Select Committee on Defence Written Evidence

Memorandum from Rolls-Royce

  1.  Rolls-Royce is the UK's only naval nuclear propulsion supplier and has been so since the introduction of nuclear powered submarines to the Royal Navy. For nearly 50 years, Rolls-Royce has developed, designed, supplied and supported the nuclear steam raising plant (NSRP) powering the submarine propulsion system.

  2.  Supply of the NSRP is a highly specialised sector of the UK submarine industrial base. The 1958 Mutual Defence Agreement, between UK and USA, constrains non-UK provision of components and therefore the NSRP industrial base is predominantly within the UK. Rolls-Royce subcontract spend on the NSRP (flotilla and new build) is circa £100 million per annum, 95% of which is in the UK.

  3.  Historically the demand profile of the UK submarine programme, and therefore the NSRP demand profile, was relatively stable until the eleven-year gap between the last Vanguard class and the first Astute class. Delays in order placement led to discontinuity in production and a reduction of skills throughout the NSRP supply chain. In parallel, the civil nuclear programme has declined in the UK and the supply base has drastically reduced. Limited recruitment and investment has led to an ageing, reducing infrastructure and workforce across the UK supply chain.

  4.  The absence of any major NSRP development programme since the late 1980s has put pressure on sustaining capability to develop and design new reactor plant for the UK submarine programme. This has in turn impeded capability and opportunity to reduce cost and improve availability.


  5.  RR and other defence companies rely heavily on recruiting and training graduates and in 2005 we recruited a total of 185. In the region of 60-70% of our graduate intake each year are engineers and scientists and our target for 2006 is 20% up on 2005 levels.

  6.  Problems with the teaching of maths and physics are well documented. A Royal Society Study comparing 1991 with 2004 showed a 34% decrease in students taking A-level physics and a 22% decrease in students taking A-level mathematics.

  7.  The decline of UK nationals among the PhD students and researchers in UK universities is also a problem for a high R&D intensive company like Rolls-Royce. This population is a key source of people who will develop into the deep technical specialists needed by the Company. At present, around 50% of the researchers in our University Technology Centres (the focus for our collaboration with the science base) are people born and educated outside the UK. Many of these overseas research students make a major contribution to our activity while they are in the UK but retention of this skill as a result of mobility is more difficult. In addition, they are also precluded from undertaking work on major defence projects.

These Difficulties are Exacerbated in the Nuclear Sector

  8.  The severe cuts in naval nuclear R&T programmes in the 1990's, combined with the steady reduction of manpower and research laboratory closures in the civil nuclear sector, have affected the long term skills base in the UK: nuclear chemistry is one of the areas that has run down over the past 20 years. Public research in nuclear fission has dropped by 95% (DTI spend in 1990 was c £164 million compared with £17 million in 2001) and the civil industrial R&D skills base has fragmented and decreased from manpower of 8,500 in 1980 to 1,000 in 2004 (ie a 90% reduction).

  9.  The Government recognised this dilemma in its Report of the Nuclear Skills Group (December 2002), which concluded that the state of nuclear skills in the UK is extremely fragile due to public under-investment and exacerbated by the successive privatisations and reorganisations undergone by the sector.

  10.  There has also been a severe reduction in University first-degree courses in Nuclear Engineering since the 1990s and currently other more general engineering courses offer a very low nuclear content.


  11.  The decline of general investment in naval nuclear technology, in the 1990's, occurred at the same time as significant NSRP issues affected submarine availability. This put pressure upon the limited flotilla R&T funding allocated to the NSRP.

  12.  This continued until, in 2003, the MoD Chief Scientific Advisor asked Professor Burdekin to investigate the effect of these low levels of investment. He concluded that effective management of these age related problems was required and recommended that £25 million per annum was necessary to establish and implement a sound proactive position against future ageing plant issues.

  13.  It was also recognised that continuous workflow was essential to the retention of the skills base. At the time, immediate skills continuity gaps were identified in core design and physics; and further medium-term skills gaps anticipated in the area of safety. The MoD through the Nuclear Propulsion Capability Study has injected more than £10 million per annum into R&T to address immediate concerns over skills shortages. Without this funding, it is Rolls-Royce's view that the design and manufacturing base in the UK would rapidly decay and may impact on the UK's ability to meet successor timescales.

  14.  Of Rolls-Royce's current c 930 submarines' engineering population, around 270 are in the over 50 age group with a further 290 in the 40-50 age group, indicating a significant skills continuity challenge over the next decade.

  15.  To meet current and future workloads, and in recognition of the demographic issues noted above, Rolls-Royce submarine business recently conducted a recruitment campaign. Whilst generally successful in the short term, difficulties arose in the areas of nuclear safety/reliability and in materials stress analysis. As predicted, individuals with good domain knowledge are few and far between.

  16.  RR also supplements its workforce with qualified subcontractors from the civil nuclear field: via managed service agreements (with eg Serco, AMEC NNC and Atkins). The depletion of civil nuclear skills has not only reduced the support network available to the military programmes but should there be a future civil nuclear generation programme, there would also be considerable pressure on the UK's remaining skills capacity.


  17.  There are substantial barriers to entry into the market for manufacture of NSRP components and systems. These barriers include large capital investment, specialised facilities, uncertainty of future orders, low production rates, high standards of production and quality assurance and, finally a highly qualified and skilled workforce.

