House of Commons - Defence

Select Committee on Defence Fourth Report

3 The submarine industrial base

23. The Government's Defence Industrial Strategy (DIS), published in December 2005, sought to "provide greater transparency of our future defence requirements" and to set out, for the first time, "those industrial capabilities we need in the UK to ensure we can continue to operate our equipment in the way we choose…to maintain appropriate sovereignty and thereby protect our national security".[7]

24. The maritime section of the DIS stated that:

It is a high priority for the UK to retain the suite of capabilities required to design complex ships and submarines, from concept to point of build; and the complementary skills to manage the build, integration, assurance, test, acceptance, support and upgrade of maritime platforms through-life.

For the foreseeable future the UK will retain all of those capabilities unique to submarines and their Nuclear Steam Raising Plant (NSRP), to enable their design, development, build, support, operation and decommissioning.[8]

25. In this way, the DIS sought to ensure that "options for a successor to the Vanguard class deterrent are kept open in advance of eventual decisions, likely to be necessary in this Parliament".[9]

26. The DIS stated that the retention of an onshore sovereign capability in submarine design and manufacture was required because "the UK's fleet of nuclear powered submarines requires a specialist subset of skills within the maritime industry" and because the UK had "duties of nuclear ownership and commitments to the USA which can only be fulfilled by close control of an onshore submarine business". On this basis, the DIS concluded that "it is essential that the UK retains the capability safely to deliver, operate and maintain these platforms, without significance reliance on unpredictable offshore expertise".[10]

27. In evidence to us, Lord Drayson, the Minister for Defence Procurement, stated that:

We have a responsibility…of making sure that if we are operating nuclear submarines we have the capability to do so safely. Being able to ensure that we have that capability and that know-how is intimately tied up with an understanding of the design, the development of the system, which best comes from…having the design base and skills here in this country to do it.[11]

28. He also told us that "it is not possible for us to procure many aspects of the submarine from other parties".[12] Because of the safety issues and regulatory burdens involved, nuclear-powered submarines were in a "different league" to other military equipment, such as armoured vehicles or fighter jets, which could be purchased off-the-shelf.[13]

29. Lord Drayson also stated that a contributory, though "second order", reason for retaining a sovereign capability was the issue of affordability. He argued that designing and manufacturing nuclear-powered submarines in the UK was more cost effective, and ultimately better value for money, than procuring them from abroad.[14] He said that American and French nuclear-powered submarines were significantly more expensive than British-built boats. Rear Admiral Andrew Mathews, Director General Nuclear at the MoD, acknowledged that this cost difference was at least in part because the US submarines were built for a longer service life.[15]

30. The White Paper states that:

It would be our intention to build the new SSBNs in the UK, for reasons of national sovereignty, nuclear regulation, operational effectiveness and safety, and maintenance of key skills. But this is dependent on proposals from industry that provide the right capability at the right time and offer value for money.[16]

It also states that the Government will "seek to bear down on the costs by sourcing some sub-system elements from overseas".[17]

31. The Ministry of Defence believes that the UK should retain onshore a sovereign capability in the design, construction, operation, maintenance and decommissioning of nuclear-powered submarines. It is important that the public understand clearly the reasons for this. We call upon the MoD to provide, in its response to this report, a fuller explanation of the need for this sovereign capability.

Key skills

32. As well as declaring a national security imperative for the retention of a sovereign capability in the design and manufacture of nuclear-powered submarines, the Defence Industrial Strategy also identified, in broad terms, the areas of expertise the Ministry of Defence considered essential to retain onshore in the UK. In respect of submarine design, construction and maintenance, the DIS stated:

Deep scientific and technical advice on hydrodynamics, manoeuvring and control, propulsor technology and atmosphere control are specific capabilities essential to submarine performance. Structural and acoustic engineering design is not readily available from the broader market place and has to be maintained within the specialist submarine industry. Submarine hull and infrastructure design and construction require the use of specialist techniques, for example particular welding and fabrication processes. These specialist underpinning capabilities must be sustained in the UK.[18]

33. In addition, the DIS highlighted the specialist skills involved in nuclear propulsion in which the UK should retain a sovereign capability:

The ability to manage Nuclear Steam Raising Plant throughout its life-cycle, including the fuel elements, is a strategic capability that must be retained onshore. This includes design and development, manufacture, test and evaluation and decommissioning. An irreducible minimum level of associated facilities, intellectual resource and supporting technologies must be provided within the UK or under arrangements that guarantee UK control and safe ownership.[19]

34. In evidence to us, defence companies and trade unions told us that the design, construction and maintenance of nuclear-powered submarines, including the nuclear propulsion system, was an inherently complex enterprise. The process demanded the highest standards of manufacture and was dependent on sustaining a uniquely skilled and specialised workforce.[20] Nationality restrictions apply to who can work in the UK's nuclear submarine programme, which limits the pool of suitably qualified staff from which industry can draw.

