UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 554-ii

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

DEFENCE COMMITTEE

 

 

FUTURE CARRIER AND JOINT COMBAT AIRCRAFT PROGRAMMES

 

 

Tuesday 25 October 2005

LORD DRAYSON and SIR PETER SPENCER KCB ADC

Evidence heard in Public Questions 146 - 247

 

 

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Oral Evidence

Taken before the Defence Committee

on Tuesday 25 October 2005

Members present

Mr James Arbuthnot, in the Chair

Mr David S Borrow

Mr Colin Breed

Mr Derek Conway

Mr David Crausby

Linda Gilroy

Mr David Hamilton

Mr Mike Hancock

Mr Dai Havard

Mr Kevan Jones

Robert Key

John Smith

Mr Desmond Swayne

________________

Memoranda submitted by Ministry of Defence

 

Examination of Witnesses

 

Witnesses: Lord Drayson, a Member of the House of Lords, Minister for Defence Procurement, and Sir Peter Spencer KCB ADC, Chief of Defence Procurement, Ministry of Defence, examined.

Q146 Chairman: May I welcome everyone to the Committee and begin by apologising for the space constraints. One of the problems has been that the Committee itself has increased from 11 to 14, which means that this end has got bigger and you have been squeezed and I apologise for that. The rooms in Portcullis House are themselves rather over‑subscribed, but we will try and address this as we go through the next few weeks. Minister and CDP, welcome to the Committee. It is very good to see you. We took some evidence last week from the industrial partners on the Carrier and the Joint Strike Fighter. I wonder whether we could possibly begin by focusing on the Main Gate decision that will decide when the investment decision is going to be made. In the beginning there may be other issues that you wish to cover, but I would like our questions to be as brief as possible and I would also like that your answers could be as succinct as possible, although from time to time you will need to go into detail. The original target we were told was December 2003 for the Main Gate decision. In January this year this Committee was told that the Main Gate decision was expected to be taken in the second half of 2005. Last week we were told that there was no current expectation of when that Main Gate decision was going to be taken but that it was unlikely to be this year. What target date for a Main Gate decision are you working towards? Do you actually have a target date?

Lord Drayson: Chairman, what I have is a clear appreciation of the importance with a project as complex and as far reaching in its implications for the maritime industry in this country that the Main Gate decision is taken when we really do know with confidence the risks that are involved in building these carriers and, importantly, the implications and the way in which these carriers are built for the longer‑term situation on shipbuilding. Given the intimate relationship between the building of these Carriers and the future capacity which we have in this country, the interaction between this Carrier project and our other shipbuilding projects, it is so important that when we pass the Main Gate investment decision we have got clarity over the timescale and cost and the risks. What I am doing as Minister in coming in to this Department is to ensure that that decision, when taken, does properly determine the answers to those questions, which can then give us confidence on the long-term delivery, cost and performance of these ships when built.

Q147 Chairman: Would you say that you had no target date?

Lord Drayson: My view is that the ideal would be for this Main Gate decision to be taken as soon as possible, subject to it meeting the criteria which I have described. I do not want to see the Main Gate decision taken before we have the answers to these questions to a level of confidence which means that the answers to questions on cost and time and risk are really understood.

Q148 Chairman: So from the sound of things, if I may delicately press you, the answer is yes, you would say that there is no target date as such. There is a target of clarity that you need rather than a target date.

Lord Drayson: In my experience of managing projects over 20-odd years it is very important that the disciplines that any organisation uses to manage projects are clear and set out the principles under which decisions will be taken to commit to projects and the level of risk that in this case the Ministry of Defence takes in doing so. I think I would want to say very firmly to the Committee that I am looking to see this decision being taken as soon as possible. The reasons for that are the fundamental importance of the Carrier projects to our Forces in the defence strategy which we have set out in the Strategic Defence Review and the equally great importance of this project to the shipbuilding industry in this country. I am well aware that the sooner we make the decision on the Carriers the better for both the Navy and for the shipbuilding industry. However, this decision to go through Main Gate must be taken when we are clear about the answers to these questions. The reason why in this particular project this is challenging is because these ships are so large that they will involve multiple shipyards to build them. They will also involve multiple industrial companies who own these shipyards working together in a way which has never been done before in this country. If we do this right we have a real opportunity to help the shipbuilding industry in this country to evolve in a direction which will be suitable for the long-term needs of this country and to be globally competitive. The importance of getting this interaction between the Carrier project and our long-term Maritime Industrial Strategy is key.

Q149 Chairman: But all of this was true in January of this year when we had a target date.

Lord Drayson: That is absolutely right. I am committed to making sure that as much effort as possible is put into reaching this Main Gate decision, subject to it meeting the criteria which I wish to see that this Main Gate decision fulfils in the context of the long-term strategy which we have to have for the maritime industry in the UK.

Q150 Chairman: What has changed since January of this year, not in terms that you have changed the target date but that we no longer have one? What is the main factor that has caused the delay in the Main Gate decision?

Lord Drayson: We are working towards meeting our Main Gate as quickly as possible. What we are also doing is really grasping the nettle of building these Carriers in a way which will facilitate the long-term health of this industry. What has happened since January is that as we have worked on the Alliance structure for these Carrier projects we are building the prototype for the long-term structure of shipbuilding in this country. If we get this Carrier project right we will put shipbuilding on a strong footing for the evolution in the future. What has changed this year is a lot of work has gone in to understanding the characteristics of the changes that have to take place both within the industry itself and in terms of the engineering challenges of building these ships. Because we are going through an Alliance approach - and I would be happy to explain to the Committee if you wish more details about this - we are asking the potential participants, ie the companies coming into this Alliance, to sign up to a commitment in terms of the cost, risk and timescale in a way that has not been done before. A lot of the work which in the past would have been done later in a project is being done now and has been taking place over this year. I can appreciate the concern that it seems that failure to pass a Main Gate seems that the project is being delayed. However, I feel that this approach is in the long-term interests of this project, the long-term interests of the Navy and of getting the industry to reshape in a way which will be healthy for us over the next 20 years.

Q151 Mr Jones: I am a bit confused by last week's answer. In last week's evidence Mr Coles said, "I have a target date which was given to me which is 2012." How rigid is that? You are saying you want to fit into an overall maritime strategy, which I agree with. If this is delayed much longer some of that capacity is going to go bust, is it not?

Lord Drayson: As I have said, I absolutely recognise the fundamental importance of these Carriers to the Navy in the future and I understand the importance in terms of timing. I note the target dates the Department has set itself in the past. However, as Minister I reserve the right to set the in-service date of these ships once these Main Gate decisions have been properly bottomed out. I think it is important for the long-term development of our industrial base and projects such as these that we have really clear disciplines about things such as in-service dates, costs of projects and that we make sure the principles which we have set for the Department in terms of making sure that enough investment goes into the assessment of these projects - and the guidance is well established, it is up to 15 per cent - is met.

Q152 Mr Jones: I see this as very significant and well done to you. I think we should put up a plaque up in this room to acknowledge that someone at the MoD has admitted that these were fictitious figures for in-service dates we have had in the past. I am not sure whether you will last very long in the MoD if you continue to do this.

Lord Drayson: My experience in business in terms of management of projects is that the only way to manage projects successfully is to set out a framework that people who are managing those projects understand and also that the people who are relying on those projects to be delivered, the Defence Committee, understand and that that in the long term is stuck to. Then we have a framework which, in terms of accountability, in terms of the interface of all of these projects to the successful defence of their country, can be managed as well as possible. This discipline is not something which I am introducing from scratch. This is building upon a lot of work which has been done in the past and I think that we are making some significant progress within the Department. I will give you one clear example of that. It has been recognised for some time in the Department that the lack of a clear Defence Industrial Strategy has dogged our ability to make decisions on projects within an overall framework. This has been worked on within the Department for some considerable time.

Q153 Chairman: I think as a Committee we will probably need to come back to you in relation to the Defence Industrial Strategy, Minister, because that is such a large subject that we could well move on to that and spend the rest of the morning on that.

Lord Drayson: Within the Defence Industrial Strategy, which I have committed to deliver by Christmas, it will have the Maritime Industrial Strategy. The Maritime Industrial Strategy has to dovetail with the Carrier project because the Carrier project is so important.

Q154 Linda Gilroy: Minister, Kevan has just referred to the worries that I think are in a lot of shipyards about retention problems the longer the delay and the uncertainty goes on. In the March 2004 RAND report which your Department commissioned on "The United Kingdom's Naval Shipbuilding Industrial Base - the next fifteen years", years they noted that it was going to be busier for naval shipbuilding than has been seen recently. Indeed, I think they said that the current shipbuilding plan of the MoD will be a challenge to the industry resources available in the UK and the overlap of several programmes in the next few years will result in a high demand for labour and facilities and that any potential shortfalls could result in cost increases and unscheduled delays. I wonder if you can share with the Committee what your current assessment is of whether the UK industry has the resources and if there are specific gaps which relate to what you were just saying and what we are looking at in terms of the on-going delays in coming to the Main Gate decision.

Lord Drayson: I believe the answer is the work which has been done over the past year on the Carrier project. In the context of all of the other projects which we are doing now and which we envisage doing in future, you are absolutely right to say that the level of war shipbuilding that this country is planning to undertake over the next ten years is the greatest which has been seen for a very long time. These two Carriers will be the largest ships we have ever built. What this means is that there is a challenge to make sure that the way the capacity is used of the whole programme is done in an efficient manner from two respects. We need to make sure that we find a new way of getting different yards within the country to work together such that the resources are pooled to enable more things to be done at once as we will require, but we also need to see that the yards make investments to improve the overall standard of efficiency and skills in the long term, such that at the end of these we have an industry which is more efficient and more effective than it is now. I think we have a tremendous opportunity if we get this right to encourage the industry, in the context of a long-term framework setting out the interfaces between these different projects, to make investment decisions. That requires the MoD to stick to a plan and to be more open about a long-term plan than it has hitherto been able to do. It also requires industry to step up to that challenge and to make the investment in skills and capital equipment to deliver the cost savings which we need to see over the long term to maintain an efficient war shipbuilding capacity in this country.

