Examination of Witnesses (Questions 40-58)
MR MURRAY
EASTON, MR
STEVE LUDLAM
AND MR
PETER WHITEHOUSE
7 NOVEMBER 2006
Q40 Linda Gilroy: Would you like
to comment?
Mr Whitehouse: It is fair to say
that one of the biggest issues I have seen in 20 years there is
this tension between initial production costs, procurement costs,
and what that might mean for the in-service cost as and when we
start to carry out these major overhauls at the ten-year period.
I think it is a fact of life that there is always going to be
that tension between the two areas, but, as Murray says, there
has always been, and increasingly so, very intensive dialogue
between the two facilities, and indeed with Rolls-Royce, over
the impact of those decisions that are taken at the design and
build stage on the in-service support regime.
Q41 Chairman: We raised that with
the Chief of Defence Staff (Procurement) one month ago, so I hope
you are involving him in this issue as well.
Mr Easton: The three IPT leaders
for both new build, nuclear and submarines when in operation are
involved in dialogue with us and, I believe, co-operate.
Q42 Mr Hamilton: On something that
Murray indicated earlier on, and it is Linda's point about reducing
costs, I worked for the National Coal Board, a massive organisation,
and one way they reduced the costs was by pushing them down to
the sub-contractors by saying, "If you want to come forward
with the designs and so on", and the costs are passed on
to them rather than doing the costs themselves, and we will be
taking this up with the small companies next. What type of dialogue
do you have with the small companies and is it the case, and I
know big companies tend to do it, that they do, as a way of reducing
their costs, push it on to others to do that? Do you do that?
Mr Easton: The best example I
can give you is actually from one of the next gentlemen to give
you evidence, Joe Oatley of Strachan & Henshaw, part of the
Weir Group. We have an example there where the submarine is nothing
without a system for discharging its weapons and they provide
that and it is absolutely crucial to the design and operation
of the submarine. We started a series of lead design projects
where we were looking, quite intrusively in process analysis terms,
at what it is that we actually do to the design. That was fine
for us looking introspectively, but the second project that we
picked actually was the weapons-handling system and I am sure
he will endorse my view that we worked exceptionally closely with
them and it was not a matter of pushing the costs, but what ideas
did they have which could affect the costs. Sometimes we impose
design requirements on them that they, the manufacturer, or the
supplier in that case, do not believe are necessary and getting
into a more healthy dialogue rather than, "This is what I
want. Make it. Give it to me". It is hugely more collaborative
and co-operative now than it has been ever before, I believe.
Q43 Linda Gilroy: Again you have
all, I think, touched on the close work that you are doing with
the MoD to try and get efficiencies and drive out costs, but are
there further things which, in your view, could be done in that
respect? In particular, if I can address the question to Mr Whitehouse,
is there sufficient joined-up thinking between what we have been
discussing this morning and the Naval Base Review? I do not know
if Mr Easton wants to touch on the MoD question first.
Mr Easton: We talk about lead
design and how can we change things. Clearly we require the Ministry
of Defence's acquiescence to what changes we would make. It may
affect the specification or there may be compromises because in
some instances their specification may be considered to be out
of date or there is a different way of looking at it, so they
have to be part of that team. We need them, as indeed they do,
to very actively consider some of the smarter, brighter ideas
that come up. It is a relatively conservative business, both the
designing, building and operating of a nuclear submarine for the
best of reasons because it is so safety-critical and demands such
high performance, but that does not mean that we cannot engage
a lot of progressive thought and clearly the Ministry have to
be a part of that, but they are engaged and I believe it is—
Q44 Linda Gilroy: And you would absolutely
agree that you would want them to be?
Mr Easton: I absolutely want them
to be. It is fundamental and we cannot do it without them. If
I look to where next, how much more can we do with the Ministry
and, coincidentally, with the three companies represented in front
of you, we are in very active dialogue currently and have been
for the past three months, at actually our initiative, to see
how better we can collaborate with the customer as a team of four
to make these vessels more affordable.
