Examination of Witnesses (Questions 60
- 79)
TUESDAY 19 DECEMBER 2006
LORD DRAYSON,
MR DAVID
GOULD CB, MR
AMYAS MORSE
AND MR
MARK GIBSON
Q60 Chairman: This time last year
when you came before us you said that you were not formulating
an in-service date because you wanted to drive out risk.
Lord Drayson: Yes.
Q61 Chairman: Now you are saying
you do not want to place a contract until the industry consolidation
has taken place. Do you regard those as different concepts or
the same concept?
Lord Drayson: Actually I think
they are in parallel. They are slightly different. In terms of
risk, there is the technical risk in terms of doing the design
of the ships; and one of the important things we have done over
the past year and made a lot of progress on is in terms of issues
relating to where we can introduce commercial build standards—for
example, that are used in cruise ship design and construction—in
an appropriate way for a warship; where modular design in terms
of cabins and so forth are slotted into the hulls; the concurrent
design that you use, so you are still designing some parts of
the ship in parallel with certain elements of construction. These
are practices which we wanted to bring into the carrier project
because that was going to be important to the modernisation of
the industry.
Q62 Chairman: Has that now been completed?
Lord Drayson: I would say that
is largely completed, in terms of getting to the position where
we are able to take a Main Gate decision, so the two come together.
I am hoping we are in a position to see these things coming together
shortly.
Q63 Chairman: The risk has been bottomed-out
pretty much, but it is now the consolidation that has not?
Lord Drayson: Yes. The progress
recently on the consolidation, this announcement recently I see
as a very positive sign we are now seeing progress on consolidation.
Q64 Chairman: One final question
on the carriers: the discipline you were talking about, would
you breach that discipline if you were to tell us the planning
assumptions on which industry is working in relation to an in-service
date?
Lord Drayson: I really believe
I would, Chairman, because I know that certain parts of the industry
would prefer other ships to be built before the carriers were
built and it is logical for them to want that. What I have to
do is manage overall those tensions to deliver what the Armed
Forces need by the date consistent with that.
Q65 Willie Rennie: It is probably
going slightly off the track of what the others want to talk about.
You have talked about BAE Systems and VT, but you have not talked
about the Babcock DML rumours which are flying around. Would you
like to comment on those at all?
Lord Drayson: Yes, in my comments
so far I have focused on the surface ships. These arguments also
apply to submarines. In submarines, where we have even greater
clarity that we have certain dockyards within the country that
provide an element of the provision of our submarine fleet, from
design and build at Barrow, through to operations and support
at Faslane, in terms of Devonport in terms of refuelling and maintenance
of the submarines, again what we want in submarines is the development
of Through Life Capability. We want our submarines to have designed
in the maintainability. We want the industry to come together
in a way which enables us to do that. We have been pushing industry
to do that now since the Defence Industrial Strategy was published.
I think we have seen progress, in the sense that I have been very
impressed in the way in which the performance has improved at
Barrow. I think the job that is being done in Barrow, working
on the practices there (and you visited the yard, Chairman) that
is good. The work which has been done at Devonport in terms of
the improvement of the time it takes to refit submarines, that
is good. What we need to see is this integration. I think we discussed
this when I was here on the matter of the placement of the nuclear
deterrent. We were very disappointed with the way in which KBR
went ahead with the IPO of the company; and we are now actively
managing that situation. It is important (and this is the nuclear
deterrent we are talking about) that we ensure we have confidence
on the development of this supply chain in submarines, and we
need to manage that very actively to ensure that we do achieve
that.
Q66 Linda Gilroy: Turning back to
the formation of ShipCo—to what extent are the planning
round 2007 rumours, that some ships, say six out of the 25 frigates
and destroyers that there are, could be tied up and might never
come out of the docks again, to what extent is the work, the support
costs of that, tied up with negotiations on the whole arrangement
with the formation of ShipCo?
Lord Drayson: Answering generally:
I am looking forward to the conclusion of the CSR, such that we
then have got absolute clarity; we can provide further transparency
to industry across the board. That is one of the objectives we
should have for the end of 2007, on the basis of the resolution
of the CSR to be able to provide that; and that applies to everything,
not just in terms of surface ship support. Clearly the CSR has
an effect on everything.
Q67 Linda Gilroy: You are saying
that the outcome of the Comprehensive Spending Review will impact
on how many ships there will be in the Royal Navy in future?
Lord Drayson: No, I am not making
a specific point about those numbers of ships. What I am saying
is the outcome of the Comprehensive Spending Review clearly provides
us with clarity of where we stand on the defence budget and, within
that, the equipment budget, all of these things. That is going
to be very helpful in terms of being able to manage the implementation
of the changeover in the second half of the year when it is expected
that will be delivered. I am not making any comment about what
the outcome of that will be—that is above my pay grade—or
the impact of any settlement on any particular decisions; because
those decisions have not been taken and the settlement has not
been resolved.