35. According to BAE Systems, which owns and operates the Barrow shipyard, the broad skills sets utilised in the design and construction of a nuclear-powered submarine include naval architecture, systems engineering and marine engineering. Murray Easton, Managing Director of BAE Systems Submarines, told us that designers and engineers are required in a range of specific areas such as computer-aided design, electrical and mechanical systems, systems integration, structural hydrodynamics, noise and vibration, including acoustics, life support and safety, both of the hull and of the nuclear propulsion system.[21]

36. The construction process also required skilled and experienced planners, project managers, draughtsmen, safety technicians, quality control experts and test and commissioning personnel. According to Mr Easton, these were "very specialist skills" which were employed to design and construct "an exceptionally complex product".[22]

37. Peter Whitehouse, Corporate Development Director at Devonport Management Limited, which conducts deep maintenance and refuelling of the UK's current fleet of nuclear-powered submarines, including the Vanguard-class, told us that the skills required in the maintenance and refit process were broadly similar to those in the construction process. However, there was less of a demand for design engineers and a greater requirement for personnel skilled in nuclear safety justification and environmental impact assessment.[23]

38. The skills required for the design and manufacture of the Nuclear Steam Raising Plant are equally specialised. Steve Ludlam, Managing Director of Rolls-Royce Submarines, the company which produces the nuclear propulsion system, said that the design of a Nuclear Steam Raising Plant required expertise in nuclear engineering and in safety case justification, which was "absolutely vital" to ensure safe operation of the NSRP. Construction of the NSRP, and of the Heavy Pressure Vessel (HPV) in which it was housed, required "very specialist manufacturing skills, not ones which are easily acquired or easily trained". According to Mr Ludlam, these skills were "unique to what we do here in the UK".[24]

39. Witnesses to our inquiry maintain that the UK's current manufacturing and skills base is already at the minimum level necessary to sustain a viable onshore submarine industry. Murray Easton, of BAE Systems, told us that "we are at the critical mass just now in the design, build and commissioning end of the enterprise that we actually need". In fact, there were "already some shortages" in certain skill areas. According to Mr Easton, any further depletion of the workforce at Barrow would leave the dockyard, and the UK submarine industry as a whole, "in a very perilous state".[25]

40. In evidence to us, Rolls-Royce stated that it faced a "significant skills continuity challenge over the next decade".[26] This was true not only in its workforce but throughout the supply chain. Studies it had conducted for the Ministry of Defence had revealed that the supply base for the Nuclear Steam Raising Plant was "fragile" and in some specific areas supply was either currently, or soon to become, "critical". This was a significant concern to Rolls-Royce since "sole or single source suppliers provide the majority of NSRP equipment and the supply base contains some design and manufacturing skills and capability which, in specific cases, are retained in only two or three individuals in the UK".[27]

41. Skills in the supply chain varied enormously. Weir Strachan and Henshaw, which provided weapons handling and launch systems for conventional weapons on both the existing Vanguard-class submarines and the forthcoming Astute-class boats, told us that they employed a specialist workforce with design skills in systems engineering, mechanical engineering, structural design and control systems, and manufacturing skills in specialist welding, assembly, fitting and testing.[28] Alsthom, which provided steam turbines and power plants for the Astute-class, and MacTaggart Scott, which manufactured non-hull penetrating masts, both drew on a similarly specialist skills base.[29]

42. Witnesses to our inquiry agreed that the complexity and uniqueness of a nuclear submarine, and of the environment in which it operated, called for special skills, facilities and oversight not supported by any other shipbuilding programme. BAE Systems told us that its skills base could "only be sustained by work on real submarine projects". Surface ship work could "provide some very important assistance to the effective utilisation of facilities and overall skills", but it "cannot by itself sustain those skills that are specifically needed for nuclear submarine work".[30] Mr Easton told us that "the skills themselves are very submarine-specific skills" and that "the standards that are required for the design and ultimate operation of the submarine are such that they do not exist anywhere else".[31] This point was recognised by Lord Drayson, who told us that "the type of work involved in surface ships, both from a design and manufacture point of view, is qualitatively different from the work involved in submarines".[32]

43. Mr Ludlam explained that Rolls-Royce had experienced particular difficulties in sustaining skills on other, non-nuclear, work streams. From his experience, work on heavy pressure vessels in the civil industry was not sufficient to maintain required skill levels in the nuclear sector. He stated that "if we are not using the skills in the right environment and in the right domain I think they do erode; you have got to keep practising".[33]

44. The retention of key skills and experience was a key challenge not only at the level of the Prime Contractor but throughout the supply chain. In fact, supply chain companies faced particular difficulties in retaining their specialist workforce, especially in periods of inactivity in the submarine programme.

45. One difficulty industry faced was a general shortage of sufficiently skilled graduates. Rolls-Royce highlighted the reductions in the numbers of physics and mathematics graduates as a particular concern. And it stated that there had been a "severe reduction in University first-degree courses in nuclear engineering since the 1990s".[34] Rolls-Royce was also concerned at the decline of UK nationals taking science PhDs at UK universities, since stringent nationality restrictions applied to whom the company could recruit. At Barrow, Aldermaston and elsewhere, we were told of a national shortage in experienced project managers. We also heard that there was a shortage of skilled technical staff. Mr Easton told us that the welders at Barrow were "absolutely world-class structural welders or pipe welders". It was simply not the case that "a welder is a welder".[35] The national pool of sufficiently skilled and experienced staff in these technical areas was small. We share our witnesses' concern about the shortage of science and engineering graduates, project managers and skilled and experienced technical staff, but this raises questions which go far beyond the scope of this report.

46. The UK submarine industry draws on a uniquely skilled and specialist workforce. Retaining that skills base will be essential if the UK decides it wants to continue to design, build and maintain nuclear-powered submarines. The skills base is now at a critical level. Any further erosion of the workforce may have significant implications for the future of the submarine programme. Sustaining skills in this sector is only possible with regular and continuous submarine work.

