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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 554-i House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE DEFENCE COMMITTEE
FUTURE CARRIER AND JOINT COMBAT AIRCRAFT PROGRAMMES
Tuesday 18 October 2005 MR JOHN COLES CB, MR ALLAN CAMERON, MR CHRIS GEOGHEGAN and MR TONY PRYOR CBE
COMMODORE SIMON HENLEY MBE RN, MR TOM BURBAGE and MR STEVE MOGFORD Evidence heard in Public Questions 1 - 145
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Defence Committee on Tuesday 18 October 2005 Members present Mr James Arbuthnot, in the Chair Mr David S Borrow Mr Colin Breed Mr David Crausby Linda Gilroy Mr David Hamilton Mr Mike Hancock Mr Dai Havard Mr Kevan Jones Robert Key John Smith Mr Desmond Swayne ________________ Memorandum submitted by the Ministry of Defence Examination of Witnesses
Witnesses: Mr John Coles CB, CVF and MASC Integrated Project Team Leader, Ministry of Defence, Mr Allan Cameron, Managing Director, Thales Naval Business, UK, Mr Chris Geoghegan, Chief Operating Officer, BAE systems and Mr Tony Pryor CBE, Chairman of Devonport Royal Dockyard Limited (Kellogg, Brown and Root representative on the UK Aircraft Carrier Alliance project) examined. Q1 Chairman: Good morning. Welcome to the first evidence session of the Defence Committee of this Parliament. It is about the Future Carrier and Joint Combat Aircraft Programmes Inquiry. I would like to welcome everybody in the back of the room as well as those who have kindly agreed to come and give evidence to us. Firstly, if I might welcome Mr Coles, Mr Cameron, Mr Geoghegan and Mr Pryor. There are a number of questions which we need to go through. This is a very long running programme which is absolutely essential to the country's strategy in defence terms and we will need to come back to it over the years. I wonder if I can begin by asking if you would please - perhaps this is best addressed to you, Mr Coles - set out for us how the Alliance approach is expected to work? What will the role of the Ministry of Defence be compared with the other Alliance partners. That may seem a large question, but I would nevertheless be grateful if you can cover it in five minutes, or preferably even less, because we have got a lot of questions that we need to get through. Mr Coles: I will try my best, Chairman. Essentially, an Alliance for a major project - quite common in other industries - has a number of partners who have specific roles and responsibilities that pass the programme, including the clients. They are combined by an over-arching Alliance agreement to deliver the programme which they all buy into - that is whatever the cost applying to the schedule is - or in the risk reward, including the clients. Most importantly, each of the contractors has a works contract which specifies precisely what their contribution is to the various parts of the programme. That is how it is set out in those terms. It takes a long time to reach those agreements because each company in the Alliance has to assess its role and its responsibilities and those of its partner companies in the Alliance to share in the risk and reward. It takes a long time to reach an agreement in that process. Each company brings its own specialist skills and each other company challenges that company to deliver them in the best way. Therefore, we deliver the best for the project, not necessarily the best for each company. It is a very different way of contracting and a very different way of behaving across the companies, including Government officials in those projects. That is a broad summary of how it is set out to work. Q2 Chairman: Would any of your colleagues like to add anything to that or comment on it? Mr Cameron: I would just add that being part of the Alliance is being part of a co-operative relationship which brings to bear the best intellectual capacity of the Alliance members in the execution of this very important project. We are very pleased to be part of that relationship in that co-operative approach to delivering CVF. Mr Pryor: I would like to echo John's comment about the length of time it takes to form an Alliance. We joined the Alliance in the latter months to bring our expertise in the offshore industry Alliances, to meet the best investing parts of building these aircraft carriers. It is our experience that it takes time to settle down relationships between the companies and between individuals in their companies so that we can present a seamless product to each other and to the completion of the project. Q3 Chairman: Would you say that two and a half years was nevertheless quite a long time to take in forming an Alliance and finalising those arrangements? Mr Pryor: Chairman, I am not sure we have been going at it for two and a half years in the form of Alliance-building mode; the Alliance members you see in front of you here have been at it since February this year. Q4 Chairman: What was it that was identified between 2003 and 2005 for the decision to prompt the Physical Integrator? Mr Coles: We all recognise that this project is beyond any one company to deliver. Also, we recognise that business as usual, ie the way we have done things before, would not be successful for this programme. We need to bring in some different views, different talents and different experiences of different industries to bear down on the way we have done business in the past. That was the background to bring in the Physical Integrator, a different perspective on how to run a complex project on multi-sites actively bringing skills sets in. That is how the origin of all this started to bring in a Physical Integrator. Q5 Mr Jones: On that point, is the reason why we have an Integrator, the fact that the contract was awarded both to BAE Systems and Thales? What was going to happen if previously one of those solely had been awarded the contract? Mr Coles: Of course we would not do it that way and we elected not to do that. We elected to bring in a third party to bring those skills sets together, those very skills sets this project needs to assemble it and to complete it on many sites. Q6 Mr Jones: The answer to that question is if we had given it to Thales or BAE systems it would not have needed a Physical Integrator. Mr Coles: If we had the prime contract, of course we would not have done it that way round, you are quite correct. Q7 Mr Jones: A political fudge has led to more cost? Mr Coles: Indeed not; the exact opposite, I would say. You bring in a different talent into that programme. Q8 Mr Jones: No. If you had awarded it to a prime contractor you would not have needed to employ a systems integrator, would you? Mr Coles: Of course not. Q9 Mr Jones: Therefore there was a cost involved that you did not need? Mr Coles: I do not accept that. Q10 Chairman: With whom will the Ministry of Defence be contracting if there is not a prime contractor? Mr Coles: It will be contracting with each of the companies in the Alliance separately and collectively. Q11 Chairman: How is the allocation of work and risk going to be sorted out if the Ministry of Defence is contracting with everybody? Mr Coles: The precise roles and responsibilities of each member of the Alliance will be agreed and they will have to accept as part of that agreement a risk reward in the Alliance contract. Each company has a specific task agreed un-contractually and they buy into that by taking a share of the risk and the reward within the project. All which will be put into the contract as the over-arching contract, the individual contracts will say what they have to do and the risk reward is built into that mechanism. Q12 Mr Hancock: If that is the case, who carries the risk if one element of the Alliance fails to deliver on time so causing a cost-overrun to another member of the Alliance partnership? Who then meets the cost, the Alliance generally or the MoD? Mr Coles: The individual parties will all share in the risk, that is the difference. Each party is carrying the risk in part for its colleagues. Perhaps one of my colleagues will be able to amplify that. Mr Pryor: Perhaps I can build on that point. The point of the Alliance is that we all sink or swim together, so if one of my Alliance colleagues or partners fails in his scope of work, I take the risk on that failure, likewise he is taking the failure on my scope of work. We believe that it is a stronger bond to deliver the outcome of the project than being independent and saying, "It is your fault, it is not my fault". That is another reason why it takes so long to build the Alliance because we have to agree the risks that are being handled by my partners and they have to agree the risks that we are handling and the quantification of those risks in monetary terms. That is part of the time it takes to nail that down, as John said, in the collective agreement, which would be the Alliance contract, which is a binding contract, and the individual works' contracts from the Ministry of Defence on the individual partners. Q13 Mr Harvard: If it is awarded to one company, then you do not need the Physical Integrator, but we have now got two, so you need the Physical Integrator. Potentially we may even have three, of course, if the French get involved; we will get on to that later on. The point my colleague made about extra costs, surely what we are really seeing here is that the Physical Integrator is an extra cost because of the deficiencies. It seems to me that you have just described a very differentiated process of contract negotiation and contract compliance which also needs to be done now as well which you might not have needed in quite the same way if you had awarded it to one organisation. I think we are seeing, are we not, the fact that project management skills and various other skills were deficient in the DPA and possibly in the MoD and this is some sort of policeman gatekeeper contract compliance organisation that is going to run in order to make a project work in any event, is it? You make the savings because you get it right rather than get it wrong, but there is an extra cost. Mr Coles: In any project you would need all the skills sets that a Physical Integrator in this project would bring. You would need them anyway, someone would have to do that. Whether it is done within one company and you will bring a second or a third company to it is not really the issue, it is that skills set they bring, that experience and knowledge base they bring to what has been our way of doing it before. Mr Geoghegan: I think it is worth noting that from the outset, even when this competition was run essentially under the heading of "prime contractorship", both of the competing companies, Thales and BAE Systems, put forward teams of companies to respond to that competition. Both sides recognised that it would require a number of companies to come together, both in terms of skills and capacities, to respond to this project. Whether it be through a prime contractor or whether it be through the current proposed Alliance structure, there would have been a series of interfacing contracts that would have to have been put in place. In many cases the prime contractor would have been handling that interface process. This is another form of dealing with a complex set of project interfaces of contracts. Q14 Chairman: Sir Dick Evans told this Committee last year that he was worried about the whole thing developing into a sort of procurement committee. Do you think he was wrong to express concerns about that? Mr Geoghegan: I think those concerns come with looking at something which is new and seeing a lot of interfaces. A lot of the attention that we have been putting on the programme over the last 12 months has been trying to identify the minimum number of interfaces that are required within this Alliance and putting the required governance around those. Q15 Mr Jones: I do like straight answers, but the quick answer to it is you have put an extra layer in here because the prime contractor would have been doing that job. My fear is - and I think Sir Dick Evans said this - that you are going to get a procurement committee here, are you not? The fact is that if you had awarded it to BAE Systems or Thales they would have been the main integrator, you would not have then had to appoint a system integrator to do that because they would have done it. Surely there is an added cost there. I will try again but obviously you are not going to answer it. Mr Coles: I will answer it again and if anyone wants to add anything, they can. The same task would need to be performed whether in an Alliance or in a prime contract or a joint venture, the same task would need to be done, so it is not an extra task we are bringing in. Q16 Mr Jones: It is an extra cost. Mr Coles: It is not an extra cost either. It is a question of who does that task and the experience they bring to execute that task from other industries and other knowledge bases that we may not have brought in the past. That is how Alliances work. We bring together the skills of a number of parties who combine together to produce a superior outcome. Q17 Mr Jones: What was wrong with BAE Systems, for example, or Thales being the prime contractor? As your colleague said, clearly you had to negotiate with different companies, but why have you got two possible prime contractors now with another organisation sitting above them as an integrator? That must add a cost. You