Q68 Mr Jenkins: Minister, you just
said that we have got the budget now. You have a clear budget
line of procurement costs as well, do you, a year-on-year budget?
Lord Drayson: Yes.
Q69 Mr Jenkins: At one time we were
not completely honest with the industry when we used to place
orders and delay orders because we could not afford to place them
in that year. The same thing with industry—which was not
very honest with us. They used to tell us that things were going
to cost £2 million when in fact it was going to cost £6
million. Have you mapped out now totally the requirements we need
and the cost of these requirements and the amount of budget we
have got on a year-on-year basis?
Lord Drayson: If we look at the
Defence Industrial Strategy, in each of the sectors we set out
a graph based upon the existing defence budget, the last settlement,
of the equipment programme in each of these sectors; and it sets
that out over 10 years. It has a tolerance band within it and
that gives, I think, the top level of clarity that industry needs
in terms of overall planning within the sectors, and we then have
to manage within that. This was one of the things which came out
of last Friday actually—which is why I was a bit surprised
at your comment, Chairman, that it was a celebratory mood. A clear
piece of feedback which the MoD got, I got, on Friday was the
need for more transparency than this. I committed, as my objective
for 2007, to deliver that clarity to industry; but what I said
to industry was that industry needs to show through its performance
that that clarity is having an effect.
Q70 Mr Jenkins: Do we have a condensed
version of this within your Department; an actual budget line,
so we know what we are going to be buying now, what our commitments
are now, and what our commitments are for the next 10 years and
where the costs are going to impact on us? Do we have that budget
line all laid out?
Lord Drayson: Yes, but it is of
course subject to the Comprehensive Spending Review settlement
and negotiations which will take place.
Q71 Mr Jenkins: Is it possible to
get a copy of that in a form I can read and understand?[3]
Lord Drayson: I will try and provide
you with the further detail. I think a good starting point is
what is published within the Defence Industrial Strategy. I will
see what more we can provide in terms of the detail behind that;
but it already provides over 10 years the shape of the demand.
You will see from it some sectors show an increase in demand and
some sectors show a decrease.
Q72 Mr Jones: Can I just finish this
section in terms of maritime and talk about Astute. One of the
milestones the two-page checklist you gave us was the award of
the fourth contract and subsequent contracts. CDP told us on 10
October the prices for boats 2 and 3 had still not been agreed,
and would not be agreed and that boat 4 would not be awarded before
that had been decided. Can you just give us an update on what
happened with the order of boat 4?
Lord Drayson: We expect to be
in a position to make a decision on boat 4 reasonably early in
the New Year. What we are doing is making sure we have got the
best possible understanding in terms of how they got through the
process of boat 1, encouraging the company to make the necessary
changes to improve performance; there is therefore then a negotiation
in terms of subsequent boats; all within the structure of a recognition
by us, set out within the Defence Industrial Strategy, that we
need to have a frequency of orders to maintain capability. We
have said approximately 22 months. We know to maintain that capability
in the submarine industry we have to place orders at that frequency
but we want to see these improvements to deliver this value for
money.
Mr Gould: We have made some very
good progress on boats 2 and 3. Boat 1 has enabled us to actually
rebuild the industry. We have had an external review to verify
the quality of the industry, which has come out very well. The
Minister is quite right, we would hope to be in a position to
make a decision on boat 4 early next year.
Q73 Chairman: When would you expect
to agree a price on boats 2 and 3?
Mr Gould: Just before we make
a decision on boat 4.
Q74 Mr Crausby: Are you really saying
you might not order boat 4 even though you have said that in order
to maintain the capability it needs to be 22 months and 24 months,
and we have already committed ourselves to a Vanguard replacement
in 2024? Is there a realistic prospect of not ordering the boats?
The point I make is that the Department has put that forward in
its White Paper; it seems committed to a Vanguard replacement.
It is committed to 22 months/24 months; yet it says it is not
really committed to boat 4. I would have thought that the industry
is pretty certain you will buy boat 4.
Lord Drayson: I think the industry
also is very clear that we are very serious about price; we are
very serious about the changes. We had a mini discussion on this
on the aircraft carrier. We have taken a lot of trouble of understanding
the procurement process, and we are only going to place orders
when we are satisfied that we have got the answers that we need
on these three things. I think what we are seeing is that the
industry has got this message and is making the changes.
Q75 Mr Borrow: In DIS you stated
that the MoD will work with BAE Systems and the other companies
to help restructure the aerospace sector and reach the appropriate
size. What is the state of play at the moment?