47. Even if the decision is taken not to procure a Vanguard successor, a specialist skills base will have to be retained in order to build SSNs and maintain and finally decommission the UK's existing fleet of nuclear-powered submarines. Some indication of the order of costs would be helpful in considering arguments about affordability and we ask that the MoD provide some information about this in their response to this report.

The gap between Vanguard and Astute

48. Witnesses to our inquiry warned that gaps in the submarine programme could lead to the departure of highly skilled and experienced personnel to other industries. The 11-year gap between the design of Vanguard and Astute submarines was cited by industry and trade unions as evidence of just how rapidly the skills base can erode without regular or sufficient specialist work, and of how difficult and expensive it is to reconstitute once lost.[36] Only with the assistance of the US company, Electric Boat, had the UK been able to re-establish a viable submarine construction industry after that gap. They suggested that there was a minimum frequency of production of new submarines that was essential if the UK was to retain a viable onshore submarine industry.

49. Murray Easton, of BAE Systems, told us that the Barrow shipyard had "haemorrhaged skills and experience during [the] gap" between the Vanguard and Astute programmes.[37] Likewise, in evidence to us, Rolls-Royce stated that the gap between Vanguard and Astute "led to discontinuity in production and a reduction of skills throughout the NSRP supply chain".[38] As a direct result of that gap, the number of manufacturers of Heavy Pressure Vessels in the UK declined from five to two, and at present only one, owned by Rolls-Royce, remains.[39]

50. According to Rolls-Royce, the precise impact of a future gap in production was difficult to predict. It would be "dependent on the timing and length of any gap". Even during the Astute-class programme, uncertainty over future orders meant that the company's HPV facility was "threatened with closure". Another gap could have serious consequences. It would "signal that the principles of openness and partnering championed by the DIS are difficult to achieve".[40]

51. In evidence to us, BAE Systems stated that "if [such a gap] happens again…the loss of capability and expertise is likely to be irreversible".[41] Mr Easton suggested that any kind of delay in the submarine programme would have a "catastrophic impact" on the capability of Barrow and, therefore, of the UK as a whole, to manufacture nuclear submarines.[42] Even now, that capability was "very fragile".[43]

52. Ron Grant, Managing Director of MacTaggart Scott, whose business was 95% defence-related, told us that the gap between Vanguard and Astute "very nearly put us out of business". He maintained that the company had faced a particular "difficulty in actually keeping a design team together, focused". He stated that:

we went through a three-year period of actually declaring a loss by in effect having the design team treading water involved with the research and development which was, to our small company, at a very high level and not affordable.[44]

53. For other, larger, supply chain companies the difficulties were unlikely to be so profound. Alsthom, for example, whose naval business currently accounted for 3% of its sales, told us that a gap in the submarine programme "would not have a dramatic impact" on skill retention.[45] Although Jim Morrison, Unit Managing Director at Alsthom, told us "we are doing everything we can…to sustain that skill base", he conceded that his company had "tried to lessen the impact of our reliance on naval orders" and that its "future clearly lies in the [civilian] power business".[46] If Alsthom were to leave the submarine business, the MoD would have to find a suitable alternative supplier of advanced steam turbines and power generators. If no alternative could be found, this could have a profound impact on the entire submarine programme.

54. The submarine construction supply chain is fragile and is particularly susceptible to gaps in the programme. Extended gaps are likely to result in an erosion of the UK's submarine manufacturing and skills base. There is also a risk that single source suppliers will abandon the supply chain in pursuit of more regular and assured work. If the UK intends to build a successor to the Vanguard-class, or maintain an SSN capability beyond the current Astute order book, the supply chain will have to be sustained. To achieve this, the MoD must give clear direction and certainty about the future submarine programme in order to encourage industry to invest. We call upon the MoD to provide, in its response to this report, an assessment of whether, how and at what cost the submarine supply chain could be maintained for the construction of future SSNs in the absence of a positive decision on a Vanguard successor.

55. For industry, the lesson to be drawn from the gap between Vanguard and Astute was that there needed to be continuity of work in submarine design and construction. The Royal Academy of Engineering told us in evidence that "the important lesson is that continuity of both design teams and construction activity is vital if major cost and time overruns are to be avoided".[47]

56. The risks of a gap in the submarine programme, and the lessons to be drawn from the gap that occurred between Vanguard and Astute, were highlighted in the Defence Industrial Strategy:

Submarine design capability is at risk if long gaps emerge between first-of-class design efforts. The eleven year break between the design of Vanguard and Astute undoubtedly led to a loss of capability and impacted on the Astute programme. We now aspire to an eight year drumbeat to sustain the design capability through incremental improvements, both to drive down build costs and reduce subsequent support costs.[48]

57. In evidence to us, Lord Drayson said:

The central lesson we have learned [from the gap between Vanguard and Astute] is that if we are to maintain the level of skills that we need within an industry… we need to provide sufficient work to do so".[49]

The UK's submarine industry was now at a "minimum critical mass" and the Ministry of Defence had "to make sure it does not get any smaller and we do not lose any of those skills". It was simply "not realistic", Lord Drayson argued, "to have a pause [in the submarine programme] and then look at regenerating the capability".[50] According to Lord Drayson:

We could not have the option of stopping building submarines and expecting there to be a submarine building industry ten years down the track…we cannot expect, and it is not realistic to expect, that that submarine industry could be re-built again.[51]

