leading to increased through-life affordability and availability).

b. Appropriate use of equipment and technologies in use in other related industries or environments - demonstrable performance, better resilience to obsolescence, larger customer base to share costs etc.

c. The greater utilisation of automation, with the purpose of matching the human input to the skills of a reducing number of operators and addressing human reliability issues whilst recognising that this is a warship that operates in a demanding environment and is purposely put in harm's way.

d. Ensuring that the standards (design, manufacture, construction) chosen reflect what is actually needed for the duty to be performed, neither too high nor too low (both are significant cost drivers) either initially or subsequently. Constructively challenge traditional thinking.

e. Pro-active and strategic partnerships need to be developed with key suppliers and the MoD Customer to enable the supply chain to be managed better for the long term. For much of the supply chain, some current elements of which are exhibiting marked fragility, the submarine enterprise represents a very small percentage of their customer base, with the result that, increasingly, we have wanted to buy specialist components and equipment that no-one else in the general market place wants. We need to recognise that, where the submarine design inevitably requires specialist components, then the strategic partnership must include the lower levels of the supply chain that supply such components. Where specialist components are not essential, efforts should be made to engineer them out, in such a way that the necessary capability, safety and operability are retained. Developing strategic relationships across the supply chain can also contribute to this aim.

f. Design to enable through-life support and upgrades to be introduced at minimum cost.

g. Establishment of appropriate commercial frameworks that incentivise the above.

Construction Costs.

14. In the past two years productivity improvements have to date resulted in a 22% reduction in man hours in the construction plans for Boats 1-3 with the prospect of more to come as a result of ongoing improvement initiatives. This is being achieved through items such as the following.

a. Adopting 'Lean Manufacture' techniques such as 'Value Stream Mapping' in the Pipe Shop, fabrication areas etc. to improve process work flows, and thus reduce level of effort and to shorten lead times.

b. Progressively making much greater use of modular build. The Main Propulsion Machinery Package, used in the build of the Trafalgar and Vanguard Classes, has been supplemented by three other large modules on Astute - the largest of these, the Command Deck Module, weighing in at approximately 250 tonnes. Nine major modules (and many smaller ones) will be used on Boat 2, and yet more on Boat 3.

c. Use of 'Vertical Outfitting' to improve accessibility. Initial outfitting is now done with the pressure hull units placed in the vertical position. Specially designed platforms, themselves modular in construction, enable features, pipe systems, equipments, etc to be installed more easily and safely, whilst work can continue on the other side of the hull without interference.

Overall Costs

15. A performance management culture has been created, and continues to be developed, throughout the workforce under the auspices of an extensive programme of Organisation Development that includes Leadership Development, Trade Union partnership activities and work on a Submarines Competency Framework. The need for appropriate incentivisation through Reward & Recognition is also important and in 2005 an Incentive Bonus Scheme against specific business performance objectives was put in place for all non-executive personnel. Because of its success, this is being repeated, with refinements, in 2006. Engagement of the whole work force in continuous improvement and innovation is being encouraged through a scheme called PRIDE (Performance through Recognition of the Innovation and Dedication of Everyone).

16. During the period 2003 - 2005, a range of 'Zero Based Budget' initiatives reduced overheads by 31 % and further activity is ongoing in 2006 to reduce this by a further 10%. For example, use of 'Value Stream Mapping' is being extended to other functions including finance (payments of accounts) - the 'Lean Office'.

17. We continually benchmark with relevant companies that operate similar processes. We use First Marine International to compare us with other shipbuilders on a global stage.

Sustainable Business Environment

18. The Submarine Enterprise requires a complex range of unique skills to be maintained. Suitably qualified and experienced engineers and production workers are necessary for the safe and efficient build of a nuclear powered submarine. These skills can only be retained by performing 'real' work on 'real' submarine projects. Retention would be seriously threatened by any disruption to the production drum beat (22 months) or by a significant delay to the start of the design for a future submarine.

19. Whilst surface warshipbuilding can provide some assistance towards the effective utilisation of facilities and retention of overall skills in Barrow, it does not fulfil the requirement of the key core submarine workforce. Sufficient and continuous submarine specific work is necessary.

20. The positive steps taken by BAE Systems Submarines to utilise skills and technology in the supply chain and to increase productivity have reduced the number of people required to build a nuclear powered submarine in an acceptable timescale to less than 4,000. This compares with between 8,000 and 12,000 in the early 1990s when the Vanguard class was completed.

21. However, the gap between the design of Vanguard and Astute caused significant difficulties within industry. If this happens again it is the judgement of BAE Systems that the loss of capability and expertise is likely to be irreversible. In order to sustain the submarine-specific design skills, BAE Systems believes that design work needs to be focused on a future submarine to be delivered around 2024.

22. In addition to the design skills, unique and vital production and commissioning and support facilities (including Nuclear Site licence to the required NII/DSNR standards) are needed by the UK submarine programme.

23. The optimum approach is to sustain strategically an agreed level of capabilities (both skills and facilities) through a long-term well-balanced acquisition drumbeat. It will be significantly more cost-effective to take this approach than to risk losing these capabilities, with the consequent need to regenerate them, at significantly greater cost and risk, at a later date. Any subsequent drumbeat variation will inevitably drive costs the wrong way, either through the need to acquire additional expertise at short notice or through having to attempt to retain labour during a period of reduced utilisation. In practice, it is the BAE Systems view that this production drum beat needs to be based on build of a new nuclear powered submarine every 22 months in order to sustain capability at Barrow and within the supply chain.