Lord Drayson: I think we are pretty
close to an agreement with BAE. The important factor of negotiation
is that the restructuring and change which we need to see within
the aerospace industry is linked to work which we need to see
done by the Ministry of Defence. There is this clarity about workload
which is related to decisions on things like Joint Strike Fighter,
decisions on Typhoon, decisions on the Taranis Unmanned Aerial
Vehicle project, which are tied up with coming to an agreement
with the company about the changes which we need to see which
affect fixed costs and so forth, to again get this balance right
for the sustained capability. What has had to happen is that the
Ministry of Defence had had to deliver on its side in terms of
the decisions around specific areas; so, for example, the Joint
Strike Fighter; and then in negotiation that Amyas is leading
with the aerospace industry of how we ensure that we get value
out of the changes, and we are not paying for the industry to
do things which we do not need the industry to do. I think that
the signature last week of the Memorandum of Understanding on
the Joint Strike Fighter was a very helpful piece of progress
to be able to give this clarity. If I may say so, Chairman, I
would like to record my thanks to your Committee for the clear
stance which you and your Committee took with Joint Strike Fighter,
it was very helpful in me really persuading the United States
that we were deadly serious about what we said about technology
transfer. I am very pleased that we were able to get the technology
transfer that we needed and therefore able to sign the Memorandum
of Understanding; that, therefore, gives clarity to the aerospace
industry in this country. Other things which we have gone: I remember
seeing within BAE, within Rolls Royce, Smiths and QinetiQ very
exciting stuff in terms of engine work, in terms of autonomous
air vehicles. The United Kingdom clearly had some leadership in
some areas of technology, which we think is going to be vitally
important in the future. It has taken us a year, but we have now
put together a project, the Teranis Project, which is to create
a unique autonomous unmanned combat air vehicle in the future,
and that is going to be another important part of future workload
for the industry. The area which for 2007 is a big project for
me to deliver is further changes that we need to see in the Typhoon
industrial structure relationship with the other partner nations.
We have seen some good progress on Typhoon, but not enough; and
now that Typhoon is coming online as an important defence capability
we really do need to see in 2007 some significant change and improvement
in the Typhoon arrangements between the four partner nations.
Q76 Mr Borrow: Just coming straight
to Typhoon, are you saying you are not in a position to order
the third tranche or decide how many aircraft will be in Tranche
3 until you are sure that the industry has carried out the necessary
changes itself in order to place that order?
Lord Drayson: Yes. Before we can
go forward on a Tranche 3 decision—and we do not have to
take that decision yet—I do believe that there needs to
be a remodelling of the Typhoon structure. It is very important,
I think, that I am not seen as beating up on industry on this
point because it is political as much as industrial. It is about
getting agreement within the four partner nations upon the way
in which we can make changes to the structure for Eurofighter
and the Typhoon to deliver better performance in terms of value
for money, ability to carry out upgrades. For us we need to see
the changes in terms of upgrades to the fighter to give it a ground
attack capability to be done efficiently. We do not think that
has been good enough up to now and we really do need to see that
happening in 2007.
Q77 Mr Borrow: Your criticism is
not simply of BAE Systems in Lancashire?
Lord Drayson: Not at all.
Q78 Mr Borrow: In terms of the way
in which they have put the aircraft together, it is the overall
structure involving partner nations and the way in which their
parts of the jigsaw operate individually and then how they are
all meshed together that is part of your criticism. Is that criticism
shared by your opposite numbers in our partner nations?
Lord Drayson: I think that is
the job that BAE does in Lancashire and they do a good job. It
is not that I am criticising that company or the other UK companies
involved in Typhoon, it is the structure under which Typhoon has
been put together as a European international collaboration, that
is what needs to change. I think it is shared by my opposite numbers.
I think there is a difference of opinion on the urgency. From
the United Kingdom's point of view this is now a very important
military capability, these aircraft will be undertaking the air
defence of the United Kingdom this year. These are aircraft which
could have a very big effect if given ground attack capability,
for example in Afghanistan. We need this to be done efficiently.
We think there are real opportunities to improve efficiency. We
see big differences in terms of spares prices, value for money
for different parts of the aircraft, and this needs to change.
I hope that this is something which I can effect in 2007.
Q79 Mr Havard: I agree with a lot
of that. Just on JSF though, this is not about the technology
transfer element of it but the Memorandum of Understanding, you
are talking about a work mix of different things for the industry
here and you were talking about JSF as part of that. As I understand
it, it says in your latest press release that companies will be
able to compete for work in the next phase. What about fabrication
and what about deep maintenance? Are there any possibilities at
some point or another with JSF that fabrication will be seen in
the UK and where will deep maintenance come into that? Will BAE
Systems, for example, or somebody else be screwing these things
together?
Lord Drayson: Yes to both of those
parts but, talking about the fabrication, it is not so much the
screwing bits together but it is recognising that the Joint Strike
Fighter has a significant part of it—and that is all Joint
Strike Fighters for all nations—which is British technology
and it comes from British companies. The most visible, I think
everybody recognises, is the lift fan that gives the STOVL the
jump jet technology, that is all British. Not so widely known,
I think, is the manufacturing know-how that goes into certain
elements of the airframe and the ability to manufacture very close
tolerances which came out of BAE, but also other parts of the
British aerospace industry which are providing very important
components to the Joint Strike Fighter which will be on every
Joint Strike Fighter internationally. Turning to maintainability,
very important to the United Kingdom is this concept of operational
sovereignty—
3 See Ev 35 Back
| 