As a result, he stated that:

We need to have a very clear understanding of the frequency of orders and therefore the frequency of build of submarines that is required as a minimum to maintain those skills, to make sure that we have that capability.[52]

58. Industry witnesses told us that the ideal frequency of build of new submarines—the "drumbeat" as they call it—is a boat every 22 months. BAE Systems argued that:

Sustaining the required capability and skills is critically dependent on establishing and maintaining a regular drumbeat of nuclear powered submarine production work—a boat every 22 months is considered the minimum necessary drumbeat.[53]

59. This view was supported by Lord Drayson, who told us that:

Within the Ministry of Defence we absolutely do accept what industry is saying, that maintaining that critical mass of skills does boil down to maintaining the frequency of build at approximately this two-year cycle.[54]

David Gould, Deputy Chief Executive of the Defence Procurement Agency (DPA), added that:

What the industry tells us and what we actually agree with from our own analysis is that 22 months, or around that figure, is what we can economically and sensibly do with the size of workforce and the skill base that we now have put in place.[55]

60. These orders need not necessarily be for nuclear-armed Trident submarines. Lord Drayson told us that:

Whether or not these are submarines which will be used for the nuclear deterrent—they could be entirely attack submarines, not bomber submarines—we would still need to be maintaining a build of submarines at that frequency to maintain those skills.[56]

61. The skills base in submarine hull manufacture could be sustained through orders for nuclear-powered but conventionally-armed boats. The UK could order additional SSNs to fill the gap in orders created by not building new SSBNs, but it would be wrong to build additional SSNs, to sustain the skills base, without a clear military requirement for additional attack submarines. Without a new SSBN it is possible that there would be insufficient demand for nuclear submarines to sustain the industry. It is important to recognise that there is an interrelationship between SSN and SSBN construction.

62. According to David Gould, what was even more important than the precise number of months between the completion of each new boat was the need for some certainty in the future submarine programme. He stated that with a clearly defined rhythm of construction, industry could plan and size their workforce accordingly. The 22-month rhythm of construction was "a good figure", according to Mr Gould, but it was not absolute. In fact, "individual submarines might actually vary a small amount without destroying or undermining that confidence".[57]

63. The White Paper acknowledges the risks that:

In the event of a significant gap between the end of design work on the Astute-class conventional role nuclear submarines and the start of detailed design work on new SSBNs, some of the difficulties experienced on the Astute programme would be repeated because of the loss of key design skills.[58]

64. It is clear that the gap between the Vanguard and Astute submarine programmes had a serious and debilitating impact on the UK's submarine industry and put at risk the future of the UK's submarine fleet. If the Government wants the UK to continue to design and build nuclear-powered submarines, it will be essential to maintain a regular rhythm of submarine construction. Reducing the frequency of construction below 22 months would be risky. Without a regular build "drumbeat", the UK skills base will erode and it may prove impossible or prohibitively expensive to recreate.

65. In our recent report, Defence Procurement 2006, we drew attention to the fact that the MoD and BAE Systems had still not agreed a price for Astute boats 2 and 3. We said that letting contracts without pinning down contracts, and negotiating prices when manufacture was at such an advance stage, could not be considered "Smart Acquisition". And we pointed out that the price negotiations on boats 2 and 3 were delaying the placing of a contract for Astute boat 4, with consequent uncertainty for the submarine industry and risks for the skills base.[59] It is important that the MoD and industry agree promptly on a price for future Astute-class orders. Clarity and certainty about the future submarine programme is necessary if industry is to continue to invest in the manufacturing skills base. The MoD must also demonstrate that it has learned the lessons from the Astute programme, and implemented a much tighter contractual relationship with BAE Systems, before it commits expenditure to a new SSBN build programme.

66. The White Paper states that the Government "envisages that the design of the next SSBNs will maximise the degree of commonality with other in-service submarines where it can be done in a cost effective manner" though it acknowledges that:

Some changes to the design of the Vanguard-class will be required to take account of equipment obsolescence, the need to continue to meet modern safety standards and to maximise the scope to make the new SSBNs capable of adapting to any changes in our requirements and to any new technological developments.[60]

This suggests only a modest change in submarine design, but elsewhere the White Paper speaks of more radical redesign:

We will investigate fully whether there is scope to make sufficiently radical changes to the design of the new SSBNs and their operating, manning, training and support arrangements, to enable us to maintain continuous deterrent patrols with a fleet of only three submarines.[61]

67. The Government will need to consider carefully whether the potential long-term benefits of designing a completely new submarine, in which through-life affordability is built in from the start, could outweigh the cost-benefits of maximising commonality of design with existing submarines. And it will need to judge whether efforts to maximise commonality with existing submarines would be enough to sustain the specialist submarine design base in the UK.

68. The same arguments apply to the Nuclear Steam Raising Plant. Rolls-Royce told us, during our visit to Raynesway, that a new generation nuclear propulsion plant would improve safety and availability, and reduce the whole life costs of the submarine. Using a well-tried reactor in the new submarines would minimise design-related risk, but in the longer term there might be benefit in both safety and design costs in investing in a new generation of reactor technology.

69. We recommend that the MoD make clear in its response to this report the timetable for the procurement of the new submarines it proposes. This should indicate by when it will need to decide whether to opt for radical redesign or commonality of design for the submarine platform and for the nuclear reactor, and when it will need to decide between a three- or four-boat package.