Chairman: I am sure that is not entirely
coincidental.
Q45 Linda Gilroy: There may have
been some dialogue on that. Mr Ludlam?
Mr Ludlam: If I can give two other
dimensions of working with the customer, first of all, there is
the dimension of the joined-upness with the research and development,
so it might not necessarily be a bad thing, a long pipe run. As
long as it has been designed with research and development sat
behind it that justifies the life of that pipe run, it may not
necessarily be a bad thing for in-service support, so I think
joined-up with R&D, it is getting far better now between ourselves,
the MoD and the connections that are necessary to drive that forward.
The second thing, I think, is the commercial arrangements we are
now entering into with the MoD. The commercial types of contract
that we are able to take, each of us, are more innovative, they
are challenging, they are very output-driven and require a huge
amount of innovation on the part of both the MoD and on the part
of the companies to actually make the profits that the businesses
want to make, so I think that is a great thing the MoD have brought
in working with them. It really forces that innovation and, as
I said earlier, the engineers love that and that brings out some
of the best ideas.
Q46 Chairman: The Naval Base Review,
Mr Whitehouse?
Mr Whitehouse: I think the question
was whether there was sufficient joined-up thinking in that. I
think it is early days at the moment. It is a fact, I believe,
that we own the dockyard, it is integrated and co-located with
both a nuclear and a non-nuclear operational naval base and we
have, as DML, a very clear understanding, we believe, of the way
that the cost structure and the economies of scale can be affected
by decisions that are not directly associated with the dockyard
business. There is an interaction between the Naval Base, how
many ships are operated from there, how many submarines are operated
and what that does for the in-service support budget in both nuclear
and non-nuclear domains. I think in the spirit of joined-upness,
now that that picture is becoming clear, and obviously there is
an interaction with the issue that is being discussed today, the
future of the submarine programme, it is incumbent on us to actually
ensure that we communicate clearly with the MoD as to how we believe
decisions about Naval Bases could affect in-service support costs,
and we will be doing that, you can be assured of that.
Chairman: Are you content with that,
Linda?
Q47 Linda Gilroy: Yes, and, as that
develops, perhaps you can let the Committee have a note of the
scale of what is involved in that. I believe the work on that
is ongoing and I do not know whether you can do that at the moment
or whether it will be available in the foreseeable future.
Mr Whitehouse: Probably within
the next few weeks.
Linda Gilroy: Perhaps the Committee
could have a note on that then.
Chairman: If you could give us a note
on that, we would be most grateful because we will be keeping
a close eye on it.[5]
Q48 Robert Key: Earlier you told us that
the nuclear submarines operated by both the United States and
France are considerably more expensive than our British nuclear
submarines, but, Mr Easton, you said that, for understandable
and obvious reasons, we cannot export our submarines. Now, at
least two of the companies here today have extensive historic
links with the United States. Could you say if there is any realistic
prospect of greater design collaboration with the United States
on submarine design?
Mr Easton: Yes, there is. There
has been some dialogue, and it continues, between the two countries
certainly at industrial level, though I cannot speak for government
level between the two ministries of defence. I perceive there
is a lot of co-operation, but I cannot give you any specifics;
that would be for them to say. Certainly with colleagues in Electric
Boat, as a result of them supplementing some of the resource that
we required in the early stages of the Astute programme, we have
developed very good relationships with them and there is a testing
comparison often on prices and techniques between the two companies.
Is there more that could be done? There is already a very healthy
dialogue.
Q49 Robert Key: Is there anything
anyone would like to add to that?
Mr Ludlam: I could add by talking
about the Defence Industrial Strategy which declares the need
for a sovereign capability, so whilst collaboration could occur,
I think we would here in the UK need to maintain a level of skill,
a level of knowledge, to be able to stand alone in order to through-life-support
a nuclear submarine.