cannot tell me it has not. Mr Coles: I do not agree that it adds a cost, it is a different way of running the project. Q18 Mr Jones: It is a bureaucratic way of doing it. Mr Cameron: I would not agree with that. If you look at the experience of the offshore industry in particular and the construction industry, the use of Alliances to drive out cost and change behaviour can be instrumental in bringing on some of these projects, which would never have gone ahead without an Alliance, and we want to bring that focus to this particular project. Q19 Mr Jones: Are you saying that either Thales or BAE Systems were not capable on their own of being the prime contractor? Mr Coles: We needed all the skills sets, both Thales, BAE Systems and others to bring this project on. It is a complex project. Q20 Mr Jones: The answer to that question is BAE systems or Thales on their own could not have done this? Mr Pryor: I think the last time that the defences in the UK could deliver a prime contract delivered by its own resources was back in the early 1900s. Certainly my old company, Vickers, built the Picasa for the Japanese in that way. Everything was built in its own factories in the early 1990s. Latterly, and certainly nowadays, somebody may have the prime contract but a very large proportion of the supply of that prime contract is subcontracted to others. Q21 Mr Jones: I am aware of that. Mr Pryor: In the original two competing bids two years ago now, KBR was supporting Thales and their rainbow team. At the time I remember commenting that if Thales had won the contract the first phone call would be to my boss and my second phone call would be to BAE to go and talk about how to bring BAE's expertise into our rainbow team. As it happened, when Thales did not succeed as the prime contractor in forming the Alliance, the first phone call was to my boss and the second phone call was to BAE saying, "Can we come and help you". We need all the skills of industry required to deliver the programme. Q22 Mr Jones: Stop trying to confuse the issue. I am quite aware about the procurement process in the defence industry. Are you saying that in order to procure these two ships it was not possible for either BAE Systems or Thales on their own to be the prime contract or of the systems integrator role? Mr Pryor: With their own resources? Q23 Mr Jones: No, obviously using a system in terms of a working partnership. I do not know enough about the two bids, the bit about the industry. Why could one of those not have delivered this on their own? Mr Coles: Of course, none of us would say they could not, but we believe this is a better way of running the project to bring in the costs, performance and time using all the skill sets including the three companies represented here and the Ministry and a better way of sharing the risk. Q24 John Smith: I do not think we have a problem with the concept of Alliance as long as there are very clear lines of accountability in terms of contract responsibility and contractors are held to account. Is that the role of the integrator, Mr Coles? Will that be your organisation's role to hold contractors to account? Mr Pryor: Our role as a Physical Integrator was to bring a set of experiences that were different from the other two partners, mainly from the offshore oil industry sector - we have provided a team of people with that expertise - and to bring a particular set of tool sets in programme management, cost control management, interface management and planning to the process. In addition, we can act to undertake the competitive procurements which might involve Alliance partners bidding for fabrication assembly set in to work and we can act in that role because we have no manufacturing facility here in the UK; we supply people and tool sets. In that way our expertise is in placing the contracts, and to the extent that our programme managers and project managers in the integrated team will be liaising with the works' contract suppliers, we will be holding them to account. Their contract is placed with the Ministry of Defence, so it is the Alliance holding the contractors to account. Q25 Mr Hancock: If I can take you back to before the contracts were awarded. No minister giving evidence to us or in discussions we had within the MoD suggested at any stage that there would be anything other than one prime contractor, and if that was the case the price should have included the integrated project leader who would have driven that. When you submitted your bids separately, presumably your bids included that price. It was only when ministers decided by - using Kevan's words - a political fudge to bring both companies into the table that they suddenly realised they might have a problem here and they needed a third player to make sure this was done. The alliance was put together and a cost was evaluated to that which was over and above the original cost which both of you bid. Advancing Kevan's point: there was an increase in cost before the contract even started because of the process. If you were really cynical, and I am, you could suggest that was done because the Government was slightly uneasy about the ability of these two companies to work together without someone prepared to knock heads together. Also, it had some doubts about the procurement cabinet inside the MoD having the ability to do that themselves. Is that right or wrong? Mr Coles: Certainly KBR, in their role, will bring some additional project management skills into the project which are essential. All those things we need to do for the Alliance and for the project. Secondly, they bring the innovation, perhaps, from the oil and gas process changes which we will need inside the project. It is a combination of things, it is not just one particular issue. It is the whole range of skills they bring in from a sector which has a good track-record of bearing down on costs, the large multi-site complex projects which this will be. Chairman: Thank you for those answers. Can we move on now to French involvement in the programme or the possibility of French involvement in the programme. Q26 Robert Key: Mr Coles, can you please confirm that French companies have approached the French and British Governments with a view to building a third carrier in addition to the two British carriers to serve French interests? Mr Coles: There is no proposal from any French company to build any part of this programme at all. Q27 Robert Key: Has there been a proposal from the French Government? Mr Coles: That is a different question. Q28 Robert Key: That is why I am asking it. Mr Coles: The French navy, the French Government, the French administration have a requirement for a second carrier in the public domain, which they recently funded which has a very similar shape, size and role to the current UK version. They have been studying that to see whether the UK ship, as defined today, could be adapted - I use the phrase adapted - to meet their particular requirement. They have concluded with industry's support, French industry in particular, that is a possibility. Therefore, that is where the project stands at the moment. The French administration will have to decide whether they wish to pursue that with HMG or not, and those conversations are obviously going on but are not yet concluded nor decisions made. Q29 Robert Key: Can I explore who the "they" are in France? Are we talking about the Director-General of Armaments? Mr Coles: I would say the French administration in general. Q30 Robert Key: I am sorry, it cannot be the "administration in general". Are we talking about the DGA or not? Mr Coles: We are. Q31 Robert Key: It is the DGA, good. It is said that the French are going to have to make a decision on whether or not to proceed with this by mid October; that is now. Do you believe that is the timescale by which the French are going to decide this? Mr Coles: I believe it will be a little bit later than that by a couple of months. Q32 Robert Key: That is quite soon. Do you think it would be possible for French companies, like DCN, Thales possibly, to join the Alliance or would there be a separate French Alliance? Mr Coles: It would be possible but I doubt very much whether they would join the Alliance. They might be subcontracted to the Alliance, but that is speculation. Q33 Robert Key: If the French accepted the design of the carriers so far, would they pay for the intellectual property rights so far agreed by the British or would they just start paying for any amendments that they have made because after all the chief executive of DCN said, "Clearly the British design is compatible with the operational means of the French Navy and if the French Government chooses a design we will use it and just do some small changes". It rather assumes that the French think they can pick up all the intellectual property rights that you have worked on so far for free. Mr Coles: I am sure you would wish me to say that if we have developed something in the UK over a long period of time, we would expect some contribution towards that if we had entered into any programme, and I suspect that would be the case. Q34 Robert Key: Who will decide that? Will it be the Alliance who decides the shape of the relationship or will it be led by the Ministry of Defence at a political level? Mr Coles: I am sure we will give ministers the advice, but they would take back what that will be. Q35 Robert Key: Can I ask Mr Pryor whether you or the company have had discussions with any other French companies in this respect about this particular project? Mr Pryor: Nothing substantial. I have had two visits to France on the project about six months ago. Q36 Robert Key: Can I ask Mr Cameron too, because obviously this is absolutely crucial to you, that the French Thales, who are your owners, if you like, are very keen to progress this, are they not? Mr Cameron: Yes, they are. To date, we have conducted studies with the entity which is a combination of DCN and Thales France with our Alliance partners on CVF, namely Thales, in a lead role supported by BAE today. Those studies were requested in order to improve the feasibility of design commonality in the main hull relating to both projects. Those feasibility studies did nothing more that prove that a high degree of commonality was feasible. Q37 Robert Key: Finally, back in the Sixth Report of Session 2003-04, the Defence Procurement Report of this Committee, Sir Dick Evans, who at that time was the chairman of BAE Systems, told the Committee that he did not expect BAE Systems would participate to any significant extent. Has that changed, Mr Geoghegan? Would BAE Systems now be interested in this sort of scheme with the French? Mr Geoghegan: It will clearly depend on the nature of the proposal which emerges from those discussions. Clearly there are some key issues. There is the one of the IPR, as John said, and I am sure, that can be sorted out. There is also the issue of bringing any French involvement into the programme not affecting the underlying project that we are running here in the UK. Therefore, the depth of involvement that the French industry would have clearly has bearing on that. We have been party to the discussions with the French industry and have evaluated a number of thoughts of how they might include themselves, and they are wide ranging. Certainly at one end of the spectrum where we are sharing common design and we are co-operating, but short of jointly building ships, then we can see value to both the French and to the UK and on that basis system BAE Systems would be part of it. Q38 Robert Key: Mr Coles, have any other governments within the EU or beyond it expressed any interest in joining in the Carrier Programme? Mr Coles: Not to my knowledge. Robert Key: Thank you. Q39 Mr Crausby: I can understand why the French would be interested in co-operating on this project. It makes obvious sense if they want to build carrier and we want to build two carriers. It stands out a mile they would be interested. Can you tell us something about why that would be in the best interests of the British Government? Would there be cost savings and where would those cost savings be from? Perhaps you could tell us something about the added complications that would bring in and where. I was interested in what you said that there would be sub-contractors to the Alliance. Clearly the French Government would not be sub-contractors to the Alliance so can you tell us something about that relationship and how the French Government would fit into the Alliance and what cost savings it would deliver? Mr Coles: Assuming that they would wish to do so, there would be some separate issues that would need to be resolved. The first thing is that any relationship on any sort of programme would have to ensure that the UK programme was not disturbed. So that is first of all. The second issue would be there would have to be genuine savings, ie that it did not cost us any more but it did cost us measurably less. We would have to look at the areas where that could be achieved. One is clearly the non-recurring costs that all projects have. Clearly if you were to have some form of common parts of the ship, the effort required could be in some way shared, if I can use that phase. You could imagine that some of the equipments could be bought jointly as opposed to separately, so for example buying three of things instead of two of things could give