Q155 Linda Gilroy: The RAND report referred to huge spikes in demand for certain types of skill and also for a capacity starting within the next year or two and running on to 2016. I hear what you say about perhaps this having long-term consequences for how we do shipbuilding in the UK, but how can you both plan for the long term and also ensure that for this particular project we are capable of meeting the peaks in the demand for certain skills where there are gaps? What discussions have you had with the Sector Skills Council to feed into the Defence Industrial Strategy announcement which you are going to be making later this year?

Lord Drayson: It is clear that we will need to increase capacity in certain areas. What we will have to do is make sure that we make the best use of the capacity which we already have distributed around yards that we have in the country and make sure that we use the best facilities. What we are looking to do, as one person described it to me, is to put together a 'fantasy football team' of resources to be able to deliver these projects. That is a good way of thinking about it. What would be wrong would be for us not to plan this properly such that we increase capacity in short-term peaks but which was not sustainable in the long term. What we need to see is that we put together a framework which meets the requirements in the short term and which is sustainable in the long term.

Q156 Linda Gilroy: Are you confident that industry can respond to that over the period of the Carrier programme given that the report said there are certain points at which the demands of the Carrier programme and the MARS programme will require up to a doubling in certain very specific skills gaps that appear to exist at the moment?

Lord Drayson: We should not under-estimate the challenge that this presents not just to industry but also to the Ministry of Defence. That is why it is very important that this Alliance approach which is taken on the Carrier project does work and it is important that the way in which the participants, the companies and the MoD sign up to this is on the basis that this is going to be the structure under which this transformation is going to take place. It is going to be difficult for us to do this because these are companies which normally compete and they compete hammer and tongs very successfully. In the Department over the last six months I have seen that there is a realisation across the industry. I have had many discussions both with industry and with the unions when I have been to yards and talked to people at different levels within the yards. There is a realisation that things have to change and I think that that gives me the greatest level of confidence that we will be able to do this.

Q157 Mr Hancock: In your introductory remarks to the question the Chairman asked on the Main Gate you suggested that part of the delay was about bottoming out the risks and fully understanding what the risks were in this contract. I would be interested to know whether to date you are satisfied that you can overcome those risks in the foreseeable future, ie in the next three or four months, and that all of the risks can be overcome by using only British industry?

Lord Drayson: I would just add one further point. It is not only that we identify what these risks are but that we agree who is taking responsibility for making sure these risks do not actually materialise and that is the hard thing. In the past, with more conventional structures which have been put in place, it has not been clear as to where the risk has come down in the end. What we are aiming to do here is to set up a structure whereby a lot of work is done upfront to identify these risks and then to set responsibility for meeting them but within a general principle that the success of the Alliance is down to the whole team being successful in meeting those risks and not just passing the buck around within the team. That is important to get right. In terms of my level of confidence, I can answer that question to the Committee with confidence when I have signed off on the Main Gate decision. I am encouraged by the amount of effort and commitment that have been shown both by the MoD and by industry to really work on this. There is more work that needs to be done. We are not there yet.

Q158 Mr Hancock: Are you satisfied that all of the risk can be satisfied within the UK?

Lord Drayson: I am sorry, I do not understand what you are asking.

Q159 Mr Hancock: On the work that is needed to be done, one of the risks you identified was the co-operation that was needed and the effort that would have to be put in against competing resources etc. Are you satisfied that the risks that you are looking at can be overcome by simply maintaining the construction of these ships wholly within the UK?

Lord Drayson: The current work which is being done looking at managing these risks is on the basis of these ships being built in the UK.

Q160 Chairman: Minister, you made some interesting comments just now about the in-service date and you said you reserve the right absolutely as the Minister to decide on the in-service date when you have made the Main Gate decision. I think that was what you said. Does that mean that you no longer regard 2012 as in any way a date set in stone for the first Carrier?

Lord Drayson: All I can say, Chairman, is that I have noted the target date which the Department has set itself in the past. However, given the importance of this project in the context of how I have described, the in-service date must be set on the basis of the Main Gate decision, on the criterion which I have set and I reserve to set that date when I know what that is.

Q161 Chairman: So the date is no longer set at 2012?

Lord Drayson: I reserve the right as the Minister to set the in-service date on the basis of the Main Gate decision, when we take that decision.

Q162 Chairman: And you have not yet set it?

Lord Drayson: I have not had a submission to my satisfaction on the Main Gate.

Q163 Mr Havard: We have been told previously that the in-service date was 2012. Although the decision about the Main Gate and the decision about the design manufacture may be delaying things, the plan was not to prejudice the in-service date. We were told that if there were delays - and there have been in these first two stages of the Main Gate and design manufacture - that would not prejudice that in-service date. You seem to be suggesting now that three things are under review and that at some point or another you will use the decision of confidence to allow you to move to those three stages but that they are not artificially set by 2012. Is that right?

Lord Drayson: I think it is important that the Department sticks to the discipline of setting an in-service date for a project such as this many years out which is based upon a proper understanding of the risks and the costs and the implications which that has in terms of the wider interface of this project with other projects and so forth.

Q164 Chairman: That in-service date was set as 2012.

Sir Peter Spencer: In the context of the way in which these projects are independently audited by the National Audit Office we do not formally set the dates until we make the main investment decision at Main Gate. What has been a source of confusion is the status of dates which were stated publicly at an earlier stage in the programme before we had finished the assessment phase. In terms of the principles of Smart Acquisition, we have made it very clear that the dates by which the Department will be held accountable are those which are set at the Main Gate. Indeed this Committee last year recommended that we should not reveal dates prematurely. Now we recognise that problem. We are certainly not doing it with other programmes, but there is a bit of history to this project which we need to deal with in the right sort of way. From my perspective, the support that I am getting ministerially to ensure that we do mature these decisions properly and get a really robust understanding of the performance time, the cost and risk is fundamental. Interestingly enough, as the Minister mentioned earlier, industry is equally concerned to get this right because they have got more skill in this game because of the form of contracting which we are entering into.

Q165 Mr Jones: The Minister has made himself very clear to me. This is the first time ever anyone has come before this Committee from the MoD and been honest, frankly, in terms of their replies. What you are trying to do now, Sir Peter, is weave it back to your Civil Service speak.

Sir Peter Spencer: That was not my point.

Q166 Mr Jones: Why do you not do what the Minister has just done and be honest with us instead of this fantasy figure you keep coming up with?

Sir Peter Spencer: I merely cited the history of how this date came into the public domain and I pointed out that the basis on which we are audited in terms of performance is the date which is announced when the main Cabinet decision is made, a point which we have not quite arrived at, which is precisely the point the Minister is making.

Q167 Mr Jones: Last week Mr Coles said 2012 was the target date.

Sir Peter Spencer: The Department has to have some basis ---

Q168 Mr Jones: The Minister said something different which I agree with.

Sir Peter Spencer: Clearly plans iterate over time and you have to have something as a basis for planning in an informal sense and that is the basis on which all of the rest of the Department looks at it. These get iterated over time and the final decision is made at the Main Gate and then we set those plans in concrete. That is very clear. That is precisely what the Minister has said.

Q169 Linda Gilroy: I want to go back to the relevance of the Defence Industrial Strategy to the Main Gate decision. At a RUSI conference on 12 September, Minister, you said, "By December, we will not be able to cover all the sectors to the same depth, and there will be an element of ongoing work. But I am demanding gritty conclusions on shipbuilding and ship support ..." Are you confident that when you come to those conclusions you will be in a position for Main Gate to go ahead in the way that you have described and that you are well aware of the importance of that to the issues of uncertainty in the dockyards?

Lord Drayson: I am confident the Defence Industrial Strategy will be delivered in December. It will contain within it the Maritime Industrial Strategy which will provide a framework to enable decisions to be taken. I must say that the way in which the Ministry of Defence have responded to get this Defence Industrial Strategy done by December has been admirable.

Q170 Robert Key: Minister, Mr Coles told us last week that the British and French governments have been discussing the project for the past couple of years. Can I ask you when you or any other ministers have met French ministers to discuss this project?

Lord Drayson: I have met French officials from the DGA to discuss this project at several periods during the summer.

Q171 Robert Key: Sir Peter, have you also met officials to discuss this?

Sir Peter Spencer: Yes, I have.

Q172 Robert Key: When do you expect the French to come to a decision on this? We were told last week that probably December is the sort of time when the French will finally decide whether they are going to get involved. Is that your understanding, Minister?

Lord Drayson: That is a matter for the French, but that is the understanding. Whether or not that is a definite date I think is a matter for the French, but that is my general understanding, yes.

Q173 Robert Key: You have been very clear with us this morning that there must be multiple usage of shipyards in order to construct these enormous ships. Presumably that would include French shipyards if the arrangement is concluded with them. It is also true that it was the Ministry of Defence in June this year who suggested to the French that maybe a third each of the three ships should be made in the UK and France and that the final assembly would be in their respective countries. Is that right?

Lord Drayson: There are some important principles which within the Department we have set out in terms of the way in which this potential work jointly with the French should be done. The first is that it must not negatively impact the British project. We are in the position of having a design for the ships and it may be that our decision is suitable for the French need. That is for the French to determine. It is very important that the way in which this potential working together is managed does not prejudice our work. At the same time, I think we should be open to opportunities to see if it is possible through this joint working to garner some benefits, either benefits in terms of cost or benefits in terms of timescale. One of the things which the Department has learnt over the years is the importance when looking at this type of joint working with other international partners, that it is the industrial partners who drive the work to explore possible solutions, not that it is done from a political direction. So this is another very important principle which has been adopted in this project.

