Select Committee on Defence Minutes of Evidence

Examination of Witnesses (Questions 40-58)



  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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