you some marginal savings, both in the administration and the procurement costs. Finally, there is the whole life support costs. The long-term support of three ships as compared to two ships is a saving to both nations. The dialogue about how that would work and if it would work needs to be teased out because what you do not want to do is introduce any additional bureaucracy to the programme to make it more complicated because clearly neither nation would wish that. So there is a whole range of possibilities. None has actually been decided because until the French administration - to use that phrase with apologies - decides it wishes to pursue this, then really they are only possibilities and they only become probabilities by further clarification with French officials and with the French Navy. Q40 Mr Crausby: Clearly it would involve quite complicated negotiations on a project of this size. Can we be absolutely assured that the MoD will not make any compromises from the point of view of design of the programme? One of the things that interests me is what will the French fly off their carrier in comparison to what we fly off our carrier? Will that mean completely different things from the point of view of the carriers? I know we are going to talk about the Joint Strike Fighter later but these two things have got to come together in some respects from the point of view of the initial design. Can you tell us something about that? Mr Coles: There are some parts, of course, and the aircraft is a particular one, where the French Navy would be operating different aircraft, but the broad characteristics of how those aircraft would be operated from either ship would be very similar. There would not need to be detailed changes to support the individual aircraft because of the aircraft characteristics, so that is not a big issue, I do not think. The rough shape and size will accommodate both aircraft. The real issue - and you have touched on this - is we do not want to make it over-complicated in terms of administration, in other words you do not want to produce costs and delay in decision-making. The key to any collaborative programme or co-operation programme - call it what you like - if that is the way that Ministers decided to go, would be to ensure that we did not produce additional bureaucracy and decision-making in the process. Perhaps finally, it is not aligning our requirements. This is taking a solution that we have developed, as Mr Key said, and adapting it to meet French requirements. So it is adaptation of this new product, but of course any adaptation, if they decided to co-operate or collaborate, would be for the French administration, for the French DG in this case, to decide how to fund that. It would not be funded by UK plc. Q41 Mr Crausby: You have talked a great deal about cost but what about jobs? There are many different cross-references from the point of view of what is done in British shipyards. Would you, for instance, consider building all three carriers in French shipyards? Is that on the cards? Is that politically acceptable? Mr Coles: I think those discussions on the particulars of how, what and when we would like to collaborate or co-operate are really quite some distance off, so I do not think I can give a view on that at this stage. However, you would save some non-recurring costs if you did it in terms of design costs and procurement costs, as I have outlined, you are bound to. How that would work out in terms of sharing those costs and where they would fall is speculative at this stage. Q42 Mr Crausby: The fundamental question is there is an enormous difference between STOVL from our point of view and the French. Can we have some qualification on that as to what the French would fly off their carrier? Mr Coles: I think you would have to ask the French Navy what they are going to fly, but my understanding is that they are flying the Rafale off the carriers (and other aircraft too actually) but you will have to ask them. I can send you a note if you wish. I am not qualified to give an opinion on that. Chairman: I think that would be helpful because the difference between flying STOVL on aircraft and non-STOVL would be quite significant. Q43 Mr Hancock: I must say, Mr Coles, your response to Mr Crausby's question was a lot different to the one you gave to Robert Key. You seem to have had considerable discussions about a contract possibility with the French. In your response to Mr Key you gave the impression that you were just on the edges of it. You went into some detail about what had been discussed and what was potentially on offer there in the relationship. I would be interested to know exactly what your role has been in those negotiations. Mr Coles: I did qualify my remarks, I think, by saying that if we did decide to collaborate with France, this is what we could do, not that we had decided to do, so I did make that distinction. Q44 Mr Hancock: So what was has been your role in the negotiations to date? Mr Coles: To facilitate discussions between the French and British industries about what is possible from a technical solution point of view, what is possible --- Q45 Mr Hancock: Has this been going on for some time? Mr Coles: It has been going on with the French for, I think, something like two years. Q46 Mr Hancock: Two years with the possibility of a joint venture? Mr Coles: No, no, no, to establish what was possible, whether it was feasible for this particular design to meet the French requirement? That is the first question. Then deciding it is possible, does the French administration wish to pursue and in what format any form of co-operation. That is for them to decide. What could be done thereafter, as I said, there is a whole range of things you could do but that has to be decided and agreed by ministers and none of that has been decided. I was just saying these are the range of things that could be possible in any form of programme. Q47 Mr Hancock: Have you had meetings with senior French ministers and British ministers on this issue? Mr Coles: I am sure that is a question for ministers to answer rather than myself. Mr Hancock: You do? I thought that was a legitimate question to ask you. Chairman: I think the question was about senior French ministers rather than --- Q48 Mr Hancock: French and UK. I expected an answer. Mr Coles: With respect, Chairman, I think ministers must answer whether they have met with opposite numbers. Q49 Mr Hancock: I asked whether you had met with senior French ministers. Mr Coles: French officials I have met but not French ministers. Chairman: Thank you. Q50 Mr Havard: Can I be clear. What I understood the situation to be is that industry have been tasked with doing these discussions you have talked about, which are about technical feasibility and about reducing cost and risk, whilst preserving the national programme that currently exists and the time-line. So there is going to be no change there. Is that what you are about doing because that is what the Ministry of Defence think you are doing because that is what they have written to me and told me you are doing? Additional to that, there are other working groups and goodness knows what going on to investigate the range of co-operative possibilities perhaps within that and beyond that as well. That is what I understand is going on. On this question of the French specifically, you talk about adaptations being made so that we do not disturb our national programme, we do not disturb the time-lines and all the rest of it, but if the French participate and do whatever they want to do, if they want to put a new deck on it and have sling shots instead of short take-off and landing or whatever, that is their problem and they pay. Is that where we really are? Mr Coles: What I have said, and I will repeat it, is that we have looked at the technical feasibility and between British and French industry we have concluded - the French administration as we have accepted - that it is technically feasibly to adapt this ship to meet their requirements. Thereafter no decision has been taken about whether they are going to pursue that. If they did, that opens up a whole range of possibilities, as I outlined already, of how you might take that forward, within some constraints about time, our own programme and all the other constraints. So in a sense we have explored what is possible. We have not taken any decisions. It is a decision for the French, I might add, in the first place about whether they wish to pursue it. Q51 Mr Havard: You told me mid-December earlier on. That is when the answer is coming, is it? Mr Coles: That is the sort of time-frame. Q52 Mr Havard: That is the sort of time-frame. What does that mean? Does that mean Christmas or does it mean the middle of January? Mr Coles: I think it means around that time-frame. Mr Havard: That is the best I can do, Chairman. Chairman: I think we have taken that as far as we can. We will now move on to ship building. David, do you want to take that? Q53 Mr Hamilton: The MoD's submission mentioned the "creation and integration into the Alliance of the Shipbuild Entity". What is the Shipbuild Entity and when is it expected to be created? Mr Coles: The Shipbuild Entity was that part of the programme which would bring together all the people who might be engaged in building the ship, ie the physical construction and the detailed design, to form, if you like, a piece in the Alliance we could contract with or negotiate with about how this is best to be done. That is what the Shipbuilding Entity was set up to actually do some time ago. The proposals to the Ministry are not mature enough about how that might work, but it has the aim of creating an entity, ie how to build it and where and the people who might be associated with it. Q54 Mr Hamilton: What would its status be within the Alliance? Mr Coles: That would need to be debated. It could either be a separate sub-alliance or they could be full partners or a combination. That is yet to be teased out because we have not received formal proposals from the companies about what that format might finally look like. Q55 Mr Hamilton: BAE Systems is a member of the Alliance and owner of one of the shipyards. There is an obvious conflict there. How will you be able to resolve that conflict with BAE Systems? Mr Coles: One of the roles is - and it does depend on the final format of the Shipbuild Entity of course - for KBR on behalf of the Alliance to police precisely prices and the programme to make sure that it is all viable, so they would have a role in that as well. I am not sure there is a conflict of interest, although we have to make sure they do not have two voices at the table, a shipbuilding voice and a voice as a member of the Alliance. Q56 Mr Hamilton: That is not a conflict? Mr Coles: It is something that we have to tease out. You are right to recognise it. Mr Pryor: There are many normal procedures which we have employed in very similar situations when individual companies inside an alliance are bidding to the alliance for work in various of their facilities. What normally happens - and certainly this is my own personal experience - is that you run an assessment tender process with sealed bids at which you have independent observers for those sealed bids (in this case we had the Ministry of Defence as the independent observer) and the participating alliance member does not participate in the recommendation of the assessment team. It goes to the alliance management board, which is the executive authority for the whole project, and at that board the participating member has to be excused, or they excuse themselves, from the decision process, and it accepts the decision of the other alliance members on the particular tender put forward. So there are some very robust procedures for making sure that the conflict of interest is not there. Q57 Mr Hamilton: Can you find an independent observer? Mr Pryor: I have operated many times with independent observers. They come either from industry or from one of the trade associations normally. Chairman: We will now move on to the potential shipyards. Mike, do you want to start on this? Q58 Mr Hancock: When the contract was being talked about there was a lot of speculation around the country about who would benefit from the shipbuilding. It finally came to fruition, I think, in January 2003 where four yards in particular were identified - BAE Systems' naval yard at Govan, Vosper Thornycroft in my own constituency at Portsmouth, Swan Hunter on Tyneside, and Babcock BE at Rosyth. Is it still the intention of the Alliance to give the work to these four yards in the same sort of proportions that were being discussed back in those heady days of January 2003? Mr Coles: I think what I would say is there are a number of proposals that the industry and the Alliance have had about where this ship could be assembled and where it could be done and how it could be done, but we have not reached a definitive view on any particular solution. Clearly what I and the rest of the Alliance board want to establish is any solution that is put up minimises capital investment, that the solution offered has the capability and capacity to match all this, that we have the right level of competition and the right skills-set to do this. In a project like this to bring all the Alliance partners in and to sign up to that, as I said some time ago, is a long process and if