Q174 Robert Key: The French have suggested that there is about 85 per cent commonality between the French and British requirements, but then there is the thorny issue of what happens to the equipment and the subsystems that go on at the final stages here and whether the French would actually be needing completely different requirements for a completely different aircraft. Surely that would affect the original design of the aircraft Carrier itself. After all, you have had all the problems of weight with the JSF as well. Have you discussed at that sort of level of detail how this might work?

Lord Drayson: My understanding is that discussions have taken place relating to the suitability of the British design for French need and that there is clarity over the level of commonality in the design. I am sure Sir Peter can go into more detail for you if you wish. It is very important for there to be an understanding as to what areas of difference would be required by the French and that there are solutions put in place to meet those differences without prejudicing the British project.

Q175 Robert Key: Sir Peter, I wonder if you could respond to what the Minister said and tell us a little more detail.

Sir Peter Spencer: This is clearly a decision for France to take. They have had access to sufficient detail of the CVF design to form their own judgment as to what changes they would have to implement to that basic design at their own expense in order to make it meet their own purposes. The reason why this is even feasible, of course, is because we are designing the Carrier to be adaptable throughout its long planned life and therefore it has much bigger design margins than would have been the case in, say, the current class of CVS. We have answered a number of quite detailed questions in terms of what it is we do and why and made it clear that we will not countenance anything which will do any damage to the timescale of our programme or do anything to adversely affect risk and cost as well.

Q176 Robert Key: The MoD put out a statement saying you would not let French involvement "hold up our plans". I am still anxious about when this cut-off date is going to happen. If the French do not come up with a decision in December, how long will you give them?

Lord Drayson: I have asked the question of the project team whether or not they are satisfied that the discussions which are taking place on the potential of joint working with the French are prejudicing the British project. The answer I have been given is that they are not. I would expect to be informed if we were getting towards a position where it was beginning to.

Sir Peter Spencer: The crucial test here, as the Minister said earlier, is that industry has to believe that this is worthwhile doing and that there are benefits which they could obtain as well. So there is no intention whatsoever to stuff this down industry's throat.

Q177 Chairman: Sir Peter, you said you would not allow the French to hold up your timetable. What is your timetable?

Sir Peter Spencer: I have got nothing to add to what the Minister said earlier.

Q178 Mr Borrow: At last week's evidence session we were told that there was a range of possibilities for French involvement in the project. Could you outline what those possibilities are?

Lord Drayson: Where we are at the moment is that the industry partners are looking at the alternative options. There are a range of different options which we are expecting them to come forward with, but it is up to industry on both sides to come up with a proposal which we find acceptable or not, it really is down to industry and not for us to prejudge or give direction to industry. I think this is one of the key lessons. We have seen projects in the past which have been done through international collaboration and which have been very successful and they have been successful because the industrial partners were left to get on to decide what is the most effective way to do the collaboration and to identify areas of joint working. That is the way in which we are doing this project and we need to stick to that principle.

Q179 Mr Borrow: Would it be fair to say that the range of possibilities that were mentioned last week are a range of possibilities that are being discussed by the industry and which at government level there is very little knowledge of? Is that an accurate reflection?

Lord Drayson: It is important for industry to come up with a proposal that industry is happy with which can then go to the Government to approve or not. We are waiting for industry to come up with proposals. This is an iterative process; this is not something which is a one-time event. We do not have, as it stands at present, a proposal on the table which is satisfactory and it is up to industry to come up with those plans. It is important for industry to decide that they have a plan which they regard as workable for us to then look at.

Q180 Mr Borrow: Finally, would you just touch on French involvement in the project which I can see from a cost point of view could be an advantage. Certainly in terms of the in-service costs that would be a very positive thing. Given that we have already heard this morning how immensely complicated and difficult this whole project is and how many players there are involved and what difficulties there are from capacity constraints within British shipbuilding, is it not really a step too far to complicate the project further by risking involving another partner in this project at this stage?

Lord Drayson: I think you make a very good point. I think that we need to have real clarity about whether or not such joint working actually does affect the risks of the project. Commonsense would tell us that there are going to be opportunities in building three ships which may not be available to us in building two ships. However, history also tells us that international collaborative defence projects can go seriously wrong, not always but quite often and therefore we need to make sure, because of the importance of this project to the United Kingdom's defence posture, to the United Kingdom's maritime shipbuilding industry, that any potential joint working which is done on the French Carrier is done in a way which is consistent with the needs which we have. I think it is important for us to explore properly and to put all of our efforts in to making sure that we have explored them and I hope that we do find a way of doing this which enables us to realise some benefits. I do not think we should close our mind to it but I think we should have a very firm view of where it gets into the zone of actually negatively impacting the performance of our project.

Q181 Mr Havard: We had a memorandum in May 2003 that talked about industry-to-industry being the driver and said that at ministerial level this was understood and there may be projects that came forward. We have had the Alliance structure established for the Carrier. Is the Carrier basically the first and the best example of one of the ways of doing this and so there will be other projects in the future? Is that essentially where we are? Is that the context in which it operates?

Lord Drayson: I think the context in which it operates is that the Alliance structure on the carrier is a first step in the evolution of future maritime shipbuilding, the shipbuilding industry within the UK. I think because of the importance of the carrier project, the size of the project, the effect on so many yards and so forth, it is really worthwhile using that project as the foundation upon which the industry evolution takes place. Carriers are very important projects but so are Astute submarines and Type 45s; there are a number of projects coming forward. It is not that we intend applying this Alliance principle on other projects; we are not saying that. What we are saying is that because the carrier project creates the possibility of this foundation, getting industry together in this Alliance structure is the right way of getting this project moving forward to enable us to move from that to this further evolution of the industry, and I would hope if it is done right that it enables industry in the future to work in a more collaborative fashion on projects.

Chairman: Can we move on to the Alliance Structure now? David Crausby, Vice Chairman.

Q182 Mr Crausby: Thank you, Chairman. It may be our own fault but the Committee is still unclear as to what the exact roles of the individual Alliance partners are. Can you set out in reasonably clear terms what the role of each of the partners is because clearly they come from very different standpoints - the main contractors, the MoD and the Physical Integrator?

Lord Drayson: Yes. When it became clear that the nature of the project was going to require the resources and capabilities of multiple yards to come together to do this, and that this was going to provide the long-term work framework for the longer-term evolution of the industry, the importance of the Alliance structure in both allowing the industrial participants to sign up to contracts, which set out clearly the responsibilities in terms of parts of the work related to the Carriers and the interface between the various parties and the risk that each party is taking on, in the context of all share the success or failure of the project. And within that the role of the Physical Integrator and the role of the MoD, both as Alliance partners, is that the risk of the project overrunning or being over in terms of cost is shared by all, but before signing up to it each of the Alliance partners has clarity on the risks that they are taking within their chunk of the work that they are doing, and that is therefore negotiated, it is put into contract and then when signed it really gives us the best chance of having a greater degree of the clarity of the risks, certainty that they will be properly managed, who has the responsibility for managing them and where the accountability lies for each of these risks. Therefore, the joint working, such that the Alliance structure encourages people not once they are in the project to spend weeks arguing about decisions - because everybody loses if that happens - but once they have signed up to the Alliance everybody is motivated to get on with it and take decisions quickly and efficiently because in that way the success of the project is likely to be ensured. I think this is an important point in terms of the Alliance structure for the long-term delivery of this project.

Q183 Mr Crausby: Can you tell us more about the role of the Physical Integrator? Has that been bottomed out now? Because in May of last year, we were advised that just a few loose ends needed to be tied up from the point of view of the Alliance, and yet in our meeting last week we got the impression that it was a bit more than a few loose ends needed tidying up and we are some distance away. What we would like to know is when will all of these loose ends completely and absolutely come together?

Lord Drayson: There are a number of areas where the role of the Physical Integrator has been vital to this. The first is in facilitating the discussions that need to take place between parties who are normally competing with each other, to actually get around the table to reach agreement on the various elements of the project; that is number one. Number two is to actually bring some outside perspective in terms of other experience in other industries. Things such as this alliancing approach have been used successfully in areas outside of shipbuilding and the Physical Integrator brings experience of that. It also brings experience in other types of major construction work, such as oilrigs, as an example. The other thing which is important is that it brings with it a responsibility from the integration of the joint working in terms of the project management approaches. I know from my own experience as an engineer and working in manufacturing, things such as the project management system, the computer aided design system, the tools which the engineers from the different yards use to communicate with each other effectively to build these very large ships are vitally important. Therefore, it is very valuable having a Physical Integrator doing that and - and we have been doing this over the past year - the value of that has already been shown in what we have seen coming out of the work that has been done to date, for example the output of the 100-day review. Do you have anything to add to that, Sir Peter?