24. To realise the undoubted opportunities for improving the 'Value' of the product (necessary functionality divided by the least total cost), appropriate and timely investment is needed, both for facilities and for non-recurring expenditure on design. Safety methodologies are emerging (although they need further development) that will provide a much needed mechanism for advising on the Balance of Investment between the reactor plant and the supporting dockyard site services. This should help significantly in minimising overall costs.

25. The submarine enterprise as a whole, which includes all those who undertake activities throughout the lifecycle of the current submarine flotilla, from concept studies to support and eventual disposal, all need to play a part in this, and methods need to be sought to ensure that creative, productive and well-managed co-operative arrangements for working together are established. In order to assess the relative merits of emerging options, rigorous joint assessment processes need to be put in place that determine the way forward based on achievability, cost, timescale and overall benefit.

26. The design and delivery of a nuclear powered submarine is a very complex undertaking that inherently attracts significant risk. The contracting strategy for this enterprise needs to take account of who really owns these risks and who is best placed to manage them. A 'decider - provider' model has been conceived to express this concept, with industry being the provider of design options, recommended solutions, assessed benefits, cost data, programme proposals, etc., whilst the expert customer takes the role of 'decider'.

27. In addition, in the nuclear powered submarine business, there are clearly also opportunities for close working with our US colleagues. This primarily is a government-to-government activity, with the appropriate participation by industry, and the information exchange agreements that have been put in place have the potential to be hugely helpful. This should cover not only design ideas, but should also investigate supply chain fragility issues. There is undoubtedly a broad agenda of common problems that could benefit from joint endeavour. Our recent and ongoing experience with General Dynamics / Electric Boat, where a strong and productive liaison has been put in place, has clearly demonstrated the considerable utility of this approach. But this alone will not deliver a sustainable industrial capability within the UK, and is unlikely to deliver increased affordability.

Historic and potential forward workload, depending on MoD decisions on programme like CVF, MARS and Future Submarine

Nuclear Skills

28. This section covers design, justification, build, commissioning, support and disposal of Naval Nuclear Propulsion Plant

29. The scope of the Naval Nuclear Propulsion Plant within a submarine is significantly greater than the reactor and the primary systems (i.e. the Nuclear Steam Raising Plant, NSRP). It also includes all those supporting propulsion and ship systems, equipments and structures that provide any form of functionality for the continuing safe operation of the nuclear reactor plant for the full range of normal, emergency and accident conditions. These latter items are in the Platform scope of supply and nuclear safety case skills are required for the production of the Safety Reports for steam, feed, electrical power, containment etc and the Manoeuvring Room Substantiation Report.

30. BAE Systems Submarines, by contract from the MoD, is the Design Authority (DA) for the whole Astute submarine and a particular individual is identified for this role. This arrangement explicitly confers responsibilities on this individual, and on others designated by that individual, for ensuring that the product meets the required integrated performance requirements, is safe to operate, complies with legislation and is overall fit for purpose.

31. BAE Systems Submarines will, whatever the DA arrangements for any future submarine, have significant safety management obligations, and hence significant need for nuclear suitably qualified and experienced personnel. This requires:

a. Production of the Design Safety Justification for the appropriate elements of their nuclear scope of supply

b. the production also of a Build Assurance Justification for all elements of the NRP

c. All the safety management arrangements to be in place that are necessary for a Licensed Site on which the submarine is constructed, tested and commissioned, and authorised to operate for the first time.

32. In all of the above, there is a need for close working with the NSRP designer who provides the Reactor Plant information that is fundamental to the Plant and Site Safety Cases. BAE Systems Submarines, as both the DA and Site Licensee, has an obligation to be an intelligent customer of this information and subject it to an appropriate level of 'fitness for purpose' scrutiny, even though much of it may go through 'Independent Nuclear Safety Assessment' in accordance with the MoD's current requirements. Currently effort is being put into attempting to streamline these arrangements.

33. All of the above activities require nuclear skills, which are in short supply and increasingly expensive. Those required to design, justify, commission and operate the Naval Nuclear Propulsion Plant (NNPP) would appear obviously submarine-specific (and therefore need to be sustained in accordance with DIS) - but since they currently represent the only active nuclear power plant design and build capability within the UK, there is a significant risk that an emergent Civil Nuclear Power Generation programme could deplete the available skill base within the broad submarine focussed industrial enterprise (BAE Systems, RR, DML and key suppliers) to below the level needed to sustain the submarine programme before a larger pool of expertise in UK can be regenerated.

34. The availability of enough suitable qualified and experienced nuclear managers, safety case authors and reviewers is already a challenge. Initiatives are being taken to:

a. Formally develop a Nuclear Engineering and Safety Function within BAE Systems

b. Establish a training and development plan for Nuclear Engineering and Safety skills

c. Reduce the reliance on subcontractors where able to do so

d. Pursue proposals for the implementation of improved Naval Nuclear Propulsion Plant Safety Case methodologies for later Astute boats (Industry-wide Steering Group with solid support from all Naval Nuclear sites established) - a key objective is the appropriate integration of NSRP and Site safety cases - see earlier reference to Balance of Investment technique.

e. Seek appropriate nuclear engineering and safety contracts from both NNPP and civil nuclear sectors to level out the resource demand in a cooperative manner with other NNPP contractors. With regard to civil work, this supports the Defence Diversification programme.

f. Support Cogent's proposals for the establishment of a National Nuclear Skills Academy.

17 October 2006