we want to de-risk this and take the risk out of the programme we have to get all that information assembled, clearly on the table, and understood by all, before we make recommendations. In the end these would be the sorts of things you are doing to the rest of the Ministry of Defence to make sure that it is the viable way forward and is a minimum-cost solution for the delivery of these ships. So it is a long process and no decisions have been taken. A lot of people are speculating how we could do this, where we could do this, but I need to think about capacity, capability, cost, risk and minimum capital investment, because all those are important factors in driving the final costs of the programme. We do not want to create capacity, for example, that we would only need for a short time. So it is a complex jigsaw to put together and we have not actually reached a solution yet. Chairman: Mike Hancock wants to come back on that but before he does Kevan has a question. Q59 Mr Jones: So the report in the Sunday Times that Swan Hunter, one of the main four yards mentioned, is not actually one of the main yards is not correct? Mr Coles: As I said, we have not decided on any solution so no decision has been taken. As far as I can judge, there is enough potential work for any of these four who wants to compete for work. Q60 Mr Jones: I hear what you are saying but can I come back to you and say that I actually met last week with one of these four yards who confirmed to me the fact that Swan Hunter was not going to be part of that four, the reason for it being - you mentioned de-risking and I understand risk aversion - because of the problems that Swan Hunter is having already with its own landing support ship, notably that the cost overruns had been tremendous, that it is basically now being managed in the yard directly by 20 employees of BAE Systems, and the fact that most recently there have been problems with the electronics in those ships. Are you saying that Swan Hunter is really still in those four? Mr Coles: What I have said is all shipyards are capable of building some parts of this ship. Q61 Mr Jones: That is not what I asked you. Mr Coles: I understand that. We have not taken any decisions on any of the companies, never mind if it is Swan Hunter or anybody else. Q62 Mr Jones: I am sorry, one of these yards told me last week that you had made a decision and the reason for that is because the MoD are not satisfied with the present ownership and management of Swan Hunter Shipbuilding Mr Coles: With respect, I cannot really take comments from somebody commenting to you about whether that is the policy or not. Q63 Mr Jones: Well, it was also in the Sunday Times a few weeks ago. Mr Coles: Or in the Sunday Times. Q64 Mr Jones: Obviously leaked from a very good informed source. Can I just ask one last question then. If they are not part of this, which it seems to me they are not going to be, what is your reaction to Yap Kroese, the owner of Swan Hunter commenting in the Newcastle Journal the fact that he is not one of these prime companies, he is not even going to tender for any of the work? Mr Coles: That is a question Mr Yap Kroese has posed and he will have to answer for it. Q65 Mr Jones: Are you satisfied as the MoD with the work that has been carried out so far on those two ships in Swan Hunter? Mr Coles: It is not my position to comment on projects that I am not responsible for. Chairman: That is not this inquiry. Q66 Mr Jones: I am sorry it is, Chairman, because this same yard might be let part of this contract, therefore of course you have got to study what is going on already with a contract that has been let there, surely? Mr Coles: When we come to the time to make decisions about where the work will be contracted we will doubtless take in performance as one of the criteria. Q67 Mr Jones: If you have got a yard which has gone way over cost on two ships, has had another company come in to rescue it in terms of the management process, and I understand some technical problems on one of those ships, surely it is going to be a big no-no to put work in there if you want this to be a risk-free project? Mr Coles: It is certainly one of the factors in selection. Q68 Mr Jones: Can I have a final bite of the cherry because you have not given me a great deal. Have you actually had discussions about the performance of Swan Hunter? Mr Coles: Personally, no. Q69 Mr Jones: Not you. What about your team as a whole? Mr Coles: Do you want to comment on that? They were sent an enquiry out. Mr Pryor: On discussions, if I might backtrack slightly, the first question is very simple. We are going to build two aircraft carriers in this country. Following on from that, all the detailed questions, as John has alluded to, are enormously complex. We are trying to make a plan to build a ship of the nature that no one yard in this country can build, we know that, and we have got to try and utilise the facilities of this country. There is no wish, no need, nor political will to go overseas. It is going to be built in this country. We now have to match a programme of two complex ships, decide what is the cheapest, best, most easily constructible design of the ship, how you break it up into small pieces, where you deliver it to to build into a big ship, and we are talking about trying to do this in facilities that we are going to need in five years' time or longer. We can all forecast where facilities are going to be in five years' time. The team has gone out to industry with request information to assess the current state of facilities. We went out to 21 shipyards in this country, 18 responded within the timescale, two have since gone into administration, leaving us with 16. Here we are trying to make plans for facilities in four or five years' time. I am personally reasonably sure that if Swan Hunter are in business in seven years' time they will get business because the fabrication capacity of this country is going to be required to deliver these ships. Mr Jones: Not under the current management. Chairman: I think that is as far as we can take this. Mike? Q70 Mr Hancock: I think your last point, Mr Pryor, is a good one. You are talking about capability in five years' time. When these carriers were first talked about the ministers came here to the House itself with glowing comments about the way in which the work would be shared around the country and these four yards in particular would benefit from it. Those yards who you have contacted must be saying to you that delays in getting the main contract decided and their share of the work must be having a dragging effect on them and their ability to hold skills together for five years' time, to have the workforce in place and the ability to do it. I do not know whether the drag out of this will inevitably mean that parts of British ships, if we do a deal with the French, will be built outside of the UK, but certainly if you do not make a decision fairly soon and give some confidence to the companies and to the workforce, you are going to have a real problem in having the skills that you are going to require. Mr Coles: Correct. Q71 Mr Hancock: How are you going to deal with that now? Mr Coles: Those are the complex questions that we are wresting with at the moment to try and put together a comprehensive project plan that we know will not fall down at the first assessment of risk which is is the facilities in place in two years' time. You are quite right, the question of the facilities is not just the facilities but it is the resources and the people there to provide the workforce. We are not in business as project managers, we are not in business in the Alliance to place work in advance of design being completed. We wish to get the programme done in an orderly manner as the best way to keep it to cost, time and specification. We are in discussion with all these shipbuilders - the four and others - to see how we can integrate the plan to the best possible outcome for all parties. Q72 Mr Hancock: It is not unreasonable then for this Committee to assume that out of the four clearly identified at all stages who would be the major beneficiaries of this contract, that you would have had serious negotiations with them and you would have looked, in your words, Mr Coles, at the risks of giving them work. I am not to know. The workforce in those businesses are entitled to know whether or not you feel that they are up to the risk. Mr Coles: Let me come back to the question. The issue raised about skill loss and facilities loss is a real issue and we are alive to it. We have to ensure that when we build the ship they are going to be there. That is one of the concerns we have. In terms of the companies that people have nominated, there are a number of companies here which clearly have the skills-set but not necessarily the capacity to be part of this programme. Of course, we have entered into discussions with a number of companies about what they can do and the contribution they can bring but it is the matrix of all those companies and how we put it together that gives us the most economic solution for the final fabrication costs, manufacturing costs, and testing and commissioning, that is the key to this and the roles each might bring to that and those particular skills-sets. I am alert, as we all are alert, to the loss of the fundamental skills-set in design, manufacture, testing and commissioning in this rather complex area. Q73 Mr Hancock: Are you satisfied then, Mr Coles, that we will have the capability to build these two ships wholly in the United Kingdom when you finally decide to let this contract? Mr Coles: Our current analysis suggests that we have enough national capacity to manufacture and assemble these ships with some marginal increase in capacity in manpower. Q74 Mr Hancock: So what you are saying is that currently you would not have the capacity unless one of these operators, or somebody, is prepared to invest in enlarging their facilities? The alternative to that is to have part of this ship built abroad? Mr Coles: You could always look to that as an option, but we will have to make some investment in some companies to finally assemble this ship. We are looking at the minimum capital investment, commensurate with all the other risks. Q75 Mr Hancock: My final question is have you looked in your specific role, either you personally or members of your team, at building parts of these ships outside of the United Kingdom to date? Mr Coles: No, we have not. Q76 Mr Hamilton: Sticking with the second last question raised there about capability and ability, your current view is that we do have the ability within the shipyards at the present time to do that. The problem of course is the time span that you referred to earlier on and that is how these companies are able to maintain that ability to be able to do that work over the next several years. At which point are you going to be able to make a declaration of which of the yards are going to be able to do that even although it is several years down the road so that they can retain the workforce that is necessary for them to be able to do that? Mr Coles: Part of the work that we are engaged in now is to establish what is the optimum build strategy and what that will cost and to ensure that each of my partners in the Alliance agrees with that and the risk that that poses and can sign up to that contractually and that cost, together with all the other costs in the programme, is affordable for the Ministry of Defence. As I say, it is a long drawn-out process to establish that because each of them has to decide what they can bring to the party, what risks they are going to run, and what risks they are going to share with their other colleagues for an optimum strategy. That does take, and I keep saying this, a considerably time to do because clearly what we do not want to do is embark on a programme that then goes off the rails. Q77 Mr Hamilton: Just to follow up on that. I understand the problem that you are facing. There are 30,000 people employed in Scotland in the defence industry and over 300 companies involved in that. What discussions are you having with other defence contractors when they are putting contracts out? I know your responsibility lies with the two aircraft carriers but there are a number of other contracts that come in between now and that date. What discussions are you having with the Ministry of Defence over that? Mr Coles: We have a large number of suppliers which will be equipment suppliers with which we are holding discussions as part of the design evolution. I could send you a list of the companies if that would be helpful. There are a large number, in excess of 20 or 25, that we regularly have as part of the dialogue and some are engaged and physically employed by the other Alliance partners in supporting the current assessment phase. Q78 Robert Key: Chairman, please may we have that list? Mr Coles: That is not a problem. Chairman: I think that would be helpful. Thank you very much. David? Q79 Mr Crausby: I wanted to raise the issue of Barrow because the expectation from the employees in Barrow is that they are going to be very much involved in the programme, but that inevitably will have an effect on other shipyards. I welcome the question of the involvement of Barrow but it is pretty obvious that if you bring in another yard, that is bound to have an effect on others. I