Sir Peter Spencer: Yes, if I may. Mea culpa because I made the statement last year that, in good faith at that time, our understanding was that there was agreement on a large majority of the detail but there were some loose ends to clear up. Those loose ends turned out to be much more fundamental than I had understood them to be at the time. One of them was the agreement on the use of an Integrator, the need to reinforce the Alliance, and that took time to negotiate through with our Alliance partners; but we are through it because there is now general acknowledgement that what has been brought to this project by the introduction of the sort of skills and expertise that Lord Drayson has just described to you has been hugely beneficial, and they have produced a serious degree of challenge, which was needed because the cost targets of this programme are so demanding for the capability that is being sought. But I did go on to say that in order to de-risk the supply side - because it is not just a question of getting the technology risks properly understood and properly managed - we had to have absolute clarity on the detail and clear understanding of the principles and the processes at the CEO level in all parties, and that is what we have been working to do. When you look at what has been happening, because risk is not transferred but is shared, because we all win or lose together, there is much more of a due diligence process going on by all members of the Alliance to make certain that they do really understand this proposition, because there is not the scope that there would have been in a more conventional contract for that risk and cost increase simply to be handed back to the Ministry of Defence. That is the key to all this. We have meanwhile been maturing the design stage and doing more during the assessment phase than we would have originally been doing in a different sort of programme. It is that detail of the design and the understanding of the design which has enabled us to feel progressively, in some cases, less comfortable about aspects of cost which we thought we would have understood and now we are understanding even better, and it is absolutely imperative now that we conclude this due diligence process so that when we commit to the target cost, when we understand the roles and responsibilities which are still being discussed in commercially sensitive meetings between the partners, that everybody is doing this for the overall benefit of the Alliance, not trying to manipulate it in a way which is simply for the benefit of an individual plan.

Q184 Mr Crausby: It will be two years in January since we decided that the Alliance would be set up and KBR were appointed in February of this year. So can you tell us when all of these agreements will be finalised?

Sir Peter Spencer: The answer is the same as you were given by Lord Drayson earlier. We are closing down on these agreements but I cannot set an artificial timeline. This is a question of consensus. It is in everybody's interests to get on with it as soon as possible and that is what we are doing, but being hung out to dry by picking a date at this stage and then trying to undermine the process does not work here. It is not different from what would go on in an Alliance programme of this sort in the commercial sector.

Lord Drayson: Chairman, may I say very briefly, that at the point we make the main investment decision these contracts must all be signed. Everyone who is a member of the Alliance has to have got itself satisfied through the due diligence which Sir Peter has described, and has signed up to it on the basis that it feels that it is entering the Alliance in a way which can deliver the terms which it needs to provide to its shareholders, which is consistent with the long-term strategy of the company, and which enables it to feel comfortable and motivated to be a part of this project and to deliver the delivery date, to deliver the delivery cost and the performance which we sign up to at the Main Gate.

Q185 Mr Breed: Minister, as I understand it, in this Alliance the MoD will be both a member and a client. So the first question is: how does the MoD manage the obvious conflict of interests? Secondly, how can it separate the inevitable risks, which, as I understand it, is the principal thing which needs to be got right before Main Gate? So how is the MoD going to apportion the potential risks between client and membership of the Alliance?

Lord Drayson: You have highlighted a very clear problem which exists in all defence projects, which is in terms of the role that the MoD has. The reality of the role that the MoD has is that whether it is with an Alliance structure or not the MoD has that conflict of interest. What the Alliance structure does is manage it properly. The companies can only deliver these ships to the project plan if the Ministry of Defence keeps up its end of the contract. It actually puts the Ministry of Defence into the relationship with the other partners such that there really is a joint contract which both sides are bound to, which motivates both sides when the going gets tough, as it always does on these complex projects, and to sit down together and quickly and efficiently make the decision to resolve them. So it is a recognition of that potential conflict which exists and it is a mechanism for managing it.

Q186 Mr Breed: What is the advantage, therefore, of being a member of the Alliance?

Lord Drayson: The advantage is that it enables us to work in a way which gives the best chance of efficient decision-making, management of risk to bring the projects in on time and to budget, because of the motivation that that provides for all concerned in the project to do so. This is why negotiating these Alliance contracts is tough because you are dealing with those issues upfront. What we would expect to see, if you are successful in negotiating those contracts upfront, getting them in place, is that it does ease the process of actually moving through the project because the incentive is there to take decisions efficiently, and that is one of the things which we have learned from the past.

Q187 Chairman: Sir Peter, you wanted to add something?

Sir Peter Spencer: The benefit to the Ministry of Defence being in an Alliance, as we have learned from examples in other industries such as oil and gas, is that instead of the supply chain being incentivised to want to bring delay and dislocation-type costs and expect us to pick up those additional costs, is that the way in which the project contingency also serves as the earned profit. Everybody is now motivated not to put their hands in that contingency because if there is a member of the Alliance who wants to bring some force majeur claim with exaggerated details of how much it has cost - which is the problem that has been endemic in all sorts of prime contracting with other industrial areas in a conventional context - that sort of behaviour is by peer group pressure unlikely to happen, because all you will be doing then is taking money out of that contingency pot, which will reduce the levels of earned profit that everybody in the Alliance will take, including the MoD as the client because it will be a reduction in our costs. In other words, we incentivise people to solve problems in the most efficient way, which is not what conventional prime contracting against a fixed price will do for you.

Q188 Mr Hancock: May I first of all apologise to both of you? Unfortunately I have to leave just before 12 as I am chairing in Westminster Hall. Minister, you have used the word "clarity" eight times so far today, and I think it is a very interesting use of words because I think it needs some clarity here. The current published In-Service Dates, Sir Peter, for the first Carrier was 2012, Joint Strike Fighter 2014, the second Carrier 2015. Now, we did not invent those dates, they came from the Secretary of State, both the current one and the previous one. So all of those dates emanated, for clarity, from the MoD. If they are not achieved then we have some problems, do we not? What do we do about the run-on of the current aircraft carriers, Illustrious in particular? Sea Harrier runs out in March 2006. With delays on this, are we really suggesting that the fleet will have no proper air defence for the best part of a decade? And are the real issues about the Alliance related simply to industrial issues or are they related to the size of the carrier, the type and the size of the number of planes that they are going to fly off it, because I think they are the ones on which we need some clarity?

Lord Drayson: I do not believe we have any issues in terms of the type and size of planes which will fly off the Carriers. I think we have clarity in terms of the interface between the introduction of the Joint Strike Fighter. We must make sure that the design of the Joint Strike Fighter meets the design of the carrier, in terms that the planes have to work off the carrier. When I visited our current carrier I saw for myself the way in which the carrier strike works as a system, and it is very important that the whole thing is designed as a system to make sure that it can meet the requirements that it needs to meet in operations. One of the good things in terms of the way in which this is being planned is that several of the principles we are going to employ on the new carriers and the new aircraft which will fly in them are being tested today with our Carrier Strike Force. So I think we can have a reasonable degree of confidence that there will not be any issue relating to the interface between the aircraft and the ships.

Q189 Mr Hancock: I would be interested, Sir Peter, about your views about how the MoD are going to finance the issues raised by the delay in this programme.

Sir Peter Spencer: As with other programmes we would deal with that as and when the circumstances arose, in terms of the roles of the parties on the operating cost budget.

Q190 Mr Hancock: Is that one of the risks that is being analysed at the present time, that if this programme does not deliver the first carrier in 2012 and the Joint Strike Fighter in 2014 the Ministry of Defence are working out a strategy to cover that risk?

Sir Peter Spencer: There will be coherence in the overall package of carrier strike.

Q191 Mr Hancock: Is coherence the same as clarity on that point?

Sir Peter Spencer: Yes, because it means that we will factor in when the dates are formally set. We will then reassess the programme issues relating to the current assets and make whatever adjustments might prove to be necessary.

Q192 Mr Hancock: In last week's evidence we had this, I think slightly unfortunate, quote from one of the witnesses who said that the Alliance partners would "sink or swim together" on this project, and that really does back up what the Minister said, does it not? What happens if the Alliance does sink in the early stages? How are we planning to keep this programme going if the Alliance does not deliver in the early stages?

Sir Peter Spencer: The interesting thing about an Alliance structure is that in the unlikely circumstances that the Alliance collapsed we still have works contracts in place which will actually build the carrier. You would then reconsider your options, should you so need, as to who was actually going to be in the driving seat in that arrangement. But we do not plan to do that and there is no reason for us to do that as long as we do the right amount of due diligence upfront.

Q193 Mr Hancock: So what is the last outstanding issue that is causing delay in the agreement on the Alliance being signed?

Sir Peter Spencer: I do not think that I can discuss publicly the detail of commercially sensitive discussions, but clearly, as far as the members of the Alliance are concerned, they are now taking a look at the performance time, cost and risk relationships; they are working out for themselves who is going to be best placed to do certain aspects of this programme, and there will be a negotiation which we complete as to what those roles and responsibilities are going to be and a negotiation in terms of the amount of risk and reward that individual members of the Alliance will wish to take out, and all of that will hinge upon us converging on the target cost, which would put the centre of the Alliance in such a way as there is the right balance of challenge so that we will reward industry and ourselves by gain sharing the benefits of beating that target cost.

Q194 Mr Hancock: There must be a date in your own mind by which that Agreement for the Alliance to sign up to has to be achieved, because if it goes on for much longer there is a serious problem in industry in this country having no confidence in what is going on. If we are going to use this model for future developments - and as the Minister rightly said, if it works we ought to - I think we now have to start to say that there has to be an end gain here, Sir Peter, and I would be interested, as would the Committee and Parliament, to know when you expect that to be. On the signing of the Agreement for the Alliance?

Lord Drayson: Chairman, it may be I can be helpful here. I think that we as a country, along with a number of other countries, are recognising the fundamental challenge of affordability of a number of large defence projects, whether it is fast jets, submarines, aircraft carriers. All countries face the issue that the level of inflation that is taking place in defence projects and just the overall cost of platforms is raising questions of affordability. Therefore, there is a recognition within the industry here in the United Kingdom, and within the Ministry of Defence, that we have to jointly address these issues of affordability through more efficient working. For industry to be able to make the investment in shipbuilding, to become more efficient, it has to have visibility about the longer-term projects; it has to know how often we are going to be ordering certain types of ships and submarines. If we can provide industry with that then it puts the onus on industry to make those investment decisions. The Alliance structure is one way of enabling these discussions to take place to address fundamental issues of affordability and investment in the long-term. I hope that I have not given the Committee the impression that I feeling alliancing is the answer to everything - it absolutely is not; it is one tool in the project management toolbox - but it is, we believe, particularly appropriate to the carrier projects at this time. It does not mean that we are going to use it on everything. There are projects where straight competition is the right way to do it. However, we do need to see that investment takes place within the shipyards in the United Kingdom to improve the affordability in the future of this type of ship, because we need to be able to buy these types of ships in the future, and I am encouraged that that realisation is taking place. It is important for us from the MoD to create an environment where both investors in companies and the companies themselves can see that they can make good long-term profits to sustain their businesses within this framework, and this is what we are aiming to do.