Consequences of no Vanguard successor

70. We asked industry what the consequences would be if the decision were taken not to renew the submarine-based deterrent. We were told that a decision against procuring a Vanguard successor would have a devastating impact on the UK's onshore submarine industry. This would have serious consequences for the UK's ability to design and manufacture not only future nuclear-armed submarines but also nuclear-powered conventionally armed boats.

71. Murray Easton stated that:

If there is a further delay, or any delay, in the submarine ordering programme it will have a significant and, I think, catastrophic impact on our ability to design and build and, therefore, for this country to have its own nuclear submarine design and construction…If the successor programme does not go ahead then, obviously, depending on how many Astute submarines there are, our production facility at Barrow will grind to a halt.[62]

72. Joe Oatley, of Weir Strachan and Henshaw, told us that, in the absence of a Vanguard successor, "if there were to be a long period before there was an Astute replacement…it would have a catastrophic effect on our ability to design a new system". Although Weir Strachan and Henshaw had been able to sustain key skills during the gap between Vanguard and Astute by work in the export market on non-nuclear submarines, it had only been able to win that new business because of the prestige that came from supplying the UK's submarine fleet. Without this work, the company would find it hard to attract new business and, therefore, to retain its specialist workforce.[63]

73. Terry Waiting, Chairman of the Barrow-based Keep Our Future Afloat Campaign, argued that "if we do not have this nuclear deterrent based on a submarine platform…the future for Barrow-in-Furness is…bleak".[64] He agreed with Murray Easton that even a delay could have debilitating consequences for the viability of the UK's submarine industry. Mr Waiting told us that a delay in the deterrent decision "would be the end for Barrow in shipbuilding" and "would have a tremendous impact on Barrow-in-Furness…it could be the death knell for the whole town".[65]

74. In evidence to our inquiry, the Campaign for Nuclear Disarmament (CND) states that it takes the issue of jobs and skills "very seriously" and that "the preservation and expansion of skilled jobs, such as those found within this sector, is an issue which carries considerable weight within some local communities and work forces".[66] Dr Kate Hudson, Chair of CND, told us that "a decision to replace Trident should not and indeed need not have a detrimental impact on those workforces". Dr Hudson argued that the UK should adopt an "arms conversion project" and told us that CND was currently working with Unison to look into the possibilities of alternative employment in this sector.[67] In its memorandum to us, CND maintains that "an effective alternative employment and defence diversification strategy can meet concerns about the maintenance of jobs and skills". It states that:

Redirection of investment and subsidies into non-nuclear production and facilities can more than compensate for jobs currently located in the nuclear sector, and the same applies to potential future jobs related to any proposed new nuclear weapons system".[68]

Alternative employment, Dr Hudson argues, did not mean lesser quality, or less fulfilling employment. Jobs in the nuclear sector, she maintains, "are very good jobs with very good conditions" and "those people do not want to go and work in a supermarket". Dr Hudson told us that "CND is absolutely opposed…to anything which would suggest that, but we do not think that that is necessary" since fulfilling employment could be found elsewhere.[69]

75. A decision to abandon the construction of nuclear submarines would have a profound impact upon local communities, particularly at Barrow. Nevertheless, we believe that employment factors should not be decisive in the debate on the future of the deterrent.

Decommissioning

76. If there were no successor to the Vanguard-class submarine, there would be an ongoing need to retain onshore a capability to support and, ultimately, to decommission the current SSBN and SSN fleet. We call upon the MoD to state in its response to this report how much it would cost to sustain that capability.

77. Peter Whitehouse, of Devonport Management Limited, stated that if the existing fleet continued to operate, there would be an ongoing need for in-service support and maintenance. In these circumstances, Mr Whitehouse argued that "the profile of our workforce and the infrastructure…would not be dissimilar from where we are today". If the Government had opted for a different delivery system for the UK's strategic nuclear deterrent, and decided to have a phased run-down of the existing Trident system, that infrastructure need would remain.[70]

78. Even if the submarine deterrent programme was stopped, Mr Whitehouse argued, the facilities at Devonport would still be needed to move the irradiated fuel out of the Nuclear Steam Raising Plant and package it ready for reprocessing at Sellafield. He stated that this would require "a markedly different workforce size and skill mix compared to where we are today". Numerically, the workforce would be much smaller. The focus would then be on de-fuelling the submarines and disposing of the hulls. But since all nuclear site licences would have to be retained throughout the decommissioning process, "a lot of the infrastructure teams would not look markedly different from where we are today".[71]

79. Mr Whitehouse told us that it was important to remember that although decommissioning "is a different type of activity, it is one that does still have very, very significant challenges in it and requires some very specialised skills".[72]

80. Steve Ludlam, of Rolls-Royce, added that any decision to abandon a future submarine programme and focus exclusively on in-service support and decommissioning would impact upon military capability by putting at risk the availability of the entire nuclear-powered submarine fleet. This was because such a decision would "freeze the level of knowledge that we have and certainly freeze the level of skill we have got" as skilled workers looked for more exciting and sustainable challenges.[73]

Affordability

81. The Defence Industrial Strategy stated that affordability would be a key factor in the decision-making process on whether to procure a successor to the Vanguard-class Trident submarine:

Cost effectiveness will be a key factor in any consideration of potential [deterrent] options, both submarine-based and non-submarine based. For submarine-based options it will be very important that MOD and industry are able to demonstrate an ability to drive down and control costs of nuclear submarine programmes. Industry will be fully engaged in ensuring that design efforts achieve the maximum impact in control of submarine build and support costs, so sustaining the potential for this significant future business and military capability.[74]

