Examination of Witnesses (Questions 80-99)
MINISTRY OF
DEFENCE
31 JANUARY 2005
Q80 Mr Bacon: Can you tell me how
many companies have been asked to bid for that?
Sir Peter Spencer: Six.
Q81 Mr Bacon: Who are they?
Sir Peter Spencer: Vosper Thorneycroft,
BAE Systems Naval Ships, AMEC, KBR, Bechtel and Chantiers de l'Atlantique.
Q82 Mr Bacon: KBR is a subsidiary
of Halliburton?
Sir Peter Spencer: It is.
Q83 Mr Bacon: Are you familiar with
this book by Dan Briody about Halliburton, The Halliburton
Agenda?
Sir Peter Spencer: No.
Q84 Mr Bacon: It describes a pattern
of cost overages involving Halliburton and the US Government that
go back as far as the Second World War and extend forwards through
Vietnam, Somalia and Bosnia. Why would a company that has that
kind of record be a suitable company to be on your short list?
Sir Peter Spencer: Because we
are dealing with KBR and because we have looked at their performance
on a whole range of similar projects and have satisfied ourselves
that they have delivered a good result.
Q85 Mr Bacon: These are the people
you are asking to project manage the entire thing because you
do not appear to be able to trust either BAE or Thales.
Sir Peter Spencer: I have not
said who is going to be project managing the Carrier programme.
Q86 Mr Bacon: It is possible that
they will not get it?
Sir Peter Spencer: No decision
has been announced.
Q87 Mr Bacon: Do you know when the
decision will be announced?
Sir Peter Spencer: I hope the
decision is going to be announced within the next few weeks.
Q88 Mr Davidson: I presume that the
Report is generally accepted by yourselves?
Sir Peter Spencer: Yes.
Q89 Mr Davidson: On page six we have,
"The principles of good procurement are not being consistently
applied" and, "Not all projects have applied sensible
acquisition principles . . ." etc You indicated earlier on
that you accepted this was a poor and disappointing Report. I
come back to page one, paragraph four, where it draws the distinction
which we have had on a number of occasions from yourself and your
predecessors between legacy projects which were seen to be projects
about which all we could do was wring our hands because those
were previous people and then you had these projects being acquired
under Smart Acquisition where our problems should all be resolved.
Now it turns out that problems being purchased under Smart Acquisition
are not having the Smart Acquisition process applied. Why is that?
Sir Peter Spencer: This was the
conversation we had last year.
Q90 Mr Davidson: I know but it is
worth repeating.
Sir Peter Spencer: The reasons
are those that are brought out in this Report. We had seven principles.
We had a reorganisation at the Defence Procurement Agency which
in my view had seriously weakened the ability of the executive
board to oversee the integration of programme and risk management.
There was a very strong emphasis on the delivery of project outcomes
from IPT leaders to their Directors of Equipment Capability in
London. We also did not have when I arrived the monthly instant
status reports that I would normally expect to find to show me
how well we were doing month on month in performance, time and
cost and also importantly delivery to the front line of the equipment
itself. We did the review as to what was happening and why and
came up with an agenda for reforming this as a matter of some
urgency. I reorganised the Agency. I put in place immediately
some major changes in process. These are fairly labour intensive
in some cases so we are having to readjust the roles of certain
people in the Agency to do assurance of the large number of projects
we manage. At the same time, we have taken a look at sustaining
this in the long term and realised that—
Q91 Mr Davidson: I understand. I
wanted to go through that bit. I understand what you are doing
to correct it. Basically, there is a reorganisation which led
to more incompetence than there was before. Now you are taking
steps to correct this. Would it be accurate for future reports
for us to have, instead of the legacy and the Smart procurement,
the two strands, almost three strands: legacy, Smart procurement,
one, before yourself and, after that, Smart procurement with all
these changes in order that we can make reasonable assessments
about whether or not the new pattern of structure and methods
is working?
Sir Peter Spencer: It will certainly
be a good test. The difference is I have not declared what I am
doing as a silver bullet. I describe what I am doing as a fairly
sustained effort which is going to need to be vigorously pursued
over some years because I cannot suddenly sprinkle on top of all
the projects which are maturing—
Q92 Mr Davidson: I understand that.
What I am looking for is hope. We have had explained that it is
effective and why we could not expect anything better from the
legacy projects. Now it turns out we cannot necessarily expect
absolutely better results from the Smart procurement projects
because most of those do not have the corrections applied and
so on. I am looking for whether or not there is a third category
from which things will be effective and no doubt in time we might
discover there is a fourth scale.
Sir Peter Spencer: I am not disagreeing
with you. I am trying to condition expectation here. I expect
to demonstrate that the projects which are properly managed—and
there are a number in this Report—will deliver the results.
Therefore, the challenge is consistency. The sign of hope which
you will get in addition to the MPR05 and subsequent reports will
be the results against my key targets which are independently
audited by the National Audit Office and published in this place.