Chairman: Moving on to the shipbuilding strategy, Kevan Jones.

Q195 Mr Jones: First of all, can I say, Chairman, that it is very refreshing to have a Minister before us who actually knows what he is talking about. Clearly somebody made a mistake in the appointment! I have to say that I have enjoyed listening to you this morning. Can I say just one thing to you? Make sure that you do not go native within the MoD, because if you carry on as you are doing clearly we might get some answers that we all ask for, and actually get a better policy. Can I turn to shipbuilding strategy? In January 2003 four shipyards were mentioned for potential work from the Carrier programme: Govan, Vosper Thornycroft, Swan Hunter and Babcock. Are those four yards still designated as yards that will get work from the carrier programme?

Lord Drayson: We have not signed the contracts; we are in negotiations with a number of yards, and therefore we are talking with a number of yards about the various aspects of the shipbuilding, as you have described. But we have not signed contracts with any of them yet, so therefore I cannot say whether a particular yard is or is not in the deal.

Q196 Mr Jones: Can I probe a bit further in that? You mentioned earlier on, you used the term that putting the partners together is a bit like "fantasy football" and, when I play, you usually try and get the best players in the team; you certainly would not pick a player that has one leg, for example. So in terms of Swan Hunter, with its current problems on the landing support ships, is it realistic that you are going to include Swan Hunter in this build probe?

Lord Drayson: As I have said, we have not signed any contracts; we have not made any decisions. It is true that we have had problems relating to the build of ships at Swan Hunter in terms that they are late, and that is something on which we are working very hard within the Ministry of Defence, with the shipyard, to address. I think the best message I can say about this - not specific to Swan Hunter or any yard - is that, as you describe in fantasy football, you want to put together the best possible team. The good thing about the carrier project is that the carriers are so large that they actually require the capacity of this country to build them. Nonetheless, for the carrier project to be successful it is important that the performance of everyone in the team is up to the mark, and certainly the message I would send to the yards in this country is that we certainly have world class shipbuilders in this country and we need to see that the standard of work on the projects is improved as we go forward because it needs to address the fundamental affordability, and that is what we are going to be looking for from the Alliance partners coming on board with the carrier project.

Q197 Mr Hamilton: I am still trying to go over the part where we talk in terms of if we get it right it will put shipbuilding on a sure footing. I am trying to marry that with the fact that you immediately turn around and say that 2012 is not now a date that we tried to work on. When you talk in terms of what you have to do, in last week's evidence session we were told that the carriers would be built in the UK. However, we were also told that two of the 18 shipyards that you talked to had gone bust. I am going to marry two questions together, Chair, because it makes sense. When you talk about delay in the Main Gate, how is that affecting the shipyards involved in the construction of the carrier? I know that you have not given the contracts out yet but there is work being done at the present time. So how is that having a roll-on effect of these continued delays that we are seeing at the present time?

Lord Drayson: I am very mindful that the yards around the country need to have the earliest possible decision on the carrier project for the reasons I have described earlier. Nonetheless, when we take the decision it has to be a decision based upon clarity and definition of the risks and the responsibilities of which we have spoken. I think it is important for me to state that it is for the management of the yards to manage their business in an effective way; the Ministry of Defence is not responsible for the management of these yards. But the Ministry of Defence is responsible for creating an environment within the United Kingdom within which shipbuilding can prosper and investment can take place, and that is why we are putting the effort into the maritime industrial strategy to actually set out, with greater clarity, a framework for the yards to enable those decisions to be taking place. But I do not think you can get away from the challenge which both sides have, which is that until we can get definition on the relative elements of the Alliance within the carriers we are not in a position to go forward. That actually puts some pressure on the industrial participants, the yards themselves to get on with the discussions which we are having. It also puts pressure on the Ministry of Defence to get on with it because of the real need to deliver these carriers to the Navy. So interests are aligned to come together to get this done. There is no dispute as to the urgency that there is to conclude the Main Gate decision to be able to move on with the build of these carriers.

Q198 Mr Hamilton: Minister, I worked in an industry with 100s of 1000s of people and that industry is virtually non-existent now. If you lose the skills-base, which the industry that I worked in, the coal industry, has now done, and if you ever wanted to expand the coal industry - and that is another debate - you have effectively lost the skills-base within the UK. The timeframe which you are working within is very, very short, but you have already extended that period of time. How realistic is it that you are asking private contractors for shipyards to be able to retain a workforce, which has to be necessary to carry out the work that needs to be done, and at the same time you do not have a strategic plan and framework to work within, because that is another issue you are still trying to work with? That requires a cross-party discussion, a cross-party agreement, if you want to talk in terms of a five, ten, 20-year programme of defence expenditure. How realistic is that?

Lord Drayson: It is realistic. I have seen for myself, and for example one particular yard I visited this summer, where the Managing Director of the yard said to me, "You can ask anyone in this yard what the delivery date is for this vessel, and they will tell you, because this yard really understands the fundamental importance of delivering this vessel to the Ministry of Defence on time." And I tested it out. There was one 20-year old apprentice doing an amazing piece of welding, and I asked him, "When is the delivery date for this vessel?" And he knew it. There is an example where that yard had understood from the top to the bottom the need to address issues of training and investment and to deliver affordability in the long-term. The fact that we have committed, as a Ministry, to deliver the industry with a strategic plan by Christmas, we know - because we are talking to the industry, we are talking to the unions, we are talking to the yards - that that will give them the framework to enable them to make the decisions that they need to make. We have committed to doing that and we are on track to deliver it. That is why I have the level of confidence, both in what I have seen from talking to people, but the fact that the Ministry of Defence is on track to deliver the strategic plan.

Q199 Mr Hamilton: With all due respect, you are not on track to deliver that; you will not know that until the end of this year, the beginning of next year, until you get a strategic plan in operation, because the delay factor has already knocked these issues back. I made a point of being involved with big industry. I negotiated contracts on behalf of 2000 people. The important thing at my level, that I can work at, is how we retain a workforce at a time when you know that long-term investment has to be put in. The two have to marry very, very quickly, and I would imagine that by December, when the report comes out, that will be the start of another long debate.

Lord Drayson: Chairman, I think it is important for me to stress that this maritime strategy that is being developed now is being developed in consultation with industry, with the yards, with the unions, with the companies concerned. This is not something which the Ministry of Defence is going to publish and which everyone is then going to sit down and start debating. This is a process which has been going on for some time. The Secretary of State has charged me to get this done by Christmas and I intend to get it done by Christmas, but it is being done by consultation, and therefore the yards are going through a process with us of discussing these key elements within the strategic plan.

Chairman: We are beginning to run over time a little. Desmond Swayne.

Q200 Mr Swayne: Will the demonstration and manufacture contract be for one or two ships?

Lord Drayson: The demonstration and manufacture contract for one or two ... I am sorry, I do not really understand this.

Q201 Mr Swayne: When the contract is let for the demonstration and manufacture will it be for one ship or for two ships?

Lord Drayson: You are asking me, basically, are we intending to build one carrier or two carriers?

Q202 Mr Swayne: Is it the same contract or are there going to be two separate ones?

Lord Drayson: I am sorry for being a bit slow on the uptake here. The intention is for us to build two carriers; that is what we require. We are moving forward on the basis of two carriers. In terms of the elements of the contract within those two carriers there may be differences in terms of the Alliance contracts for each carrier, but that does not mean to say that there is a lack of commitment to two carriers as opposed to one. But in terms of the fact that we need to manage the capacity, the time delay between the first carrier and the second carrier, in terms of the peaks and troughs, the interface with other projects, it is very important to get it right. So it may be necessary for us to have separate contracts for each ship within an overarching structure for both ships. That is a complicated answer to your question but I want to make sure that I am giving the Committee clarity. The intention is for us to build two ships but to build two ships in the most efficient manner, taking into account the maritime strategy. The details of those contracts are being negotiated at the moment. It may be that it is better to actually structure them as two separate sets; it may be that it can be done as one set but that has not been determined at the moment.

Q203 Mr Swayne: What will be the contractual arrangements between the Ministry of Defence and the other Alliance partners and the shipyards? For example, how will those contractual arrangements and the transfer of risk be affected by the Ministry of Defence retaining the decision-making power over the allocation of work between shipyards?

Lord Drayson: I think that the principle of the Alliance structure is that in going into the Alliance negotiations there is a negotiation about responsibility for the various proportions of work, at the blocks of work that come together to create the ships. The Ministry of Defence shares the risk because the Ministry of Defence is an Alliance partner. The Ministry of Defence is also in a sense chairing this from the point of making sure that there is a fantasy football team coming together to do this. So that is the way in which that process of decision is on the allocation of work. It has to be done on the basis that the Ministry of Defence is satisfied with it; it has to be done on the basis that all of the Alliance partners are satisfied with it, for the Alliance contract to be signed.

Q204 Mr Breed: Minister, in the context of the Ministry of Defence submission that the Whole Life Costs for the carrier strike capability is going to cost something like 31 billion, of which part of that is acquisition costs of approximately 12 billion, what are the estimated costs for the acquisition of the two carriers at this moment in time within that sort of framework?