wondered what the prospects for Barrow were. There is a real problem in holding skills, particularly in a place like Barrow for submarines. Are there any complications with Astute? Would you look at it from the point of view of the complications that have been thrown up in the past? Mr Coles: The Barrow site along with the other sites in the United Kingdom are possible contenders for building some parts of this vessel and with their skill-sets, capabilities and facilities (subject to affordability and all the other things I have talked about) they could, like the others, be considered, but at this stage we have not decided whether it is A, B, C, D or E, and I think that is right because we do not want to be forced into solutions before we have got the right solution and the right commitment because it is commitment from the companies as well. Q80 Mr Jones: In terms of these discussions you have had so far with these various shipyards, can you confirm that the owner of Swan Hunter Shipbuilders, Yap Kroese, has said that unless he is one of these prime yards he is not going to tender for the work? That is what he has said publicly on Tyneside. Did he say that to you directly? Mr Coles: Not to me I do not think. Chairman: We do not want to go over that ground again because we have had that question before. Moving on to Main Gate, John Smith, you have got some questions. Q81 John Smith: The original target date for Main Gate was December 2003 and there have been a few target dates since. What is your current target date for Main Gate and what work will have to be completed to achieve that target? Following on from the earlier discussion are the negotiations with the French having an impact on this? Mr Coles: Let me take the last point concerning the French first. As there is no formal connection with the French that will not impact on anything because there is nothing we can say about it other than it may be. As to Main Gate, when it is will only be decided when we are confident that we have teased out the relationship between cost, performance and schedule. In other words, when those things are teased out and all joined up and the Alliance partners believe that they can deliver it, and have said so to their own boards - because one of the strengths of the Alliance is that partner companies have to convince their own boards that they can do this, to enter this particular approach - then will we go to Main Gate and confirm that we can deliver this capability with the budget in the time-frame. Therefore, we are not going to say when the main investment decision is going to be made. If we do that we force ourselves to make decisions when we have not derisked the programme, one of the clear tenets of Smart procurement. So I cannot say when, all I can say is it will be when we have teased out the issues. The issues will be can we deliver the capability for the solution offered for the risks and have our Alliance partners bought into this with the risk and reward that it gives, in CPD's view, coming in at the EP funding which we have got for this particular programme? Until we are there we are not going to say when we are going to Main Gate because if you do that you end up making decisions which are not based upon getting those three parameters in line. Q82 John Smith: I am a great believer in getting things right rather than rushing them, but no ball-park, no guesstimate? Mr Coles: I would be speculating if I said so. Q83 John Smith: Without going into the question of facilities? Mr Coles: No, I would not want to be drawn on anything further than that. Q84 John Smith: So there is no official target date for the main investment decision? Mr Coles: There will not be any official target date for the main investment decision until we are confident that we have teased out the risks, we have agreed on capability, the solution and the price, with our Alliance partners because in this particular case they have to sign up to it as well. It is not just Ministry of Defence, they have to say they can do it, and this time it is four companies doing it, not three, so it is quite a powerful discipline on the system. Q85 Chairman: In January of this year this Committee was told that the Main Gate decision is expected to be taken in the second half of 2005. Is that no longer the case? Mr Coles: The main investment decision I doubt very much will be taken in 2005. Q86 John Smith: A further question. In a previous meeting of the Defence Committee in November 2004 the First Sea Lord said: "We now have 60 per cent design definition, which is higher than any other project." As almost a year has lapsed now what is the current level of design definition of the programme? Mr Coles: The definition of design maturity used, and to which the First Sea Lord may be referring, is the definition about the ability to enter into what we call production engineering. It is not the design being complete. It is an assessment about whether the design is ready to enter into production engineering. If it was 60 per cent then, my judgment is it is not a great deal further on. It is a little further on but not a great deal further on because we have had some value engineering since then which has set it back a little bit. It is not a linear thing. In other words, you do not make six months' progress and you are five per cent on. It can take a long time to go from 60 to 70 to 80. In other words, it is not a linear thing. It can be a long time at the same number, if that is helpful. Q87 Mr Swayne: The First Sea Lord also said that the Navy had to have the first ship by 2012. Given that you have told us there is now no target for Main Gate, is he going to be disappointed? Mr Coles: He will only know that when ministers and others have signed up to the final main investment decision, whenever that is, so I cannot answer your question. Q88 Mr Swayne: Is delivery by 2012 still feasible? Mr Coles: It is still the target date for this programme, yes. Q89 Mr Swayne: So when would the Main Gate decision have had to be taken by to be consistent with the delivery of the first ship in 2012? Mr Coles: It does not follow that taking the main investment decision is linearly related to when the in-service date will be. You can be doing a lot of derisking in the assessment phase which actually makes the date you are going to deliver it more achievable. In other words, the main investment decision is when you commit your large resources. Q90 Mr Swayne: But that does not invalidate the question as to with what delivery date the decision on Main Gate is consistent. The question therefore remains: in order to deliver the ship by 2012 when will we have to have the Main Gate decision by? Mr Coles: They are not directly related. Mr Borrow: They have got to be. Mr Swayne: There has got to be a cut-off. Q91 Mr Breed: How long does it take to construct a ship? Mr Cameron: We are still in the assessment phase. Since last January, when you have quoted a couple of the remarks that were made, as my colleague has said earlier on, we have engaged 21 companies that are either shipyard or fabricators in this country. As Tony mentioned earlier on, that is now down to 16 companies who will participate some way or other in the fabrication and shipbuilding aspects of this project. There are 12 other major procurement suppliers that have been engaged since January on the project, suppliers such as Rolls-Royce for the propeller propulsion and ALSTEC for the weapons handling side of the project, so there is significant industrial engagement across the country taking place on the project and it is a very iterative process, as John just mentioned. However, we are making progress. Sometimes that progress does not have an impact directly on the detailed design or the design maturity, that number that you are talking about, but in other areas significant engagement is taking placed across the country. Q92 Chairman: Mr Coles, can I bring you back to the question that Desmond Swayne first asked which was because the First Sea Lord said that he was adamant that he wanted this ship in 2012, Desmond Swayne asked if it was still feasible and you said that that remained the target date. Mr Coles: Correct. Q93 Chairman: Which is a different answer to a question that had not been raised in that way. Mr Coles: Until the ship building strategy has been agreed, until we are sure we have the capacity and capability (with all the other constraints I have mentioned) actually nailed down and the Alliance partners have agreed to all that, I cannot confirm what date that would be. We can have a date that we are aiming for. We have to do our best to try and achieve it. We will only agree to the date, whatever that might be, once we go to the main investment decision. To do anything else would set an artificial date and lead to pressures in the system to make decisions in advance of teasing out the risks, which we want to avoid. Q94 Mr Jones: I hear what you are saying and you are very good at avoiding answers, but what advice are you giving to ministers about this then on that in-service date? Is 2012 still feasible? You must have an assessment. Mr Coles: I have a target date which is given to me which is 2012. Q95 Mr Jones: Politicians tend to pull figures and years and delivery dates out of the air. Is it feasible; yes or no? Mr Coles: The answer is I do not know yet because until we have made the Main Gate investment decision, I cannot answer the question. We are seeking to try and achieve it. Q96 Mr Havard: You told us the Main Gate investment decision was not necessarily consistent with the delivery date. You cannot have it both ways. Mr Coles: What I actually said was the data with which you go to Main Gate is not directly related - in other words, if you shift the Main Gate by six weeks it does not mean the ship is out six weeks later. That is what I am saying. They are not directly related. Q97 Mr Havard: They are. Mr Coles: They are related but not directly. Q98 Mr Hancock: Mr Coles, it is a shame that you were not with the Defence Committee when we had three presentations on this. The starting point for each of the presentations on this was the delivery dates to the Royal Navy of the carriers. That was the critical date - 2012 - and back from that there were a number of critical points on the graph presented to us on three separate occasions as milestones that had to be achieved for that date to be a feasible date, to use your words. We have already gone way past two of the milestones for that and yet you are still sitting there saying that, in your opinion, it is achievable. We were told by the then project leader of the carriers when they presented the case to this Committee that it was critical that these milestones were achieved and that there was a price to pay if any of them were missed for any reason, and the price if you wanted to keep the in-service date of the carrier was an increase in cost. It is a legitimate question for us to ask for you to re-examine the evidence that has already been given to this Committee and tell us whether you now believe that missing those milestones which you obviously have done, and your inability to be able to give us a Main Gate date is going to lead to a significant increase in the cost of this ship or the first ship is going to be very late in delivery to the Royal Navy. If that is the case, we should then ask what the contingencies are within the MoD for keeping the existing carriers in service for longer? Mr Coles: Well, I will examine what my predecessor has said and perhaps advise you because I do not have his words here of what he actually said. Q99 Mr Hancock: We had a graph. The critical points were all indicated to this Committee and they were crucially important for that delivery date. They were working on the assumption that they were not going to deviate from 2012. Too much hinged on it as far as the Navy was concerned. Mr Pryor: Could I comment and observe on a couple of those issues. I understand the question about this direct linkage with the Main Gate investment decision and the delivery date. This is an innovative working experience for us with the Ministry of Defence and an innovative working experience for the Ministry of Defence with us. It is an Alliance which in its nature is unique but it is designed that we are all of one mind to deliver an affordable carrier programme to the target date. That is what we want to do. As project managers we are looking at every which way we can do that. One aspect where I believe the Ministry of Defence has been criticised in the past is for spending too little time before the Main Gate decision. 