82. The MoD's memorandum to our inquiry stated that "we would expect that any commitment by the Government to a long-term submarine build programme would be matched by a commitment by industry to rationalise costs".[75]

83. The White Paper states that "more change is needed for industry to be able to deliver a new programme on time and at an acceptable cost. We believe that the imperative for change is well recognised".[76]

84. Lord Drayson told us that the MoD's concerns with achieving greater affordability and cost effectiveness had been heeded by industry. He stated that he had seen a "recognition take root in industry, particularly over the last six months, that the Ministry of Defence means it" and that there had been "measurable improvements in performance".[77]

85. David Gould told us that recent experience on the Astute programme had been encouraging. He was "optimistic" that industry and the MoD were "close to agreeing prices" on Astute boats two and three. There had been "significant overhead reductions" which had been "driven by the Barrow management to demonstrate that they can actually improve the running of the business".[78] Rolls-Royce, he stated, had developed "a much better approach…on how we are going to maintain and manage the nuclear steam raising plant throughout its life" and it was investing in people and capability and had demonstrated that it was "interested in future changes [to the NSRP] to make it easier to build and easier to maintain".[79] Mr Gould also said that "we have…some good cooperation starting" with Devonport Management Limited in examining "how we can build on what we are doing with Rolls-Royce in terms of reactor maintenance into submarine availability contracting". He concluded that, as far as affordability of the Astute programme was concerned, "we have the momentum moving in the right direction". The challenge was to keep that momentum going.[80]

86. We asked industry what exactly they were doing to drive down and control costs in the manner envisaged by the Defence Industrial Strategy. In evidence to our inquiry, BAE Systems stated that the issue of affordability "has rapidly become, and will continue to be for the foreseeable future, a dominant theme".[81] According to Mr Easton, BAE Systems was "making a very serious and significant response" to the MoD's call to drive down costs.[82] On the Astute programme, this included the implementation of new working practices and techniques, such as lean design and lean manufacture, and by applying relevant lessons from other industries. This had resulted in significant reductions in overheads and projections of further reductions in the cost base over the coming years.[83]

87. BAE Systems had also established a Key Supplier Forum of the ten main companies in the supply chain on the Astute-class programme. According to Murray Easton, the Forum had "been hugely constructive". It had achieved "exceptionally good results" and had secured further cost savings. Mr Easton told us that the Forum was "an example of the submarine industry working very well together as a team to tackle the affordability issue".[84]

88. Ron Grant, of MacTaggart Scott, told us that the Key Supplier Forum "has really got us quite excited". This was because:

For the first time…we are seeing an environment where we can actually get around the table with private contractors, have access to the Ministry…and to the Navy, and it is…starting to yield genuine benefit in both lower costs and obviously ultimately affordability.[85]

89. Joe Oatley, of Weir Strachan and Henshaw, said that "without doubt" the Key Supplier Forum was a helpful innovation.[86] He told us that his company and BAE Systems had "worked very hard" to work in "partnership" rather than a "confrontational supplier/customer sub-contract relationship". He told us "the reason we have done that is to try and generate more value for the end customer driven by essentially trying to get a more cost-effective product and it has been very successful as a result".[87]

90. However, both Mr Oatley and Mr Grant stated that, whilst there had been progress in promoting affordability in the procurement process, there was still an insufficient concentration on through-life support costs of the programme. Mr Grant told us that "there is still an obsession with acquisition costs without fully understanding the implications through life". The Key Supplier Forum was "giving us better focus and allowing us certainly to have a better design focus" and "the efficiencies that will come from that will yield lower costs and affordability". Yet, it was important to recognise that it was "a culture change which is not going to happen overnight".[88] Mr Oatley agreed and stated that "not enough attention is being paid to the cost of through-life support" and that:

Even with the good work we are doing on the Key Supplier Forum, still the main, by order of magnitude, focus of that is unit production costs rather than through-life costs…there is still not enough attention paid to the full through-life costs of the programme.[89]

91. We were told that Devonport Management Limited, which conducts deep maintenance of the UK's nuclear-powered submarines, was not a member of the Key Supplier Forum. Mr Whitehouse told us that this was because DML was not technically a supplier to the Astute programme. He also told us that "DML's input into the Astute design has been limited". However, he added that "DML has extensive knowledge of the current classes of RN submarines and their in-service support, knowledge which is relevant to the development of the Astute class support strategies".[90]

92. Rolls-Royce told us that it was:

working closely with the rest of the submarine community (MoD and industry) to demonstrate the potential to drive down cost, improve availability and to help sustain UK capabilities in this high value added, specialised area.[91]

It maintained that it already practised the partnering arrangements envisaged by the DIS and that its Vulcan Naval Reactor Test Establishment at Thurso, in Scotland, which it operated on an incentivised contract, had delivered savings to the MoD. It also told us that the forthcoming Flotilla Reactor Plant Support contract would feature a "combined Rolls-Royce/MoD team delivering reduced costs and improved plant availability based on a philosophy of shared risk and reward". It stated that it would "hope to continue working to these principles in any future submarine programmes".[92]

93. Witnesses from industry, however, maintained that the MoD had a key role to play in delivering affordability. Driving-down and controlling costs was not industry's responsibility alone. Rolls-Royce, for example, told us that the MoD "has a leading role in a solution, which involves major rationalisation of organisations, facilities, programmes and processes".[93]