Lord Drayson: The decision that we are going to take on the Main Gate, as well as setting the timescale, is going to set the costs for the carriers. So when we sign the contracts for the Alliance, because the Alliance structure is going to be what is going to deliver the project, it is also going to be the contracts under which the participants sign up for the delivery price for the carriers. So that will be determined at the Main Gate decision.

Q205 Mr Breed: Is that cost going to have to be contained within the current equipment programme or will other programmes have to be cancelled or modified in order to make way for it?

Lord Drayson: We need to ensure that in the management of the overall equipment programme that the cost that we are signing up for, as part of the Alliance, is one that meets the equipment programme which we have.

Q206 Mr Breed: If, God forbid, with all this work that is being done in de-risking and everything else, there is the unusual possibility that the costs might increase, at what point might it be considered that the whole project is unaffordable?

Lord Drayson: You can certainly envisage hypothetically a wide range of scenarios in terms of speed of cost increase and so forth. I think it is important for us to make sure that we go into this project on the basis that we do have clarity over the risks and responsibility, and that we have managed them such that we do not go over in terms of cost. That is a challenge for the whole of the defence procurement area within the department that I have responsibility for; it is not unique to carriers. Because of the pressure that we have in terms of the significant needs across a wide range of a number of projects it is important for us to deliver our projects on time and to cost in all cases. That is a challenge for us to do in the current environment which you have, as I described earlier, and that is something which we need to improve. We have made good progress on that but there is further work that needs to be done.

Q207 Mr Breed: But the risks are obviously somewhat greater because of the size of this particular project and its other bits around it, in terms of the total budget of the Ministry of Defence's procurement.

Sir Peter Spencer: That is the whole point of alliancing, is it not? That you set your target cost with much greater confidence and everybody who is involved is trying to beat it as opposed to trying to come back to deal with you with claims of additional costs. That is why we have been so careful through the 100-day review, to take a really good look at this with newly introduced, new challenging, probing questions from KBR, as the Physical Integrator, and to take a look at some of the assumptions that had formed the basis of costing up to that point, and to recognise that the performance, time and cost element of Smart Acquisition has to be done vigorously at all stages in the programme and especially when you come up to that main investment decision. That is a very important part of the work that we have been doing. All of our experience is that projects that put enough intellectual property at the front end, do enough due diligence at the front end, in the main create a successful outcome. Too many projects claim bad luck where they have just not spent enough time at this very important foundation stage, and this is what this is about.

Q208 Mr Havard: A very short question. Defence Industrial Strategy, December. Presumably at that point maybe the Alliance is set up, maybe a Main Gate decision - we were told it was going to be roughly about December. Is that we are seeing? So should we be coming back in March and asking you to come back in March and then perhaps we will get an answer to 2012 or whenever?

Lord Drayson: I am always very happy to come back and talk to this Committee.

Q209 Chairman: I think we should move on to the Joint Combat Aircraft. This is not going to be a difficult question at all. We used to call this Joint Strike Fighter, we now call it Joint Combat Aircraft; is that correct?

Lord Drayson: Yes, that is correct.

Chairman: Starting with what might or might not be happening in the United States, David Crausby.

Q210 Mr Crausby: There appear to be worries in the US about cutbacks in Joint Strike Fighters. Senator Carl Levin for instance has said that the Joint Strike Fighter is likely to be trimmed back. So how concerned are you about these reports?

Lord Drayson: It is something which we are watching very carefully indeed. We are having regular communications on this subject, both with the Embassy and with our partners, with whom we are working on on the project. In terms of the requirement which the United Kingdom has for the Short Take Off And Landing aircraft, we believe that the Short Take Off And Landing aircraft, given its vital importance to the US Marine Corps, is not under threat, but we are watching this very carefully indeed.

Q211 Mr Crausby: What would the alternatives be? It clearly must be a possibility that the STOVL could be cut back. I know that that is not at all in your control when we consider the number of aeroplanes that we are going to buy in relation to the whole contract. If the Americans choose not to go ahead with STOVL then where are we? What would the alternatives be to that?

Lord Drayson: A decision was taken some time ago to join the American programme for this fighter, and the programme which we are now working on is one through a process where we will be buying aircraft from this international programme. It is therefore important to us that this programme continues. In terms of a plan B, if there is a decision taken not to go forward with the aircraft which we require, i.e. the STOVL aircraft, then we will have to look at those plan B alternatives. I do not think it is appropriate for me to go into what plan B is. We do not believe that we need to do that. We are looking at this very closely and for the reasons which I have described we think that the Short Take Off And Landing aircraft is one which will be continued with; but, as I have said, we are watching the situation very closely.

Q212 Mr Crausby: Lockheed Martin last week mentioned the Quadrennial Defence Review that is due to report at the end of the month. Today's Defence News reports that British defence officials are worried that the Pentagon's Quadrennial Defence Review could affect their plans. Are you worried? Is there a risk?

Lord Drayson: This is an American programme which we had decided some time ago to buy into. Therefore, if there is a decision taken to stop the programme or cancel elements of it that would affect us, yes, and we would be concerned about that; and we are monitoring the situation very clearly. This is an important programme for us; we are monitoring it closely. Our assessment of it at the present time is that we do not believe that it is likely to negatively impact on the STOVL aircraft.

Q213 Mr Crausby: Back to plan B, I suppose there could be two plan Bs. One, would we continue with STOVL with a different alternative - F-18, for instance? Or would we want to consider the design of the carrier itself if we abandon STOVL? Is the abandonment of STOVL on the cards in the event of the Americans not producing that version in Joint Strike Fighter?

Lord Drayson: I really do not think it is appropriate for me to get into talking about hypothetical solutions which we might put in place to circumstances when we are not presented with those circumstances today. We anticipate, we expect that the JCA aircraft in its STOVL version will go forward on the basis that we have signed into the project in terms of the rate of development. We are satisfied actually in the way in which the aircraft is progressing to date, and so we are not in a position today where we are so concerned that we are putting contingency plans in place. We are monitoring it very closely but I do not think it is appropriate for us to be getting into a consideration of what the fallback alternative needs to be. We are not there yet and we do not anticipate being there.

Q214 Chairman: Would you agree with the proposition that if the United States did abandon or change its intentions in relation to the STOVL version of this aircraft it would cause us quite serious concerns?

Lord Drayson: Yes.

Sir Peter Spencer: May I add a comment, Mr Chairman? We can only make the assumption that the STOVL programme is going to go ahead for the time being; it is not our place publicly to try to second-guess the United States' government decisions. But QDRs are a pretty regular thing and any programme which has large spend is being looked at, so all of the big programmes in the United States are being looked at. But it is a fact, as this Committee knows, that in view of the longevity of these ships the fundamental design has been put into place so that we could, under extreme circumstances, implement the design as a more conventional aircraft carrier. So there are options which will enable the carrier strike still to be delivered, but they would not be as good as the current plan, which is why we intend to stick with it.

Lord Drayson: Perhaps I could also add, in terms of addressing the concerns, that there are scenarios which are being talked about in terms of the shape of the future programme in the context of future defence reviews, which maybe advantageous to us in terms of the mix of aircraft and so forth. So we should not assume that necessarily the QDR is going to lead to a negative outcome for us. It may not affect it, it may lead to a more positive outcome and we are monitoring it very closely. But we are not in the position at the moment of having to implement any kind of plan B.

Chairman: Of course, this is all speculation. Robert Key.

Q215 Robert Key: Sir Peter, will the UK variant of the JCA be identical to the US STOVL variant in both design and performance?

Sir Peter Spencer: I think you had answers on this last week in terms of the differences in the potential of its weapon fit to make it UK-specific. In terms of the baseline design, as you heard Tom Burbage tell you, we are working to the same joint operational requirement document. Therefore, we will get the performance for which we have contracted.

Q216 Robert Key: Will the stealth features be identical? We were not quite clear about that at the end of last week's session.

Sir Peter Spencer: I am not in a position to speculate on sensitive aspects of technology in the public place, other than to say on the basis of our contractual arrangements with the United States we know that our requirements are being designed for this programme. We are not aware of any different requirements that the United States might have, and as we are working from the same joint operational requirement document I think the speculation is groundless.

Q217 Robert Key: Do you think there is any chance that the French would buy into the JCA?

Sir Peter Spencer: You would have to ask the French government.

Q218 Robert Key: But what is your take on that?

Sir Peter Spencer: I have no opinion on that.

Q219 Mr Borrow: One of the troubling aspects of this particular project has been the transfer of information and technology from the US to UK companies. Minister, I wonder what discussions you have had personally with members of the US administration on this problem and also other players within the United States who will have an interest on this transfer?

Lord Drayson: I have had conversations with members of the United States' administration and I have had conversations with members of the industrial partners relevant to this project, and I have stressed the importance to the United Kingdom of issues around technology transfer, the way in which that affects long-term operability of the aircraft for us, and the fact that this is an aircraft which will be in service for some considerable time and the effect that issues of technology transfer have on our ability to upgrade the aircraft in the future. My understanding of the position we are in at the moment is that we are not short of any information at the present time which is adversely affecting the project. The concern that we have is that in the relatively near future we are going to need to see the transfer of information and intellectual property for us to see our needs in the long-term to be met. So it is important that those things take place and we are making that point very clear. I would also like to add that it is important for us to recognise that we have entered into this programme, buying this particular aircraft to benefit from the huge quantities of aircraft which are going to be produced. The cost savings for us, both in terms of initial acquisition costs and the long-term support, are very significant because thousands of these aircraft are going to be built and pooling the need to the United States with us and with other countries, and we need to be mindful of being very clear as to what aspects of long-term support and upgrade are peculiar to the United Kingdom's need, strategically, because that is going to have an adverse effect in terms of long-term overall support, in terms of not being able to benefit from the cost savings. So we need to have a balance to this. I think this whole area of technology transfer within this particular programme is one which is also shared with other programmes, but I think it probably becomes most important over the next year or so.