15 per cent of assessment funds need to be spent - and we were talking about that - before a Main Gate decision. As a supplier, in the past I have seen Main Gate decisions taken too early when the risk has not been assessed. We, the industrial partners, with the Ministry of Defence are going to be sharing the risk in this and we want to get it right for our own companies and our own percentage risk in the overall deal, therefore we want to spend the assessment monies as recommended by the various bodies and get the investment decision right at the time we want to take it. My observation as to why there is not a fixed date for the investment decision and, as I think one of your colleagues said, if you can get it right it is better than getting it wrong earlier. That is what we want to do. We are still aiming to do everything we want to do to modify the programme and modify the strategy to meet the target date at an affordable budget. Chairman: We are now running really quite late. I am going to move on to the Whole Life Costs. Dai Havard? Q100 Mr Havard: We have been told that the MoD have indicated that the Whole Life costs were £31 billion, £12 billion of which was the acquisition. Is that acquisition figure totally related to the actual carrier? Mr Coles: No, I think the cost for the ship itself is quite a lot less than that, just over a quarter, if I remember correctly. Q101 Mr Havard: That is the proportion and the ship is about a quarter? Mr Coles: We are talking about the ship itself in terms of the cost and its true life cost is actually quite different. If my memory serves me correctly it is about a quarter of the cost or thereabouts to the ship as opposed to the aircraft and everything else that goes with this capability. Q102 Mr Havard: How much is the ship? Mr Coles: I seem to remember, as I said, it is about a quarter and I think we might have put it into the memorandum to you. Q103 Mr Havard: In terms of this calculation you have to deal with about Whole Life Costs, operating costs and all the rest of it, the Alliance did a 100-day review - and that was last March, as I understand it - at that point you said it was still financially viable? Mr Coles: Correct. Q104 Mr Havard: What I want to know is does that mean affordable within the costs that you have been given because there is potentially a difference between these two figures? There is a lot of slippery language about the place and I would like some clarity. Mr Coles: I will try. What the 100-day programme did was it looked at what the industry and ourselves thought this project should cost, and the outcome of that was that although we have yet to tease out the final costs, it can be made compatible with the funding that is available for this project. In other words, we think that the cost that we have in the assessment phase today, what we think this may cost, with some of the changes we would drive in through the Alliance arrangements can be brought in line with the available funding. That is what I mean by the term you used. Q105 Mr Havard: Within that, as I understand it, you give three figures, which are the lowest and the maximum and within it there is a "most likely" figure. You did that assessment after 100 days and it was last March you reported that. Where are we now? Is it still the case that it is still costing that? You have talked about your value engineering process and all the rest of it. I understand you have done that and driven down cost out of that, but that has meant changes in system design and all the rest of it. March to October - where are we now? Mr Geoghegan: What the 100-day committee did was it generated a common cost model so there is a single cost model for this project that is shared by all of the participants. Clearly that is based upon a number of assumptions that have to be validated over time. Clearly there is a range of potential outcomes around each of those. As the project progresses, and in particular as we get more detailed involvement with the shipyards around the ship build strategy and the individual cost inputs for the various sections of the ship, then we would be able to validate these specific aspects. In terms of our view of the cost model, it has not changed substantially since the end of the 100 days. Clearly there is still a long way to go and a lot of those assumptions have got to be tried out in great detail with the people who are going to have to commit to them. Q106 Mr Havard: So the whole envelope has not changed and the proportions within it have not changed, so it is still roughly a quarter for the cost of the ship, is it? Mr Coles: In terms of the overall capability of acquiring it, there is no substantial change. Chairman: Thank you very much indeed. We have various questions which we would have liked to ask you about the RAND Corporation report and suggestions arising from the RAND Corporation report but because of time I think it would be best if we write to you and ask if we could have a memorandum on that. Can I say thank you very much indeed, gentlemen, for your evidence to the Committee this morning. I suspect we may be seeing more of each other over the years, which will be an enormous pleasure. Witnesses: Mr Tim Burbage, Executive Vice President and General Manager F-35 JSF Program Lockheed Martin, Mr Steve Mogford, Chief Operating Officer, BAE Systems, members of Team Lockheed, the Prime Contractor, and Commodore Simon Henley MBE, RN Joint Combat Aircraft Integrated Project Team Leader, Ministry of Defence, examined. Q107 Chairman: I would like to welcome to the Committee Mr Tom Burbage, Executive Vice President and General Manager F-35 Program Lockheed Martin, Mr Steve Mogford, who is the Chief Operating Officer of BAE Systems, and also Commodore Simon Henley. We have a number of questions and I am going to leave it to you, if you do not mind, to decide who should answer these various questions. I wonder if you could begin by updating us on where we are with the Joint Fight Striker programme, how the United Kingdom programme fits with the United States programme, and if you could, in doing so, comment on the suggestion that the Short Take Off and Vertical Landing aspect of the programme has come under question in the United States. If that were the case, what would be the effects upon the British? Who would like to begin? Commodore Henley: If I can start, Chairman, and then I will pass to Tom to comment on the detailed parts of the programme. My job as a team leader in the way that the collaboration is set up for the joint combat aircraft is for me, effectively, to take the Joint Strike Fighter product from the US acquisition system and then integrate that into the UK. That involves a great deal of insight into the evolution and influence into the evolution of the Joint Strike Fighter programme in the US. We have people placed into the US programme to do that. It also then involves understanding what the UK environment is and ensuring that we can take that product and integrate it into the UK, in particular to integrate with our carriers, to integrate with our logistics systems, and to integrate with our command and control systems, so that we can actually operate the aircraft with other UK assets. We have been involved since the outset of the programme. We have been watching very carefully, with an announcement that we are intending to take the STOVL variant and fit that into our carriers to meet our timescales. We saw about two years ago weight growth in the STOVL aircraft which called into question its viability. We clearly were concerned about that, as were the US, and the US Marine Corps in particular, who are the other main customer for the STOVL variant. We have seen the programme take a pause and take a very good look at the design of the STOVL aircraft to take the weight back out and bring it back to a viable conclusion. At the current stage that work is being examined by the US Defense Acquisitions Board and is being reviews by the United Kingdom Investment Appraisal Board and we now believe that the STOVL is back in a viable position. There have been some added costs to the US to bring that about. The UK was in fact insulated from that increase in cost because our negotiations for involvement in the programme were on a fixed-cost basis. Perhaps for the detail I could hand over to Mr Burbage. Mr Burbage: Chairman, on the weight issue in the STOVL aeroplane there are probably two concerns that we have, one is technical and the other one is political, because the programme has been going through a quadrennial defence review back in Washington over the last few months, as you are well aware. On the technical side, as the Commodore said, I think we all feel that the weight is stable now and it has been stable for about 18 months. We have good margins to our performance requirements and we feel the aeroplane is on track. It is important to note that the first STOVL airplane is now in build. We have started the assembly of the central fuselage for that airplane and we expect to fly that in the summer of 2007. That is to the production completed regime with the structural changes that we used to eliminate the weight. We eliminated about 3,000 lbs of real weight from the airplane and we improved our propulsion efficiency by about 700 lbs, so there was a net result of about 3,700 lbs of improvement in the airplane. To the testimony of the US acquisitions system, they did allow us to pause and apply a large engineering team to the project, fix the design, make everything viable again and then re-baseline the programme. That re-baselining of the programme was where the additional cost came in. I will mention, though, that we carry our cost as a total programme cost, both development and production, and as we went through the weight redesign we shifted our production programme one year to the right and those residual production dollars were then transferred in to cover the cost of the redesign. So on the bottom line there were no additional dollars handed into the JSF project line. It came out of reshuffling dollars between production and research and development. On the political side we have a quadrennial review process going on now every four years. Congress directs the Secretary of Defense to conduct a detailed review on the alignment of the defence budgets with future strategies. As part of that process every option in the book has been discussed and JFS is a big part of our future budget going forward so, as you might guess, it is a large part of that debate. There have been a number of different options looked at and our best sense right now is that the project is doing quite well in the end game. The results of that are not known yet and they will be reviewed through our Deputy Secretary of Defense up to Secretary Rumsfeld probably by the end of this month or mid-month in November. So we should have a confirmation of that in the very near future. Q108 Chairman: Confirmation of whether the STOVL variant is going ahead in the United States or not? Mr Burbage: I have heard nothing threatening the STOVL version at all lately. The other two variants have been debated but our sense of the situation right now is that all three variants will be carried forward. Q109 Chairman: Thank you. Would a British STOVL version be the same as a United States STOVL version in all respects? Mr Burbage: The UK and the United States co-signed the operational requirements document (the ORD) prior to the contract's award and the UK was part of the decision process that selected our team to build the airplane. The airplanes are identical. Q110 Chairman: Including in their Stealth characteristics? Mr Burbage: Yes. I should defer that to the Commodore. Do you want to comment on that? Commodore Henley: I have nothing to add. Q111 Mr Havard: They are the same Stealth-type characteristics or two different types of Stealth characteristic? Mr Burbage: At the risk of getting technical, Stealth is designed into the airplane in terms of its shape. In terms of its characteristics they are based on the shape of the airplane. The rest of it comes from other techniques, either codings or management of emissions, and we are not building two different airplanes. Q112 Chairman: What about the international partner version, the version that was designed, I think, in 2003 in relation to having as many common characteristics with the United States aircraft as possible for sale outside? Are there any differences in that version? There must be presumably if it has got a different name? Mr Burbage: If we go back to the way the programme was constructed, the programme was constructed to be a US/UK combined programme. At the contract award we had no other international partners, just the UK. Subsequent to contract award a government-to-government invitation was extended to a number of other allied countries. Those countries were allowed to participate in the development project and in so doing were allowed to participate industrially also. Those countries now bring their unique requirements into the project and we will deliver airplanes that are responsive to their operational requirements, within the guidelines of the US national exposure policy. The rest of that is strictly government-to-government, it has nothing to do with the industry side. Q113 Chairman: Okay. With many apologies I will repeat one question just for final confirmation. The US and UK STOVL versions will be identical in all respects, particularly in their Stealth characteristics. Is that correct? Commodore Henley: Could I say I think we can only answer that by saying they share the same requirements. Mr Hancock: That is not an answer, is it. That is unfair to us. Chairman: It is an answer to the question but it is not a complete answer to the question. Q114 Robert Key: May I ask in what respects they are different aircraft? Commodore Henley: I am not aware that they are different in any respect. Q115 Robert Key: But they are not the same? Commodore Henley: I think I answered that by saying I am not aware that they are different in any respect. I am aware of what the United Kingdom has demanded of this aircraft and I am aware that the aircraft that we are buying