94. Industry looked to the Government to provide certainty over the future of the submarine programme. With that certainty, industry could determine the optimum size of its workforce and plan for the long term, thereby helping it to control costs and delivery on affordability.[94] In evidence to our inquiry, Rolls-Royce stated that "a long-term view of the submarine programme in the UK is crucial for industry to determine how best to invest". In the absence of certainty regarding the future submarine programme, controlling costs would be "challenging". Rolls-Royce maintained that "rationalisation or greater coherence and collaboration within industry—to drive improvements and cost reductions—is harder to determine and achieve without clarity of a forward load programme".[95]

95. BAE Systems suggested that the affordability of the future programme could also be improved by the early involvement of the Ministry of Defence in the design process for any new class of submarine. According to Mr Easton, it was "imperative that we actually bring operating experience into the design in order that the design is more cost effective". He believed this would achieve cost savings not only at the procurement stage of the process but throughout the life of the platform.[96]

96. However, it was not only in the design and construction phase of the programme that industry believed the MoD could assist with the issue of affordability. Peter Whitehouse, of Devonport Management Limited, told us that 70% of the costs of the entire submarine programme were in-service through-life support costs. He argued that, with a submarine fleet of around 7 SSNs and 4 SSBNs, Devonport Royal Dockyard would see, in the future, "an enormous variability in our nuclear load: peak load to minimum load a factor of 4:1 on a three-year cycle". Mr Whitehouse told us that it was "essential that we have access to non-nuclear workload to help cope with that extreme variability in the nuclear throughput". Otherwise, he said, "the unit costs are extreme and the affordability problem becomes perhaps unmanageable".[97] It was a fact, stated Mr Whitehouse, that:

The costs of in-service support, the deep maintenance, the long overhaul periods would escalate overall across multi-year periods if we are unable to actually deploy the industrial workforce on other work streams at Devonport during the troughs in the workload.[98]

97. Mr Whitehouse told us that the Naval Base Review would have a direct impact on the affordability of the submarine programme. He maintained that the co-location of nuclear submarine maintenance and surface ship fleet support work at Devonport improved the efficiency of the SSBN refit stream. Any decision to close the Naval Base at Devonport, he argued, would result in higher costs for the submarine maintenance programme.[99] Lord Drayson told us that "the naval base review is being carried out very clearly to address what the needs are that the Royal Navy has going forward from here in terms of the maintenance of the upkeep of the fleet".[100] He maintained that "it is not about…industrial considerations". Nevertheless, he accepted that "there is an interrelationship" between the Review and the future submarine programme. Although the Review was "a separate objective" to that of the Defence Industrial Strategy" it was important to be "smart about joined-up government".[101] It is essential that the Naval Base Review take into account the implications for the future of the submarine industry.

98. Affordability must be a fundamental consideration in any new submarine programme. The Government is right to emphasise that orders for a Vanguard successor will be contingent on industry driving down and reducing costs and ensuring value for money throughout the submarine programme. Industry must deliver on this requirement.

99. We are concerned that insufficient attention has been given to the costs of through-life support. While we understand that DML is not a supplier to the Astute programme, it seems odd and regrettable that the company responsible for through-life support on the UK's nuclear-powered submarines has had so little input into the design of the class. If the affordability of the submarine programme is to improve, it is essential that through-life costs are taken into consideration at the initial design phase. Far greater emphasis must be placed on this consideration before the design of any Vanguard successor submarine begins.

Industrial collaboration

100. In its memorandum to our inquiry, the MoD stated that there was "much to be gained from cooperation and rationalisation" in the submarine programme:

Between the build entity (principally BAES at Barrow-in-Furness), the two support entities (Devonport Management Ltd and Babcock Naval Services at Faslane) and the Nuclear Steam Raising Plant (Rolls-Royce), together with the Ministry of Defence as the customer/operator.[102]

101. It also outlined what it regarded as the potential benefits of enhanced industrial collaboration:

Potential benefits from such cooperation and rationalisation include the removal of overcapacity and overlapping competencies, avoidance of duplication, application of common processes, spread of best practice, more efficient procurement, supply chain management and sharing of knowledge and information across the enterprise—all leading to behavioural change and the potential for significantly improved enterprise performance and availability. Transformed commercial arrangements are required to incentivise and deliver these benefits. Cooperation of this type is already being pursued to improve affordability and performance for in-service submarines and for the Astute programme.

102. Rear Admiral Andrew Mathews, Director General Nuclear at the MoD, told us that the future of the submarine programme was dependent on achieving close collaboration both within industry and between industry and the MoD. He stated that "we have downsized the industry, we have downsized MoD, we have a limited set of skills between us and the only way we are going to do this is by working together".[103]

103. Progress had been made with driving down and controlling costs and "we are moving ahead here with industry", argued Admiral Mathews. But he stated that the desired level of collaboration between industry and the MoD had not yet been realised: "what we have not achieved yet is joining those three [BAES, DML and Rolls-Royce] up to work collaboratively together with us and that is where we need to go next".[104]

104. The White Paper emphasises this point and states that "progress towards industrial consolidation and a sustainable industrial base will be an important ingredient" in achieving affordability.[105]

105. If the UK goes ahead with procuring a successor to the Vanguard-class submarine, it is essential that industry collaborates far more extensively than it has done to date to drive down and control costs in the manner envisaged by the Defence Industrial Strategy. Promoting greater industrial collaboration should be a key priority for the MoD. In turn, the MoD must provide industry with clarity and consistency about operational requirements and specifications. It is vital that lessons are drawn from the problems experienced with the Astute-class programme.

