Examination of Witness (Questions 160-179)
SIR PETER
SPENCER KCB
10 OCTOBER 2006
Q160 Robert Key: That is very good
news. The Public Accounts Committee suggested that one option
might be to break up the helicopters for spares, to cannibalise
them. Is there any question of that or will all eight of them
remain untouched?
Sir Peter Spencer: At one stage
we thought that might be an option. That was before we had defined
what the fix was going to be. We now have good technical definition.
We now know what the solution is. The discussion is how much we
are going to pay for it and we would expect Boeing to cap our
liabilities with a firm fixed price. I am not interested in getting
drawn into a project which if it cannot be delivered we end up
paying more and more and more money, which is where we were last
time. So there is a very important point of balance to be struck
here, of course not to delay the needs of the Armed Forces for
a day longer than is necessary, but what we cannot do is to sign
up to another bad contract. We are not arguing from a position
of particular strength with a company which has a very large order
book. As I have made it clear to them, as far as I am concerned,
it is their reputation which is at stake here.
Q161 Robert Key: Yes but there are
other reputations too. I hope very much that you will manage to
lay some ghosts to rest here because, of course, my constituents
who work at Boscombe Down have been haunted for many years by
what happened with the ZD576 Chinook on the Mull of Kintyre. It
was of course the engineers at Boscombe Down who refused to certify
that helicopter for flight which subsequently crashed. We will
not go into that, but if we can now rebuild the reputation that
you have mentioned that will be a very important side effect.
The most important thing, however, is to get those Chinooks in
service for the benefit of our troops.
Sir Peter Spencer: Of course.
Q162 Chairman: The consequence of
these Chinooks being out of service is that the troops in Afghanistan
and Iraq have a severe shortage of heavy lift. Is there in progress
any thought of an interim solution to improve the heavy lift capacity
that is available to both of these theatres?
Sir Peter Spencer: To the best
of my knowledge, and I am not as well briefed on this as others
in the Ministry of Defence, the focus at the moment is looking
at medium lift in the immediate term, but that does not discount
anything in terms of acquiring additional items of inventory.
The main thrust of the work of course is to manage the operations
of the aircraft that we have got and to look at priorities for
deployment of those aircraft between the two theatres.
Q163 Mr Lancaster: Can we clarify
what we mean by heavy lift, medium lift and rotary lift? Heavy
lift I am thinking of Antonovs and C17s and things like that as
opposed to medium lift, Hercules—
Sir Peter Spencer: I thought we
were talking helicopters.
Mr Lancaster: It is relative.
Q164 Chairman: So what sort of helicopters?
Sir Peter Spencer: Heavy lift
in my vocabulary is either a Chinook or a great big Sea Stallion
or a big Sikorsky; medium lift is Merlin and Puma, those sort
of things.
Q165 Mr Holloway: How are plans progressing
or indeed are there any to start using private contractors to
do the water runs and mail runs in Afghanistan in order to let
the military helicopters do a more military role?
Sir Peter Spencer: We are looking
at a range of options. One of the challenges of those sorts of
arrangements is the liability issues in theatre. So until the
requirement is clearer from the military customer precisely what
he wants us to go and do, all I can do is to look at the proposals
that come forward. Anything which is on a lease does give you
quite severe challenges in terms of insurance and liabilities.
Q166 Mr Holloway: But MI-17s cost
a lot less, I guess, than Chinooks. On Chinooks how long would
it take to magic up another six Chinooks from Boeing or anybody
else? What are the options? If the Government decided we want
six more Chinooks tomorrow, how long would tomorrow be?
Sir Peter Spencer: A lot would
depend on the extent to which when we engage with Boeing other
customers, particularly the United States Army, were prepared
to allow an order to be diverted. They are in production at the
moment for the Green Fleet of Chinook Foxtrots. You could certainly
theoretically go for a very rapid purchase but a lot of it depends
on the availability of money, the willingness or the ability of
that production line to be diverted and we have not, to my knowledge,
approached Boeing with that question. If I am invited to do that
then I will do so.
Q167 Chairman: Do you take the Prime
Minister's comments over the weekend as being the answer to the
availability of funds?
Sir Peter Spencer: I work inevitably
to the process that it will be for the military to determine the
priorities of what equipment they believe they actually need in
theatre, the order in which they want it and the extent to which
that money would be made available either outside the normal budget
in support of operations from the Treasury through the national
reserve or the extent to which we would have to look at the rest
of the programme.
Q168 Chairman: But surely if the
Prime Minister meant anything he meant that if the need was there
the money would be found?
Sir Peter Spencer: That is going
to be something which Ministers will have to determine. It is
not for me to act on the basis of what I read in the newspaper
what the Prime Minister has said. There does need to be, even
allowing for the need for agility of response, somebody who is
calling the direction, and that will come from the Secretary of
State.
Q169 Mr Hancock: Have you been approached
to look at any method at all of improving the medium lift capability
for our troops and have you been instructed to seek out a solution
to that problem?