Q220 Mr Borrow: On that point, you have confirmed what the Committee was told last week, which was that significant progress had been made in the last few months in terms of technology and information transfer. But, looking ahead, what is the strategy of the department and our government in terms of ensuring that we meet the challenges for technology transfer in the months ahead? Is there a clear strategy to ensure that it happens?

Lord Drayson: Yes, there is a clear strategy and that strategy is to be mindful in looking at the project plan, as the project progresses, where certain lumps of technology transfer need to take place and at what point, and to have clear visibility - if you like, it is a sort of trigger to make sure that we are clear when those technology transfer points need to take place in the programme consistent with our long-term plan - and to have a very close eye on that, and if that is starting to slip to be expressing our concern on the specifics. It is moving from a general concern to one where we will have a specific concern on certain triggers if it does not take place. We have not got there yet but we have a clear plan to know when we do get there.

Q221 Mr Jones: I am interested in the plan because I was in Washington at the end of July talking about this very same subject, and I accept that there are quite good relationships obviously between the two governments and at government level they are very good. But the issue here is not actually about government is it, it is about Congress itself? There are some very key individuals there who, from my meetings with them in July, including breakfast with Duncan Hunter, will not actually allow this technology transfer thing to go through Congress. So what is actually being done in terms of not just talking to government but also trying to tackle the issue around Congress? I know last week we talked about the sovereignty into the use of this, but the biggest concern I have is not in this programme but in terms of your industrial strategy, where does it fit? Because in future, if we are not careful, we are going to be in a situation whereby technology will go one way but it will not come the other way, and I think that is going to be important not just on this project but other projects as well, if we are going to do joint projects as you said we are going to.

Lord Drayson: Chairman, I think you make a very good point. In my experience, working in industry it is very important for us to recognise that the process of innovation which takes place, over a number of cycles of technology, needs to be maintained in the long-term. The fact that we entered into this project with the Americans on this fighter, not on the basis of work share but on the basis that the best companies with the best know-how would get the work, the fact that British companies have a far greater proportion of the work than you would have otherwise expected on the basis of our numbers of aircraft, actually shows how strong the UK companies are today. We need to make sure that as we go forward technology transfer which is taken, for example in terms of the lift fan which is the thing that makes the STOVL aircraft work, that the relationship we have with the United States in the long-term ensures that the intellectual property base in this country is refreshed, maintained, such that in future programmes we still have industry which wins on the basis of this performance. That is something of which I am very mindful and something which I am looking to strengthen in terms of our overall intellectual property strategy with the Department, and taking this longer-term view of how we make sure in our international collaborations that over the cycles of equipment we do maintain that knowledge base.

Q222 Mr Jones: I actually agree with you on that, but can I ask what work is being done to ensure that it happens? Because clearly in terms of this project there are problems still, and talking to some Congressmen quite clearly - even though they make nice-sounding noises about "our best ally" and everything else like that - what is actually needed is possibly a treaty which covers not just this project but a whole range, in terms of what you were just talking about, Minister, of technology transfers? If we do not do that then we will come up to this roadblock every single time, and it is important that we try to remove those roadblocks, which I do not think are in the administration in the United States but actually in Congress. Some of those people are pretty hard in terms of any transfer of technology anywhere, even to an ally like the United Kingdom.

Lord Drayson: I think we absolutely need to recognise the reality of the structure of American administration, American politics. Notwithstanding that, though, I do think it is important for us to focus on gritty elements of projects where technology transfer is real and important at that point. That is what I would like the Department to focus on more - clarity, visibility about the specifics; to use its test cases. I note what you are saying in terms of a treaty but in terms of specific projects getting clarity where those projects are affected, and when, by specific areas of technology transfer, gives us the best chance of actually addressing this.

Sir Peter Spencer: I wanted to put this into context because Mr Jones did point out that government to government relationship is good, and with the Under Secretary of Defence, Acquisition, Technology and Logistics, is about as close as I get to an equivalent. I have had some quite detailed discussions over the summer, most recently last week, and what he is keen to do is to recognise that far too much senior management and government ministerial time is taken up on relatively small bits of details, and he is looking at the processes by which the DoD interact with State Department, which is where the decisions are taken, and to make sure that industry is better briefed to understand the basis on which individual applications are made, all of which has hugely speeded up the process recently. I find all of that really very encouraging. But of course when it really comes down to it it is not so much individual members of Congress who are involved in the specifics, it is the State Department and staff officers who do have an obligation to comply with United States' law, as you would expect, but who occasionally do need to have a case presented to them in a way in which they feel they can give us what they need, what the United States need - because bits of design which are being done by UK companies are being done by all on behalf of the all the aircraft, including those, of course, that go to the United States. So it is not in the United States' interest if the programme is held up by delays in technology transfers into members of Team Lockheed, and that is very clearly understood both in United States' industry as well as in the United States government.

Q223 John Smith: Last week the Committee was told that the most important area of technology and information transfer relates to operational sovereignty and I think we as a Committee absolutely agree with that. We can understand the point that was made clearly, that access to technology at the right time during the process of design and production is important, but surely access to information and technology that will guarantee operational sovereignty is vital, and it is vital now and not at some time in the future, because we could have the absurd situation where we have one of the most advanced jets in the world but we cannot operate independent of the United States, and no matter how great an ally they are to us I do not think it will be acceptable to this Committee or the British taxpayer. What are you doing to get the information required to ensure that we do have total operational independence for the Joint Combat Aircraft?

Lord Drayson: We have set out the requirements that the United Kingdom needs, in terms of the key user requirements we need to see for the aircraft to meet our needs, for example work on our carriers. We also set out the requirements that we have in terms of the type of systems that the aircraft need to have within that, the interfaces between those systems and the weapons that the aircraft may carry. We also need to recognise that one of the lessons in the recent past is that the nature of operations that our Armed Forces are asked to go on has changed quite a lot in terms of the requirement on equipment to carry out a wider range of tasks. Therefore, it is not going to be possible for us to set out in 2005 all that these aircraft may be asked to do in 15 years' time. Therefore we need to be mindful of that in terms of the systems, the future up-gradability of those systems, making sure that we have an open architecture for the software, making sure that the links between the different types of missiles that the aircraft may be needed to use, we have those options open. Where it stands today, my understanding is that we do not have any concerns relating to our ability to meet those type of issues relating to operational sovereignty, but we are mindful of that and that is why we have made sure that we have visibility of when those issues are going to come up - that we have clarity of that - and that we make sure that those requirements are being met at that point in terms of technology transfer. My understanding is that we do not have an issue on that today but as we go forward with the project this is something that we have to monitor closely.

Q224 John Smith: But if you do not have today a clear commitment to operational support it is not just major upgrades but the support of the aircraft, on the evidence we were given last week, and it would appear that we do not have the information to be able to guarantee that we do have future support for the aircraft in operations when it is in service. That appears to me, at least, to be pretty fundamental and certainly the evidence that we had last week would suggest that. It appears at this moment in time that we do not have that commitment from the Americans that we will have that level of independence with this aircraft, but I may be wrong.

Sir Peter Spencer: We do, via the Exchange of Letters which were signed earlier on, have commitment from the United States government to the United Kingdom government that it understands the basis of the need to enjoy operational sovereignty, and it is spelled out in a number of key headlines, which are signed up to as general principles. The challenge now is to convert that into what this means down into the detail of what bits of technology need to be handed to whom and where and how, and some of that technology has not yet been invented. So this was the process I was referring to earlier, with the Under Secretary for Defence, where he is putting in place a process so that when these bits of information become available - and we understand the relevance - we then have the ability to process much more rapidly, and I think it will be a confidence building exercise over time. What has happened in the last year is hugely encouraging compared with our concerns 12 months ago. I believe that we need to work together in close harmony with the United States' administration and with our own industry and the American industry and continue to demonstrate that there is a process which would work, but, as the Minister has said, and you have echoed, we are right to be extremely alert here for signs that this information might not be arriving in the timetable that we need. But nobody is going to sign a blank agreement at this stage saying, "I will tell you everything that you need to know about Joint Strike Fighter, full-stop."

Q225 John Smith: That is not what I am saying.

Sir Peter Spencer: I know it is not what you are saying but that is how it tends to appear to some of the working level officials in State Department if a rather ambiguous or very broad request comes in, which has not been properly constructed, and that is where we are getting the help.

Q226 John Smith: But the request is that we have this independent operational capability and that does not exist at this moment.

Sir Peter Spencer: We have the agreement on the six provisions. Would it help if I read through the headlines to show the ground which is covered, because it does put some flesh on the bones?

Q227 Chairman: If you could be very quick.

Sir Peter Spencer: It will be very quick. Inter-operability with other UK national defence capabilities; rapid evaluation of air system effectiveness in new-case-specific scenarios; rapid integration or modification of UK-specific weapon and sensors; inclusion of national variations and elements of emission system; satisfaction of UK-specific safety requirements and UK based logistic support infrastructure to safeguard the national capability. As headlines that is good. That is agreed. The challenge is now to convert that year by year, step by step into a robust working arrangement at detailed level, and there is a lot of support that we are getting government to government to do that.