106. Industrial collaboration can carry risks. Lord Drayson told us that the decision of Halliburton to float KBR, which has a controlling stake in Devonport Management Limited, was a source of concern. He stated that Devonport was a "strategic asset" which was central to the UK's nuclear submarine programme. He maintained that Halliburton's decision to proceed with the flotation of KBR without giving the MoD the necessary financial assurances and financial information had "significantly undermined [the MoD's] confidence in the company". He told us that "we need to reassure ourselves that there is the capital structure to ensure that the investment is provided to maintain this very important facility in the future". He also told us that the MoD retained a "special share" in Devonport.[106] We understand that this would allow the MoD to take back control of the company and the licence if it considered the flotation to run against the UK's national security interests.

MoD preparedness

107. If, as the White Paper indicates, the Government does indeed decide to retain and renew the UK's submarine-based strategic nuclear deterrent, the procurement of a new platform—a successor to the Vanguard-class submarine—may represent the biggest MoD acquisition project and the most complex to date.

108. In previous procurement programmes, for the Polaris and Trident boats, the MoD established and maintained sizable and dedicated organisations to manage the projects. These teams no longer exist, posing questions about the capacity of the MoD to deliver a project of this scale.

109. We asked Lord Drayson how the Ministry of Defence was preparing to manage the procurement of a successor to the Vanguard submarine. He told us that he was "confident" the MoD could deliver such a project. That confidence, he told us, came from the fact that "we start from the good position that we have the infrastructure and the know-how in place for the existing system and we have the recent experience…of the Astute". It also came "from initiatives we have been putting in place within the Ministry of Defence to strengthen [its] general competence across defence procurement in terms of project management". These initiatives, Lord Drayson argued, were "as applicable to a project such as a major submarine project as they are to other [defence procurement] projects".[107]

110. Lord Drayson conceded that "what we have to do…is…recognise that we are going to need to recruit into the project team additional people with expertise". In this respect, he believed that the MoD would be competing with the civil nuclear industry in some areas. He felt that, on the whole, "we judge that it will be possible for us to do this".[108]

111. David Gould admitted that procuring a Vanguard successor would be "a massive enterprise", but he argued that the absence of dedicated project teams of the kind used for Polaris and Trident did not mean, in itself, that the MoD lacked the capacity to deliver such a programme. Instead, he told us that the Polaris and Trident teams were, in many ways:

precursors of IPTs because they were big organisations which brought all the necessary internal skills together to manage over a long period of time an extremely complex and challenging programme. That is actually what IPTs do; it is a question of scale more than anything else.[109]

112. Mr Gould told us that the MoD now did less "in house" than it used to and that it would be necessary to set up an Integrated Project Team (IPT) of the kind currently managing the future carrier programme "where we bring ourselves and people from outside industry together into a joint team to execute a programme of this size". The key factor would be to "resource it properly, not just in terms of money but in terms of the internal skill".[110]

113. We asked Mr Gould why, given the likely challenges of a Vanguard successor programme, there was not a project management team already up-and-running, in the event that the Government, as it indicated in the White Paper, decides to renew the UK's submarine-based nuclear deterrent. Mr Gould told us that setting up a project team would be easier once a decision on the future of the deterrent had been taken. But he added that, in any event, "because of what has been happening on investigating options and so forth….quite a few of the elements of that sort of team are really in existence". Nevertheless, he conceded that "clearly we will have to grow very considerably to manage a programme of that size".[111]

114. Industry appeared to share the MoD's confidence in its ability to manage a Vanguard successor programme. Mr Easton, of BAE Systems, stated that although the MoD had fewer people available to manage the programme "we co-operate very, very closely with them, and it is a very constructive dialogue with the Ministry of Defence, in terms of resources, demands and, therefore, programme timing".[112] Steve Ludlam, of Rolls-Royce, was equally optimistic about the preparedness of the MoD to manage the enterprise. He told us that there was:

a great deal of collaboration with the MoD: the joining of teams, the co-location of teams, the secondment of MoD personnel into particular jobs within our industries, all to make sure that together…we retain the skill that is necessary to take this forward.[113]

115. Developing a Vanguard successor would be a huge undertaking. It is essential the MoD has the capacity to manage such a programme effectively. Any shortfall in preparedness must be addressed as a matter of priority. The MoD's shortage of systems engineers and project managers—skills essential at the start of a programme of this kind—is a cause of serious concern. If the decision is made to renew the deterrent, it is essential the MoD commit sufficient resources to the programme from the beginning. It will be desirable to bring in skills from industry. We recommend that the MoD state, in its response to this report, how it intends to address its skills shortages.

7 Ministry of Defence, Defence Industrial Strategy, Cm 6697, December 2005, foreword Back

8 Ibid., p 70 Back

9 Ibid., p 76, para B2.63 Back

10 Ibid., p 71, para B2.26 Back

11 Q 199 Back

12 Q 199 Back

13 Q 200 Back

14 Q 199 Back

15 Q 239 Back

16 Cm 6994, para 6.3 Back

17 Ibid., para 6.5 Back

18 Cm 6697, p 71, para B2.27 Back