Q93 Mr Davidson: That is very helpful
but I am worried that we almost get, as it were, the Private Fraser
approach to these things: doomed, doomed; we are all doomed. I
am looking for some sort of hope here that, while we might be
doomed for both the legacy projects, the first phase of Smart
procurement and possibly the second phase of Smart procurement,
things are getting better and things can only get better. Can
we expect therefore for next year or would it be fair to have
this categorisation where we can measure them in groups and see
that there is improvement coming about, or is it the Private Fraser
answer that we are all doomed?
Sir Peter Spencer: We are not
all doomed. I would not be doing this job if I did not know that
we can do better and did not believe that we shall.
Q94 Mr Davidson: Your predecessor
told us that you can do better. We do not doubt that you can do
better but what we doubt is that better is not being done.
Sir Peter Spencer: What I would
value is your support rather than your scepticism at this stage.
I accept that as the principal you could look to see the measure
from here on in and clearly the National Audit Office will be
the people who will form a professional view as to the extent
to which they feel that the information will be available to them
to give you an independently verified view.
Q95 Mr Davidson: I very much take
the point that you look for our support rather than our scepticism.
That is what the Prime Minister usually says on Europe as well.
We have to have something on which to base it and some sort of
evidence that improvements are being made.
Sir Peter Spencer: Let me give
you the evidence of the forecast against the key targets this
year from the Defence Procurement Agency, against the top 62 projects,
all the so-called Cat A, B and C projects. Last year the average
project slippage for that category was nearly three months per
project. The year before it was five months per project and the
year before that it was two months per project. We are aiming
to drive this down to close to one month per project. Wherever
we end up, it is somewhere between 0.9 and 1.4, that is a huge
improvement. So far as cost is concerned, the figures for the
previous three years were plus 0.6%, plus 5.8%, plus 2.0%. This
year it will be minus 1.3%. I am also looking to deliver in-year
the value in pound notes of the assets that we said we would deliver
at the beginning of the year. Those three things are huge improvements
already and a reflection on the performance of my Operations Directors
and the Team Leaders in really gripping this and trying to turn
it round. These are just indications that we are beginning to
turn the corner. My job is to continue to deliver those improvements
and they will in due course reflect into the MPR report which
is a tougher proposition because there is some sort of sluggishness
in that and some turning around of results of what has happened
in the past.
Q96 Mr Davidson: I think we are being
supportive and, even though you might not necessarily see it,
much of this is for your own good. Otherwise we would not be doing
it. We argue that you ought to have these in different categories.
I think it would be to your advantage so that we can see things
coming forward in different ways in different systems. Since time
is money, I wonder if you would turn to page 24, box five and
box six. As I understand it, the reduction in the number of Nimrods
ordered was because of a reduction in need. The argument for the
reduction in the Type 45 Destroyers was that you were able to
make them do more. It is my view that the reduction in destroyers
was almost entirely cost driven but what evidence is there that
the reduction from 12 to eight do, as I understand here, the same
job? It seems to me to be a 50% increase in the effectiveness
of each of the vessels. To what extent can we be assured that
that is the position and to what extent can we be assured that
the cost of these 50% better eight is not going to be, because
of over-runs, the same as the cost of the 12 it was originally
going to be?
Lt Gen Fulton: Could I deal with
the first part of the question? There is not a one to one relationship
between increase in that programme; therefore, reduce the numbers
in that programme. What we have to do is look at the programme
as a whole and balance it out against competing demands. In this
case, the Type 45 Destroyer will be a vastly more capable ship
than the Type 42 Destroyer that it is replacing. It will be able
to cover a larger area and it will be able to defend a larger
part of the fleet. Therefore, in terms of balancing out what proportion
of the defence budget should we invest in destroyers and what
proportion of the defence budget should we invest in something
else, that is the balance we have to do.
Q97 Mr Davidson: You knew that, surely,
when you originally decided to have 12 of them.
Lt Gen Fulton: The situation has
changed. Since the Type 45 was first conceived, for example, 11
September has happened. We have had the Defence White Paper. We
have had the SDR New Chapter.
Q98 Mr Davidson: That is excellent.
If you are saying to us that the reduction from 12 to eight was
cost and need driven, that is much better than the message we
have here which has been agreed by yourselves which suggests that
the eight are able to do the job that the 12 were doing before.
It is a much more honest approach.
Lt Gen Fulton: It has to be balanced
out across defence as a whole. If the cost goes up, we have to
determine whether we want to spend the extra in that area.
Q99 Mr Davidson: That is a yes, is
it? The reduction from 12 to eight was basically cost driven and
less need rather than eight being able to do the job the 12 were
originally planned to do?
Lt Gen Fulton: It is a combination
of factors. It is neither a straight yes nor a straight no, I
regret.
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