meets that requirement. Q116 Robert Key: But the requirement is identical because you said the British and American Government signed a document jointly. Commodore Henley: Correct. Q117 Robert Key: So in what respects are they not the same? Commodore Henley: And I said, I am not aware that they are different in any respect. Q118 Mr Hancock: They have a different capability because they are going to do different things. The United States Marine Corps will not fly the plane in the same operational states as the Royal Navy will fly it. So there are different capabilities. We are asking whether the plane itself, the product, is identical when it leaves the factory before it is customised to suit the use? Mr Burbage: I would argue they are not being built to different capabilities. There was a common requirement constructed by the UK and US together. That common requirement is what we measure the airplane against and deliver the airplane against. There are some differences in UK weapons and US weapons. Robert Key: That is fair enough. Q119 Mr Havard: Can I just apologise for jumping in earlier with a question. You said 70 per cent of Stealth is built into the shape of the thing. What we are trying to tease out from you is that other remaining 30 per cent. Is it then the case you might strap different Stealth things into it after the event than the British might? Is that what we are talking about? Is that why it is different? Mr Burbage: No sir, we do not strap anything into the airplane. Q120 Mr Havard: If the (?) get hold of it, they will. Mr Burbage: The plane is designed to a set of requirements. The requirements are identical for the US and the UK. Chairman: One of the important issues of the aircraft is the technology of the whole thing, not least the Stealth technology. I wonder if we could move on to general information sharing. Kevan Jones? Q121 Mr Jones: Can I say, no, they are not the same and the reason why they are not the same links into this question about information sharing. One of the great concerns that I have got, and I think a lot of people have got, is whether or not this is a completely joint project in terms of information sharing. It is not just members of this Committee but also the Air Chief Marshal, Sir Jock Stirrup, who in Aviation Weekly of 11 July this year, said, "There is clearly a growing urgency in addressing technology access and the related ability of independent support of the aircraft. Whilst Stirrup remained optimistic that the outstanding areas can be satisfactorily addressed, any indication that this is not going to be achieved will result in the UK having to think pretty hard". I was in Washington at the end of July meeting congressmen and also Lockheed and BAE Systems. From BAE Systems' point of view there is a clear problem here. The answer to your question is that they are not same aircraft because there are aspects to the American aircraft which we have not got access to at the moment because of technology transfer issues, even though we have quite happily transferred technology on, for example, Rolls-Royce engines to the US. Where are we at with this? Clearly there will be a groundswell of opinion including from Jock Stirrup, and I for one will be arguing and saying if these points are not addressed I cannot understand why we are buying this aircraft. Commodore Henley: We have a policy of progressive release of information and progressive understanding. We have an agreement signed between the US and the UK at Secretary of State level called "exchange of letters" which lays out the UK's need to be able to operate this aircraft in a sovereign capability when the aircraft is in service. That is clearly a shared aim between the US and UK and what we have in place is a strategy to turn that from a high-level agreement into the individual technology licences that transfer that piece of information. Q122 Mr Jones: But how are you going to do that? Commodore Henley: We have defined the capabilities that we will require in the UK - and maintenance, repair and upgrade is but one of those - and we understand the technologies that will be needed to underpin that capability. We need to have those under sovereign control. They could either be in government or in the hands of US industry under direct contract with us or they could be in the UK industrial base. We are working with the US Government to understand exactly where that will lie. Mr Jones: The problem, with the greatest of respect, is not the US Government. It is the actual Hill who, frankly, will not agree to the transfer of this technology. Having met some of my counterparts on the Hill, including my dear friend Congressman Hunter, there is no way that this agreement between two governments is going to get through Congress. I say first as a UK taxpayer why should we go into a joint project if we are not going to have people able to access to upgrade. I think it is going to get to the point soon in this country where I will be saying, and I think other people will be saying, why are we going to procure this aircraft if the Americans do not trust us on basic technology. On the stealth phase which is something Mr Key raised, it is quite clear, they are not identical aircraft. Q123 Chairman: I think the Commodore should be allowed to answer that and then John Smith. Commodore Henley: I have to bow to your superior knowledge on the Stealth characteristics because I am not aware --- Q124 Mr Jones: It was Lockheed who were briefing me when I was in Washington. Commodore Henley: I think it would be into the realms of speculation as to where we may get. We have made considerable progression with technology exchange. We have laid out to the US Government the path that we needed to follow and we are making progress along that path. Beyond that we are in negotiation with the US to achieve our aims. Q125 Mr Jones: I do not question your commitment from a UK point of view but let me quote Jock Stirrup again. He "remains optimistic that outstanding areas can be satisfactorily resolved. Any indication that this is not going to be achieved would result in the UK having to think pretty hard." When are we going to have to start thinking pretty hard on this because, frankly, I came away from Washington in July pretty depressed that any movement had been made on this? If it is not, not only us as a Committee but other people perhaps who have got interests in other aircraft types should be saying to the UK Government, clearly if we do not have access to this on a joint basis why should the UK procure this aircraft? I agree with the Air Chief Marshal on this. Commodore Henley: And I brief the Air Chief Marshal fairly regularly. Significant progress has been made. Q126 Mr Jones: He looks not very happy. Commodore Henley: And we have set ourselves some milestones in the future, points at which we measure that achievement and take a judgment. Right now we are making progress and we have made progress in the last few months. The US understand what it is we have to deliver and we are making progress along the line towards delivering it. Q127 John Smith: To help us a bit could you tell us how many requests for technical licences have been requested? How many of those requests have been approved and have we received all the technical information we require from those requests? Commodore Henley: The progress to date on work that has been contracted to be done in the UK on behalf of JSF - and at the moment because we are in a development programme that is what the licence has been there to support - the programme has not been held up for the want of a licence and the subsequent transfer of technology. The issue that is being talked about here is looking ahead into the future as to what is the UK's capability to support this aircraft on sovereign operations. The US licensing process has a time limit issue to it. They will transfer information when it is required. Each individual piece of information has to be defined what that information is, why you need it and when you need it. There is therefore a timeliness issue that we are not going to have this aircraft in service in the United Kingdom before 2012, therefore why do we need the technology transfer now? That is precisely the issue that we have tried to tackle with the exchange of letters, laying out the requirements we have for the aircraft in service, understanding the technology we need to support that and then looking for indications that we are going to get the transfer when we need it. Q128 Mr Borrow: I think we do need to probe specifically about these licences because in every briefing that I have had with BAE Systems over the last 12 months this question of technology transfer has been at the heart of those discussions and the failure of that technology to be transferred. Saying there is a system where it will be transferred when it is needed is not really the answer. What I want to know is, following up John Smith's question, how many requests for information have been made, how many of those requests have been acceded to and on how many occasions when requests have been acceded to has all the information requested been transferred and on how many occasions has inadequate information been transferred. I want the actual figures. If you cannot give those figures now can you make sure --- Commodore Henley: We will certainly be able to give you a note on the number of licences that have been processed and passed through. Could I ask Steve to pick that up. Mr Mogford: I think from a BAE Systems' perspective to put it in context, normally when you are dealing with technology assistance agreements like this it tends to be very much on a single issue basis. As Commodore Henley said, with the Joint Strike Fighter programme we have had a progressive succession of licence applications which increase access to technology. I think we would have to give you a note on the specific details on all of the applications for requests there, but generically we have had something like nine series of applications as we have gone through the programme and Commodore Henley is quite correct when he says, as of today, we have had approvals for release of information which allows us to meet the contract obligations. I think also as Commodore Henley said, because we have been testing the system through this progressive stretching of the envelope we have caused the system in the States to be tested in terms of speed of response, but it is fair to say that as of today we have all of the approvals we need to meet the contract. Q129 Mr Borrow: Could I just follow up on that. This is not so much the technology needed to construct the plane now but the technology that will be required for maintenance and possible upgrades. Evidence was given earlier on that decisions had not been made as to how that technology would be available for the UK and whether it would be within the MoD, within a UK company or whether it would remain within a US company contracted to the UK. I would be interested in your comments on my observation that it would go down very badly amongst those constituents of mine who work for BAE Systems if that technology were to remain within a US company and they were not to be allowed to have that technology to be in a position to maintain and upgrade the aircraft in the future. Commodore Henley: If I could perhaps lead off with the response to that, Mr Borrow. We are buying into this programme in a large way to provide an affordable solution for the UK's future needs and part of that affordable solution means that we want to be part of a 3,000-odd aircraft run, not have 150 one-offs in the UK. That means we intend to stay in the joint common configuration with all nations throughout, which means staying as part of the partnership we have at the moment. Therefore, the need for sovereign capability for the UK in the first place falls on the shoulders of Lockheed Martin as the prime for Team JSF. BAE Systems are clearly part of that partnership and are ideally placed then to act as the UK front end of Lockheed Martin's provision of support in the UK. We are in negotiation with both companies at the moment and the US Government to bring that partnership to fruition. How that ends up in terms of the division between government and industry and then the way JSF plays that out between their partner industries is still in negotiation. Q130 John Smith: Chairman, this is pretty fundamental stuff. I can understand the answers regarding the timeliness of technology transfer, as and when it is needed so it does not delay the project unduly. We do not want to see that; we want to see the in-service date met. However, operational sovereignty sounds pretty fundamental to me and not only the employees in BAE Systems, as my colleague rightly pointed out, but also the taxpayers of Britain are clearly going to be concerned. I have to tell you I am concerned if there is any question mark whatsoever over the operational sovereignty and independence we have on the second largest aircraft procurement project in the next decade. I would have thought this was something that should be resolved fairly early on because it will be too damn late when these aircraft are delivered or are in need of upgrade or major overhaul or indeed front-line maintenance and we are not in a position to maintain them. It strikes me as fairly fundamental. Commodore Henley: Mr Smith, I do not think my position