Q50 Robert Key: Lord Drayson indicated
to the All-Party Shipbuilding Group quite recently that there
might be export possibilities for our aircraft carrier, the new
aircraft carrier. If you can do it with aircraft carriers, why
can you not do it with submarines?
Mr Easton: You can do it with
submarines, you just cannot do it with nuclear submarines.
Q51 Robert Key: Because of the nuclear
technology question?
Mr Easton: Yes.
Q52 Robert Key: So has there been
any discussion with France, moving on to France because you mentioned
the United States and you said yes, they have at an industrial
level, so has there been any industrial-level contact or discussion
between BAE, Rolls-Royce or DML and France?
Mr Easton: We have, over the past
six months, had direct links with DCN, the state-owned sector
in France, and that is particularly in relation to the supply
chain within the bounds of security and classification in dialogue
with the French because there is some restriction on us in that
respect when we are talking about nuclear technology. However,
with much of the supply chain where it is not nuclear, and where
we certainly have the difficulties with a very fragile supply
base in this country, we should see whether or not we can make
it slightly more secure and affordable, the submarine, by identifying
with the French whether there is any common equipment, whether
they make the same components that we do and, if so, what their
costs are. That dialogue is under way.
Q53 Robert Key: How about Rolls-Royce?
Mr Ludlam: For Rolls-Royce, specifically
on the nuclear side we are subject to the 1958 Agreement and the
1958 Agreement process requires companies like Rolls-Royce to
seek government permission if we want to talk to a nation other
than the UK about nuclear matters. Therefore, on the nuclear side
we have not sought that permission, so there have been no specific
discussions on the nuclear side with the French.
Q54 Robert Key: DML?
Mr Whitehouse: I think exactly
the same constraints apply to us. We have had discussions with
the French over both the approach that they are taking to the
procurement of their new class of SSN and the sorts of commercial
models and related matters that they are developing to try and
actually produce better affordability, but it has really been
in that sort of domain that we have been talking to them.
Q55 Robert Key: You mentioned a little
earlier the understanding, the informal arrangements between your
three companies over design and that you work pretty closely together
and were comfortable working together. Is there any way that you
could make that more formal in terms of pooling design resources?
Mr Easton: I mentioned that we
have an initiative which has been running for some months now
in terms of identifying the principles of collaboration between
the three companies in order, frankly, that we can pool resources
and that we can optimise, for the purposes of affordability for
the submarine enterprise, the skills and capabilities in all of
the three yards and, yes, that is the purpose of the dialogue,
so that is what we are pursuing now.
Q56 Robert Key: Is the Ministry of
Defence doing enough to assist you in that?
Mr Easton: They are a participant.
They are the other part or corner of the square, the three of
us and the Ministry. It is a team of four.
Q57 Robert Key: Is there any evidence
of partnering arrangements, which the Ministry of Defence are
very keen on, in this area?
Mr Easton: At this point in time,
I think it would be premature to say what form the collaboration
will take, except that it is highly co-operative just now and
we are focused on concluding agreed principles of collaboration.
Obviously all three companies here are very enthusiastic at the
prospect of working very closely together. We perceive a shrinking
market, we want it to be sustained, and, at our initiative, we
are doing as much as we can to secure that.
Q58 Robert Key: Anything to add?
Mr Ludlam: Certainly. I think
the affordability challenge that we face and the availability
challenge that we face is the very driving force to give that
innovation that is necessary and it makes the whole collaborative
venture much more interesting to take forward.
Chairman: That is the end of the questions
we will be asking you, but could I finish your bit of it by saying
to all three of you, thank you for your hospitality in hosting
the Committee and showing us what you do, BAE and DML in the past
and Rolls-Royce, I think, perhaps in the next fortnight or so.
We are extremely grateful to you and it has been extremely helpful
for this inquiry as for others, so thank you very much indeed.
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