Q228 Mr Havard: I am sure that Congressmen Hunt would have given Geronimo a treaty as well, Kevan, so I would not worry too much about that! What I am interested in is the process which you are describing, because we have the Exchange of Letters, which is the political description. I know in the Defence Industrial Strategy description that you have given me about how that work is being conducted that you talk about the technology matrix. We have been told in terms of this particular project that there is a technology matrix. Am I right in taking from this that there are process issues being put in place that will deal not only with this project - and you talk about who, what and where, but it is the "when" bit that is the real key, is it not? That is what you were saying, Minister. On certain things you are going to have that debate more than one time, but at least now you will have a process between the two governments at a lower level and the political level to actually process each technology as you need to process it. Is that what you are telling me?

Lord Drayson: I am saying that, as Sir Peter has described ---

Q229 Mr Havard: Is that going to be a standing process?

Lord Drayson: The principles are set out in the Memorandum of Understanding, as Sir Peter has just described. Those principles now need to be embodied in hard decisions around programme engineering facilities, as the project goes forward. We have a clear need to have operational sovereignty for these aircraft, and we have described the principles under which that needs to take place. What I will say in my earlier answer, relating to technology transfer, is that we need to make sure that we know where in the project those issues become "pregnant", if you like, and need to be addressed, and that we focus on those at that point and we make sure that the principles are being adhered to in reality on specifics as we go forward. I think that there are some opportunities, in the same way that we have done very well in terms of the UK's proportion, in terms of the build of the aircraft. There are some very innovative things I have seen coming into the Department in terms of which the RAF supports the aircraft in the field - stuff is being done on the Tornado, for example, at RAF Marham - and these are principles that we would like to also see applied to a future aircraft, such as JSF, and therefore we need to see this take place within this programme as it goes forward. It is about getting down to specifics at the point they come up within the programme and making sure that they adhere to the principles.

Q230 Chairman: If we could go on to risks in this programme. What are the main risks to meeting the timetable for these aircraft and how are these being managed?

Lord Drayson: I think the top risk, the technical risk, which came up a short while ago, in terms of weight of the aircraft has now been mitigated. Both the MoD and the United States are satisfied that the way in which that has been done has put us in a good position.

Q231 Chairman: Mitigated but not solved.

Lord Drayson: It is never solved until you actually have the aircraft built and flying. As it is known within aircraft development production, as aircraft go through the design and development phase you need to watch very carefully the weight growth, and therefore you maintain a contingency to make sure that as that takes place you can manage it. Where we stand today, the engineers are saying that, yes, that is now back under control, we have got back to the place where we needed to be to meet the key operating requirements of the aircraft. That does not mean to say that we can now relax; we need to maintain that focus as the design and development progresses.

Q232 Chairman: And the other main risks?

Lord Drayson: I think the other generic risks which you need to watch very carefully - the weight growth one is not unusual in fast jet development - the other one common to other aircraft, helicopters as well as jets, is what is going on with the software. We need to keep a very close eye in terms of the software development to make sure that the systems are properly integrated. That is an area that I know a lot of work is going into in terms of making sure that that is managed well.

Q233 Chairman: Cost escalation?

Lord Drayson: Within a programme such as this, recognising that this is an American programme which we are participating within, the way in which our elements within the programme - for example the work that is being done here in terms of the lift fan and so forth - the other elements of the systems which are being done in the United Kingdom, all of these need to be managed in the long-term to ensure that these risks are mitigated, that this is within an American programme, and we need to recognise that we are garnering the benefits from being part of that American programme in terms of the level of technology and the cost which we are accessing. As it stands at the moment my understanding is that the project is in good shape.

Q234 Chairman: In good shape for the timetable?

Lord Drayson: Yes.

Q235 Chairman: You gave us a very helpful memorandum, which said that, "The In-Service Date will be set when the main investment decision for JCA is taken. Our previously announced planning assumptions based on an ISD of 2014 have not been changed." Is that still the case, since you sent us this memorandum?

Lord Drayson: Yes, that is still the case, recognising that we are in the assessment phase of this project, that we have not signed the contracts for the production and take-off of these aircraft.

Q236 Chairman: So you have planning assumptions for the aircraft; do you have planning assumptions for the ship?

Lord Drayson: The key difference in terms of the aircraft and in terms of the ship is that the aircraft is being done as part of the American programme. What is being done on the ship is part of what we are doing in terms of the evolution of maritime industry within this country. The decision that we are going to be taking on the Main Gate for the ship, the reasons which we have been through at some length this morning, will be taken on the basis of having clarity around the risks associated with that, and at that point we will set the In Service Date for the ships.

Q237 Chairman: Really it was a question that was asking for a yes or a no, the question of whether you had planning assumptions?

Lord Drayson: We have planning assumptions for the elements of the carrier strike, the way in which we bring together all the various elements of the carrier strike, the ships themselves, the aircraft within it; yes, we do have planning assumptions within that.

Q238 Chairman: But you have no overall planning assumption for the carriers?

Lord Drayson: We do have planning assumptions for the carriers in terms of the programme with which we are going forward. In terms of the commitment to In Service Date and the commitment for the various parties which are coming together, we have not set that date; but we have to maintain in terms of the way in which we manage the whole defence equipment for the various elements which need to come together for carrier strike, and maintaining that in the future, and, yes, we do have planning assumptions, which we are managing.

Q239 Chairman: What is the planning assumption for the carriers?

Lord Drayson: The planning assumption for the carriers is based upon our expectation of when the carriers will come in, together with the aircraft, together with the other aspects of the equipment relating to carrier strikes. In terms of publicly announcing a commitment to an In Service Date for the carriers, we will do that when I am satisfied that we have confidence based upon the investment decision that we will take.

Q240 Chairman: We understand that, I think, but what is the planning assumption?

Lord Drayson: I am clearly not understanding something here.

Sir Peter Spencer: If I can put this into context and to slightly correct a slip of the tongue by the Minister. The aircraft is in the detailed design stage so it is more advanced than the aircraft carrier. We have gone beyond the so-called assessment phase for the aircraft. But we have still not formally set the In Service Date for those aircraft either.

Q241 Chairman: No, you said that in your memorandum.

Sir Peter Spencer: They will be set when we make the main production.

Q242 Chairman: Indeed, but your memorandum drew a distinction between formally setting the In-Service Date, which would be a decision you would make on the decision of investment, and the planning assumption with the aircraft on which you were working.

Sir Peter Spencer: In the context of the Minister saying that he noted the target date that the Ministry had previously announced, those planning assumptions are loosely connected in the sense that the carrier will come into service before the aircraft are ready to be embarked, and we are looking at a period of time between them which is going to be in the region of two years. So the planning assumptions are around that, but they are in the future at a point when we cannot pin them down with a position, which we will be able to do when we have more information.

Q243 Chairman: We are not asking for precision here because we are asking only for assumptions, and it seems to me to be odd that you have assumptions for the aircraft but not for the carriers - at least, assumptions for the aircraft which you are prepared to tell us, but not for the carriers that you are prepared to tell us.

Sir Peter Spencer: Because the aircraft programme is more mature, it is further down the line in terms of development than are the aircraft carriers. So we have a better feel for the dates for the aircraft and those are dates which are in the public domain, from the United States. We are not yet in that state of grace with the aircraft carriers. So meanwhile we are tracking those dates with the aim of tying together publicly much more explicitly when we have sufficient information on the carrier programme.

Q244 Mr Jones: Is it not the truth, though, Sir Peter, that you have a new Minister who is actually for once being open and honest with this Committee and also doing what is very unusual for an MoD Minister, or anybody from the MoD, who is actually saying, "We do not know," and will ask to review it. That is what he is actually saying, is it not?

Sir Peter Spencer: I think you will have to ask him.

Q245 Chairman: You do not have to answer that question!

Lord Drayson: I think the question that you are getting at, if I understand it correctly, Chairman (and I may have been a bit slow on the uptake here), is for us to make sure that we can maintain the defence of the United Kingdom effectively, taking into account the evolution from the existing carrier strike capability, which we have, based upon HMS Illustrious with the Harriers on it today, moving in the future to the new large carriers with the JCA fighter on them. We have to have planning assumptions in terms of the evolution of that because if we do not we are not going to be able to maintain the defence of the United Kingdom. Now, we do have those planning assumptions but there are overlaps in terms of the flexibility which we have, in terms of the various elements which need to come together. At the same time what we have to do is to make sure that where we are contracting for the delivery of new ships, new aircraft, that we do so in a way that increases our confidence over the delivery date and the cost and the risks that we are taking, and we make sure that we get that right. Because we cannot be in the position - because of the complexity of this a number of things need to come together - where we have gone forward without being clear about the actual cost and delivery date and the level of risk. That is why I am being really quite disciplined on the Department in terms of making sure that the Department does have that clear, with its industrial partners, which have to do what they have to do, before we sign up to this.

Q246 Mr Swayne: The First Sea Lord was adamant that the Navy had to have the first ship by 2012. Given your planning assumptions, or whatever you want to call them, what is the likelihood of him being disappointed?

Lord Drayson: I really cannot speak for the First Sea Lord; you will have to ask the First Sea Lord. I think for Sea Lords in the future not to be disappointed we have to have greater confidence on the delivery date and the cost of our long-term goal.

Q247 Chairman: I think Sir Peter has been inspired, or not? Not!

Sir Peter Spencer: I can tell you that when I came to this Committee previously I set out very much a set of principles that you have heard the Minister strengthen today, and to have that strong ministerial engagement quite so explicitly set out is hugely helpful, as you might expect, because we do need to get ourselves into the position where all of the Service Chiefs in the future are more likely to be pleased than disappointed because of problems of which you are aware in other areas.

Mr Havard: Can I ask my question again, Chair? When is the next best date for you to come back to give us the answers to these questions - February, March?

Chairman: I think that is a decision that we will have to take. May I say thank you very much indeed for the evidence you have given this morning. It has been a very worthwhile session and we are grateful to you for those answers you have given us, and to those areas where you have said that there is a degree of decision still to be made.