  18.  Rolls-Royce, on behalf of MoD, has recently conducted studies to assess the status of the NSRP supply base. These studies found the supply base to be fragile and 12 components were identified as "supply critical" now or likely to become so before 2008. Rolls-Royce is working with MoD to mitigate supply chain threats to current class submarines at sea (obsolescence, spares etc), to the Astute class in build and any future classes of submarine. The cost of securing the supply base for these 12 components is estimated at over £50 million. A typical example is the consolidation of the manufacturing facilities for components such as vessels, steam generators and primary circuit valves in order to maintain an economic workload.

  19.  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.


  20.  The affordability, availability and the sustainability of a sovereign capability relating to submarines all feature in the DIS and MoD has recognised that it has a leading role in a solution, which involves major rationalisation of organisations, facilities, programmes and processes.

  21.  Rolls-Royce's core competence is based on design, supply and support of nuclear steam raising plant (NSRP), providing a "total care" capability for submarine propulsion. We are 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.

  22.  Rolls-Royce practises the partnership principles set out in the DIS, at the Vulcan Naval Reactor Test Establishment in Scotland where we operate and maintain the establishment as part of a thirteen year, incentivised contract, delivering savings to MoD. Additionally, the forthcoming Flotilla Reactor Plant Support contract will feature a combined Rolls-Royce/MoD team delivering reduced costs and improved plant availability based on a philosophy of shared risk and reward. We would hope to continue working to these principles in any future programmes.


  23.  A long-term view of the submarine programme in the UK is crucial for industry to determine when and how to invest.

  24.  Rolls-Royce believes that cost control within the submarine programme is challenging and MoD recognise this position. The challenge arises partly because there is no planned sustainment of the programme into the future and costs of much of the new build supply base are being borne by the Astute programme.

  25.  Timescales for design and development of improved NSRP plant and systems to meet increased availability and safety targets are long (over 10 years) and require experienced engineers and management.

  26.  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; and improvements in manufacturing processes and facilities require to be planned into any build programme to maximise the benefits whilst not delaying the programme.

  27.  Any industrial rationalisation within the UK shipbuilding industry would need to ensure maintenance of the nuclear skills (associated with the build, refit and disposal of submarines) in the appropriate geographic location for those activities.

The Consequence of a Gap in the Build Programme

  28.  During the 11 year gap between build of Vanguard class and Astute class the number of manufacturers of heavy pressure vessels in the UK declined from five to two, and subsequently only one remains: Heavy Pressure Vessels (Rolls-Royce owned).

  29.  Due to market changes in the Oil and Gas market, the workforce at Heavy Pressure Vessels has reduced from 650 in 1995 to approx 100 currently and is solely dependent on MoD NSRP work. When an order gap occurred following Astute 1-3, the facility was downsized and threatened with closure. Rolls-Royce has enabled the facility to survive but cannot guarantee continued operation without a committed drumbeat of work.

The Impact of Another Gap in the Build Programme

  30.  The impact of another gap in the submarine building programme on the supply base is dependent on the timing and length of any gap.

  31.  The Submarine community and areas of the supply base might interpret a further gap as a signal that the principles of openness and partnering championed by the DIS are difficult to achieve. A commitment to a longer term, funded programme would avoid this problem.

NSRP Supply Chain and Capability

  32.  Rolls-Royce has two main manufacturing facilities which are totally dedicated to supplying NSRP components.

  33.  Rolls-Royce estimate that a short gap (maximum one year) in the current build programme for Astute 4 would require approx £10 million investment to ensure sustainability of the Rolls-Royce based design and manufacturing skills and capabilities. This does not include any costs due to the fragility of the wider supply chain or any restart costs. A longer gap would require progressively greater levels of investment.

  34.  A gap at the end of the Astute build programme (which remains undefined) is likely to have increasing impacts on Rolls-Royce capabilities and dedicated manufacturing facilities. Our facility which manufactures components such as heavy pressure vessels, control rod drive mechanisms and primary circuit valves would be forced to operate below minimum economic throughput with many inefficiencies which would inevitably drive up costs.

  35.  Progressively, investment would be required to retain skills but facility closure would occur if sufficient investment was not forthcoming. Again restart costs would also be incurred.

  36.  The wider supply chain would also be significantly impacted and it is not unlikely that other elements of the supply chain would exit the market or face closure.

Reactor Core Factory

  37.  A gap at the end of the Astute build programme would also require a substantial change in the programme for the facility which manufactures reactor cores, including the proposed site regeneration programme. A complete revisit of this programme and the introduction of further skill retention initiatives would be required.

  38.  In 2004, a Rolls-Royce study indicated a one year gap in production of cores, after completion of the current programme in 2011, would cost approx £45 million, rising to £180 million for a five year gap. These figures are estimates and dependent upon timing.


  39.  Rolls-Royce aspires to provide a Next Generation Nuclear Propulsion Plant for the successor to the Vanguard class submarine and low level concept work is being undertaken with support from MoD which will help sustain a level of skill. This will be a long term programme (15 years+) to provide the Royal Navy with a propulsion plant fit for the 21st century. Removing uncertainties would contribute to the successful implementation of this long-term programme.

9 October 2006

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