would be any different from yours, not least because I wear a uniform and I am responsible for and have been responsible in the past for putting people into these aeroplanes and sending them out. I do not think anybody would say we are going soft or being soft on this approach. We have a strategy in place. I think Mr Burbage would probably turn round and say we have been extremely aggressive. We have some measures of success that we are measuring ourselves against to ensure that we are content with where we are going. That is precisely the briefing and where the Chief of the Airforce is coming from. Q131 Mr Havard: I have a technical question about the matrix. The Ministry of Defence are saying you are doing this exchange of letters process and that you will jointly develop a UK/US technology matrix which sets this out in a very detailed letter. Is that a one-off shop and is it closed or is it going to be able to continue to be developed as you go, because if it cannot be then clearly these questions about future technology are a closed issue and the concern from us about protectionism from America, call it what you like (and I can go into the political invective if you like) is a question of confidence as to whether that is an open process or whether it is closed. Is the matrix now developed and shut or is that the vehicle you are going to use in order to continue for that to be an open process? Commodore Henley: The technology matrix is in place now and it is the vehicle around which we are conducting discussions at the moment. I do not regard it as closed because, as you say, the nature of the aircraft will change and the technology will change but it is right now the area where we have been able to reduce ourselves, if that is the right word, to a level of detail that allows genuine discussion to take place. When you are up at the high level it is quite easy to get promises; it is harder to see whether you are going to get real delivery. That is why we spend a great deal of time breaking this down into individual technologies and saying, okay, against this technology are we going to be able to get transfer? We have got to the level where we have been able to discuss at a technology level what the issues are that get in the way when the first look is, no, we are not very happy about that. We are making progress on identifying the stoppers to those technologies and then finding ways to work round those stoppers to get us to the capability that we need. I cannot understate the fact that sovereign capability for this aircraft is the most important aspect. Q132 Mr Havard: You have removed all the stoppers where they have popped up, have you? Commodore Henley: Not all to date but we are working on it and we have made significant progress. Chairman: We regard information sharing as absolutely central to this programme and we will be holding your feet to the fire and I hope you will be holding others' feet to the fire on this very important issue over the next few years. Moving on to production and support for the aircraft, Mike Hancock? Q133 Mr Hancock: Can I ask about the negotiations that are going on at the present time, which we were led to believe are taking place, with regard to the production and sustainment phases of the Fighter. How sure are we that we are going to meet the dates you gave for December 2006 for a memorandum to be signed on that? Commodore Henley: The memorandum that is under negotiation at the moment is a nine-nation memorandum and the time-line for it is driven by the US requirement to have the partner nations on board before the US Government then commits to the first low-rate initial production phase. Their commitment is roughly January 2007 and therefore the target date for negotiations is December 2006. We have had two formal negotiation sessions to date and at the moment there are no indications that we will not meet that 2006 time-line. Q134 Mr Hancock: You must have done a risk analysis of what the risk would be if that date was not met regarding the UK's capability. Commodore Henley: It depends on what the knock-on effect is into the US programme. If the US decided that the nations had not signed up but they would still authorise the first batch of low-rate initial production aircraft, which are only US aircraft, then the impact on us would be small. If it then knocked on to the whole programme then there would be clear implications for us. Q135 Mr Hancock: If the US do not get all the partners on board, what are the implications for us? Not having a plane? Mr Burbage: The UK airplane is the same as the US Marine Corps airplane. The only partner that is even looking at a STOVL airplane today is Italy and that is about 18 airplanes so they are very minor player in the STOVL configuration. The partners represent a block of airplanes that potentially could be between 600 and 700 aeroplanes for all seven of the partner countries, not counting the US and the UK. The US buy alone is of the order of about 2,500 airplanes so on a relative scale it is about a third as between the US and UK airplanes, so it is significant in terms of fly away cost, in terms of annual production rates and total quantities, but it really is not significant to the configuration or to the early production lots. The first two lots are US only. The third production lot is when the UK planes enter. There are a couple of international test airplanes in the third and fourth lots. The rest of the international airplanes are further out. Q136 Mr Hancock: It will not have an effect. So what can the UK expect to have in the way of build work and maintenance on these aircraft? Mr Burbage: This gets down to trying to capitalise on the economies of commonality and scale. There is going to be a global support solution in place to maintain --- Q137 Mr Hancock: So we might repair the American Marine Corps aeroplanes? Mr Burbage: Quite possibly yes, sir. Q138 Mr Hancock: You answer the question. Mr Burbage: The plan is to put in an affordable and efficient support structure. Where partner countries want to have additional capability to that, that comes at their cost. Remember, the US/UK is part of a baseline programme so if additional international partners want to add to infrastructure that comes at their cost if it is not part of the baseline. Q139 Mr Hancock: But we are the only level 1 partner you have got so we must be entitled as of right to part of the build and some guarantee of the maintenance, surely? What are British taxpayers getting out of this? Commodore Henley: This is not a work-share programme. One of the things Joint Strike Fighter did to break the cost spiral of future aircraft was to say we would not be entering on the basis of work share. What we get for our level 1 partnership is that the UK requirements are embodied in the major contract. What we have got into the UK is because of the competitiveness, particularly of BAE Systems but other companies as well notably Rolls-Royce and Smith's, a significant amount of work, not on a work-share basis but on a global best value basis. They have been the best companies to deliver that into the programme. The result is to date for development and the low-rate initial production runs the UK is getting about $6.75 billion-worth of work back for our $2 billion investment. Q140 Mr Hancock: Does this agreement allow these planes that will be acquired solely by the UK to be wholly maintained in the UK? Commodore Henley: We intend to maintain the aircraft at whole aircraft level, ie at the aeroplane level in the UK. It would be pointless and very expensive to set up the entire supply chain in the UK, so where the manufacturer of a particular component is somewhere other than the UK and the reliability is such that we do not have a great deal of through-put we are not intending specifically in the UK to pick that up. So it is a value-for-money case. Mr Burbage: It might be important to add that the STOVL lift is done by Rolls-Royce, the cockpit ejection seat is done by Martin Baker, and the flight equipment is done by Beaufort. There is a large part of this airplane that will be done in the UK and those suppliers will be the lifetime maintainers of the equipment they provide. Chairman: We will now move on to the weight reduction as you have already mentioned. Robert Key? Q141 Robert Key: Now the decision has been taken to change the bring-back of the characteristics of the aircraft and the reduction in weight will be achieved by having one 1,000 lb bomb not 'two; does that have an impact on the operational performance of the aircraft? Commodore Henley: The requirement for the UK, if I could just clarify is actually one 1,000 lb bomb either side. The original requirement for the UK was just that. There was never a requirement for the UK aircraft (and the requirement document laid it out) that we would have a 1,000 lb weapon either side so we could carry two 1,000 lb bombs. At one stage in the programme we believed that we had enough spare capacity in the STOVL aircraft to move towards a common weapons bay with the other variants, which has a 2,000 lb capacity weapon bay. That is not the same as saying you can fit two 1,000 lb bombs. It means you can fit a single 2,000 lb class weapon. The UK does not have any 2,000 lb class weapons in its inventory, which is why a 1,000 lb class weapon was being deemed suitable. As part of the weight reduction studies we did we reverted to the original design and therefore, no, there has been no impact on the UK requirements of that change. Q142 Robert Key: But a reduction in the size of the bomb bay implies that you are going to put the 1,000 lb bomb in the bomb bay, so that is how you achieved your reduction in weight, or one of the ways? Commodore Henley: No, the 1,000 lb weaponry was always going to go in the bomb bay. What we have done is to shrink the weapons bay in the aeroplane which has freed up space in the aeroplane to put other equipment and we have redistributed it so that we could get a more efficient design into the aircraft and that in turn knocks on with the weight issue. Q143 Robert Key: So are there any more risks that you are anticipating you are going to have to tackle? Commodore Henley: There are risks out there and it would be foolish at this stage in the development programme to say there are not. Clearly we are keeping a very good eye on the propulsion of the lift system. We do have engines up and running. We have got over 3,500 hours of testing under our belts now on the engine, and we have roughly 500 hours on the STOVL propulsion system, so we know we can run the whole system. We need to understand what happens when you store that in the aircraft. Some of those tests are coming out. There is still the risk that aircraft do grow in development as you find things. That is what development is about. You have to add bits back into the aircraft. We have an allowance for that weight growth which is based on historic norms and with this programme with the waste management that is in place already we expect to stay well within those norms and right now our target is based around expecting those norms. If something, though, came out of the woodwork that we were not expecting, clearly that is still a risk. We have very good UK Government experts based in the key areas of the programme in the US to understand those risks. Q144 Robert Key: Commodore, will the UK be acquiring an aircraft that meets all the Key User Requirements? Commodore Henley: At the moment we do not anticipate any difficulty with meeting Key User Requirements. That one that is under threat, which we set in the first place, was the 450-foot ski-jump launch with a full weapon load. At the moment we are close to that but with the current CVS design that does not impact on the operability of the aircraft. That requirement was set some time back before we knew what the CVS design looked like. Robert Key: Thank you, Commodore. Q145 Mr Hancock: Does the weight reduction and keeping the weapon level to a useable size mean that the range of the aircraft is reduced because you are taking fuel capacity out of the aircraft, in other words you reduce the weight so you do not need so much fuel. These aircraft are flying out of aircraft carriers and they might have some distance to fly and return safely, so I want to know if the weight shift has downgraded the capability of the aircraft to deliver what we want? Commodore Henley: The whole of the weight reduction process was taking a holistic view as to all the requirements of the aircraft. There is a Key User Requirement to set a minimum range for the aircraft. As we took the weight out of the aircraft and occasionally we impacted on fuel volume then we looked at other ways of getting that fuel volume back in. You can do things such as reduce drag on the aircraft which means you need less fuel to go the same distance. With an aircraft of this sort of design and with the design capabilities that are inherent in the modern design process, then you can play tunes, if you like. What we have ended up with at the end of the weight reduction process is a balanced design that meets our main requirements and gives us our required payload and bring back payload. Chairman: Thank you very much indeed. Thank you for all the evidence you have given us this morning. Once again, this is something on which we will definitely need to come back to you but we are most grateful to you. |