Sir Peter Spencer: Have I been
or will I be?
Q170 Mr Hancock: Have you been?
Sir Peter Spencer: The work is
going on at the moment through the future rotorcraft capability
team leader who is looking at the whole range of options. It is
a pretty rapidly moving field at the moment, so there are a range
of things which are being looked at from diverting from other
sources to accelerating the programmes that we have already got.
Q171 Mr Hancock: What sort of time-frames
have you been instructed to work under for that?
Sir Peter Spencer: I have not
personally been given a time-frame to work under but the answers
are being fed back to Ministers in real time in terms of what
those options are and Ministers are engaged in it.
Q172 Chairman: Sir Peter, I am a
bit disappointed by what you are saying here because the Prime
Minister said over the weekend that the troops can have anything
they need, and the implication of your reply is that you are shoving
it back into the negotiations between the Treasury and the Ministry
of Defence, which have always been rather fraught. What does the
Prime Minister's promise that the troops could have anything they
need actually mean in practice?
Sir Peter Spencer: I am not hiding
behind the relationship between the Ministry of Defence and the
Treasury. I am just respecting the position I am in in terms of
being accountable for the expenditure of public funds.
Q173 Chairman: But did your heart
leap when your heard what the Prime Minister said?
Sir Peter Spencer: Yes of course,
but somebody has to be the team leader and the team leader is
the Secretary of State. That is not me opting out. If everybody
rushes off in different directions and runs up their own particular
wheeze, it does take quite a long time to sort it all out. I am
absolutely clear that the Secretary of State is looking at the
options which are available and are being costed and presented
to him, and I am absolutely clear that he will implement those
as fast as he is able to. How he gets that funded is something
which he necessarily must agree with the Treasury. There is no
basis on which the Ministry of Defence would go out without the
Treasury having endorsed the expenditure of money; that is the
way the process works.
Q174 Chairman: So we can be confident,
can we, that the Secretary of State would put into effect and
give reality to the Prime Minister's words over the weekend?
Sir Peter Spencer: I think you
would have to ask the Secretary of State that himself.
Q175 Chairman: Can we move on to
HMS Astute. Recently the Committee visited BAE Systems
in Barrow and Devonport Management Limited because we were looking
at the Strategic Nuclear Deterrent and we saw HMS Astute,
we saw HMS Ambush, and Astute was very nearly finished.
Are you satisfied that the problems with the programme are now
dealt with?
Sir Peter Spencer: No, I am not.
Q176 Chairman: What are the problems
outstanding?
Sir Peter Spencer: Well, to give
credit where it is due, I think the leadership at Barrow has been
outstanding under Murray Easton in terms—
Q177 Chairman: I think we would agree
with that.
Sir Peter Spencer:— of the
focus of his shipyard on the schedule and I think in terms of
the progress in making the schedule is extremely encouraging.
Our planning date is 2009 and he is determined to beat it and
show us he can do it in 2008 and all of that I hugely applaud.
The concerns I have got are that we have at the moment unlimited
financial liability for boats two and three because we have not
managed yet to agree the prices of boats two and three and we
know that there have been problems in terms of rework in terms
of the fragility of the supply chain, all of which continue to
put up the financial pressures and I am extremely keen to bring
this to a conclusion ideally before the end of this financial
year because it is high time we did so. Now, we are making progress
on that front because we now have got a much more detailed set
of prices which are being offered up for negotiation. We have
done a lot of independent assessment of that with the Pricing
and Forecasting Group and we are now into the stage of negotiations
which is very difficult to predict in terms of duration because
there is a lot of money at stake. We then have to think about
the rest of the programme and the ability to continue to build
these submarines where we know the supply chain has taken a lot
of damage because of the disruption to the early part of the build.
Therefore, there is a lot of effort being put into drawing together
across industry the right grouping of companies to look at boat
four and the subsequent boats in that class to make sure that
we get right the underlying drumbeat of the industry, that we
nurture and make healthy again the supply chain and that we do
not lose out on the key skills which are needed to do this very
demanding work because it is probably the most complicated thing
that anybody ever makes, a nuclear submarine.
Q178 Mr Crausby: So does the lack
of agreement on prices for boats two and three affect the second
batch of submarines? It seems to me that it would be odd not to
agree the prices on boats two and three, but agree a contract
for further submarines.
Sir Peter Spencer: Our approach
is, as you would expect, that we necessarily must agree prices
for two and three before we consider placing a contract for boat
four, although in the nature of things we have not been absolutely
literal about that because if we had not done anything regarding
boat four, we would have already forgone the opportunity to have
a boat four, so we have invested carefully in those long-lead
items which are necessary to sustain the industry.
Q179 Mr Crausby: So you see the next
batch as just simply being boat four? The question is: how many
would be in the next batch? Would you do this one at a time for
boat four and boat five?
Sir Peter Spencer: The decision
has not yet been made and it is being worked through in the context
of the Defence Industrial Strategy as to precisely how and when
we will contract for them.
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